Hello, and welcome to the Gjensidige Q3 2022 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. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your questions. 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 IR, to begin today's conference. Thank you.
Thank you. Hello, everyone. Good morning, and welcome to Gjensidige's third quarter presentation. My name is Mitra Negård, and I am 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 through the numbers in further detail. As always, we have lots of time for the Q&A after that. Helge, please.
Thank you, Mitra. Good morning and welcome, everyone. This is the 48th quarter since our IPO and the last quarter I have the pleasure to present our results. As announced earlier, Geir Holmgren will be assuming the position of CEO from January. I'm very confident in handing over the baton to Geir, who will, with his confidence and capacity, further cultivate and grow a great organization and secure continued strong valuation in the area. Let's then move to page 3 for our comments on the third quarter results. We generated a profit before tax of NOK 1,486.86 million. The underwriting result was a very strong NOK 1,909 million, the highest we have ever had in a quarter when adjusting for the extra runoff gains back in Q4 2018.
Earned premiums continue to rise strongly at the healthy 7.1% or 8.2% in local currency. Large losses this quarter were lower than expected level, contributing to the good development in results. We continued improving our underlying profitability when adjusting for the COVID effects last year. Our combined ratio for the quarter was 76.3%, including a cost ratio of 12.9% for the quarter. Continued heavy turmoil in the financial markets resulted in a negative return on our investments of NOK 328 million this quarter. This impacted our return on equity, which came to 18.4% year- to- date. Jostein will deal with more detailed comments on the results for the quarter. Turning to page four, a few words about our operations.
I will start with inflation, which continues to be a global challenge. Claims inflation so far has been in line with our expectations, and we have not had any significant challenges related to supply of materials or labor. Demand for our products and services remains strong, and we are able to pass on necessary price increases to stay ahead of inflation curve. Global economic and geopolitical uncertainty have reached new heights. Strong government finances, particularly in Norway, mitigate the risk of a grave recession in our region. Historically, non-life markets have proven to be highly resilient to economic downturns. We expect this to be the case going forward, too. Of course, a further dramatic escalation of the war in Europe can severely impact our business too. We continuously monitor the development in close cooperation with our partners, as we always do.
This is under any circumstances, the most important thing to do for an insurance company, and we are well prepared. Based on our latest analysis, we expect claims inflation for private property in Norway to remain in the 5%-7% range going forward, driven by high energy prices and labor rates. Pressure on materials prices seems to have peaked because of demand cooling off, lower raw material prices, and more stable supply chains. For motor in Norway, we expect a continued increase in spare part and labor prices. Our claims inflation expectation is unchanged in the range of 4%-7% at the higher end in the short term. For all products, we will continue to put through price increases at least in line with expected claims inflation, and we are confident that we will be able to pass this through.
The strong development of our Norwegian operations continued in the third quarter. Premium growth in private remained high despite tough competition. We have managed to continue to put through necessary price increases while maintaining very high customer retention, and profitability is very good. Premiums continue to grow strongly in our commercial segment, as well as the retention remained at a high level. Profitability climbed further to a very good level. Going forward, we will continue to raise prices to reflect expected claims inflation, and we are confident that we will be able to put this through. For certain pockets in the large corporate portfolio and in certain segments, there's still a need for price increases beyond inflation. Performance in Denmark was somewhat weaker than the same quarter last year. I'm very pleased with the premium development in the commercial portfolio.
Growth in the private portfolio was impacted by competition and lower Danish motor and property sales. 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. The acquisition of the dental insurance company, Dansk Tandforsikring, is now complete, and we are very eager to further develop the business in Denmark, and later on in our other Nordic markets. I'm pleased to see that our turnaround efforts in Sweden continue to show results with improvement in underlying profitability quarter-over-quarter. Operations are becoming increasingly efficient. We have good risk selection and pricing execution, resulting in more healthy portfolios and good growth in the commercial portfolio.
Of course, given the size of our operations in Sweden, we are prepared for potential volatility in the results. Our transformation in the Baltics continues with full force. Profitability has improved considerably, both quarter-over-quarter and compared with the same quarter last year, thanks to better tariffs, price increases, pruning, and cost-saving initiatives. We are well underway to reach our combined ratio below 100% from Q4 this year. Although also for this segment, we must be prepared for volatility, not last because of macro uncertainty. Over to page 5. 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. I'm particularly pleased with having launched our first taxonomy-aligned product, and there is more to come.
We have gotten strong recognition this quarter too, with top ranking in PwC's climate index. With that, I will leave the word to Jostein to present the third quarter results in more detail.
Thank you again, and good morning, everybody. I'll start on page 7. We delivered a profit before tax of NOK 1,486 million in the third quarter. Premium growth was the main driver behind the increase in the underlying results. We saw good growth in all segments and improvement in the underlying profitability for the group when adjusting for the COVID-19 impact on claims in the same quarter of last year. I'm particularly pleased with the development in commercial, and I find the good progress in Sweden and the Baltics very encouraging. Private maintained a very high level of underlying profitability, confirming our strong market position and efficient operations. Our investment portfolio generated negative returns this quarter too, reflecting the tough market conditions. Our pension business generated lower results. I'll revert on both of these in a moment. Turning to page 8.
