Everyone, and welcome to the first quarter presentation of Gjensidige. My name is Mitra Negård, and I'm Head of Investor Relations. As always, we will start with our CEO, Helge Leiro Baastad, who will give you the highlights of the quarter, followed by our CFO, Jostein Amdal, who will go into the numbers in further detail. We have, of course, a lot of time for Q&A after that. Helge, please.
Thank you, Mitra. Good morning, and welcome everyone. The world has indeed changed with Russia's invasion of Ukraine. Geopolitical uncertainty has risen to the highest level in decades. It's shocking and frightening to witness an unprovoked attack on a sovereign democracy and country in Europe in 2022. Gjensidige is not directly impacted by the conflict. We have no direct risk exposure in Russia or Ukraine. Our investments in these markets are marginal, but the volatility in the global markets has, of course, impacted our returns this quarter. The conflict has added further fuel to the inflationary pressure that has been building up, which will also reach our markets. However, as I will comment on shortly, we are prepared, and we are confident that we will manage this well. Cyber risk has risen in the wake of the war. We have high readiness to manage this too.
Our employees in the Baltics are closer to the war in many ways. We have established an emergency team in Lithuania, closely monitoring the situation. We can only hope that this meaningless conflict will come to an end soon. In the meantime, we will continue to focus on taking care of our employees and customers and contribute to society at large. Let's turn to page two for some comments on our first quarter results. We generated a profit before tax of NOK 1,506 million. The underwriting result was a solid NOK 1,025 million, reflecting strong underlying results. Large losses this quarter were significantly higher than the unusually low levels we have had for many years, among others, driven by the many storms hitting our markets.
Both the number and the size of the large claims are well within what we should expect to occur from time to time, and they are in line with our risk appetite. Earned premiums rose by a healthy 8.6% or 9.9% in local currency. I'm very pleased to see that the continued improving of underlying profitability through both continued strong growth and very efficient operations. The underlying frequency loss ratio improved with 1.9 percentage points. Our combined ratio for the quarter was 86.5% impacted by the large losses as mentioned. Our cost discipline remains strong. With a cost ratio of 13.9% for the quarter, we have a good start to the year to deliver on our target of below 14%.
The heavy turmoils in the financial markets resulted in a negative return on our investments of NOK 285 million this quarter. The results were also impacted by the remaining NOK 800 million in gain on the Oslo Areal transaction. Our return on equity came to a very good 22%. Jostein will review with more detailed comments on the results for the quarter. Turning to page three, a few words about our operations. I will start with inflation. High demand, soaring energy pricing, and supply disruptions have sparked global inflation. As a consequence, overall claims inflation in our markets is rising. However, we do not currently see any areas of significant concern. Claims inflation so far has been in line with our previous expectations, as witnessed by our continued strong underlying profitability numbers.
Furthermore, we have not had any challenges related to supply of materials or man-hours. We continuously monitor the development in close cooperation with our partners, and we are well prepared. As we have said so many times before, this is simply ordinary course of business for us. We are confident of our ability to stay ahead of the inflation curve based on our strong competitiveness and supplier agreements in Norway with the best terms and conditions. Of course, the extent, reach, and duration of the inflationary pressure is uncertain. Based on our latest analysis, we expect claims inflation for private property in Norway to be in the range of 7%-9%. For motor in Norway, we expect claims inflation to remain in the range of 4%-6%, moving towards the upper end at the end of this year.
We are prepared to handle this and ensure that we are ahead of the inflation curve. Hence, we will raise prices at least in line with claims inflation for all products. The strong momentum for our Norwegian operations continued in the first quarter. Premium growth in the private remained high despite tough competition. We have managed to continue to put through necessary price increases while maintaining a very high customer retention. This is a result of a strong offering and very strong brand. We have recently strengthened our brand profile. Our new tagline, No one knows the day better, emphasize our leading position in Norway and our deep analytical insights which enable us to continue developing safety solutions for our customers. Premiums continue to grow strongly in our commercial segment as well. Volumes are up, and we have successfully put through necessary price increases in a very competitive market.
At the same time, the retention has risen further from already high level. Going forward, we will continue to raise prices to reflect high expected claims inflation and beyond expected claims inflation for certain pockets in the large corporate portfolio. We expect to be able to put this through. We had a good underlying performance in Denmark this quarter, adjusting for the high large losses and absence of COVID impacts this year. Premium growth remained high and operations are strong. We continue to move forward with the new core IT system. The private products are being migrated over to the new platform, and the system is providing increasing support for our distribution activities. We are also very pleased with progress in the ongoing efficiency program for claims handling. Further, I'm very pleased to see that our turnaround efforts in Sweden are starting to show results.
