Hi, everyone, and welcome to this third quarter presentation of Gjensidige. My name is Mitra Negård, and I'm Head of Investor Relations. As always, we will start with our CEO, Geir Holmgren, who will give you the highlights of the quarter, followed by our CFO, Jostein Amdahl, who will run through the numbers in further detail. And we have plenty of time for a Q&A afterwards. Geir, please.
Thank you, Mitra, and good morning, everyone. Let us turn over to page two for comments on our third quarter results. The profit before tax was NOK 2.25 billion. General Insurance service result was NOK 1.59 billion. Sorry. The General Insurance service result was NOK 1.59 billion, up year- on- year, also when adjusting for the one-off expenses recognized in the third quarter last year. The strong growth momentum continued this quarter, with insurance revenue for the group increasing by almost 12%. Underlying profitability came in lower, negatively impacted by higher claims costs in Norway.
We are not satisfied with the underlying profitability, but I'm very pleased to see that due to the effective pricing measures, the insurance service result is increasing. Our investments generate a return of NOK 1.307 billion, which, together with good results from our pension business, contributed to delivering an annualized return on equity of 23.5%. Jostein will revert with more detailed comments on the results for the quarter. So a few words about property insurance on page three. As we have mentioned earlier, claims frequency for property insurance is volatile, being more exposed to weather and stochastic factors, such as fires. Both private and commercial property claims increased this quarter when adjusting for the severe weather claims in the third quarter last year. Fires were the main drivers behind the increase in our private portfolio this quarter.
Commercial property is highly prone to quarterly volatility. Claims inflation has been stable for some time and developed as expected. We assume the gradual decline in wage increases will bring down claims inflation. Therefore, our updated estimate for claims inflation for the next twelve to eighteen months has come down to 4%-6% from our previous projection of 5%-7%. We monitor the situation closely and are prepared for changes, especially from currency movements and energy prices. Staying ahead of the claims curve is our number one priority. We continue to increase prices to reflect the long-term impact of more frequent weather incidents. Our implemented measures so far this year will raise average prices by more than 10% by the end of 2024. Measures have been stepped up further, with more than 60% price increase going forward.
So over to page four, and a few words on motor insurance in Norway. We saw higher claims costs compared with the third quarter last year, reflecting a continued increase in claims frequency, higher repair costs, and a shift in the claims mix towards more expensive losses. Although we do not rule out quarterly volatility, we expect claim frequency to remain at this level going forward. Repair costs have developed as expected, and we assume the increase to remain at 4%-7% over the next 12 to 18 months. The claims mix varies depending on weather, driving behavior, and the mix of type of cars in our portfolio. Motor is a core product, and we have a strong focus on ensuring that our prices correctly reflect relevant long-term trends.
As you can see on this slide, we have continued to push through significant price increases in this quarter, raising average premiums by almost 13% during the last 12 months. We will increase prices further, currently with an average rate of 17.5%. By the end, though, this year, we expect the average premium to have increased by more than 40%. I'm very encouraged to see that we are able to put through these significant and necessary price increases, and that these measures are gradually improving profitability. Moving on to page five. Private continued to generate strong revenue growth this quarter, driven by both Norway and Denmark. It is very encouraging to see the continued high retention in Norway despite the significant price increases. The good growth momentum in private Denmark continued in the third quarter, driven by organic growth and contribution from PenSam.
Earned line profitability for private was lower than the same quarter last year, and we will continue to meet this with targeted pricing measures. Growth in our commercial portfolios in Norway and Denmark was strong this quarter, too. Customer retention in Norway remains at a very high level. Retention in Denmark was slightly down compared to the second quarter. Earned line profitability for the commercial segment was lower than the same quarter last year, driven by Norway. Although more prone to quarterly volatility in claims, you see the need to continue raising prices also for this portfolio.
The Danish commercial portfolio showed a higher profitability. Our Swedish operations are progressing well, with good revenue growth in both segments. Earned line profitability improved compared with the same quarter last year. We have a strong focus on improving risk selection and implementing pricing and cost efficiency measures.