The strong development in premiums continued in the third quarter, up 8.2% adjusted for currency effects. We saw a strong increase in premiums for the private segment, given by price increases for motor, property, and accident and health insurance, as well as higher volumes for motor and travel insurance. I'm very happy that we maintained our strong competitiveness and continue to hold our superior market position. The significant rise in premiums in the commercial segment followed effective pricing measures and solid renewals for all main product lines, and volume growth for motor and accident and health. Premiums in Denmark increased by 5.4%, measured in local currency, driven by growth in the commercial segment and the contribution from them. Premiums in this private segment, excluding the contribution from them, were somewhat lower, impacted by a 2.7 percentage point decrease in customer retention.
Premiums in Sweden, measured in local currency, increased by 9.2% given by volume growth in both the private and the commercial portfolio. Customer retention increased by 2.5 percentage points with improvements in both portfolios. Earned premiums in the Baltics increased by 6.7%, measured in local currency, given by growth in most insurance lines except for motor. The increase in prime premiums was a result of pricing measures. The customer retention rate decreased as a result of the implementation of higher prices. This is something we have been prepared for on the path to improved profitability. Turning over to page 9. Underlying frequency loss ratio remained stable.
When we adjust for the absence of COVID-19 impacts on claims this year, the underlying frequency loss ratio improved by 0.8 percentage points. This strong development was driven primarily by commercial based on effective pricing measures, solid renewals, and good risk selection. The Baltics also showed a significant improvement. Large losses were slightly higher than last year, but still well below average expected levels. To get this slightly lower runoff gains, this brought the loss ratio for the quarter up to 62.3%. Let's turn to page 10. We recorded NOK 1.04 billion in operating expenses in the quarter. Our cost ratio moved further down by 0.7 percentage points to 12.9%. If we exclude the Baltics, the cost ratio was 12.3% for the quarter.
The main drivers of this improvement are premium growth and strong cost discipline across the group. Our cost ratio in Norway improved by 0.7 percentage points to 10.2%, thanks to premium growth and continued focus to cost efficiency. Sweden and the Baltics showed an improvement, as you can see from the chart on this slide, thanks to effective cost cutting measures and higher premiums. The increase in Denmark's cost ratio was a consequence of a strengthened sales force and higher IT costs related to the ongoing transition to the new core IT system. A few comments on our pension operations on slide eleven. The pre-tax profit came to NOK 46 million, down year-on-year, reflecting the expected decline in margins with the new individual pension accounts and the lower financial income.
The negative impact following the introduction of individual pension account was partly offset by growth in the number of pension members, contributing to an increase in insurance income. We continue to grow our business and have a strong focus on being a cost-efficient player. This profitability increase again in the medium term, driven by further growth. Assets under management decreased by 3.5% from year-end last year to NOK 50 billion, reflecting development in the financial markets. Annualized return on equity was 13.1%. The solvency ratio at the end of the quarter was 170%. Moving on to the investment portfolio on page 12. Our investment portfolio generated a return of -0.6% in the third quarter, reflecting significant market turmoil.
The match portfolio returned -0.2%, and the Free portfolio returned -1.2%. The result for the quarter was negatively impacted by higher interest rates, a decline in equity markets, and higher credit spreads. All asset classes except fixed income instruments with a short duration and PE funds showed negative returns. We have continued to reduce risk somewhat in our portfolio in response to the market conditions. It is worth mentioning that our equity risk exposure was NOK 1.2 billion lower than the NOK 2.8 billion recorded as a carrying amount at the end of the quarter due to derivative positions. 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 strong.
increase we see now in interest rates will increase future investment income. Over to page 13. Our capital position is very strong. With a solvency ratio of 190% at the end of the quarter, down 2 percentage points from Q2. Eligible own funds was slightly down, with the solvency through operating earnings offset by loss in the free portfolio and the subtraction of the Formlife dividend. We had a minor increase in the capital requirements, with premium growth and changes in currency rates, more or less offset by a lower market risk as a result of lower equity exposure. A few words on the latest development of our operational targets on slide 14. Customer satisfaction continues to be at a very high level. Retention in Norway is slightly down from the second quarter, but still on a very high level.
Retention in Denmark and the Baltics came somewhat down, but we are satisfied with the improvement in Sweden. We have delivered on our annual goal of 10% increase on, in our digitization index, which measures progress in our digital sales and service interaction with our customers. On the claims handling side, both our digital claims reporting for the group and automated claims processing in Norway have risen further to 77% and 58% respectively. We'll continue to develop these digital services further going forward. Before handing the word back to Helge, I take the opportunity to announce that on the 22n- of November 2026, we will be holding a webinar on the implications of IFRS 17 and 9 on our accounts. We'll also publish a guide a few days before. We'll send out a release with further details shortly, but in the meantime, save this date.
Helge, over to you.