Operations are becoming increasingly efficient, our portfolios are healthy, and we are growing profitability. We are in the initial planning phase for implementation of the new core system in Sweden. This will be a game changer for our Swedish business too, and a crucial part of the foundation to succeed with our digital transformation. We are convinced that investments will pay off in the long run, although sales in the short term could be somewhat impacted. We have carried out a thorough assessment of our operations in the Baltics, which I will dwell further into on page four. We have started an accelerated transformation program with a clear focus on three main areas, pricing and underwriting, claims handling, and organizational efficiency. First, we will implement pricing measures on unprofitable products on top of the price increases we have put through during the past six months.
Second, we will look into pruning our commercial portfolio with particular focus on our health and motor products. Third, we will improve our claims handling by stringent evaluation of estimates from workshops and improve steering towards preferred partners. We will also leverage analytics to reduce leakage, and we expect to see results from new fraud filters. Finally, we will step up standardizing and digitalization of processes, the latter with particular focus on distribution, contributing to organizational efficiency. We have strong expectations from these actions, despite the tough competition and high inflation, inflationary pressure also out in the Baltics. Our combined ratio shall reach a run rate below 100% in the fourth quarter of this year and continue improving after that, and we will bring down our operating expenses significantly from 2023.
We have a significant growth ambition for the medium term, both for the private and SME customers. Organic growth, supported by good customer experiences and customer friendly and efficient digital solutions, shall be complemented by a broader reach in the commercial sector through brokers. We will continue to seek attractive M&A opportunities. Over to page five. We continue to make progress on sustainability. We have a number of initiatives, as you can see on this slide, taking important steps towards delivering on our ambitious targets. With the EU taxonomy reporting moving closer, I am very happy to announce that we have our first insurance product to fully comply with the taxonomy criteria, namely commercial building insurance. We will continue to transform the rest of eligible products going forward. Over to page six.
A few words about a pilot we will be launching very shortly to complement our home seller insurance launched back in January this year. We recognize our customers need to maximize the value of their home before selling. Maximér is a fixed price package offering ensuring that certified craftsmen carry out all necessary refurbishment in accordance with the real estate agent's advice. We solve our customers' problems, and at the same time contribute to damage prevention. Our market share for home seller insurance is around 10% as we speak, with distribution through a selected group of real estate agents. We see a very interesting opportunity in this market, and we'll widen our presence gradually as we gain more experience in this new field. With that, I will leave the word to Jostein to present the fourth quarter results in more detail.
Thank you, Helge, and good morning, everybody. I'll start on page eight. We delivered a profit before tax of NOK 1,506 million in the first quarter, slightly below last year. Premium growth and improved underlying frequency loss ratio and a lower cost ratio improved the underwriting result. This was more than offset by the above average large losses. With the COVID restrictions being lifted, we do not see any COVID impacts on our claims this quarter. We see solid growth in all segments and improvements in the underlying profitability in all segments but the Baltics. Also, if you adjust for COVID and weather effects last year, the Baltic results are weak. As Helge explained, we are focused on turning around the situation there and have set ambitious yet realistic targets which we will achieve.
Our investment portfolio generated negative returns this quarter, reflecting the market conditions. Our pension business generated higher results. I'll revert on both of these in a moment. The remaining gain of NOK 800 million from the sale of Oslo Areal was recorded in the quarter on the line other items. Turning to page nine. The strong development in premiums continued in the first quarter, with all segments showing good growth. Total earned premiums were up 8.6% or 9.9% adjusted for currency effects. We saw a strong increase in premiums for the private segment, driven by price increases from motor, property, and accident and health insurance, as well as higher volumes for motor insurance, despite the decline in new and second-hand car sales. We also increased the number of customers. We maintained our strong market position and competitiveness.
The rise in premiums in the commercial segment followed effective pricing measures, solid renewals, and volume growth for the motor and accident and health insurance products. Cross-selling of pension products is picking up. We are expanding our sales force in response to this and to further strengthen our position in the SME market. Premiums in Denmark increased by 11.3%, measured in local currency. This strong development was driven by volume growth and price increases in the commercial segment, the latter in particular for workers' compensation. Higher premiums for specialty travel insurance and the NEM business also contributed to growth. Premiums in the private segment, excluding NEM, were somewhat lower than the same quarter of last year due to competitive pressure. Earned premiums in Sweden, measured in local currency, increased by 7.7%, mainly driven by volume growth in the commercial portfolio.
