We go to the investor presentation. A warm welcome to everybody. As always, I would like to start with the DNA of the company. As you know, we call ourselves the challenger. If you are looking on the slide on the screen here, you can see that we have four main targets. Cost and quality leadership should lead to profitable growth, which again will Protector . I'm fully aware that you today question the profitable growth statement here because of our profits in quarter one. The technical result is obviously on the weaker side. I'm happy to share with you not only the figures, but also my thoughts around the figures. How much is underlying reality? How much is more like normal insurance volatility? That's the big question.
As always, when we discuss insurance matters, it could be difficult to give precise answers on all these kind of questions, but I try to do as good as I can. This is an underlying reality or a coincidence in the quarter. I'll be open about that as well. However, in my opinion, the long story is not at all changed. That's an opening statement from my side. There are absolutely no doubt in Protector that the underlying reality and the long story remains strong. When we have had meetings this morning with all employees in Protector, obviously margin management is the key word. The growth level is also extremely important for Protector. I will say that I do have a focused team of people on board in Protector, understanding that this quarter is a poor quarter.
We are, in my opinion, competent and committed to go forward and to fix those elements to our underlying realities. Then volatility, we can't do anything about it, but that will go in our favor and sometimes against us then. To the highlights. In quarter one 2018, we are very satisfied with the growth level of the quarter, which is 15% in local currency and 18%. This is twice the size of last year's first quarter. It's slightly better than what I expected 2 months ago when we met last time. First quarter volume stands above the guiding for the full year, in my opinion, which is 20% growth. You know that when entering new markets like U.K., new volume arrives during the different quarters. U.K. is different from Nordic. It's not about January the 1st.
It's about April the 1st and the full second quarter and the third quarter and the fourth quarter. The visibility on volume guiding is not as good as in earlier years. 18% growth the first quarter is fine. I'm happy. It's good. The challenge here is the net combined ratio, I come back to that because that's basically driven by a high claims ratio in that matter. You have seen the investment result. It's 0 in the quarter. It doesn't really worry Protector at all. There will be volatility. It is the long-term return on investment, which you focus on and we focus on. I will shut the window because there are some children outside having fun, and they should continue doing that. Okay. These kind of figures don't invest in Protector or in anything else. We are rather relaxed about what we see here.
Assets under management continues to grow, which is obviously a very important part of the future of our company. You can see here on the guiding, I think I will come back to that element of the guiding and that combined ratio. Last guiding we said a combined ratio size 92% to 94%, now we say higher than 94%. I have discussed a little bit with myself whether I should say higher than 94% or a bit more precise. To be very honest with you, I don't want to give a precise estimate at the moment because I'm not absolutely sure how much of the weakened technical result is linked to normal insurance volatility and how much is underlying realities. Instead of giving another fixed figure, I are only giving the kind of feedback at the moment that it will be higher than 94%.
There is a slightly higher risk related to what type of figure where we actually will end. I'll explain as good as I can when I'm discussing with you the claims ratio and the cost ratio of the company, then you can obviously ask questions at the later stage again. You won't get a fixed figure from me during this presentation. The premium development, it's good. Here you can see the split between the different segments. You can see that U.K. is not growing a lot in quarter one, which is not unexpected. We have said to you that we would expect the volume in U.K. to double from NOK 250 to another NOK 50 million to around 500 or above 500, that remains to be the target. There are three more quarters to come.
On a company level, what we expect going forward is a quarter two, which is slightly weaker than quarter one, despite the fact that U.K. normally is a good quarter two. That is basically linked to Norway, where we have one of the biggest client losses in history in quarter two, which we knew a year ago, which we knew when we gave guiding to the market. It doesn't really influence on the total company guiding towards the market. It is a fact that there will be a negative growth in Norway in quarter two that will be offset by growth in U.K. and Sweden, and some minor growth in the two other countries as well in quarter two.
In my opinion, at the moment, we expect a lower growth rate than 18% in quarter two than pick up and be bigger in quarter three and quarter four, like you saw last year in that area. Are there any Feel free to ask any volume questions now. Obviously, there will be questions and answers at the end of the presentation as well. Here is the bad news today. We have a poor claims quarter, basically driven by Norway here. Motor claims are, I think we have to go back to 2010 to see equally high figures on the motor claims side, which is obviously linked to the winter conditions in Norway. It doesn't influence a lot on our figures. I won't blame the figures on the winter in Norway, because that's not correct. Obviously, it does influence.