Thank you, Jostein Amdal. Before concluding today, I would like to take the opportunity to have a quick look at Gjensidige's strong track record of creating value for the shareholders, illustrated here on page 16. We have delivered on our ambitious targets almost every year since the IPO back in 2010. Gjensidige has generated a total shareholder return of more than 600% during this period. Average return on equity has been 19%, and we have paid out NOK 63 billion in dividends. We have achieved solid top- line growth while demonstrating strong underwriting and cost discipline. At the same time, we have received the strongest vote of confidence from our customers, with customer satisfaction and retention climbing to very high levels.
This is all thanks to our superior brands, loyal customers, our unique customer dividend model, our technology platform, and strong analytical capabilities, all parts of the solid fundamentals necessary to continue delivering on our attractive value proposition. Of course, the most important drivers are our people and our culture. These are key to our success. We are very happy to see that our employee engagement scores continue to be very high, and we succeed in attracting competence. Our excellent ranking in Ipsos Reputation Survey is a pleasant reminder of how we are viewed among Norwegian customers and an effective marketing tool as employer. In this year's survey, Gjensidige once again ranked highest among all companies in the finance sector and number 5 among all Norwegian companies in the survey. This is indeed a strong vote of confidence. Over to page 19.
Gjensidige's priorities towards 2025 remain firm. The group will build on the strong and unique position in Norway. Profitability for operations outside Norway will be improved, with a particular focus on Sweden and the Baltics, as well as tapping further into the attractive opportunities in Denmark, not the least driven by the new core IT system. Lastly, the group is committed to continued capital discipline with a rational approach to M&A and capital distribution back to shareholders. To sum up the quarter on page 20, we have delivered a very strong quarterly underwriting result. We are confident that we will continue to stay ahead of claims inflation. Unless the current geopolitical situation becomes dramatically worse, we do not expect to see any significant spill over to our underwriting results. We expect to deliver on our combined, cost, and solvency ratio targets this year.
Our financial results and Return on Equity are, of course, highly dependent on the development in the financial markets. Our good underwriting results outlook and strong capital position provide us with a solid base to deliver a continued steady and nice regular dividend term. Special dividends have been and will still be utilized from time to time to ensure an efficient capital structure. With that, thank you very much. We will now open for Q&A session.
Thank you very much. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. We will now take our first question from Håkon of DNB. Your line is open. Please go ahead.
Good morning. Two questions from me, and the first one on costs. You delivered some strong quarter in terms of cost ratio below 13%. Just wondering how you see this development going forward. Should we expect to see a similar kind of cost ratio as you've been able to reprice the premium that's quite good recently? That was the first question. The second question on inflation continue to be quite high. I was just wondering if your outlook for the pricing in line or above claims inflation, you expect to continue to do that also in the short term based on the recent repricings you have done. Thank you.
Good morning, Håkon. I can start to comment on the cost ratio and Jostein Amdal can start with the inflation question. I can fill in if you want to do that. Our cost ratio in Norway, as you saw and as you have seen, improved by 0.7% in the quarter, thanks to premium growth and continued focus on cost efficiency. As you know very well and as we have commented, we continue to work on enhanced cost efficiency, making room for investment. The target is unchanged. Before IFRS 17, it's below 14%. As you know, with the operation and cost efficiency never go out of fashion. This is extremely important for the organization.
We are working with all kind of efficiency measurements quarter- by- quarter. The target is unchanged. With IFRS 17, we will comment in more detail the consequences of IFRS 17.
On the inflation side, sorry, okay?
Yeah, I was just saying thanks to.
On the inflation side, which is kind of, I guess the main point of the question is do we manage the price according to at least in line with the inflation going forward? I think the answer to that is yes. We do still continue to price at least in line with inflation for the main product territory in Norway. As I said before in these remarks, you see a fairly stable inflation picture now from last quarter. With pricing in line with that. There are some pockets that still will need to be repriced in the commercial, or we aim to reprice in the commercial lines.
As you have seen from the fairly large improvement in the Baltics, they have priced more than the current claim situation. The same goes really for Sweden and Denmark, also the price. The question is kind of do we manage to get this through? Of course, that's the forecast, but so far we have managed to do that. Our expectation is that this is actually achievable within today's competitive environment. Just to add a comment. You remember we came behind the curve in 2018 for motor insurance, and it was quite a long price increases of above 10%. We almost managed to get that through without losing any volume. Also today, our peers are also pricing in line with claims inflation or above claims inflation.
The levels is below actually what we experienced in 2018. We managed to get this through, and our peers are acting more or less in line with what we do.
Perfect. That was very clear. Thank you so much.
Thank you. We'll now take our next question from Alexander of Credit Suisse. Your line is open. Please go ahead.
Hi, everyone. Thanks for taking my questions. The first one would just be on inflation in general, and thanks for giving the color around some of the Norwegian markets, Helge. I think you previously gave claims inflation guidance of about 5% in Denmark. Just eager to hear how you think claims inflation guidance right now is for that. If you could give any comments around Sweden as well. I know you have a relatively sizable underlying frequency loss ratio deterioration there. If you could sort of give some details on what's really been driving that trend. Is that sort of a Jens Udbye issue or more of a market issue?