Termination of a partner agreement in the private portfolio in the third quarter last year resulted in a decline in earned premiums in the private portfolio. We're happy to see the results of our efforts to increase customer satisfaction with our sales, service, and claims processes. Customer retention rose more than 3 percentage points this quarter to just below 80%. Double-digit rise in premiums in the Baltics was driven by growth in most lines, particularly motor and health insurance. Travel insurance volumes also increased significantly, although they are still below pre-pandemic levels. Customer retention in the Baltics increased by 1.8 percentage points to 69.6%. Turning over to page 10. Underlying frequency loss ratio improved by 1.9 percentage points compared with the same quarter in 2021.
Adjusted for the positive COVID-19 impact on claims and the effect on claims of the extraordinarily cold winter in Norway, in the first quarter of 2021, the underlying frequency loss ratio improved 0.7 percentage points. This strong development was driven by effective pricing measures, solid renewals, and good risk selection. Large losses were significantly higher than the levels we've seen for a while and our estimated quarterly average. A deviation such as this is in itself not unexpected and is not a sign of any deterioration in underwriting quality or change in risk appetite. Together with lower investment gains, this brought the loss ratio for the quarter up to 72.5%.
We continue to improve our underlying results in Norway and Denmark from already strong levels, and we are very pleased to see that our efforts have started to show results in Sweden, although we cannot rule out some volatility going forward. We are convinced that the measures we have already implemented and our ongoing efforts will continue to improve results for this segment. The Baltics still have a further way to go, and we are disappointed about the results there. We're confident in our plans to change the course of this segment towards an acceptable profitability and that we will see the results of this already during 2022. Let's turn to page 11. We recorded NOK 1,057 million in operating expenses in the quarter. Our cost ratio moved further down by 0.6 percentage points to 13.9%.
If you exclude the Baltics, the cost ratio was 13.3% for the quarter. The main driver of this improvement is premium growth and strong cost discipline in the group. Our low cost ratio in Norway came further down by 0.8 percentage points. Denmark recorded a 0.5 percentage point decrease in the cost ratio, driven by good premium growth. The cost ratio in our Swedish business improved by 1.6 percentage points, and the cost ratio of the Baltics improved by 0.7 percentage points, driven by higher premiums. We see a strong potential to enhance cost efficiency in this segment. A few comments on the pension operation on slide 12. The pre-tax profit came to NOK 54 million up year-on-year, reflecting growth in the business and good returns on the real estate investments.
Assets under management was broadly in line with what we had at year end last year, reflecting development in financial markets. Annualized return on equity was 15.3%. The solvency ratio at the end of the quarter was 169%. So far, the introduction of individual pension account has not led to any significant change in the market dynamics. It is prudent to expect some pressure on our profitability in the short to medium term. Moving on to the investment portfolio on page 13. Our investment portfolio generated a return of -0.5% in the first quarter, reflecting the significant market turmoil in the wake of the war in Ukraine and general macroeconomic uncertainty. The matched portfolio returned -0.1% and the free portfolio returned -1%.
The result for the quarter was negatively impacted by higher interest rates, a decline in equity markets, and higher credit spreads. Private equity and commodities contributed positively to the performance. We have reduced risk on our portfolio in response to the market conditions. We are prepared for further market turbulence for quite some time. Although we cannot avoid the impact, we have a balanced portfolio and solid fixed income investments, with the large majority having investment grade rating. Our investment strategy remains firm, with risk exposure within the ranges set by our board. The proceeds from the Oslo Areal transaction have been invested in fixed income instruments. We will continue to consider attractive investment opportunities within our risk appetite, including real estate. Over to page 14. Our capital position is very strong, with a solvency ratio of 188% at the end of the quarter.
The ratio is down 2 percentage points from year end. Remember that we, at year end, estimated a solvency margin of approximately 180%, adjusted for the announced but not finalized sale of Oslo Areal and acquisition of Falck. Eligible own funds came down by NOK 2.3 billion, driven by a positive contribution from solvency to operating earnings, offset primarily by the loss on the free portfolio and the acquisition of Falck, as well as the Falck dividend. Our capital requirement decreased primarily due to lower market risk following the sale of Oslo Areal and lower exposure to equities and high yield bonds. A few words about IFRS 17 on page 15. We are well prepared for the new accounting standard, which will become effective from next year. Overall, we expect a limited impact for our general insurance accounts.
