Today's conference is being recorded. At this time, I would like to turn the conference over to Mitra Negård. Please go ahead, ma'am.
Thank you. Good morning, everyone, and welcome to this conference call with Gjensidige. This is Mitra Negård speaking, Head of Investor Relations. With me on the line today is our Group CEO, Helge Leire Baastad, and our Group CFO, Jostein Amdal. We will start with an opening remark from Helge Leire Baastad before we open up for Q&A. In the interest of time, we kindly ask you to limit your questions to two per person. Helge, I pass on the word to you.
Thank you, Mitra. Good morning, everyone. I really hope you are well and doing okay. The ongoing situation in the wake of the COVID-19 outbreak is a challenge for us all, with wide implications for businesses and societies as a whole. Many countries around the world are locked down, and economic activity has been hit across all of the markets. We are in uncharted territory. As you saw in our stock exchange release on Friday, the Board of Gjensidige Forsikring ASA has resolved to withdraw the proposal of a special dividend of NOK 5 per share, which is to be voted on at the General Meeting on Thursday, 26th of March 2020. The Board maintains the proposal of its regular dividend of NOK 7.25 per share.
The change in the dividend proposal is a precautionary measure in light of the prevailing uncertainties for economic development in our markets. As per the notice to the general meeting published on third March, the Board will, in line with previous year's practice, seek authorization to distribute additional dividends later this year. All of the financial targets remain unchanged, and the amendment does not entail any change in the Group dividend policy. Gjensidige has a solid capital position to meet future uncertainties. Group solvency margins, as of the end of last year, adjusted for the amended dividend proposal, would have been 231%. As of the 19th of March 2020, it is estimated at 211% based on the amended proposal and 188% based on the original dividend proposal. Then a few words about the status for our operations. So far, the impact on our employees and business has been limited.
All critical business functions are operating well. Contingency plans were put into action at an early stage, including facilitating for our employees to work from home. We currently have around 75% of our employees working from their homes, with some variation across our markets due to different factors, in accordance with the health authorities. In Norway, 90% of our employees are working from their homes. We are monitoring the development continuously, and we are ready to adapt our response and course of action as the situation evolves. I'm very proud to see that we maintain good customer services through these difficult times. In terms of our non-life business, the current situation has primarily had an impact on travel insurance related to cancellations and helping customers abroad. So far, the total impact on group claims has been limited, and we have reinsurance programs limiting our net claims cost.
It's also worth noting that, generally speaking, lower activity can have a positive impact on claims. However, there is no doubt that the long-lasting and comprehensive development of the situation could have wider implications, especially related to premiums. We have naturally been hit on our investments, reflecting the sharp downturn in the capital markets. We are managing our positions with tight control and ensuring that our positions are well within risk limits set by the Board. We are very pleased to have a significant share of our investments in fixed-income instruments with a high credit quality. Our property investments are mainly office properties within the central business district of Oslo. The liquidity in the portfolio is extraordinarily strong. So, to sum up, we have a strong platform both financially and operationally to cope with the situation. The negative impact on our business is manageable.
We will continue our strong efforts to ensure that all of the critical business functions work well and maintain our strong service offering to our customers. So, with that, I will open up for questions. So, Operator, can you please proceed? Operator?
Thank you very much, sir. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach us. A voice prompt on the phone line will indicate when your line is open. Please state your name before posing your question. We have our first question. Please go ahead. Your line is open.
Good morning, Matti Ahokas from Danske Bank. If you could elaborate a bit more on the business impact. I know the impact on travel insurance you mentioned was very limited and probably will be, but if you look at what potentially business lines would be most impacted, kind of mainly thinking of business interruption, how are the kind of claims clauses in these agreements? What would it take for you to have to cover for small business interruptions, for example, in a large scale? Thanks.
Yeah. Good morning, Matti. As I said, it's travel insurance. I commented that first. And we currently cover cancellation of travels to all countries until 14th of April. And we also cover additional costs for expanded returns in order to avoid customers being stranded abroad. And this coverage is in line with market practice. We have a specific reinsurance program for travel insurance, which would reduce our claims payments. When it comes to business interruption, for the majority of our contracts, coverage for business interruption excludes claims based on virus outbreak. We cover indirect damages. However, the payments are capped in most contracts and must be in relation to physical damage like a fire. There you could have situations where the business interruption cover becomes more expensive because it will take longer time to get new parts, etc., but it's limited.