Over to page six. We continue follow up on our strong sustainability ambitions. We have a number of innovative initiatives, as you can see on this slide. The initiatives will create a great customer value and reduce claims cost over time. With this, we are taking important steps towards delivering on our ambitious targets to contribute to a safer society, sustainable claims handling, and responsible investments. So with that, I will leave the word to Jostein to present the third quarter results in more detail.
Thank you, Geir, and good morning, everybody. I will start on page eight. As Geir mentioned, we delivered a profit before tax of NOK 2.215 billion in the third quarter. This is significantly higher than the same quarter last year, driven by the insurance service result, the result from our pension business, and the financial result from our investments. The insurance service result in the third quarter last year included one-off expenses of NOK 409 million, but even adjusted for this, the result increased this year, driven by continued strong revenue growth, partly offset by higher claims, primarily in Norway. We are monitoring the development in claims closely, and we will swiftly adjust and implement higher prices where it is necessary.
Although the underlying frequency loss rate for the group was higher compared to the same quarter last year, I find it encouraging that the deterioration is lower than the previous quarter, as our implemented measures are starting to earn its way into the profit and loss account. The development in other items reflects the write-down of goodwill related to the agreement on the sale of operations in the Baltics, as announced in late July. We have also generated a higher result for our mobility services, while higher interest expenses on subordinated loans and increased amortization of intangible assets impacted the results negatively. As announced earlier, the results for our Baltic operations are presented in one line from this quarter.
As you can see on this slide, profit from discontinued operations amounted to NOK 32 million for the quarter, with the improvement driven by an increase in net finance income and insurance service result. We are waiting for regulatory approvals of the sale and expect to close the transaction at the latest by the beginning of 2026. Turning over to page nine. The strong growth continued in the third quarter, with insurance revenues for the group increasing by 10.6% in local currency. Growth in private was driven by both Norway and Denmark. The increase in Norway reflects price increases in all main product lines, and especially for motor. The market share remained broadly stable. The strong revenue growth continued in Denmark, 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 11.7%. 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 some volume growth. Growth in Denmark was driven by price increases for all main products and higher volume for some products. Sønderjysk Forsikring contributed with 2.6 percentage points to the growth. Premium accruals in the quarter also contributed to the increase. 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 5.8%. Insurance revenue for private motor insurance decreased during the quarter due to lower volumes.... Turning over to page 10.
The group's loss ratio increased by 1.3 percentage points this quarter, reflecting a higher underlying frequency loss ratio in private and commercial. Large losses, including weather-related losses, were lower, whereas the discounting effect and risk adjustment contributed negatively. We are confident that the ongoing pricing measures will improve profitability over time. However, bear in mind that the implemented pricing measures take time to get fully reflected in the accounts, and that quarterly volatility in claims frequency and severity will impact the result also in the future. Let's turn to page 11. We have a dedicated focus on operational efficiency, and I'm very pleased that we have managed to bring our cost ratio further down to a very competitive level at 11.8% this quarter. Bear in mind the one-offs in the third quarter last year.
But even adjusted for this, we managed to bring down the ratio by 20 basis points. The cost ratio in private improved due to cost recognized in the third quarter of 2023, following renewal of a distribution agreement in Denmark. Efficiency measures in Norway and growth in insurance revenue also contributed to the improved cost ratio. Commercial cost ratio was slightly higher, both in Norway and Denmark, and the improvement in Sweden reflects the higher insurance revenue. Over to slide 12 for comments on the pension operations. Our pre-tax profit, adjusted for the change in the contractual service margin, was NOK 182 million . The insurance result was down when adjusting for positive effects from model changes and a write-down on the core IT system last year.
