A warm welcome everybody to this Quarter 2 presentation. As you probably know, the Norwegian society is gradually opening up again. That's the reason why we have invited to our normal meeting spot here in Oslo with the necessary one meter social distance between the guests in the room. There are not too many in the room, but we are given that opportunity. Thanks a lot to you that also arrived here. My opening point in a quarterly presentation is normally to start with the DNA of the company. This is who we are. When we recruit people in Manchester or London or other places, we will always start with this kind of slide and say we are different. We believe in culture. Here are our 12 statements.
I do understand that you as investors, you have questioned our credibility when it comes to one of our targets, profitable growth, lately. We have seen poor years in 2018 and 2019. The question after Q1 was whether we have passed the turning point and are gradually starting to deliver a reasonable profitability or a good profitability again. It's good to be here today and continue to deliver them on the very important technical results. My highlight for today is the combined ratio is 92 on a company level. 91 if you include change of ownership business, where we still have some business as you know.
A 91 or 92 on a combined ratio side is what I would call acceptable or potentially good, and as I will show you a bit later, I think it's fair to say that the underlying reality is in line with the figure you see here, or potentially slightly better than what you see here. Other important elements from the Quarter 2 is a continued strong price increase in the Nordic market and a very strong investment result where we are not only bouncing back together with everybody else, but delivering a profit, potentially a bit above expectation. I brought the Chief Investment Officer, Dag Marius, with me today in order to cover on the investment side. The solvency capital ratio is a bit above 160, which I guess is pretty close to your expectations after a good Quarter 2 here.
This has led to a profit after tax size NOK 580 million. If we go to the volume update, here you can see a three percentage points growth in local currency, and because of fluctuations on the currency side, a 16% growth in NOK. As earlier communicated, you can see that we are putting a lot of priority on the profitability issue in the Nordic market while expecting to continue to grow in the U.K. market. Remember when you see these kind of figures there, that Quarter 2 is not really a big quarter in Protector. It is in the U.K., but not in the Nordic markets. Percentage points deviations on a pretty small quarter is not very important. It is not.
As always, we are open up for questions when it comes to this presentation. Feel free to pop them in during the presentation, we will either take them at the relevant place or at the end of the presentation. We have got questions, I understand, on the volume side.
Yes, we do. A question from Vegard Toverud . Premiums are significant down in Norway. Could you discuss the development? There is a gross written premium down 20%, while net written premium is down 5%. Could you discuss the impact over the next quarters?
If you do look at the slide here, and if you take a look at the first half year, you can see that the deviations here, and they are not that huge. The first quarter was pretty good on volume, and that's the big one in the Nordic market. I don't really worry too much about some clients' loss, either in Norway nor in Sweden, in Quarter 2, in Quarter 3, or in Quarter 1. In the Swedish market, we lost a very, very significant client. Potentially the second biggest in Protector in Quarter 2. It was an unprofitable client with a lot of frequency claims. It's pretty obvious to us that we must price up very hard, and if that client leaves us, it's kind of obvious we would prefer the client to stay. It must have been to a significant higher prices.
If that is impossible, we say just let it go. Volume development in the Nordics, where we are talking about here, Sweden and other areas, it's a pretty small quarter. Profitability goes first. We lose some clients. Don't worry too much about it. My expectation entering into 2021 is somewhat more positive when it comes to volume development in the Nordic market because the kind of necessary price increases and portfolio cleanup situations, they are basically history. I wouldn't worry too much about volume development in the Nordics. We will be back in 2021. In the meantime, it's U.K. driving the volume development as earlier communicated to the market. Is it any other on the volume side? That's the volume side then. If you go to claims development, it's obviously a strong improvement relative to earlier periods.
I can make a comment on the different countries when we are having a look at the combined ratio slide. I think that's slightly more relevant. First here, before commenting on the different countries, you can see a small reserve loss. It's 1.9. Don't worry. It's within the normal volatility areas. This is what should be expected. A little bit on the negative side or a little bit on the positive side. I wouldn't worry on neither of them. The question is whether we see any effects from the COVID-19 situation. Our calculation today is that we see a small positive element coming out from reduced activity levels in Norway, Denmark, Finland, and U.K. on the motor side. That is history now. Society is opening up again.