We will be using the simplified method, and our preliminary calculations indicate an insignificant effect on our underwriting result. We expect a significant impact on our pension business opening balance. We're working through the numbers and will discuss this in further detail together with further insights into the impacts on our general insurance business in a webinar in November this year. Finally, a few words on the latest development of our operational targets on slide 16. We launched a set of new operational targets at our capital markets day in November last year. These are important in supporting delivery on our strategic priorities and financial targets towards 2025. Customer satisfaction continues to be at a very high level. Retention in Norway is slightly up from the fourth quarter from an already very high level.
Retention outside Norway has improved in Sweden and the Baltics and remained broadly unchanged in Denmark. Digitalization automation are key measures to secure efficiency. The digitalization index we have established to gauge the progress in our digital sales and service interaction with our customers is a combined index which we aim to raise by 10% annually over the next years. We are up 7% this quarter, a progress I'm very satisfied with. On the claims handling side, digital claims reporting has been stable this quarter at 76% for the group. Automation of the whole claims settlement process is an area with significant savings potential. We introduced a new KPI on automated claims, and the share of claims processed automatically in Norway has improved with a 1 percentage point during the quarter, currently standing at 56%.
We will continue to develop these digital services further going forward. I'll then hand the word back to Helge.
Thank you, Jostein. To sum up on page 17, we are very pleased with the solid results we continue to deliver. We have set ambitious targets for the next four years, and we are confident to deliver on them. We will continue to focus on profitable growth. Together with strong and efficient operations of a strong product offering and good economic prospects in our markets, this should bode well for continued solid results and attractive returns. Finally, on page 18, an announcement on an upcoming webinar on the 9th of June, where we'll be discussing our plans within the mobility space, now with Falck Roadside Assistance and the toll road companies, Flyt and Vegamot, in the group. We will send out and release with further details shortly, but in the meantime, please save this date. With that, we will now open for Q&A session of this presentation.
Now for questions. We will take our first question from Blair Stewart from Bank of America. Your line is open. Please go ahead.
Thank you, very much and good morning , gents. I've got three questions. They're somewhat detail-oriented, nothing major. The first one is just on Sweden with a new system that you're implementing. Can you talk a little bit about what impact that will have? You did sound a bit cautious about the short term, talking about perhaps an impact on customer volumes. Just wonder what that meant and I think longer term, what the benefits will bring. You talked about it being transformational, a game changer. Secondly, just on the private equity performance in the quarter. Am I right in thinking that's still done on a one quarter lag? Would it be reasonable to expect a much weaker performance in Q2 as you report it?
Thirdly, on IFRS 17, I think you talked about significant impact. Does that mean lower opening balance for the P&C business or the pensions business? I think you talked in the past about having on the one hand a benefit from discounting the reserves, but then that's offset by a higher risk premium. I just wonder how your thoughts have evolved there, given the interest rates have moved up. I would have thought the discounting impact would have been a bit larger. Therefore, the net effect might have been a bit smaller. Just any additional thoughts on the IFRS 17 impact. Appreciate it's still early days. Thanks very much.
Good morning, Blair . It's Helge . The core system, you know, the background for this, the present core system in Norway and also, it's a system we have had in Sweden and Denmark. It's like 27 years old or something like that. All the players in the Nordics have to move into more modern systems. What we will see in Denmark first, and we are currently planning for Sweden, this will enhance our competitive advantage, enable through shorter time to market, competitive pricing and operational efficiency. We expect to see the impact over time. In the short term, though, we will see benefits from phasing out old systems. We will make room for investments in the new system.
It's about agility, speed, our ability to take into the whole payment process and the whole core system process partners. It's lots of flexibility, speed, and of course, also cost per policy. I can say that in private Denmark, it's very successful and really strong feedback from the front people dealing with the system, though. For all practical reasons, we have the whole private business into the system in Denmark. It's really successful. Sweden, we are planning, and I guess 2023, 2024 is the years for Sweden. Yeah, for.
Sorry, Helge. Why do you say that short-term, the sales could be impacted negatively in Sweden?
No, I'm not saying we will benefit from phasing out the old system and the system in Denmark and Norway and Sweden, if you compare that to Norway, the cost per policy has been rather high. We will see reduction in cost per policy, short and long term. Long term, we will see the, I would say, the more strategic effects by this as a much more agile system, as I said, shorter time to market, ability to change prices continuously, take on board partners, et cetera. That's more long-term. You will see long-term effects. Short term, we will see a reduction in cost per policy.
Okay. Understood. I must have misheard you. Thank you.