The decline was driven by an increase in the number of settled claims for child pension insurance and the accounting rules of recognizes losses on onerous contracts immediately, whereas profitable contracts are recognized through the CSM over time. Net finance improved, mainly driven by lower interest rates in the quarter. Results for our unit-linked business improved, with higher administration and management fees, due to the growth in the number of occupational pension members and assets under management. Assets under management rose to NOK 84 billion from NOK 79 billion in the second quarter, due to both good investment return and portfolio growth. Moving on to the investment portfolio on page 13. Our investment portfolio generated positive returns for all asset classes, except private equity, which showed flat returns in the quarter.
The match portfolio, net of unwinding and the impact of changes in financial assumptions, returned seventy basis points, mainly reflecting lower credit spreads and the fact that the investments did not fully match the accounting-based technical provisions. The free portfolio returned two point one percentage points this quarter, reflecting positive returns from high running yields, falling interest rates, and positive equity markets. The risk in our portfolio was brought somewhat down from the second 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 fourteen. 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 our markets.
Our retention in Norway remained high and stable. Retention in Denmark was slightly down, while in Sweden it improved compared with the second quarter. Digitalization and automation are key measures to maintain high cost efficiency, with effect on both the cost and the claims ratio. Our digital distribution index improved by 7.5% in the first nine months this year, with the increase in Q3 driven by the higher digital sales. Digital claims increased during the quarter, driven by Norway and Sweden. Automated claims also increased in the quarter. We will start reporting on our new metric, distribution efficiency, from the fourth quarter of this year. Over to page twelve. We had a solvency ratio of 164% at the end of the third quarter, down six percentage points from Q2.
[audio distortion] operating earnings and returns from the free portfolio contributed positively to eligible own funds. The formulaic dividend reduced own funds. As announced earlier, we have exercised a call option on one of our Tier 2 bonds, with an outstanding loan amount of NOK 241 million. Although the settlement took place in October, we took account of this in our calculations for the solvency ratio for the third quarter. The capital requirement increased by approximately NOK 0.5 billion, with the main drivers being higher underwriting risk due to growth, increase in technical provisions, and changes in currency rates. Market risk decreased due to low risk in the investment portfolio. To sum up on page sixteen, we continue to have a very strong growth momentum. Sorry, I'll leave that for Geir. One question.
Yeah, sorry for that. Okay, yeah. To sum up, on page 16, as Jostein said, we continue to have a strong growth momentum, and it is particularly encouraging to see that our customer loyalty remains high, despite the implementation of extraordinary pricing measures in Norway. The increase in claims cost in Norway continued as expected this quarter. We have a strong focus on improving profitability with significant and targeted pricing measures, tight cost control, and effort to further enhance operational efficiency.
\We are convinced that the combined ratio for the group and the underlying frequency loss ratio for private and commercial will improve over time. Due to significant weather-related claims and provisions in the first quarter and the high level of claims so far this year, we do not expect to deliver on our combined ratio target for 2024. We maintain all our financial targets for 2025 and 2026. We are committed to having a strong capital discipline, and our solvency position is strong, supporting our ability to deliver on our dividend policy. And with that, we will now open the Q&A session of this presentation. Thank you.
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, and we will now take our first question from Faizan Lakhani of HSBC. Your line is open, please go ahead.
Hi there. Thank you for taking my questions. My first question is on the solvency position. So the SCR has increased by about 10% year to date. If you continue with this level of SCR growth, it'll continue to put pressure on your solvency position. At what point does the solvency level become a constraint for your growth ambition? My second question is on the combined ratio target. Back in 2023, when you laid out your CMD, at that point, it included the Baltics. Now, look, the Baltics are a pretty small part, I think 5% of insurance revenue, but they're operating at a sort of mid-90s to 100% level combined ratio, which would suggest sort of a 40 basis point-50 basis point strain to your combined ratio guidance for 2026. So should we assume now that you're aiming for an 81.5% 2026 combined ratio guidance? Thank you.
Okay, I'll start on the first question. There is... I don't give any guidance on the further growth of the SCR, but it's a bit more than usual this third quarter, due to the growth in the underlying business, and that there are some of that growth has come in has not been paid out, so the technical provisions have increased. But of course, all everything is reflected in the P&L, and that just drives how the capital requirement works. It drives the capital requirement somewhat more than usual on the non-life underwriting risk side this quarter.