We have had some medium-sized hits on liability side. In my opinion, that's normal volatility. However, on the health insurance side and also license areas, it's more like an underlying reality that these two products are performing poor, and they will continue to do that for most of this year, 2018. When we entered the health insurance market in Norway two, three years ago, we didn't manage to get in as good as we should. The first year, we had a claims ratio size 180. The second year, 140. I would expect today that this year will end around 120 to 25. My expectation for next year is that that product, which is not at all a big product, will go below 100 in that area.
This is what you could call not a significant volume product, but an unsuccessful entry in a new product area in Norway. Welcome to the insurance world, okay. Sometimes when we enter new product segments, we go in, we are successful at once, we earn money very quickly, and we continue to earn money. Sometimes when we enter certain segments, we are getting in wrong. It takes a bit time to learn. We educate ourselves, we increase prices and/or take other actions. Then gradually or quickly, you can see a claims ratio improvement in these areas. When it comes to property hits in Denmark and in one of the segments in Norway, in my opinion, it's a volatility issue. We don't have an underlying problem with the property portfolio of Protector. Change of Ownership, not very bad.
Not profitable in this quarter, but there are bigger quarters to arrive, and my expectation is that we will be profitable in that area for the full year of 2018. It has been, as you know, and as we have communicated for five, six, seven years, that it has been rate pressure in the Norwegian market, the broker-based market that we live in. Rates go down in Group Life, in Other Illness, in Workmen's Comp, in property, basically in all areas. We do have an underlying reality where the technical result going forward in commercial segment Norway will be worse than what you have seen in the last two, three, four, five years. The question is how much worse in that area.
At the moment, I would prefer to have a look at one or two more quarters in order to give a firm statement on how that rate pressure have influenced on the underlying reality on these type of products. I'm absolutely sure that my competitors in the Norwegian market are bleeding at the moment, because I think that it's difficult to evaluate who is the best underwriter. Let's assume that we are basically equally good, or bad if you prefer, but let's say equally good. Environment that we have in that market segment in Norway today, they will lose more than what we do. I'm not saying we will lose money in this segment for the full year, but we do lose money in this segment for the first quarter. They are worse off.
I'm absolutely sure, as you know, we do not have access to precise information from competitors in these areas. We only have indications when reading their annual reports. Denmark, slightly on the poor side. Sweden, on the good side. U.K. and Finland, too early to say when it comes to claims ratio and profitability. Finland, slightly high, but very low volumes. U.K., okay, when it comes to profitability in this first quarter. No issues in England. I think that we agree that U.K. profitability is 10 times more important than Finland, because of the size of the market and the future growth opportunities we do have in U.K. I can't say that we can communicate anything about future profitability in U.K. It's far too early to say. Obviously, it is. Okay quarter. Not really issues in U.K.
Here's the key element of today's weak point in the story. Feel free to ask questions. Yes.
Regarding the Workmen's Comp in Denmark.
Yep.
What kind of problems are you seeing there in the quarter?
Nothing in particular. What we have said to you for the last 18 months is that we have implemented significant price increases in Workmen's Comp in Denmark. That has reduced our number of clients and at the same time increased prices on those who have remained. The accumulated price increases and the getting some clients out of the portfolio has obviously improved the profitability of the product a lot. However, the difficulties in analyzing what's happening is linked to the fact that the public entity, Arbejdsskadestyrelsen, that do all the major difficult claims handling, that's by law. It's not we doing claims handling for the complex claims, it's a public entity. They are extremely late in what they are doing. They have hardly started to work on claims from 2015, which basically blinds the market.
Since we have a fresh and new portfolio and our competitors do also have a long portfolio, it is a competitive disadvantage for Protector because we can't read the figures properly, because claims handling is delayed and it's outside our control in that area. It's very difficult today, like I said last quarter and the quarter before that, to evaluate what's happening in the market. As long as these kind of problems continues to grow, our risk appetite for that product goes down. At the same time, when the risk-free rate is on a historical low level, our appetite for that kind of long-tail product. We are carefully considering what to do in this segment. When we enter that segment in Norway back in 2007, the Workmen's Comp market in Norway, we entered basically in the same situation.