Just on some of the wider commercial improvements, is it possible to attribute, you know, all of this to rate or, you know, what proportion of this is actually better risk selection and how sustainable is this four percentage points? Finally, just around private. Obviously that's largely flat in the quarter year- over- year. Is it the expectation now that you're sort of pricing in line and actually you're just targeting cost synergies or necessary cost reductions going forward? Thanks.
Yeah. I give the word to Jostein, and he can comment on claims inflation in more detail for Denmark and Sweden. Yeah. Starting with Denmark, the claims inflation picture in Denmark is very similar to what we see in Norway. It's all about 4%-7% if you.
One moment, please, while I reconnect the speaker. Thank you.
Are you back online? Hello?
Yeah, we can hear you.
Sorry, Alex. Problems on our side there on the phone connection. Let's start again. Inflation in Denmark. For motor, same range as we talk about as for Norway, 4%-7%. For property, about 5%-8%, maybe a percentage point higher than in Norway. It's a fairly similar claims inflation picture in Denmark and Norway, and driven by the same factors, underlying high increase in energy prices, and expectations about wage or labor cost development. In Sweden, we actually see a bit slightly lower inflation picture. On motor, 3%-5%. For property it's more or less the same as in Denmark and Norway at around 5%-7%.
Big difference there that we see that commercial properties has a slightly higher expected claims inflation than private property due to the, it's a bit higher material content in the commercial properties that we find on the private properties. The second part was on the underlying frequency ratio in Sweden. I think that we also talked about this in the previous quarter, that the quarterly losses in Sweden are somewhat more volatile due to the portfolio size and composition. I think that the correct view on Sweden in my mind is if you look at the actual combined ratio, so loss ratio, we are actually quite happy with the combined ratio for 88%, or 87.9% in Sweden for the quarter.
I think that, you know, we're looking for a combined ratio of very low 90%s. If you look at the year- to- date, we have a 92.9% combined ratio in Sweden, and we expect that to continue downwards going forward. Rather than Q3 last year was exceptionally good, I think the level now is more in line with what we do expect. I haven't seen.
Just to clarify on Sweden. You're happy you're pricing in line with claims inflation in Sweden. Is that sort of the takeaway?
Yes. Yeah. Absolutely. I think it's, I mean, I think we talked about also in Helge's remarks in the call that there is some volatility to be expected both for Sweden and Baltic due to the cycles in the portfolio quarter- by- quarter. The long- term trend is obviously, or definitely good. Commercial improvement. I'm not able to quantify how much it's kind of improved risk selection, how much it's pricing. It's absolutely true that we have improved and continuously improve risk selection and improve the portfolio all the way towards what we think is the best parts of the portfolio. At the same time as we price at least in line with expected inflation. It's a combination of the two factors.
Private, we continue to price at least in line with taxes, inflation there. If you take away the COVID-19 impact from that we had in 2021, there is an underlying improvement also in private. I think that is. You need to look from what level we're talking about the improvements, which is a very high profitability level as a starting point.
If I may add a couple of comments regarding the commercial segment, Jostein. I would say that I'm extremely satisfied with the development in our commercial business. You have to remember that a large chunk of that portfolio is SME, and it's also our position in the agricultural sector in Norway. What we see both regarding the combination of volume and price- driven growth, our ability to quarter by quarter drive the costs relatively cost ratio down, and our ability to, I would say, more and more digitalize the whole operation as we have done in the private sector. This is a really digitalized, industrialized and very advanced business for Gjensidige today. Very important. It's not typically commercial as you think of commercial. It's lots of SMEs.
It's direct business, as you know. This is really in the heart of the Gjensidige's business model.
Perfect. Thank you.
Thank you. We'll move on to our next question from Ulrik of Nordea. Your line is open. Please go ahead.
Yeah. Thank you for taking my questions. I have two. I was wondering if you could give a bit more flavor on the cost element in other items that is not amortization or related to the debt, cost. It was very high this quarter, but I understand it's including a settlement with some fire mutuals. That's my first question. The second one is that if you could give a update on the running yield on your different types of bonds, that'd be helpful.
Yeah. On the first one, it's true that the single largest element of that item in this quarter's result is the final settlement of a court dispute we had with a local fire mutual. That left us some time ago, and we had agreed with the opposing parties not to disclose the amount, but it's a settlement that both parties are happy with. That's the single most important part. As you correctly point out, there is interest rates on the hybrids. There is the IFRS 16 kind of lease costs. And also ordinary amortization of intangibles, and the results from the Mobility Group, if you can call it that which is now rebranded to Wego Flight, and then receiving the big group company. These are the main components.
From the mobility space, will that be a negative contribution in some of the next quarters due to like you're doing investments, you're putting it all together or?
The underlying development within that kind of the conglomerate or compound within mobility space is very good. What we have now and in line with what we talked about earlier, what we have now is the startup costs, integration, rebranding, getting kind of all the systems up and running. This is kind of in a way part of the investment case. Underlying things are going very well. We are on the positive side of the synergies we talked about in June. It really works as we communicated in June on the mobility.