Traffic is back to normal, and it has been a small kind of positive effect from the COVID-19 situation in quarter two. I think we will see some smaller elements on the negative side in the following quarters in that they will balance out. To us, as far as we can see and at the moment, we think that the COVID-19 situation will balance out through the year and also on some long tail products through the coming years here. A bit on the positive side, a bit on the negative side. Nothing we know at the moment, which is significant on a company level. When it comes to large losses, we can see a pretty normalized situation slightly above normal. Our expectation is that large losses will be around 8% every quarter. It's 9.6% in quarter two, somewhat above a kind of a normalized level.
It's a large number of claims sized NOK 10 million or NOK 15 million or NOK 20 million. It's not a single event out there, but a bigger number of large claims, but not very big here. It's mostly in the property area, but also something on the liability side, and two or three of them on employee benefit type of products also. Runoff situations, they vary a little bit between countries. A limited loss on reserve side. Slightly positive figure on the COVID-19 side, a bit behind normal on large losses. In totality, that's the reason why I say that our accumulated combined ratio 92% or 91%, including change of ownership, that underlying reality is potentially slightly better.
If you take out these one-offs in that area, and if you sum those one-offs up, you will see that the underlying reality, that we could argue that underlying reality is slightly better than 91 or 92. We didn't have any questions there. When it comes to the combined ratio situation, I do have a statement in the center of the slide there. Quarterly volatility must be expected on country level. I wouldn't worry too much if a country like Denmark or Sweden in quarter two is somewhat above 100, and I wouldn't be too happy if a country or two like U.K. or Finland is a lot better than expected in a quarter. We have been on the lucky side in U.K. in quarter two. We have been on the unlucky side in Sweden in quarter two.
I do understand that there is a question here.
Yeah, just about that. Did something happen specifically in Sweden to raise the claims ratio?
Yeah. The question is whether something happened with Sweden, because you can see a combined ratio here sized 102.7. My question is, yes, we had above normal number of large losses on the property side in Sweden. When I say that on a company level, we were kind of two percentage points higher than normal. We were a lot higher in Sweden. Higher than normal large losses in Sweden on the property side, more on the positive side in U.K. Basically, it balance out pretty well. I wouldn't worry about the Swedish portfolio. If you go two years back, we had another situation, or 18 months back, then we had high claim ratios in motor business in Sweden, which is the biggest product by far. The reason was that we were lagging on prices and that claims inflation was higher than expected.
I guess we had the same problem like other players in the corporate market, in the motor fleet market. That is an issue that it takes 18-24 months to fix, while a large loss incident or a set of incidents in Sweden in quarter two is nothing to worry about. As we can see from the half-year results, despite the fact that we are significant above normal in Sweden on the large loss side, we still have a combined ratio size 96 in Sweden. My expectation is that that 96 in Sweden will improve during the second half-year. No guarantees given. Large loss element leads to volatility. However, nothing special in the Swedish market. Any other questions on the profitability side? No? Okay. My COVID-19 summary, I think I've given it. This is kind of the follow-up structure we have in Protector.
I have one more comment on it, and that's linked to a couple of the Nordic countries then. If you have a look at the slide here, when it comes to COVID-19, and that is the statement number three and four on the bottom of the page here. You can see that we continue to reduce our presence in workers' compensation in Denmark. The reason why is because capital consumption on that product is very significant and risk-free interest rate is gone. The glory days of Warren Buffett saying that, "Workers' compensation is beautiful, and I would like to buy workers' compensation portfolios in order to invest money to earn it," that's history. Now you need a combined ratio far below over 100 in order to give an acceptable return on capital.
Workers' compensation in Denmark is getting into a corner where it's basically an impossible product to earn money on. You must see combined ratios down to 70, and that's not accepted in the market. We will continue to reduce workers' compensation volume in Denmark, not to zero, but to a very small number. When it comes to Norway, it's a bit of a special situation that authorities, they have implemented COVID-19 as an element in the mandatory workers' compensation product in Norway. You could argue that is done retroactively, and it's a bit of a strange situation. They are asking insurance companies in the shorter run, and then end clients in the longer run, to pay the premium for COVID-19 as a workers' compensation type of illness. We do have a dialogue with authorities in Norway on the matter together with Finans Norge.
I think it's a reasonable dialogue we have with government, and we support the government a lot when it comes to COVID-19. I think they are pretty good or actually very good in handling the situation in Norway. In this one area, we are not too happy about it. It could lead to prices in health sector and in municipality workers' compensation sector, where prices is multiplied with 10 or 50 or 100. It could lead to insurance companies just exiting these kind of segments in the market. There is an issue. To Protector as a company, it's not very important as it looks today. It's a matter of principles, and we need a dialogue for the dialogue with authorities on the matter. Workers' compensation reduce presence going forward, and continue to have a dialogue with authorities in the Norwegian market.