On the private equity question, you're absolutely right. It's in general a lag for one quarter due to we need to get the reported net asset values from the underlying funds that we invest in the portfolio. Whether that will imply a negative development in Q2 is. It's a bit early to tell so far, and we'll not guide on that because, I mean, these are not the overall market. This is specific investments in each and every fund that will determine how this development goes. Some of the exposure here is, of course, oil services related, which have had quite a run during the first quarter in the listed markets. This is a bit early to say. Thirdly, IFRS 17, I mean, you're right.
At the year-end, we said that there would be a negative effect overall. There are kind of three major effects on general insurance here. It's discounting effect on the reserves. There's a new risk margin, and then there is mark to market on the hold-to-maturity bonds, which have a positive overvalue in the accounts today. Net-net, we said there was a negative effect at the end of 2021. With interest rates moving up, this might have changed somewhat now. We haven't done the calculation as of the first quarter yet. We'll update you when we get to the webinar on that.
Yeah.
Thank you.
Are you finished, Jostein?
Yeah.
If I may add, just a comment on the core system. I'm kindly reminded by Mitra here that, short-term, we will maybe see some sales reduction because when you implement a system like this, you will have focus on implementation instead of the ordinary course of business selling products. We have seen that as a minor problem in Denmark. As you know, I'm very focused on the cost side, and I'm also very pleased that we started to report on the 13 figures on cost ratio also. I was on the cost side when I commented the new core system. Maybe some sales disruption in the implementation phase.
Okay. Yeah, that's clear then. Thank you.
We will take our next question from Tryfonas Spyrou from Berenberg. The line is open. Please go ahead.
Oh, hi. Good morning. I have one question. I was wondering, can perhaps comment on where the claims inflation across the different parts of your book, for example, motor, housing, and obviously in different sort of geographies, so Norway versus Denmark. I guess following on from that, how do you see competition in these markets? Do you see the competition being rational when it comes to price increases or do you see carriers taking different approaches? Thank you.
Yeah. Regarding claims inflation, I would start to stress and comment once again that this is simply ordinary course of business for us. In first quarter, we have not seen any inflation, other than what we communicated one quarter ago. Claims inflation so far has been in line with our previous expectations. If you look forward, we always have to look forward when we are talking about claims inflation. It's property in Norway with highest claims inflation driven by both materials and wages. We expect that to be in the range between 7% and 9% if you are looking 12 months ahead. For motor, it's between 4% and 6%, and that's driven by wages, materials, type of claims, and frequency.
We will see higher percentage in the end of the year, so between 4%-6%. As you know, all of our personal risk are related to wage increases and the so-called G factor in Norway, and that's between 4% and 5%. The G factor in 2021 was just below 5%. In Denmark, it's lower, and in Sweden it's lower. We have seen inflation picked up both in Denmark and Sweden too. As I said, these levels are somewhat lower than in Norway.
On the competition side.
Can I get just a comment on that?
Yeah.
Are you sort of pricing and off based on that sort of 12-month view of 7%-9% and 4%-6%?
Yeah
In line with your sort of
We.
Yeah.
We have demonstrated since 2018 that we have enormous pricing power. As you remember
Yeah
We had this back on track related to motor insurance. We operated with price increases far above 10%. What we are talking about now, it's that we have to and will and have ability to price in line with expected claims inflation. What we see from our competitors is that they experience just the same as we do, and we both hear from calls, and we see from market operations that this is well understood and all our competitors see the same landscape, I think. We have ability to price in line with claims inflation. We will do that.
We just to comment the balance between volume and price in motor in first quarter when we priced in line with claims inflation is a nice balance between volume and price, increased growth. We are really confident that we will handle this in a good manner.
Very clear. Thank you.
We do not see any special softening market trends within any segment. It's highly competitive market, as you know, and it has been for many years. I think the market see this inflationary development, and they have to increase prices to maintain their profitability as we do.
It's very clear. Thank you very much.
We will take our next question from Rick Church. Your line is open. Please go ahead.
Thank you. Two questions. Firstly, I was just wondering if, given the material inflation and supply chain issues that they accelerated in March now, but many corporates are repriced in January, do you see any short-term risk to your claims ratio there? Second question, I agree that motor looks strong, but I was wondering how you see the competition in private property in Norway, and that's if it's a risk that even given your repricing that we might not see nominal premium growth for that product this year.
I'll start on them. I mean, it's true that we upped our future inflation expectations on property as such somewhat from the previous quarter, approximately 2 percentage points in each end of the interval. We said at that time that we were pre-pricing ahead of claims inflation on property. We aim to do that, and we are doing that, which means that we are pricing price increases contain the new higher claims inflation estimate. Any unexpected increase in inflation is short-term negative, and we need to capture that on the next repricing opportunity.