We didn't have the big database, but there are data available both in Norway and Denmark. We have that one, but we don't have our own figures. We entered the market. We know today that was a risky but a very successful entry, and figures showed to be a lot better than expecting during the years. We have had reserve gains in that product area, not on a very high level, but at least on an acceptably good level. The difficulty in Denmark now is that we can't build our own experience as quickly as we did in Norway, because that public entity is a disaster. They haven't been capable of managing it so far.
Actually, it's even worse because we got a message from this entity a few weeks ago that they might close down our access to individual claims data linked to individual people because of GDPR. New rules coming up live May 25th this year. They are saying to us and all competitors in Denmark that they have to go and ask those who are under a claims handling process to get access, to ask for permission to get their insight in that kind of information. This is an insurance company problem related to in Denmark, and that could create a situation where we are even more blinded on what's happening on the claims side than what we would prefer. I don't think we will exit that market January 1st, 2019. We consider actually exiting it.
If we stay blind for another three years, that creates a kind of reserve situation which will grow to be more unpredictable. As an insurance company, we don't like that. To be honest, we have some challenges with evaluating these kind of figures. Okay.
Could you remind me then, to follow up on how much of the 700 million NOK you have that's related to.
How much, Viveka, of the reserves is related to workmen's comp in Denmark?
Give me a couple of minutes.
There is another question here while waiting for.
I have one follow-up also for Jan Erik.
Okay.
Would you also be willing to evaluate one step further, exiting Denmark as a whole if Denmark doesn't turn out to be more profitable than in first place?
Not at all. In our opinion, Denmark is an attractive market. It is acceptable or good profitability in the market. It's a big broker market. I can't understand why we shouldn't be profitable going forward in Denmark, and obviously there are synergies between Denmark, Sweden, and Norway. We are a Nordic company. It is a profitable market. We will find our way. This is a product-specific statement, linked to a consideration whether we should accept growing risk in Denmark, at the same time when being blinded on claims development. That's a tricky one. We are leaning towards a more aggressive approach towards that market, either stronger price increases or potentially exiting that market. That will not influence the growth story of Protector, because basically that growth level today is zero.
If you take, let's say, NOK 150 million-NOK 200 million reduced volume in 2019 and/or 2020, you will hardly see it if we continue to grow in the main markets. We have opportunities in Denmark in other product areas, which are interesting and significant. This kind of statement obviously it has something to do with volume going forward, but not really about the growth story of the company as such. It's not. Do you have the answer now, Viveka, on the reserve side?
Still waiting.
Either the computer or you are moving too slowly. Obviously, that's the computer, Viveka. I know that. I could take a guess on the reserves, but I prefer to have the right figure there. Okay, next question.
Since you cannot say too much about the underlying reality in Norway in the quarter, could you just give us a hint about the Change of Ownership in Norway and the new product from Gjensidige?
Okay. Yeah.
You have reached your 50% market share, and you said you're not growing anymore.
Yeah.
Is the profitability in that product area, if you think they have a different product than you?
Yeah.
Is it so that the competition is increasing further?
No. The question is related to, those who didn't hear the question, the question is related to the Change of Ownership area. One, how do we see the profitability going forward? Two, Gjensidige, the market leader in all other consumer sector products in Norway, have introduced another product that enters the same market. What's my view on that entry? First, like we have told you before, the profitability in Change of Ownership is not as good as in history. The profitability margin is going down, and there are two ways of solving that situation. One is to deliver a new technical survey to the market with higher quality to reduce claims frequency and average claim size. That moves slowly. Okay? There are some challenges related to that we are meeting in the market to implement that product.
In my opinion, that new technical product will enter the market sooner or later. Unfortunately, possibly slightly later than what we would have wanted to. I've given a message to all chief executives in the real estate broker market this morning to say that you have to support us on getting that product to the market. If not, our common clients, those who sell houses and flats in Norway, will suffer from higher Change of Ownership prices in future. Either a better technical report or higher prices. It's not a threat. It's a cooperation statement given in due time in order to go together with the real estate brokers to get that product to the market. We will. The technical survey, it's not a product we sell.