In terms of the running yield, Ulrik, for the bond portfolio was 3.4%. That also includes the hold-to-maturity portfolio.
Okay, great. Thank you so much.
Thank you. Now, if you find that your question has been answered, you may remove yourself from the queue by pressing star two. We'll now move on to our next question by Tristanas of Bloomberg. Your line is open. Please go ahead.
Good morning, this is Tristanas from Bloomberg. Congratulations, Helge, on your retirement. I just had a question on a broader question on the competitive environment, looking at maybe sort of two years out. Obviously we've got your reinvestment rate for bonds, I think is now 5.5%. Again, this is quite a substantial level compared to what we've seen in prior years. Given that sort of the margins across the industry and among the listed sort of players and all the margins are really good.
I was just wondering we should expect to see some competition, presumably from players that are not listed or any sort of disruption given you can now earn a decent return on your equity based on your investment portfolio. Any color on how you view this risk would be really appreciated. Thank you.
Yeah. I think I commented during my presentation, it's tough competition. Although we present strong figures quarter by quarter, but it's tough competition. Disruption, we have discussed disruption for years. It's important to remember that lots of the Insurtech initiatives we see around the world is related to the front- end solutions that we see that the banks and the insurance companies in the Nordics have implemented in their business models. I do not see any international entrance into these markets for the next couple of years, next three years. The challenge long- term is related to the dynamic in the motor industry, markets. We commented that when we introduced our, let's say, Mobility Group initiatives earlier this year.
At the moment, it's also interesting to follow Storebrand and If in Norway. They have been loud regarding their ambitions, growing their business and also trying to enter into the SME market. As I commented some minutes ago, it's extremely integrated and advanced business model we have in NCDV related to the SME market in Norway. It's not only to enter into that market, it's lots of components, very integrated, with people, technology, processes, etc . Regarding interest level and increased interest level, does the increased interest level give us more pressure on combined ratio? I think we commented last quarter that as long as we are below 5%, we think the same type of targets will continue for peers and ourselves.
All else equal, an increased interest level up towards 5% will give us over time better EPS, same type of financial targets and same type of competitive dynamics. That's my best perspective for next couple of years.
It's not that easy to enter a market. I would say, you know, we are talking about claims inflation, and this is dynamic. We have lots of resources working with claims inflation every day, and we price in line or above claims inflation. Jump into a market with that kind of development is not that easy either. I don't think that's the best actually window to enter a market if you want to go into the insurance industry. More of the same for the next couple years.
That's perfect. Thank you. Thank you, Helge.
Thank you. We'll now move on to our next question from Blair of Bank of America. Your line is open. Please go ahead.
Thank you. Thanks very much. Quite a few of my questions have been answered, including the very last one, so thank you for that. Just on the investment income side, I think you talked about the running yield today, and we know roughly where the new money yields are. Just wonder if you could comment on the impact on the expected investment income, and how long that will take to feed through. Is this just a one, two year effect? Just to get a flavor for how that's going to evolve. Secondly, just on the competitive environment in Denmark specifically, you talked about, you know, greater levels of competition. Just wonder if you could comment on what's going on on the ground there. Thank you.
Well, I expect the income to have become an average around between three and four years duration. It kind of sets this year idea of kind of how fast this will go into the accounting profits. Remember that, from a software perspective, this is all mark- to- market starting in January 1, 2023, everything on the book will be mark- to- market. In a way, you will see the actual interest rate level into the accounts when we move to IFRS 17 1st of January. I guess that's the more important picture is the one beyond the fourth quarter. On the level of competition in Denmark and what's happening on the ground, I think we seem to be very competitive on the commercial side, gaining volume without sacrificing on the profit side.
On the private side, I think there is more kind of day-to-day competition than what we've seen, and also we are suffering a bit from the reduced car and private property turnover in Denmark because that's for us an important sales channel, maybe relatively to the others, our car dealer car partnerships and through the real estate brokers. Since the market lead on the change of ownership insurance and on property markets. My thinking around that is that this is a temporary phenomenon. We're going to be back on track developing market in line with market growth in the private part also going forward.
Okay. I guess on the first point, we'll hear more about IFRS 17 and how you expect to implement that in due course. Your point I guess is that, you know, it will allow us to see the impact of moving to market yields more quickly. Is that the point, you're saying?
Yeah. I mean, if we'd been continuing the IFRS 4, this would have kind of moved into amortized cost as the kind of old bonds matured, and the new bonds were a larger part of the portfolio. Given IFRS 17, we don't have mark to market at all, the whole match portfolio, and then the free portfolio.
Just if I may, not really a question, but Helge, I know this is your last results presentation. I think it was nice to see you talk about the track record that the company's established over the last decade or so. I remember I was fortunate enough to be involved in the IPO process and had many interesting conversations with you around that time. Can't believe it was 2010, a long time ago. Congratulations on what you've achieved over that period of time. The returns have been spectacular, and it's been a pleasure to be involved with you over that time. Congratulations and very good luck.