The important point here is that business interruption excludes claims based on COVID-19 outbreak. If you go further, for life insurance, deaths are highest in the elderly population and with very low rates among younger people. This indicates that the effects probably in terms of insurance claims will be fairly limited. That's only a small part of our life insurance for persons about 17 years old. If we look further down the road, there might be some increase in insurance for sick leaves, but exposure is very limited. As I have said, in the base case, short- to medium-term, we will see a drop in premiums and claims, I think. As you know, non-life insurance claims are typically accounted for by people, meaning that in the short term, claims drop and profitability increases. We already see a dramatic reduction in the usage of cars, etc.
Long-term perspective, though, if we go into a recession, of course, that will hit all kinds of service industries as well, and first and foremost, when it comes to growth going forward, but it's too early to speculate what kind of development we will see after this virus outbreak, but short-medium term, it's very positive for insurance business.
Very helpful. Thank you. May I have a quick follow-up and just a clarification that if a business is interrupted because people cannot come to work or there's no clients or whatever, that is not covered by insurance?
It's not covered.
Thank you. Thanks a lot.
Thank you very much. We have the next question. Your line is open. Please go ahead.
Hi, everyone. Thanks for taking my question. I just want to sort of go back to, I think, the last quarter you were talking about holding a little bit of extra capital for regulatory uncertainty. So what is the 188% that you would have been at on the original dividend proposal? Does that mean that, in your view, you'd be insufficiently capitalized to deal with regulatory uncertainty at this point? And then also thinking about M&A, the removal of the special dividend, if we had positive market movements to the year-end, does that mean that large M&A would be back on the table?
I would comment on M&A, and maybe Jostein, you can take the first one. But our appetite for growth within our defined market is unchanged. So non-life insurance in Scandinavia and the Baltics, that's the same story as you have heard over time now. The change in the dividend is not related to the need for increased firepower. But there is, of course, now a possibility that the uncertain situation will create more possibilities. But the important point here is that the change in the dividend is not related to the need for increased firepower. And the first question I have.
I can answer that, Helge. At 188%, we are very comfortable that we have enough regulatory uncertainty at this moment.
Operator? Hi, do you have a following question?
Sorry. Thanks.
Okay. Thank you very much. We'll move on to our next question. Please go ahead, sir or ma'am. Your line is open now.
Good morning to you all. Morning from ABG in Oslo. I just had some couple of questions around the potential FX inflation. The Norwegian Krone has gone sort of bananas the last couple of weeks. How do you expect that to influence your expectation around inflation short and medium term? The second question is about the solvency. Could you just confirm that the 231 at the end of December and the 188 is sort of the original dividend proposal, and now the 211 is after all of this kind of investment return changes and changes in the business? So as of like in the market, it was 211 based on the new proposal. Is that correct? Just to confirm that. Thank you.
Hi, Gjerland. The weakening of the Norwegian Krone is expected to have a negative effect on increasing inflation on imported parts, both relevant for motor and property, and that needs to be fed into the prices on our insurance products. This is something we are very much aware of and looking at continuously now. On the solvency figures, I think actually Helge mentioned them in his introduction. If you go back to the previous year, where we reported 206 given the original dividend proposal, it would have been 231 if including the amended dividend proposal, excluding the special dividend. If you go move forward to March 19, you now have an estimate of 211 after the amended dividend proposal without this amendment, and hence the original firepower is 388.
Okay. Perfect. Thanks a lot.
Thank you. We'll move on to our next question. Please go ahead. Your line is open.
Yes. Hi, Johan from Carnegie. Two questions for me as well. First, I was just curious on the reinsurance contracts and the coverage for travel insurance, how these work, what the maximum coverage is, the duration, etc., and how we should think about the net claims cost. And then also on motor insurance, maybe not on the financial impact, but if you could say something on the number of claims year- over- year. So are we down, let's say, 30%, 40%, 50% year over year compared to the same period, or how big is this magnitude due to the lockdowns? Any comments on this would be very helpful. Thank you.