The competitive. Maybe you comment on.
Yeah, on.
On property.
On private property. I mean, we don't guide for kind of premium volumes in one specific business line going forward. Given the fairly high, I mean, we price in line with these new expected higher claims inflation and that there should be a reduction in volume to more than counteract that is highly unlikely. I'll not go any further than that in guiding, but it's you should expect a premium growth, normal premium growth going forward as well.
I also think that our first quarter, currency adjusted 9.9% growth is a strong evidence that we have this ability.
Yeah, any difference? Sorry, it was just a follow-up then on the property 'cause.
Sure.
Any difference between private property and corporate property on the how much is the churn versus repricing?
Well, if you look at the Norwegian portfolio, the churn is actually in the segment as such, we measure churn at a customer level. The churn is actually quite similar between private and commercial. Which is maybe surprising from a more international perspective, both churns typically is higher in commercial, I think. Given our main focus being on SME customers in the commercial part, which have a very long-standing relationship with us, we have the same kind of business relationship with them as with private persons in a way, and they are loyal. Our pricing power and competitive position, our overall offering is very good to be a bit cautious in Norway. I wouldn't say superb, but it's really very good.
This is not a concern in itself, I would say. As I said, you know, in the previous question, this is kind of the overall input price increase for every company in this market. We probably see it more than the others or better than the others because we are the largest player, but this is the same picture hitting everyone.
Okay. Thank you.
We will take our next question from Håkon Astrup from DNB Markets. Your line is open. Please go ahead.
Good morning. Thank you for taking the question. Two questions from me. First, can you give some color on how the current inflationary environment is impacting your reserves? Have you, for instance, looked at how 1 percentage point higher inflation over the next three years will impact run off and your reserves? The second question, on procurement. In this current environment, is it more difficult for you now to renew agreements with suppliers? Are there any interesting changes in terms of terms, et cetera?
Okay, I'll start on the first one on the reserve impact from inflation. The major part of the reserves are related to long tail lines of business, and it's the long-term assumptions about especially wage and inflation, because it's personal injury-related products that constitute the largest part of the reserves. Our long-term estimates for inflation on wages over time haven't changed significantly, and they are in line with what we see that the central bank and Statistics Norway are predicting, which is a return to more normal levels within two years. The short-term reserves related to property, motor, hull are less exposed to inflation. They are generally handled within six months. Inflation doesn't bite that quickly.
There is some minor negative effect here, but that's well handled within the current reserving.
Will you take.
Thanks.
Procurement as well?
Just say that the wage inflation, for instance, is just 1% in both your estimates over the next five years. How will that impact the total reserves? Can you give us some number sensitivity here just for us to do the calculations ourselves?
I don't think we'll go into that detail. It is numbers that we have and use for measuring our own risk position but haven't made public earlier. If you take five years, then a larger part of reserves is actually affected. As Helge mentioned, we are at 4%-5% on the relevant G amount, which is the one that's running or influencing the payouts in the future. The overall tail is, I think, around eight years for the workers' compensation products, for instance, which is. I mean, it's a long part, large part of the reserves are actually even further out here. I won't give you the numbers, sorry. Of course, there is a sensitivity.
Thanks. Procurement.
Procurement.
Yeah. You know, we have a large claims organization with good agreements, and we have continuous dialogue with our suppliers on changes in prices. 90% of repairs in Norway and Denmark are managed through contracted suppliers, and we have best market terms in Norway. 75% of the costs are related to labor with fixed rates and annual indexation. Of course, the discussions and negotiations with the suppliers when you come to the year-end, I do not have any reports to me that we have problems in that type of dialogue. It's ordinary business as well.
Perfect. Thank you so much.
We will take our next question from Jan Erik from ABG. Your line is open. Please go ahead.
Thank you for taking my questions as well. To phrase the inflation, question a little bit different, is it so that you think there is unlimited price increases you can pass on to your clients and that they will actually accept it since they have no place to hide? What do you think about the volumes? Do you think they will negotiate on their tariffs and do some other changes to it so they can sort of so you will get a lower price or volume for going forward? Is that something you can think of? Or is that unthinkable, so to speak?
It's seldom I say that the question is wrong actually, but we are not talking about unlimited liability, Jan Erik. I think it's important to start with the fact that the main driver for claims inflation is wage increases. The G amount now is just below 5%. If you look at the estimates from Sweden, Denmark, and Norway for government, it's below 4% going forward. We are not talking about unlimited with our perspective as we speak now. You know, this is non-life insurance. It's a bet for the next 12 months. The business is that we have to have estimate for claims inflation. That's also the same type of estimates and bets that our main competitors have to do.