Thank you very much for good words. Yeah. It's actually 12 years since we did IPO, so time flies.
Indeed.
Once again, thank you. Thank you very, very much.
Congratulations.
Sorry. Thank you. We'll now move on to our next question from Jan Erik of ABG. Your line is open. Please go ahead.
Hello, it's Jan Erik Gjerland from ABG. Just a couple of questions from my side as well. Just on the follow-up on the following question on the interest rate sensitivity. Could you give any sense to how much you will then hike your running yield from 1st of January, to be frank on that question?
I think it's the running yield on the portfolio at the moment is kind of the best guidance we move to IFRS 17 today. You see a current yield on portfolio of around 3.4%. I think that is the way to get. Then as existing bonds mature and new ones are reinvested at a higher rate, that will gradually increase the running yield of the portfolio. As from January first, it will be mark- to- market. Any it will be the rate that is in the market at that time, which determines the interest rate.
Okay.
It's the market rate, really.
Yeah. Okay. We'll learn more on the November, as you said. Secondly on retention. I think I heard that you've had some less retention in Norway. What has really happened to that? Is that some customers you wanted to get rid of or is it sort of competition that forced it to happen?
It's just a marginal decline in the retention at a very high level, above 90%. We haven't really given that too much consideration. I mean, it is very, very small changes.
Because the competition
Sorry.
Have you read more into the affordability issue, now as we have moved on since we met in late August, and seen more of the households struggling to sort of having the volume portion intact in your business?
Short answer is no.
On the Norwegian retail and commercial business, you are up for a renewal now on 1st of January. How much of the book in the commercial will be renewed, roughly?
Around 40% is renewed on the first.
Okay. Finally then on the Norwegian retail, could you give any color then on the sort of flattishness of the curve? Are you now happy with the profitability? As you said, this is at a very, very high level, and you would now rather be certain that you are making the clients happy so you can have a decent level of premium growth without actually hurting the profitability a lot. Is that what you're thinking of both Frampton and Stevan?
Yeah. First of all, I mean, we look at numbers, and it's obviously extremely good numbers. So yes, we're happy with that. No, we're never totally satisfied, so we're always trying to improve on what we have, both on profitability and volume. Yeah. We are still pricing, at least in line with claims inflation, also from a retail and private segment, and hope to improve also those rates going forward without losing customers or decreasing retention. This is an optimization that we do daily, weekly, monthly.
Just to add, yes, Ben, as you remember, Jan Erik, for many quarters, we communicated price at least in line with claims inflation for motor. We also communicated above claims inflation for property. We are now really satisfied with the profitability levels. The communication is pricing above at least in line with claims inflation for both these two product groups. We are happy with the level. We feel we have strong competitiveness. We have a very strong cost position. It's always, as you know, profitability before market shares. We are not stressing about competition and trying to increase market shares and things like that. It's the same type of ambitious development based on profitability before market shares.
Very clear. I just want to say
It's in line with claims inflation for both property and motor.
Okay. I would just step up and say the sign off clear. Congratulations with your fantastic track record at Intility since you started long before the IPO. I hope you will succeed in your next position. Good luck for the future, and thank you.
Thank you, Jan Erik. Thank you very much.
Thank you. We move on to our next question from Vinit Malhotra of Mediobanca. Your line is open. Please go ahead.
Yes, thank you. Good morning. Just a follow-up here on Denmark. If I read the report here correctly, it seems that your volumes in Denmark are down year-over-year in private. I wonder if you could give some more details to the competition while you're down, and then also, if you can, how much you have increased premiums in Denmark in the same period. Thank you.
It's correct that if you take away the effects of the Mølholm business that we bought, premium volume in the private part of Denmark would be down. Overall, premiums in private including them is up. Also positive adjusted development within the commercial lines in Denmark compensating for the fall in the private part and for the segment as a whole. Competitive situation is not anything particular that has changed in my view. I mean, we see the same main competitors as we have seen for a long time. You might have seen that there have been some changes and some partnerships, large partnership arrangements in Denmark between other competitors, not involving us. There's a competition for the large partnerships, I would say.
Yes, we are the latest one to move, Harbour. Otherwise, we are still very positive about the future development for our partnerships for the home real estate brokerage and the importance of car partners. Temporarily, I would assume there is a lower new car sales and lower volume of property transactions in Denmark as well as of the previous quarter. Given our market share within change of ownership insurance in Denmark, that serves us somewhat more than the others. Yeah. I think that's it.
Understood. There's no implication from the change of IT system and the like?
No, I think there is a general happiness about the new IT system among our frontline people that meet the customers. Clear improvement, yes. Not everything is in place. Still, we are, I think, around 70%-80% of the portfolio now moved into EVIT, the new system on the private segment. Then commercial will follow later.
Okay. Thank you very much.
Thank you. We'll move on to our next question from Frans Høyer of Jyske Bank. Your line is open. Please go ahead.