Good morning, Johan. I can comment the last question, and Jostein will comment the reinsurance program. We do not comment especially soon first-quarter figures, but what I can say is that we know that we have had a mild winter. We came back on track with our profitability because we started early in 2018 to reprice the motor portfolio. So when we hosted the fourth-quarter conference, we told you about our profitability that we came back on track. We had a strong competitive position. It has been a mild winter. And as you can see in the morning and afternoon and during the weekends, it's limited activity out in the Norwegian society and out in the Nordic society. So that's my best comments on the pre-claims and the claims development. Jostein, anything on the reinsurance related to travel insurance?
Yeah. We don't disclose specific details on each reinsurance code, but I can, in general terms, say that the reinsurance program works so that we are allowed to collect the claims that we have within a certain time period, and then there is a retention based on that. So we have a certain number of claims within a certain number of days, and everything above a certain level is taken out to the reinsurers. And then we have several reinstatements, so this time period can be repeated for some time going forward. And that way, it effectively caps the total gross claims or sorry, total net claims. That's understandable, Johan?
Yeah. That at least it gives some indication. So thank you for this, and thanks for setting up the call. We appreciate it very much.
Just to give additional information regarding travel insurance premiums, it's slightly above NOK 1 billion on travel insurance, and that's excluding the Baltic business, so this is about 4% of total premiums, so it's limited.
Thank you, Helge.
Thank you. Next question, please. Your line is open.
Yeah. Hi. Vidar Lyngvær , SpareBank 1 Markets. Just one short question regarding just the dividend proposal. Is this somehow related to the PIM model not being fully approved, or is this purely a precautionary measure related to COVID?
It's purely precautionary. Nothing related to the PIM model or the revised PIM model not being approved.
Okay. Okay. Just a follow-up. Would you still pursue approving the PIM model fully toward the FSA?
We are working continuously to get what we regard as a more correct version of the model approved, so that's an ongoing work probably for some time going forward.
Okay. Thanks. Thanks.
Thank you, sir. We'll take our next question, please. Your line is open.
Good morning. It's Steven Haywood from HSBC. Two questions, if I can. You said that 75% of your employees are working from home. I wonder if you can tell us which areas or which departments are not able to, if you can give us a bit of information on where you might see greatest risk in your business. And then second question is, if you can give us information on what the key drivers, the specific asset classes that were driving the fall in the Solvency II ratio, and can you give us information on how your unrated bonds are doing, your private equity exposures, and your oil exposure as well? Thank you very much.
Yeah. Hi. I can comment on the first question. I think I said that 75% of all of our employees across borders are working from home. And as you know, with some variation across our markets due to differences in advice from the health authorities, it's not as rigid in Sweden compared to Norway and Denmark. In Norway, 90%-95% of all our employees are working from their homes. And that means that our large customer operations within claims and sales, we manage to operate the whole operation from home. So actually, we are prepared to handle the whole company from homes. It's limited with people in our offices, and we can actually operate the whole company from home. So this is due to a strong technology platform and good preparations from before.
What's important is that we also manage to keep our service standards towards our customers. This is impressive, actually, from my point of view. Jostein, maybe you could comment more on the solvency ratios and the investments. I think that was the second question.
Sure. One obvious answer to that is that the asset classes that are driving this down are equities, and it's the increasing credit spread. These are the two main factors. We've seen fall in global equity markets of getting closer to 30%, I guess, and credit spreads depending on names and sectors widening now two to five times at least. So that's the majority of the solvency values. Private equity, these values are less transparent, and we've made assumptions there going further than what the fund managers do, that there will be losses in the portfolio, and that's taking that into account when we calculate solvency. Our oil sector, I mean, our direct exposure to the oil sector is very limited. At the end of 2019, if you look across stocks, bonds, and other investments, it's less than 1%.
But Norway, given the exposure we have as an economy to the whole oil complex, it's, of course, much more. I mean, that affects banks. It affects a lot of service-oriented businesses and so on. So the indirect exposure for Norway to the oil prices is much larger.
Jostein, that's very helpful. Is it possible to give us any indication on the amount of insurance premiums that are directly or indirectly exposed to the oil sector?
The direct exposure is negative, because we are not the insurance company, except maybe for some workers' compensation and so on, but we don't do insurance platforms or anything like that. But again, the indirect effect is much. It's impossible to quantify really because it is an important driver for the regional economy.