We have handed out an IT solution which will help the taxation kind of people in Norway to improve quality and efficiency on the technical side. That's one way to solve the problem. The second alternative is to get rid of certain parts of that segment to leave some volumes, because there are different areas here which have an acceptable profitability and someone who is getting close to an unacceptable profitability. Obviously, general price increases could also occur. There are two, three ways to improve profitability going forward, and we are capable of navigating towards a future where that product remains profitable, possibly on a slightly lower volume level. When it comes to the second part of the question, Gjensidige, that product will fail. It's a stupid idea. It has been tested out in Norway before without success. It is de facto the standard product in Denmark today. It's unprofitable.
It's expensive. It doesn't reduce claims frequency. They will fail. They got it wrong, and good luck. I don't really care. If they succeed 5 to 10 years from now, we follow in that area, and we will do that jointly with the real estate brokers. Gjensidige, as you probably haven't noticed, have given a statement that they are opening up as a real estate broker. Gjensidige is actually now a real estate broker. That's funny. They can't do it. Of course, I understand that it's something called technical solutions and web and internet. I've heard about it for the last 20 years. That has also been tested out in Norway for the last 5 to 10 years. It's not a reality in that area. Good luck. They will not succeed. Do you have the reserved figures? It's accumulated.
Workmen's Comp reserves in Denmark today is around.
The reserves are there, but it's.
What did you say now?
The-
The premium.
you were talking about the premium, yes. The premium is year to date, it's DKK 222 million out of DKK 536 million.
Do you know what it was last year as well or?
So I-
Just to get the percentage of the DKK 700 million you have this year then.
Basically, I think that this is a small question, rather detailed one. We can take it afterwards.
Okay.
Basically, the relative share of Workmen's Comp is the same because number of clients is going down, price is going up. The rest of the volume is stable. Basically, it's stable. The relative share of Workmen's Comp Denmark to other products, relatively stable. Possibly a slight decrease, but we have less risk because we have less clients in the segment.
Just to follow up on this. There are certain segments that you mentioned on the Change of Ownership, which is sort of unprofitable which you would like to leave behind, and those you would like to keep on.
Yep.
Can you just give a little flavor of those two areas so we understand a little bit more?
Okay. The question is, I said that there are some segments within Change of Ownership, which today is close to unprofitable and others who are profitable. Would I like to talk about it? The answer is no. Why would I? There are something called a competitor out there, and I won't talk about it. Here we have better databases than anyone else, so we can navigate that market better than other ones. I would prefer my competitors to pick up the poor parts and stick to the better parts in that area. Yep. Another question.
Just on the Change of Ownership. As you know, Gjensidige has flagged strong ambitions there. Where do you think they plan to distribute their Change of Ownership insurance?
They probably distribute that through their own direct sales channels in the consumer market. The problem, they have lots of problems when entering that market, but the one is that that insurance product is linked to a real estate broker services sold together. They are actually fighting the real estate broker market in Norway. They won't succeed. The market share in this market will be less than 1%, my guess. If Gjensidige pours everything they have into that market, they will be back with a market share size 1. Good luck. Would you like to ask questions once more? Or was I clear enough? Okay, another question there.
I understand that you don't want to blame the weather this quarter, but you mentioned motor insurance-
Yep
impacted price. Are there any more segments that are impacted by the weather? Could you quantify a bit more how much worse Motor was?
Yes. There is one element around the Motor portfolio which is valuable to comment on. It's one that obviously the winter was hard, and it influenced our portfolio. The other element is that the relative size of the Motor portfolio in Protector is increasing. Okay? You have seen takes dividing in long-tail products, and medium long, and short-tail products. You have seen that the short-term parts of our product portfolio has increased the last 5 years. Gradually, our Motor portfolio is increasing, and gradually our Property portfolio is increasing, and both will be influenced by bad weather during winter. One thing is that obviously, we have a hit on the winter in the Motor portfolio in quarter 1. The relative size of the Motor portfolio has gradually increased the last years.