That's not something we do expect to repeat, and looking a bit more on the longer term. I think the important point there is that we, if we look at the year-to-date figures, we do generate a solid amount of own funds above what is required for sustaining the business with capital, and resulting in dividend capacity, which is sufficient for delivering on the dividend policy.
Mm-hmm. Thank you.
Financial targets?
Yeah, financial target.
Thank-
Look at the combined ratio target for 2026. What are we going to do when they take out the Baltic operations? Our financial targets when it comes to combined ratio for 2026 is below or equal to 82%. We are, that's the target we are aiming for. And taking out the Baltic operation, we are still having the same target in 2026. There has not been done any reassessment on that.
So can we say that, literally, you're diluting your 2026 targets? Is that, is that the right way to think about it?
I think the right way to think about it, it's less than 82%. And how much less, we never really talked about.
That's fine. Thank you.
Thank you, and we'll now take our next question from Ulrik Zürcher of Nordea. Your line is open, please go ahead.
Thank you. One question about retail motor. I think we can all see what you're trying to do. Like, since 2022, I get to around 13% inflation, 10% increase in frequency, and then you reprice a bit over 20%. But I was just wondering, how certain can you be that claims frequency now have stopped? Because you, when you started repricing for it or announced it in Q3 2023, then it's like you expect it to take a year, but then we clearly had another surprise. But you're saying it's stabilized now. Like, what is the risk of this keep accelerating?
Okay, when it comes to claims frequency, at slide four in the presentation we had, we said that the claims frequency increased by 7% compared to the third quarter last year. This is somewhat higher than the frequency development compared to looking at the second quarter last year and second quarter this year. So what we are saying is that we are continuously following the situation. We are understanding the drivers behind the claims development. We don't expect the frequency or claims development to go down, and that is also the main reason for doing the heavy repricing we are doing at the moment.
What we then see is that we, over time, will improve profitability due to the pricing measures we have and also due to the high retention rates we have in Norway. So we are having high customer loyalty, and we are confident that we will come through with all the pricing measures and that the profitability will improve. We are stick to the or having the same financial targets for 2025 and 2026 as earlier announced.
... Yeah, but I guess what I'm asking is, like, how confident are you that, like, that claims frequency won't rise further next year, for example?
If the claims frequency will rise further next year, we'll continue to do our repricing to follow the claims development. That's the most precise answer we can give. I cannot give any guarantee that claims frequency will be stable from the position it is nowadays.
Yeah, okay. Thank you.
Thank you. Once again, if you would like to ask a question, please press star one on your telephone keypad and kindly be reminded to ask one question per person at a time, please. Thank you. We will now move on to our next question from Hans Rettedal of Danske Bank. Your line is open. Please go ahead.
Yes, good morning. I was just wondering on the claims frequency on the property side in Private Norway, which is down 20% this quarter, and then in Q2, it was up 8%. Of course, a lot of the decline in this quarter is driven by the storm Hans. But could you say anything about the sort of underlying trend in the frequency for property in Q3 relative to Q2? And perhaps also sort of set up against the comments that you have on the fire development in this segment.
Okay, I think I can start, and then Jostein will probably continue. On the property side, the results are more volatile in nature. What we have seen during the last two quarters, especially on the private side, is that we do have more fires than expected, and that's also more fires than we should expect due to the long-term trend over many, many years.
But these fires have impacted results due to the high losses also related to each incident. When you come to and look at property and more water damages and water losses, this is more due to how we think on repricing when it comes to property over time. And also, when you look at slide four, you can see that we have quite heavy pricing measures going on in the private segment when it comes to repricing the property portfolio as well.
Yeah, if I may add, the volatility-
Okay. Thank you very much.
That frequency number kind of underlines the message that there is a lot of volatility in property. The down 20% this quarter is of course due to Hans and the sequential, the rain event in the late August last year. This is very stochastic and weather-related.