But what we can say, Jostein, and that's historical reasons, you can see it's stronger in central part of Norway and mid part of Norway. The coastline from Kristiansand to Bergen is relatively weaker from a historical point of view. So our main competitors, they have relatively stronger presence along the coastline compared to what we have. But as a market leader, of course, we are exposed to the Norwegian economy as a whole, but I think that's a fair point also to mention.
Thank you, Helge. I appreciate that.
Thank you very much. Ladies and gentlemen, once again, if you would like to ask a question, please dial one on your keypad. Thank you. We have questions. Please go ahead, sir. Your line is open.
Good morning. It's Thomas Svendsen from Nordea Markets. Would it be possible to indicate the return on investment assets quarter two dates to help us do the P&L? And secondly, on the dividend, could you sort of explain what scenario you are most afraid of when you do this precautionary move? Is it a further drop in financial assets, or is it sort of a combination of weaker premium returns in combination with claims inflation due to the corona and thus weaker insurance margins? Thank you.
Hi, Thomas. We're not disclosing the return on assets year to date. You'll have to wait for the first quarter results. But you do have the allocation that we had at year-end, and we're giving you the reference indices. And as Helge said in his introductory remarks, we now have extraordinary liquidity in the portfolio. Extraordinary means that it's more than normal and that we have de-risked somewhat and moved that into higher liquid fixed income instruments, which has the positive effect of reducing the downside somewhat, but also the negative effect that if markets were to rebound quickly, we would not recapture what we lost earlier. The second part of the question, I think the whole point of postponing dividends now is the lack of visibility. We do not quite see the macroeconomic or the consequences for our customers or the financial markets going forward.
In this situation, we think it is the correct and prudent thing from a capital management point of view to postpone this discussion of dividends. It's not based on a specific scenario either on the asset or liability side.
Okay. Thank you.
Thank you, sir. We have our next question. Please go ahead, sir. Your line is open.
Thanks. Jon Hocking from Morgan Stanley. I hope you're well. Firstly, to what extent is your special dividend decision driven by your own views versus the regulators? And then just coming back to motor, I understand you don't want to talk about one key metric, but to what extent do you expect to see frequency fall in motor over the coming quarters? Thanks.
I think Jostein commented on the decision, and based on the current extraordinary situation, we believe it's in the best interest of the company to have a cautious stance until we have more visibility. So this is simply prudent capital management. It's not about FSA. Absolutely not. Maybe you're thinking about something.
Thinking maybe EIOPA. Yeah. Pardon?
Thinking maybe comments from EIOPA instead of the FSA.
Yeah. Jostein?
No, I think it's. I don't know how the Norwegian FSA has been influenced by what EIOPA said earlier, but as we said, this is our call on the capital management side, not pressure from the FSA. The second part, or your second question, was expectations as regards to number of claims going forward. And as I said, we observed a dramatic fall in driving. I mean, if you look at the number of cars passing the toll roads in AutoPASS, for instance, I think that was down by 30%-40%, Helge. And this is, of course, an indication of what's going to come from the number of claims because these are driving in the most dense hours of traffic where there are most claims. So we do expect a drop in the number of claims, but we're going to quantify.
Okay. Thank you very much.
Thank you very much. Once again, ladies and gentlemen, if you would like. I'm sorry, sir?
No, I just commented. We had seen this trend during earlier crisis that almost 40% of our business is related to motor insurance, and a mild winter first and this Corona situation now that will, short-medium term, be positive for our insurance operation.
Once again, ladies and gentlemen, if you would like to ask a question, please press one on your dial pad. Thank you. Speaker, it appears there are no further questions at this time. I'd like to turn the conference back to Ms. Mitra.
Thank you. Everyone, please note for the sake of good order that our general meeting will be held on the 26th of March. We have implemented a number of precautionary measures to ensure compliance with regulatory advice. This is all posted on our IR website. In short, we encourage the few shareholders who have signed up to attend at our premises to refrain from attending the general meeting in person and instead follow it on our website and vote in advance. Questions can be forwarded by email before the meeting. And please refer to our IR website for more details on this. Thank you very much for your attention, everyone. Stay well and have a nice day.
Thank you, everyone. This concludes today's conference. You may now disconnect.