We will be slightly closer to other companies since Motor business increases. However, the seasonality in Norway and Sweden are different. When weather hits Norway a lot, it does not in Sweden. The reason why is because a new Volvo in Sweden is sold with an insurance package, which in Sweden is called . It's called Volvo Insurance. We don't insure that Volvo, but we have the Liability insurance for that Volvo. Seasonality is different when it comes to a normal crash in the market, 2 cars crashing, and the Liability element of it. It is kind of a study to understand how Protector's portfolio is influenced by volatility and seasonality when it comes to Motor business.
Motor business is growing, more seasonality effects, but not as much as in Norway, because Sweden is less influenced by that kind of volatility because it's a 2-product market, and we are only playing basically in one. Companies are buying new cars every 3rd or 5th year, and we are a lot out of that market. You could say that Motor weather winter, 2 percentage points, give or take, this quarter. Maybe a half percentage point one or the other way in that area, in total. Kind of volatility, a couple of percentage points possibly. Last year, we had a Combined Ratio size 87%. Now I'm more on the cost side. We had higher reinsurance at Profit Commissions from previous years getting in in quarter 1, 2 percentage points difference with quarter 1 this year.
If you calculate a percentage point or two, or one or two, and add up, you will see that this is my point when I'm coming to the cost ratio for that. They are interlinked here. It's not really about 87 and 95. The real underlying difference is not at all close to 8. You shouldn't take last year profitability combined ratio 93 and add 8. That's a very wrong statement, because it's not the fact, not at all, in that area. Okay. What I'm talking about now is this one. The seasonality gradually changes towards a less favorable quarter one. That has also something to do with the cost ratio here. The net cost ratio is 4 percentage points poorer than last year.
You shouldn't really worry about that, because that is elements in the reinsurance contracts last year, around NOK 20 million, 3 percentage points or something like that. That commissions to brokers gradually increase in quarter one because we have more Swedish business on board, commissions are allowed, more U.K. The underlying reality here is not close to the 4 percentage points you see here. I do apologize that understanding the counting in an insurance company is slightly difficult. I can't do too much about it. Just try to explain what's really happening here. When you see a combined ratio, 8 percentage points poorer than last year, it's four from the cost side and four from the claim side. That accumulates to eight. It looks very bad. It's not at all that bad.
It is a reality that the claims ratio is high in quarter one, obviously. It is. The next question is, how do we improve? Okay, volatility and bad luck or whatever you would like to call it, that's an element of insurance. What do we do? The good thing is that there are a lot of actions already taken. It's not like a big surprise, a poor quarter, what do we have to do? There is a lot of activities that have been implemented already. In claims handling, I've told the story about the Rolls-Royce project before. Yes, we do increase prices. Yes, we are working with underwriting methodology. Yes, the rate increase problem in Norway continues. That's not a good story, okay? I've told you one time before that we lost 10 out of 10 biggest quotations in the Norwegian market.
I think that's two years ago, something like that. January 1st, 2018, we did not lose 10 out of 10. We had first up until April 1st, we have lost 10 out of 10, which gives a story that we do have underwriting discipline. We do accept volume walks away if we think that prices are too low. There are someone else, in my opinion, that will bleed from those 10 clients. Not necessarily all of them, obviously not. We could be wrong and too conservative in some areas. There is a rate pressure still. They are non-prudent in some areas. At the same time, Protector communicates a volume growth for the full year of 20%. Welcome to the real world. This is what we see in certain segments for certain periods of times, but we have many segments in many countries.
Our job is to navigate the market and never ever blame the market, because we shouldn't. We should only concentrate on what we can do, which is navigate in this kind of market. The housing sector in Denmark has had unsustainable rates for six years in a row, every year. Too low, too low, too low, too low, too low, too low. January 1st, 2018, acceptable. One player walked away. One increased rates. We are back, taking on board more property volume in that segment as we speak. We stayed disciplined for six years and started to move. We have been there all the time. We have quoted and collected data, and quoted and collected data, and quoted and collected data because we know that that segment is ours. We will take that segment in future. Quality and claims handling does matter. It's our market.