Yes, sir. Thank you. Just following up on the question on Denmark and relating to the customer retention that you show on slide 14 in the presentation. I was wondering, is the decline, is it because of your pricing or is it because of your claim sampling? I guess with the new IT system, I would assume that this should be moving in the other direction.
Are you talking about the retention levels?
Retention levels in Denmark.
There is some, in a way, I mean, some technicalities related to the home, the lack of sales in the change of ownership there because that is not their contracts, and they kind of move out of the portfolio, and there is not new property transactions coming. There will be a more reduction in the retention. Also there is a repricing of course ongoing in the Danish portfolio itself to keep track with the inflation which has increased churn somewhat. I will not describe it to the new core system in any way. It is also somewhat that we, you know, we got this distribution arrangement with Nykredit back 1.5 years ago is now.
That still continues to hurt the retention level somewhat.
Just to follow up on that, curve around?
Well, we are still going to meet the expectation on the pricing. That is not the issue. We are just working every day on improving the sales organization and are slowly getting more traction on the new partnerships that we have with the home the real estate broker and the new car partners. It's nothing dramatic changes. It's just going to hard work and slow improvements there.
Okay. Thank you very much.
Thank you. We'll move on to our next question from Vinit of Mediobanca. Your line is open. Please go ahead.
Yes, good morning. Vinit from Mediobanca. Thank you very much. Quick one, please. First is just on the just starting with commercial just to understand. If, say, a farmer has his personal car that he's insuring with you, is that counted in commercial motor, or is that counted in personal lines? I'm just trying to understand because, you know, now it's been, what, two or three quarters of spectacular performance in the commercial line. I'm just trying to understand whether any of the borderline items, agricultural, crop, I don't know, something that's just kind of just curious to understand. Second question is just on the private equity front, where we see remarkable 5% return in Q2.
Just curious if some of this is a modeling return or the evaluation that your funds are providing that it couldn't be at risk. Because that looks like pretty surprising number. Lastly of course, I've missed Helge Leiro Baastad's last call and conversation from my side as well. Thank you.
Thank you, Vinit.
Thank you. As you know, the agriculture segment in Norway is not that big. We have around 70% market share. That's the roots, you know, for insurance. A typically Norwegian farmer, in average, of course they have cars, they have some buildings. They usually also have another job beside their work on the farm. Everything around that farmer is re-registered into the commercial book. You know, I think the total turnover of the agricultural segment is not that big if you compare that to the total commercial book. I think it's 1/12 or something like that, NOK 1 billion out of NOK 12-13 billion, something like that. That's right. His personal car is part of the commercial book.
Okay.
PE, that's actual revaluations in the portfolios and the non-PE portfolios of the PE. It's not a model development. It's also partly related to currency movements, where there has been some unhedged dollar-based investments in the portfolio. You get a positive return from the exchange rate movements. The dollar has strengthened against Norwegian krone.
Okay. Thank you very much.
Once again, ladies and gentlemen, if you find that your question has been answered, you may remove yourself from the queue by pressing star two. We'll move on to our next question from Jimmy of UBS. Your line is open. Please go ahead.
Hi. Thank you for taking my questions. I have two, please. First one on the cost ratios. Now that you mentioned that, the wage inflation is having an impact on your claims, and I presume this would have some impact on your cost base for yourself as well. Could you give us some color in terms of how your cost base is going to move going forward in particular in relation to wage inflation?
You know, so far this year the average, I would say, the change in wages on average was 3.7%, and we had some more than that, of course. I guess around 4% is the figure for 2022. I guess also 4%-4.5% will be the figure for the next couple of years. This is not any dramatic driver for our cost base. You also have to remember that we every day work with digitalization, automation, and try to do all the processes in a more effective way. That's more important discussion compared to wage and wage increases related to the cost base and the cost ratio.
Okay, thanks. My second question is around the credit risk in your investment portfolio. I guess there's a small negative in the match. Also, probably some bigger negatives in the free. I just wonder what's your kind of views and feels about your credit exposure in your investment portfolio at all, especially ones that are exposed to covered bonds spread?
Look, it is true that, especially in the Danish part of the match portfolio, there is a lot of covered bonds, Danish.
Real estate bonds. It's a bread and butter instrument for us in as a hedge instrument. More or less low default risk, but there is of course market risk and optionality within that portfolio, which has hurt us somewhat this year. We'll continue to use that for the hedging of Danish real estate office. Also in the Norwegian part, there is some Norwegian covered bonds in the match portfolio. More even development, I would say, than the Danish real estate. But we're still very comfortable about using those for hedging. Regarding the default risk as very, very small.
Yeah, thanks. I also just want to echo in the remarks, so congrats, Helge Leiro Baastad, on the amazing achievement, and best of luck for the future.
Thank you. Thank you very much.
We'll now move on to our next question from Michele of KBW. Your line is open, please go ahead.
Yes, thank you. One question from me. Of course, you have done back in 2018, you guided us through the improvement in your general pricing infrastructure, especially motor. Would you maybe give us some sense of the improvement that you have made to this infrastructure in the past couple of years, let's say three years? And also, what kind of improvement you envision, considering the developing and changing environment with high inflation in general? Thank you.