In the environment we have now, we are very confident that we have strong ability to pass through the claims inflation and price increases. We haven't talked about unlimited, so that's a scenario we do not look into at the moment.
Okay. Thank you. On you know the new product in the housing or the reselling stuff you talked about, how should we think about that? This is a premium that people pay before they sell their house, they can do some more preparation before they're selling. Or how is the pricing, premiums, and claims on that kind of product?
It's a service, and it's not a risk premium. This is a service concept. If we are talking about this.
Maximér.
Yeah, Maximér. I think the average.
Yeah. Maximér, yes.
Yeah. I think what we have seen through pilots, Jan Erik, is that the average cost for preparations before selling is between NOK 25,000 and NOK 30,000. This is a service besides the insurance premiums that we offer to our suppliers, together with our suppliers, for our customers to prepare for selling. You know, doing this, we take more care of our customers, we solve bigger problems, and we position our home seller insurance in a good way.
It's not a premium as such.
It's not the.
It's probably the cost then to do so.
It's not a premium. It's a service product.
Yeah. Okay, perfect. I understand it. Thank you. That's all my questions.
Our next question comes from Thomas Svendsen from SEB. Your line is open. Please go ahead.
Yes, good morning. A question to the large claims. If you look at the large claims and look away from weather effects, is it possible to say anything about how much is sort of a cyclical component that these larger claims are increasing and the economy is doing well, and how much is sort of unlucky? And if you should be prepared for maybe more large claims in the next couple of years than what we have seen last couple of years?
We do not expect that, Thomas. I fail to see that there's any kind of cyclicality in the losses we've observed. I mean, in general, we do not make public the actual losses or simply each and every loss. We did send out a press release related to the fire in Hemsedal, which is a building under construction that took fire. We don't see anything specific about this year, the losses that we've had in the non-weather-related losses that we've had in the first quarter. I would describe this as pure randomness.
Another question to private Norway. Given that the households or your customers disposable income is reduced by electricity price, the general goods increases, interest rate increases, and now also sharp insurance premiums increases. Should we still expect that sort of the underlying volumes if it's not sensitive to sort of household's income? Or should we expect the demand or total demand for insurance to go down, that the households are doing something because their disposable income is sharply decreasing?
To a certain extent, at least in Scandinavia, these are kind of basic products that you buy. I mean, it's the house and the car that you have, and more or less everyone actually insures that. Whether someone as a reaction to price increases will choose a slimmer coverage on their car might be. We've seen in the previous downturns that it doesn't typically happen. The Baltics was a bit different story. We saw during the pandemic that people more tended to cancel their policies, short-term at least. In Scandinavia, this has not been a typical behavior. I mean, the number of new apartments, houses are still increasing.
Same goes for the car sales, although they were quite slow in the first quarter of 2022. As the underlying assets increase in volume, the insurance volumes should also increase.
Okay, thank you.
We will take our next question from Alexander Evans from Credit Suisse. Your line is open. Please go ahead.
Hi, everyone. Thanks for taking my question. Mainly just firstly on the Baltics maybe, thanks for laying out that plan. Just wondered sort of on the confidence level that you have given, you know, the combined ratio that you reported in Q1 is 113%. Also, I noticed that you were talking about seeking inorganic growth opportunities in the Baltics. You know, just keen to understand how that would fit into to sort of restructuring there. Then also maybe just on the home sellers market, I think you said that 10% market share. Please could you sort of remind us on what sort of market size you see there and, you know, what sort of contribution that is to sort of private lines.
Maybe just on sort of new car and new and used car sales, you know, that's been down in the first quarter. I was just wondering how that plays into Yndig. You expect sort of lower new business growth, but also does that mean sort of higher retention as more people probably stay with you? Sort of want to understand that sort of dynamic.
Yeah. I commented the Baltics and we have used time together also with an external partner, and it's not dramatic measures actually. It's quite well-known measures we are implementing in the Baltic organization. It's about pricing, repricing, risk selection. It's about cost reduction, significantly cost reduction, and it's also of a focus to be more focused going forward. As I said, we will move towards and below 100% in combined ratio this year. Further, we will move down towards 90% and demonstrate improvements quarter by quarter. As I have said before, we will continue to look for value creating solutions in the Baltic. It's not so close to Norway as Sweden, and it's not Scandinavia. We will also look for inorganic growth opportunities.