We will take that market in future. We have zero market share after six years. Now we start to move in that area. This is how we should navigate. The question is that whether you can trust the underwriting competence in Protector after a poor quarter. In my opinion, you should. They are the same people who are on board, who has delivered brilliant profitability for 10 years. It's like a good football manager, isn't it? Brilliant for five years and suddenly he's competent people, I think we are capable of navigating. It is a fact that a significant part of the Norwegian market have had a rate pressure for a number of years, we have to stay disciplined. That could mean reduced volume growth, not volume, but volume growth in future. We would prefer that kind of volume to be profitable.
Not only prefer, but it's a requirement in that area. Of course, after a poor quarter, we will use that quarter to learn and fix in certain segments. We could walk away from some areas, which is not a new story. We constantly consider where to go. Since margins are under pressure and since risk-free rate is historically low, obviously we have to look more carefully into capital allocation, and where to go in the market. We also have many segments to go. To optimizing where we put capital in an environment where margins are under pressure and where risk-free interest rate is low is obviously something that we always have done, but is more important as we speak, which again, goes against Workmen's Comp Denmark. High capital allocation, blinded by authorities, and low risk-free interest rate. It's kind of not really tick, tick, is it?
At the same time, we are greedy. It could be a very profitable market like Workmen's Comp in Norway demonstrated to be. It's fear and greed at the same time. You have heard about the two, have you? That's what we are balancing at the moment. My expectation now is that there will be consequences in that market with either further price hikes or limited volume going forward. That's kind of prudent, I would say. Okay, can I continue? No?
Just one question. Are there just a few players who are causing these unsustainable rates in Norway, or is it the market in general? For instance, DNB still a bit saying that most are pricing up their products now.
The question is whether that rate pressure in the Norwegian market is one, two companies or whether it's a full market. I would say that the discipline here is maybe improving as we speak. There are some indications that Tryg and IF strengthen the discipline in that area. Protector as well. I'm not saying that we are the only nice guy here. Not at all. We have been driving these prices down because we could, and we have earned a hell of a lot of money on that. Obviously we are a part of that game. My expectation is that this is kind of rational organizations, and we see signs that price hikes do enter the market and both Tryg and IF have clearly communicated that, at least towards the brokers, which we talk with every day, in that area.
Again, seen from a kind of a company point of view, are we capable to navigate in this market? Yes, we are. Do we have many segments to go to? Yes, we have. Is it all segments here? No, it's not. We are talking about personal lines of business here. At the same time, I think that with rational pricing, we can continue to take on more large clients in that area and earn money. That's still possible. It's not impossible to do that. In property and casualty area, we win business, it's prudent, and I think we will earn money on these kind of areas. That's the 40% part of the totality. The rate pressure element is to the 60% part of the totality. Fortunately not all the way around.
Cost ratio, don't worry, we are world leading, and that is maintained. I have a second slide a bit later. Come back to that here. I think we have been through a lot of comments towards the different countries. We have changed structure on the presentation, as you can see. We have talked about countries on volume, on claims, and on cost. Not cost really, but the two first. This is, do you have any questions to any country now which we haven't clarified already? Feel free. I guess that I have given some comments to the different markets. When it comes to the investment side, 18% of our investment portfolio is linked to equities, which is basically the same size as we had a quarter ago. A slightly poorer result than benchmark, but not a lot.
We are not really worried. I think that the underlying reality of the companies we are invested in is rather good. We didn't have any shares in Norwegian Air Shuttle. Could have been good to be there, of course, the last couple of weeks. We did not have any of these ones. We underperform a couple of quarters. In the long run, we think we know what we are doing. On the bond side, 0.5% return is good, with an A+ average portfolio. The comment here is different from what you saw one, two, three, four, five, six, seven quarters ago. I basically said the same thing many quarters in a row. Now we change communication, we are saying we are not expecting further yield reduction or risk reduction moving forward. I think you will not see A+ go to AA-.
You will not see yield falling. You will see yield picking up. NIBOR, as you know, is about 30 basis points higher than January 1st, a bit higher at the end of March, in that area. That will gradually influence on the running yield in our bond portfolio here. Any question to the investment side?
The previous slide, I was wondering if you could provide any insight in major changes you made to the equity portfolio.
Say again.
If you could provide some insight into any major changes you made to the equity portfolio.
Normally we don't on a quarterly basis. When we released the full year report, we gave an overview on what we think are the 10 biggest holdings on the equity side. Or was it all? All of them.