I can start and understand yeah to fill me in afterwards. Yes, you are right. If you go back to 2018, we came behind the curve related to motor insurance. That was also a question about claims inflation. That was due to, as you remember, the rapid shift toward the modern cars with all kinds of technology and spare parts and increased claims costs. In addition to that, it was also spare parts and currency issues. Everything happened quite fast, and we came behind the curve. We established a project internally. We call this Back on Track. It was a very close cooperation with Jostein's best people, the private division, the commercial division also.
Obviously, they also have lots of cars in Norway, and of course, the claims operations. We actually created a new type of process that was a much more agile process regarding tracking changes regarding repair cost process, claims inflation. We established actually a best practice, I would say, for much more rapidly to change prices on the go based on all the dynamics around us. I think that process, as we established in 2018, has been extremely important for us in the claims environment or inflation environment we have now these days. You can maybe continue to say something about that, Jostein.
Yeah, I mean, if you want to kind of highlight really one thing about all the improvements we did after 2018 is the really close cooperation we now have with our suppliers within the claim handling processes. Where we have as the major purchaser of these type of services now, that we have the best friends possible with our suppliers, and a very close and frequent dialogue, so that we can early detect changes in their expected materials in price increases. We can bake that into our tariffs and our price increases.
I think that has been extremely helpful in the last three or four quarters when we have had this volatile inflation situation, and they really have helped us so that we are where we are, where we actually have hit fairly well the actual claims development, as witnessed by the price increases and the reserves we have delivered. Since 2018 we have also moved closely into the motor industry in Norway, with the initiative from the Gjensidige Mobility Group. We are actually sitting around the table together with suppliers and our main partners in the claims handling process. We have a completely different situation. Now I'm talking about motor insurance these days compared to AP.
Thank you.
It's a child here who want to have some journal.
Thank you. We'll now take our last question from Trym of Citi. Your line is open. Please go ahead.
Yeah. Thanks for taking my question. I'm hoping that I'm audible. Just on coming back to the wage inflation. Because you alluded to that in the coming years, wage inflation will be like around 4%. So what is the long-term wage cost assumptions that is embedded in your modeling to the claims reserving? And do you see there's any risk of sort of increasing the long-term wage inflation assumption because of the higher forecast for the next few years?
Yeah. I mean, this is of course an extremely important question for us to see long- term. If you talk about long term for more than the closest next 2-4 years, we haven't really changed our long term forecast. It's. There is a considerable volatility and uncertainty around inflation and growth and so on. Currently, a very high inflation spilling over into high wage inflation. Expected forecast very moderate growth, maybe a recession next year, which will probably dampen wage increase again the year after. That will move it back towards a more normal level. We see still similar interest rate targets from the central banks or communication targets from the central banks around 2%.
Our long- term forecasts are really just the same as kind of the experts in the central banks and the Norges Bank. We're moving towards an inflation long term, maybe around 2% again, long- term, with a wage development. It is slightly higher than the inflation, so it will be in the long term, a real wage growth again. This is baked into our really long- term part of the reserving as well. The current higher inflation is handled within the reserves we have. We're not really concerned about that.
Just on clarification on the G factor, probably that is related to national pension basic pension amount. I understand it is related to I mean it is set by politicians. Is there any and also related to the wage inflation. Do you see any sort of probability of getting the G factor getting increased?
Again, really long term, which I mean most of the reserves on these personal injury- related claims are really long term. Next couple of years, we do expect, as I just said, you know, if wages is around 4-ish%, then we do expect the G factor to be somewhere in the same range. But really long term, nothing has changed. And most of that reserves is kind of from being paid out 4-5 years ahead and further all the way towards 40 years ahead. In that perspective, we haven't really changed our forecasts.
Okay. Thanks. This is the last one on the large claim. Because the quarterly budget remains around NOK 136 million, but we continuously see a much lower amount than that. What are the structural things? Is the underlying risk for large claims reducing? What are the components that are driving those large claims? Should we expect this sort of trend going forward, or should we expect sort of stability and more comparable to the normalized going forward?
I think, I mean, this is a really long-term focus that we have, which have developed based on our internal model. In the longer term, if underlying inflation growth in the commercial books, both those will have increased our estimate of large claims. Potentially more volatile weather situation due to climate effects will also increase it. On the other hand, what we have witnessed is partly just luck and partly good risk selection that have made us actually deliver or given us lower large claims for most of the periods that we've seen behind us, most of the quarters that we have reported. I mean, the real long-term average there is, it's really hard to make a precise estimate in that.
We just see that we have been on the conservative side for the last several years, but yeah.
Okay. Thank you. Congratulations. Thank you.
Thank you.
Thank you. There are no further questions. I will hand you back to your host to conclude today's conference.
Thank you. Thank you for all your good questions, everyone. We'll be participating in a number of virtual meetings and one conference next quarter. We will be meeting investors in Norway, the U.K., Germany, Sweden, and China. For more details, please have a look at our website. Thanks, all, for your attention, and have a nice day.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. Stay safe. You may now disconnect.