A warm welcome to everybody to our Capital Market Day. It is great to see that there are so many people here. I think we never, ever have had so many people, neither in a quarterly presentation nor in a Capital Market Day. As you can see from the opening foil here, the kind of agenda we have tried to put together for you today is preparing for continued growth. As most of you know very well, we have been growing around 20% a year the last 10 years. We would like to share with you a lot of information and our thinking behind what could improve the competitive position of Protector.
Not just keep it as good as it is, but improve the competitive position so that we can manage to have double-digit growth guided to be 15% a year ahead or potentially we should also prepare for even stronger growth, of course. The story is about preparing for continued growth, and the agenda we have put together is, as you can see, a company update, where we will focus a lot on claims handling. Normally, we do not talk too much together with you on the claims handling side. It is basically half of the people in Protector working in claims handling, and it is the moment of truth. Building the brand in Protector is very much dependent on how good we are in claims handling.
The Country Manager, Hans Didring, in Sweden, the smiling guy here, he will go through our position on claims handling and a project we call the Falcon, the peregrine falcon, the fastest animal on Earth. He will explain why we have picked that symbol for that kind of agenda, how to improve the competitive position of Protector being even better in the claims handling area. We will, as kind of always, of course, spend a bit of time on the investment side, even if we spent a lot of time in the last year Capital Market Day. Investments will be covered pretty good, but we will try not to repeat too much of what we said last year, but continue to go in depth. How are we actually working in that area?
We will also share with you one of our top picks in the equity market, one of the best companies we think we have in the portfolio, and go through the analytical process behind taking that decision to buy shares in that company and how do we follow up that on a regular basis then. Investments, of course. Then we will have a short break, 15 minutes. We will try to keep the schedule you see here on the screen. Since many of you are rather interested in IT and digitalization, the big buzzword in the financial industry at the moment, we thought it was useful to go in depth and explain a little bit about our position towards digitalization and IT in general.
Then, of course, have a look into U.K., and Henrik, as he did last year, he will go through, but we do also have Maureen Owen here. Maureen, hello. Here are you. Turn around and have a look at Maureen behind there. Maureen once more. She is the Regional Manager, the leading officer we do have in U.K., located in Manchester. She will also share a few words with you and are available for questions both through this session and through the different breaks. If you don't trust a Norwegian when he talks about U.K., talk to Maureen and trust what she is saying is kind of idea then, to have you here today, Maureen. There is a picture of those people who are in direct reporting line to me here.
It's a combination of continuity with Henrik, Merete, and Hans, but also some kind of fresh blood. The CFO of Protector Forsikring, she has been CFO for a year, but pretty fresh in the management group. A few weeks ago, three weeks ago, we got a new country manager on board in Denmark, Lars Jora Rammel, with a strong background from the insurance industry. He will join September 1st and be in charge of business development and a leading officer in that area. I think it's fair to say that we both have strong continuity in the management group of Protector, but we have also added some fresh blood to the management team. Hopefully, that will help us to deliver in real life the continued growth of the company.
When I do the company update, I will start with one section called Keep up the Good Work, and then for once spend a bit of a time on the balance sheet of Protector. We normally do not spend too much time on it, but I think I do have a rather important message on the balance sheet today. Then there is the Falcon arriving, and that's when Hans Didring will join in order to update you on the Claims handling side. When I do start to talk about keep up the good work, I always have to drop into the DNA of the company. This is who we are. We are different. We are the challenger. As many of you know, this foil was made more than 10 years ago, or around 10 years ago. We gave four targets to the market 10 years ago.
We will be the cost leader in the market. We will strive to always be the quality leader in the different market segments we enter. Those two elements will lead to profitable growth, which again, will lead to a top three position in any segment we enter. When we enter public sector U.K., obviously our target is to be one of the three big players in public sector U.K. At the moment, we are on the way to taking that position. Feel free to ask Henrik or Maureen later on the agenda. To us, the 12 statements you see here, they are not words used at a late Christmas evening when people are drinking wine and having fun internally in Protector. We do really mean each and every word. This is who we are.