If we could increase our position and secure our position in this profitability journey we have started now, we will also look into that. We are quite optimistic actually, both buying and finding different kind of solutions in parallel with implementing the efficiency program we have started to implement now. Below 100% this year, towards 90% for the next couple of years. In parallel, all kind of strategic opportunities will be evaluated.
Yeah. The second question on the home seller insurance market, which was kind of open up with this new product from January 1st this year. I think we commented on the expected volumes there, which is kind of rough estimates that over time this should develop towards NOK 2 billion-NOK 3 billion. But I mean, it has started very slowly because the new requirements for tax assessments for assessors is higher. So, there's actually the turnover of new houses or turnover in the housing market has been lower, I think, in the first quarter due to this. When we say 10% market, it's mainly kind of based on kind of how large part of the distribution pool that we have secured for our product.
I mean, the number you asked for, NOK 2 billion-NOK 3 billion over a few years, and then we'll see how this develops. This of course depends on the price level that we're in over time here, establishes itself in that market. Third one, new car sales. Yes, lower means less new business from new sales, but remember that our market share is higher in the secondhand transaction market when the new suddenly turns into secondhand here. Our market share there, be it fossil or electric, whatever, is much higher in that moment. As I commented a bit on a previous question here, the number of new cars is still actually increasing.
The number of cars, yes, in Norway is still increasing, which means our potential business volume is also increasing.
Yes. Thank you.
We will take our next question, Faizan Lakhani from HSBC. Your line is open. Please go ahead.
Thanks for taking my questions. I just had a follow-up question on Norway property. Your PA yesterday, Tryg, said that, you know, they were able to put up 5% rate increases up in private property. I just want to understand, is the market able to put through 7%-9% there, or is that just yourself right now? The second question is on the Private Norway segment as a whole. The underlying loss ratio development was very favorable in the first quarter. I just wanted to understand, is that a fair run rate for the rest of the year? Thank you.
I'll start with the easy one in a way, although it might not be easy in practice. We are able to push through price increases that are at least in line with claims inflation. We've demonstrated that over the increasing claims inflation period that we have behind us, and we will manage that also going forward. This is clearly doable. It is because we have a very strong competitive position.
Just one.
Sorry?
I just want to understand, are the rest of the market able to put through that level of rate increase as well?
I don't think I'll talk about what the rest of the market is able to.
Talking about competitors, we don't do.
Yeah. No.
Remember that we have also a very strong customer dividend model in a way, and that's quite unique, you know? You have to look into all kind of aspects, when you're discussing pricing power, ability to drive through price increases. We mainly focus on ourselves.
Yeah. Private Norway, I think we don't guide on kind of what will the loss ratio or underwriting result be going forward. If you kind of look at the underlying frequency loss ratio, there is kind of nothing. There is no kind of specific volatility or specific events that make it so good. This is just the accumulated effects of work both on everything we do on both claim handling, efficient pricing, and cost reductions, that manifests itself in this level. It's been very high profitability levels for a number of quarters. I won't say anything about kind of what will be the run rate over the next few quarters. I say there is nothing specific about this quarter that kind of should hinder it from continuing.
Okay. Thank you very much.
We'll take our next question from Jan Erik from ABG. Your line is open. Please go ahead.
Thank you. Just one follow-up on the run of gains. The level of 3.7% is of course in line with last quarter but lower than last year. Is this sort of in the prediction we should expect that it should continue to lower into 2023?
Well, as I might have mentioned it in a previous quarter call that, there is a NOK 1 billion run-off gain that we had. It's the last year of, this year that we have this planned reserve release from the vintages 2008 to 2014, mainly related to workers comp in Norway, personal accident cars and the workers comp in Denmark. We talked a bit about this on the CMD also in November, when you have a look at historically, there has been positive run-off gains. I mean, 1-2 percentage points of previous, but this was history. Our kind of guidance here is that we do not have any planned reserve releases, going forward.
If you look into the two on slide 27, you show it very nicely. Although the under NOK 1 billion, you would just have had NOK 34 million run-off gains in this quarter.
Yeah, that's correct. I said this, you can't read too much into that.
Operator, are there any further questions? It appears there are no further questions at this time. Thank you.
All right. Thank you. Thank you for all your good questions, everyone. We will be participating in a number of roadshow meetings and conferences this quarter, too. We're happy that the majority will be in person this time after two years of almost fully digital meetings. The meetings will be held in Oslo, London, Copenhagen, Frankfurt, and Rome. Please see our financial calendar on our website for more details. Thank you for your attention and have a great day. Bye.