All.
All. We gave that much information about all equity holdings, and there are no major changes as we speak. Obviously we are looking at the portfolio. We don't have a strategy to change very quickly then. Yes, some changes, but not very significant. Other questions to the investment side? That gave us basically zero result then. You have heard about the very strong growth in the quarter, and a profit after tax size basically zero, and the poor claims ratio. Our solvency capital ratio remains very strong. We are one of the most solid companies in the Nordic market. A quarter like this doesn't really influence at all. Of course, slightly, since zero profit and increased volume consumes a bit more capital.
Compared with history, obviously our balance structure is very good, where a certain part of our balance sheet is Tier 1 and Tier 2 debt, which supports Protector's return on equity moving forward in that area. You know that we have delivered an average return on equity slightly above 20 the last 14 years, and we have guided on return on equity around 20 going forward. Which indicates that the return on solvency capital will be lower, but return on equity will stay high in that area. The balance sheet structure is in favor of us shareholders in that area. That's a point we shouldn't forget when we are putting our eyes into the future and looking three, five years ahead. A solid balance sheet. It remains very strong. The structure is good.
We cannot take on board more Tier 1 or Tier 2 because we are fully utilized, and in a stress situation, we have slightly too much Tier 1 and Tier 2. It will take a couple of years possibly before we're asking for more capital from the Tier 1 and/or Tier 2 market. That's what you should expect going forward. There is one new shareholder arriving after the full quarter, is a Spanish one, which has entered the top five list here. There is a small insider buy, one of the new managers, which you will meet not later than in our capital market day, after the summer. No major changes outside that. The question is starting with the DNA of the company, this is who we are. Cost and quality leadership should lead to profitable growth.
We are questioning now together the profitable part of the growth story in quarter one. My feedback to you is that you shouldn't worry too much. First, if you look at cost and quality, let's start there and see that we are the leader on cost. This is a further communication and education on how to look at cost. Okay. The kind of cost you should pinpoint and what we pinpoint every quarter internally in Protector is gross cost ratio, including claims handling expenses, ex commissions. Okay. Why? Because real cost includes claims handling cost. That's for sure. While in our formal book, those are integrated in claims handling. No, sorry, in the claims ratio. Right? The real cost story is about all the cost, not only those who authorities have said that you should show to the market.
If we're showing both all the time, I think we should come back and start showing both at all time in that, we can follow the real important part of it here. Commissions doesn't really matter. Why? It's neutral seen from a competitive point of view, because if we pay 5 or 10 percentage points commissions to a U.K. broker, which is allowed in U.K., not in Norway or Denmark, that is neutral seen from a competitive point of view because we pay the same. If not, they will lose their license. Okay. If AIG pay five, we pay five. RSA pay five, we pay five. Seen from a competitive point of view, it's neutral. When we calculate prices, we take those money away. We say, take it away, and that's rather simple. Okay.
It's neutral seen from a competitive point of view, it's neutral seen from a profit point of view. Then you should look at all costs. What's happening as we speak is that the real cost figure of Protector is going down, from around 13 to today's level, around 11, and it will end lower than 10. The competitive position of Protector is improving despite the fact that we invest in new countries. Right. That's a good story. That's a very good story. That's half the story. Obviously, constantly working on balancing quality with efficiency and cost ratios. Nobody in the world can match Protector on the totality. Yes, it's correct that on the claims handling side, we are not the best guy in town or in the Nordic when it comes to efficiency, because lack of critical mass, new countries.
We focus first on quality, clean desk, Rolls-Royce, then we take efficiency. We are about to take that. That's the Falcon project in that area. Cost leadership is strong, remains strong, and the real reality is that we do improve. At the same time, we are quality leader in all markets. Not perfect. We can improve in certain areas. Not at all. When you take your long glasses on and have a look at future, cost and quality leadership is strengthening when we speak. If you think that Protector is capable to navigating in a lower margin market, you should stay with Protector and not sell your shares today. You should see this as a buying opportunity, obviously. Thanks a lot, and I look forward to questions. There are some questions from the webcast here.
Yes, some of them we already answered. One of them is, does Protector plan to keep increase the buyback programs?
To increase the buyback programs?
Yes.