When it comes to the Nordic statement, I think I've given it already. Price increases are strong, and they will continue. We will continue to increase prices the rest of the year. My expectation is that it will be price increases in the Nordic market also in 2021.
A question from Ruben Visser on the second bullet, the renewal rate. How can you be so confident that the renewal rates in the Nordics will improve?
What we see here is that in Q2, we have a renewal rate sized 75 in the Nordic market. Our normal renewal rate is around 85. 85, 86, could be 88 in a good year. It could be down to 82 or something like that in a poor year. This renewal rate is obviously pretty low. Remember, one client lost in Sweden here, far above SEK 50 million annual premium, influences a lot on that kind of figure. That was done for profitability reasons. We have a history of more than 10 years in the Nordic market, where we see a pretty normalized renewal rate, mid-80s. My expectation is that after significant price hikes during the last 18 months, that situation will normalize entering 2021.
It's also good to hear that some competitors still do price increases, which makes it slightly easier to get them through the market.
One more question from Ruben on the workers' comp Norway. How big is it, and has it been profitable in recent years?
The workers' compensation volume detail in Norway is around NOK 200 million in annual premium, or give or take. The kind of reduction we are doing is in health sectors only. We are talking about more like NOK 25 million of reduced volume relative to the COVID-19 type of situation. That kind of reduction, potentially slightly more. The reduction we do expect from that situation in Norway is very, very limited compared to an annual premium of around NOK 1.4 billion in that market. We're talking about 2-3 percentage points reduced volume in Norway in 2021 due to the COVID-19 type of situation. We are not exiting workers' compensation as such because in all other segments, it has been profitable during the 10-12 years we have been in the market.
We are happy to stay in the workers' compensation market in Norway, but not in the health sectors. Hospitals, caring people working in the municipality, traveling out there to elderly people in order to take care of them, that's the kind of segment which will be influenced negatively on the COVID-19 type of situation insurance-wise. That's okay? No more questions? On the U.K. side, we can see a 80% growth in local currency. The quarter two is pretty big in U.K. because the main renewal date in public sector is related to April 1st, not January 1st like we see in the Nordic market. A significant growth in a pretty big quarter. The reason why we are growing more now is because competitors are increasing prices while we are basically delivering the same prices towards the market like we did one or two years ago.
It is, to a certain extent, what we could call a hardening market in the U.K., where many competitors are driving prices upwards, and it's a bit easier to get access to volume to what we could call acceptable or good prices in the market. At the same time, our presence with the big brokers are growing, and we are getting more opportunities, even if it's a slight kind of setback due to COVID-19 because it's a bit more difficult to meet brokers and meet clients. Virtual meetings, they work very well. However, in order to convince that Protector may be a good alternative, it's slightly more difficult through the web channel relative to physical meetings. We hope we can meet brokers and clients again in the U.K. In the meantime, we are happy to see a strong growth in the U.K.
As you have seen, it has been, at least lately, combined with a very healthy profitability as also in that area. The churn is very, very low, we hardly do not lose clients in the U.K. That is also pretty normal for a new company, because you normally hold a client for four years. We haven't really reached that kind of situation that we are starting to lose clients in the U.K. You lose some, the renewal rate is closer to 100%, as it should be in a new market when you open up. Is it more questions to the U.K.?
I believe you covered it.
Okay
in the presentation.
Okay. We are onto the investment side. My short introduction to Dag Marius is that, as you know, we kind of insourced the investment department five, six years ago into Protector in order to manage that kind of portfolio ourselves. We have, as you also know, prepared for two or three years and taken money off the table to see whether any opportunities do arise. Seeing from an investment point of view, it has been a kind of an interesting period now, Dag Marius, so feel free. Take the word.
Thank you, Sverre. Strong investment results in the second quarter with a gain of NOK 639 million. Year to date, the return has been 1.5%, with the bond portfolio yielding 2.9% and a decline of the equity portfolio of 13.2%. The return on the bond portfolio has been NOK 441 million in the quarter. That has come on the expense of the yield that has declined from 4.3% at the end of the first quarter to 2.5% now. You can also see that the risk-free reference rate has decreased this year with one percentage point, which hits our investment return with NOK 120 million annually, which is not a good thing. At least in theory, insurance companies in Norway and in the Nordics should compensate for that by increasing insurance prices. Time will show. A high-yield portfolio totaling NOK 3.5 billion at the end of the quarter.