Okay. Thank you very much.
Thank you. And we will now take our next question from Vinit Malhotra of Mediobanca. Your line is open. Please go ahead.
Yes, good morning. Thank you very much. So my one question would be, you know, Jostein, you mentioned that the pricing would take time to work through the, to the underlying, and that's something we clearly appreciate. I'm just curious if, say, in motor or in private, you mentioned fires, but in either one or both of them, is the trend that you saw in 3Q in line with what you expected, you would say, or was it better, or was it worse? And also, you know, in the same line, is the deductibles 0.7 points, is it working out to your expectation, or is it different? I just want to see the trend versus your expectations. Thank you.
Thank you. Still, a quarter is a very short time period to judge whether expectations are correct or not. But I think we are seeing a slightly higher claims frequency in motor in the third quarter than what I expected at the end of the second quarter, as witnessed by the increase in claim frequency year-on-year, moving from 5.8%- 7%. But as a quarter is could be a bit volatility around such numbers quarter by quarter, but it was slightly higher. Deductibles are working through as expected, and we continue to have the same message there. I mean, giving decimal points like 0.7 points is a bit misleadingly accurate, but it seems to be working as we expected.
Sure. Thank you.
Thank you. And we will now take our next question from Michele Ballatore of KBW. The line is open. Please go ahead.
Yes, thank you very much. So I have two questions. So the first question is, in terms of the targeted increase in prices, I saw an increase from 2Q to 3Q in both property and motor, private Norway. So in that slide, where you show the price increases and following claim frequency and everything. So this is the first question. Can you maybe explain, I mean, why you are doing that? Give more details about this change. And the second question is about the- ... going back to the solvency, I mean, the increase, the operational increase in required capital every quarter [audio distortion]
and the technical provisions in the balance sheet. So these two factors are important drivers for the capital charge. So we have a high price increases. There is also an effect on the SCR development going forward. But typically, somewhat more muted, since there are diversification benefits within the capital requirement calculation. And then you asked about the split between the growth in the life or pension business and the non-life business. We have one slide in the back of the deck where we look at this per unit as well, per company.
But if you look at the slide number 43, we've split the capital requirement into non-life and life on the underwriting risk side. And you see that the life underwriting risk is fairly stable, whereas the non-life and health underwriting risk is increasing. Sorry, I'll check on the development there. But we have the split at least there on the capital requirement for life versus non-life. Generally, the life risk grows in line with the number members in the occupational pension schemes fairly linearly. So it's growth development there more than the pricing effect. So yeah. And you asked also about how this should develop going forward. I think it will in general develop, as I said, in line with claims development, but with a slightly muted effect due to the diversification.
So sorry. Just to follow up on the first question, maybe I'm confused, but what I was referring to is in slide four, sorry, slide three and slide four, when you say full year 2024, expect-
Yeah, okay.
About 14%-
Yeah.
in the average premium in force. This number increased-
Yeah.
from 2 Q to 3 Q.
Okay.
That's what I was referring to.
That's all right.
Sorry.
Yeah, that is the effect in the actual. So the pricing measures is a 17.5%. And what we do now expect to see in the average premium-
... average policy in force at the end of the year-
All right
... is a bit more than 14%. It was one percentage point lower, which, in the second quarter, just due to the fact that we now see that we are getting price increases through, and we've passed one more quarter. And then we'll update you again on that number when the actual number, when we report on the fourth quarter.
Okay, thank you.
Yeah. And the capital charge for life underwriting risk was up NOK 0.1 billion from the previous quarter. So it's a more moderate growth than the non-life underwriting risk because it's mainly growing in line with the members in the occupational pension schemes that we have on our book.
Thank you very much.
Thank you. As a final reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. There are no further questions coming through. I will now hand it back to Mitra for closing remarks. Thank you.
Thank you everyone for your good questions. We will be participating in roadshow meetings and conferences during the next few weeks, starting with Oslo today. Please see our financial calendar on our website for more details. And with that, thank you for your attention, and have a nice day.