Okay. We are buying back a few shares, which is linked to employees picking out their bonuses in shares. That's the reason why we have bought a few handful of shares every year, and we do. I guess that the question is, will we consider in future to buy back shares, if prices is favorable? At present, the answer is probably not. Because we have stopped paying dividend and saying that we would prefer to stay very solid in order to prepare for 15%-20% growth in future, basically U.K., but also in the Nordic market. Obviously, it could be put on the table, and we will discuss with the board that alternative, obviously, going forward. When we discuss strategy in June, as we always do with the board in that area.
We all know about some companies who has been rather successful with kind of having a buyback program on contrary to dividend. We grow 20% a year, and we do expect that growth to continue, so not at present. Yes, another question.
You discussed earlier increasing certainty on the underwriting profit for this year.
Yeah.
Would you say that there is increase in certainty also on the level of underwriting profit that you can generate in the coming years?
If you go two months back, what kind of risk do we have when it come to the technical result there? What I said to you two months ago is that, I think I said we have slightly increased risk on a company level when it comes to profitability, since the relative share of the new business is higher than the business we know from before. The problem we are talking about now is linked to Norway, which is not linked to the new business. That's kind of a new element. A bit of a surprise in the first quarter, what we need a couple of more quarters to wait and see is that how much volatility and how much underlying reality. It's a difficult question in that area.
It's a fair question whether we would expect increased combined ratio going forward than what we have communicated so far. No statement is given. It will be considered and discussed in that area. I think that some of the new investors arriving to Protector, they ask me the question, "Why do you have such a good combined ratio? Why don't you take a more aggressive growth approach?" Okay? Because they have put some figures into their spreadsheets. These are competent people, and saying that, "Why do you not accept a combined ratio size 96 and grow more?
That will create a stronger earnings per share going forward." We all know, and they have seen, the new investors from Europe or the U.S. arriving the last few months, that investment return, profit from investment return after tax the last 10 years, is 70% of the total profitability of the company. Why fight too much on the margin for the 30% compared with making sure that you are getting more back on the 70% of the totality? You must stay prudent on the underwriting side. I will, as a big shareholder in Protector, obviously have my eye on earning per share in future. That is more linked to return on investment than return on technical result. Personally, I would accept a lot higher combined ratio than 92, because I will benefit from it as a shareholder in that area.
As long as we haven't given any formal statements, we haven't given any formal statements. The question is extremely important if you have a long-term view on Protector, extremely important. Why not double the 70% going forward and allow the 30% to be reduced to half? It's very easy mathematics, very easy in that area. It only becomes a problem if your combined ratio starts moving north of 100 in that area. Capital consumption, profitability per product area, how do we balance? Because it's not really one answer, is it? Because Workmen's Comp Denmark and Norway consumes 10 times as much capital as Group Life Norway. 10 times. There are two ends of the capital consumption scale, okay? 10 times capital, 10% of capital. Do you have equal targets on these two products? Obviously not. Obviously not in that area. Good question. No formal comment.
We can increase earning per share a lot, allowing a higher combined ratio than 92. More questions?
I think the time has run out, but I can do one more, and it's a question about the retention rate, why it has declined so much from-.
Okay, the retention rate. Yeah, a part of the retention rate decline is related to the Hannover Re solvency-based reinsurance contract. Remember, which is around seven percentage points or something like that. Remember, we are not sending cash to Hannover. We are sending risk and solvency relief and pay a price. Parts of the decrease in retention rate is linked to a solvency-based reinsurance contract. Obviously, with some risk transfer. If not, it would not be legal, but not a lot in that area. The other element is that because the property portfolio is increasing, we deliver more to our insurer, Munich Re. That's the reinsurance world. We have started to negotiate potential new contracts with effect from January 1st, 2019. A final question, and then we have to close down. We are three minutes late. I apologize for that.
The final question would then be the reasons for the run of losses in Change of Ownership.
Minor losses. Don't worry. We have been spot on on reserve setting in the history of Protector. We can't call spot on on all products every quarter, so I wouldn't worry too much. However, the underlying reality of the claims on the product as such is more challenging than in previous years, and I've kind of commented on that already. Thanks a lot for your patience, and have a great day and a great weekend.