On the equity portfolio, the return has been 25.6% in the quarter. Our portfolio companies has delivered overall good quarter one results, making us upward adjust our intrinsic value estimates on the portfolio with 2%. However, there has been a decline due to the strong performance. The discount to intrinsic value has decreased from 57% in the first quarter to 47% now. On the right-hand side, you can see our performance since inception, and it has been good the long term, but disappointing in the last two years. Now to a recap of what we have done on the bond portfolio side the last four or five years. We have, as you can see, significantly increased the AAA part of the portfolio, going from 10% to 15% four or five years ago, to about 40% now. Now we have more of a barbell strategy.
We have also reduced the credit duration from four years in 2017 to 1.9% now, which then consumes less capital. We have removed all long BBB risks, which consume a lot of capital and have a very poor return when we look at return on solvency capital. I will come back on the high-yield portfolio that we have done the last years in the coming slides. This is the return. When you look at the bond portfolio and try to evaluate it's very important to evaluate it over a credit cycle. So far we have delivered a strong performance with low risk and low capital consumption. As you can see, we have performed well during volatile periods as it was in the first quarter of 2016 and what has happened now in the first quarter of 2020.
The portfolio have witnessed very few losses the last five years. This slide shows you the high-yield share of the portfolio, how it has changed quarterly since the fourth quarter of 2015, moving from 35% to 15% in 2019. That is due to the spread levels decreasing all the time and the risk-reward getting poorer, so then we're taking money off the table. Now with the spreads increasing again, as we told you in the first quarter presentation, we heavily increased our allocation to the high yield. Now it's moving back up to 27%. We have also reduced the credit duration in the portfolio from three years in 2016 to 1.9 years now. The last slide on the investment side, this shows you kind of the short period here, what we have done.
We told you about the large investments at the end of March and start of April when the spreads peaked. We have made a gain of NOK 380 million in that period due to those actions taken, mostly coming in March and April and beginning of May. As you can see, as the risk reward is not so good anymore, we have taken money off the table, and we expect that to continue going forward. Of course, depending on the development in the financial markets. I will leave the word back to you, Sverre. Is it any questions someone?
Okay. Thank you, Dag Marius. Just also kind of follow up on Dag Marius here. The question we have in corner of the slide here is, what now? What Dag Marius is saying that no guarantee is given on what we are doing now. However, as Dag Marius says, the spread level is now more closer to normal. Our expected return on capital on the high-yield side has been significantly reduced at the moment. We may start taking money off the table during the next weeks or months. However, we are considering carefully. Obviously, there is a lot of uncertainty in the market.
We are well aware of the risks and the fact that the market economy is bloody red in many areas. Hopefully during the last two quarters, we are building back on our credibility when it comes to delivering profitable growth in Protector. The first word is profitable, the second is growth. As you are very well aware of, we have prioritized the profitability situation a lot stronger the last 18 months. We think that may balance out. We will never ever forget about the profitability part, but we think that kind of action is needed, they are more limited going forward. Yes, price increases will continue in the Nordic market, but not at the same level as we have seen lately, at the end of this year and entering 2020, 2021.
The Q2 story have then ended up in the kind of figures that we have talked about and showed you. Profit for the period NOK 580 and a combined ratio of 92%, exclusive of change of ownership and 91.3% inclusive of change of ownership. Here you see the slide, ex and inc then. When we go to the balance side, the solvency capital ratio is a healthy 161%. We are also happy with the fact that the two instruments we have for downside protection are there. One is the solvency reinsurance contract where we haven't taken any actions in Q2. It's not necessary to trigger any increase on the solvency reinsurance side. It's there if a dramatic situation appears in the market, it's a good safety net. We also have option protecting the downside on the equity side.
We have filled up that kind of option totality to basically balance out the present equity portfolio. If you see market dropping close to 20% or more, we are fully protected for the downside. We are on parts of that kind of cover better protected, because we are in the money situation on some of these kind of instruments then. We have been buying up more on the options side lately, so we have two good elements when it comes to downside protection options, protecting equities, and a solvency-based reinsurance agreement that we can call on if we would like to. At the moment, we have a healthy kind of balance sheet. I guess it was a question here.
Yeah. One question from Vegard Toverud on the balance, or if you can say something about when you will take a decision on what to do with your own treasury shares or the shares we bought.
Yeah. Okay. We have a bit of NOK 4 million or NOK 4.2 million. Okay. We own 4.2 million shares ourselves, and my expectation is that they will be canceled. We haven't really had any discussion in the board lately on the matter. We will not call for any extraordinary general assembly or something like that, but my expectation is that they will be canceled at the timing may be the right one when it comes to April next year. More questions on the balance side? Okay, thank you. The shareholder structure as always. Then my final comment is that we are happy with a combined ratio around 92% in the quarter. The underlying reality is potentially slightly better.
An incredibly strong investment quarter, which is a combination of a bounce back in the market and actions taken in the high-yield market during the turbulent times at the end of March and in April. We look forward to December. I hope you all will enjoy and thanks for following us. There could be more questions here. We are on the Q&A session. There is one more question, yes? Two more questions. Two more.
From Torleif Ellestad. Is your long-term strategy to grow organically in Norway or do you also evaluate to grow through mergers or acquisitions?
Okay, we very seldom look into merger and acquisition. We have been looking at some companies during our history, so it's not kind of totally ruled out to take any actions. I think it's more likely to see a situation where we buy portfolios and not companies. If that appears opportunities, that would again be more likely to happen in U.K. or in Sweden. That's the most realistic scenario. There are more portfolios out there in Sweden compared with other Nordic markets, and there is a pretty big opportunity for portfolio acquisitions in the U.K. market. First, I think we will concentrate on organic growth and to grow a strong enough organization in U.K. before potentially start to take over for free, that happens, or buy portfolios in the U.K. market.
We have been presented for some opportunities lately, but we have said no thank you to those opportunities at the moment. I think they will be there, but we are not in a hurry.
One question from Patrick Edgren. The last few years, Protector's cost advantage hasn't translated into superior financial performance. Do you expect the company's advantaged cost position start resulting in either a higher growth rate or a lower combined ratio than competitors going forward?
Okay, that's a good one. Not saying that the other ones wasn't good. It's pretty obvious that the cost leadership we have in the world, one, is there, it's strong, it will continue. Like in U.K., we obviously use that kind of cost advantage first to take volume on board in order to get critical mass. At a later stage, the cost ratio also in U.K. will gradually go down to a lot better than competitors. Potentially, the difference in U.K. will be bigger than Scandinavia because Scandinavian insurance companies are pretty efficient, while they are not in the U.K. market. I think that it's not really an easy answer to the question whether we would prioritize to try to take super profit back from the cost advantage in some markets, or invest that cost advantage to growth.
What we are looking for is a return on equity sized, let's say, 15%-20%. Whether that happens through giving some of the cost advantage to the market, or being more disciplined on underwriting and trying to take a better profit off than the market, to us, it doesn't really matter in that area. The question varies a lot from the different markets. It's reasonable to think that we could end up with a slightly better margin than competitors in the same segment in the Nordic because of the cost advantage we have. While we probably will invest more for getting growth up in U.K. and kind of throw the cost advantage to the market in order to get up to a more significant portfolio in U.K. We will try to balance return on capital is the easy answer.
To translate that into reality is slightly more difficult.
There has come up a couple of more questions, one from Thomas Svensson. Could you please repeat the longer term guidance for combined ratio and premium growth?
We say 95 on the combined ratio side is on the longer side. 94. Have we guided on the volume side lately, Ditlev? 5%. Okay, it's more like five. I had to be reminded by the CFO here. Long term growth target around five and 94 on the combined ratio side.
The last one from Stian Helland. When do you expect to start pay dividend, and to what level do you expect the dividends to be?
Okay. At the moment, we are in turbulent times, and we are very happy with a solvency capital ratio size 161, but we must be prepared for volatility. At the moment, I think that we are looking for investment opportunities and see how we can deploy the capital we have, either for growing insurance business or for using capital on the investment side. If investment result is normalized and the technical result continue to stay good or even improving slightly more than what you can see now, it's pretty easy to project that the solvency capital ratio could go further up, which means that we will have excess capital, where the board have to go back to discuss whether dividends or buyback situation is on the table again.
I wouldn't expect any kind of decision to be taken in the near future, but it's a relevant question, and certainly, the board will discuss that potentially when the next quarters materialize. More questions? No. Okay. Have a nice summer, everybody, and thanks for your attention.