When talking about keep up the good work, I will just briefly remind you on cost and quality leadership and profitable growth and what has the history told us here. Before going into the real figures, I would like to update you on the strategy moving forward. As always in Protector, we have an annual strategy process, which ends up with a conclusion in a board meeting in June. It is a three-year rolling plan we do have. A summary we have from this year's strategy process is that any strategy in Protector starts with the DNA of the company. Internally, we have expressed an ambition to search next level on how to live the DNA of the company. That is followed up with a very strong statement that we actually do not change strategy. Basically, we have had the same strategy for 13 years.
If you take the Kotler four Ps, it is about standardized products sold with competitive prices through brokers only based on unique relations built with the brokers. The promotion part of the four Ps of Kotler. The latest one, the relationship building with the brokers is based on a unique selling point defined by three sentences, easy to do business with, commercially attractive, and trusted. The strategy of Protector is unchanged. The only thing we do is to roll them out a little bit every year, a bit more diversified product portfolio, and we are going slightly upwards in segment every year. Then we add new markets. Sweden in 2011, Denmark in 2012, Finland and U.K. in 2016, and in future, there will be more countries to arrive in that area. Investments are core. Manage risk is the second element. It is not changed.
Some of our competitors do say that we are an insurance company. We think we take insurance risk, not investment risk. We disagree on that statement. We would like to take investment risks also and put our strong balance sheet into play, but of course, managing it properly. Dag Marius will be back and talking more about that later today. We will cover the balance sheet today in more depth than ever. There is a statement there. It is slightly changed actually from what we sent out last evening. What is the change in that sentence here? Some of you read it after 11:00 P.M. last evening. So between 11:00 P.M. and this morning. Obviously, I have had plenty of time to go through the foils. What kind of change did I do this morning? Someone must see it. It is pretty easy.
I have added three dots and must be balanced. Okay. It goes without saying. When I say growth is more important than combined ratio, that is only right within certain limits. Let me ask you a question. Do you prefer zero growth and combined ratio 92% or 20% growth and combined ratio 94%? What do you prefer? There are a few analysts in the room. The second one. The second one. Vegard?
It depends on your time horizon.
What is my time horizon, do you think?
As long as it takes you, so your answer would be number two.
Yes. It is number two, of course. We do understand that combined ratio obviously is extremely important for an insurance company. So there will be no compromise on the combined ratio target for future. We have guided on 92%. That is not changed today. However, we have had a history of a combined ratio below 90%, slightly below 90%. Is it really necessary? No, it is not. Of course, we would prefer to have below 90% and growing 20% a year forever. It is slightly difficult. You shouldn't really expect that. So we are trying to educate ourselves to always find that balance, because to build float, to build money free of charge, creates a lot of investment income, even in the kind of investment environment we have today. Not as high as in earlier years, and it could take many years before fixed income yields are picking up.
We don't really know, do we? But we do have a kind of course, an internal dialogue linked to the balance between the combined ratio and the growth here. Of course, it must be balanced in that area. Don't think for a second that we have changed in a direction to be crazy volume seekers. We are not, and we will never, ever be that kind of a company. But we would prefer a slightly higher combined ratio and strong growth, compared to taking a short-term view to get as much out of a certain volume of business, and then lose market share forever, like some competitors are very good doing in that area. Further, on the strategy side, we have pinpointed eight areas, and prioritize those. It will be on the next slide.
It's about continue to develop management and talents to be good enough in order to continue to grow. So let's assume that we will grow with around 15%-20% a year. You can easily see that we can double the volume in four years. Meaning that if you start with NOK 3.5 billion annual premium last year, then you might see a situation where we double that to NOK 7 billion annual premium in four years. 4.5, we don't really care. It must be profitable. And of course, it is a challenge to educate enough management capacity and competence to do exactly the same volume the next four years, like we have spent 13 years to build. So we have spent 13 years to reach 3.5. We might spend another four years in order to double.
That puts some kind of requirements on management development, capacity, and competence, and to breed new talents that are good enough to take a significant place in the organization of Protector in future. So it starts and stops with people development, cultural development. This is who we are. This is the DNA of the company. The top priorities for Protector in the next eight years starts with claims handling. A bit of a surprise for you possibly, that we are pinpointing claims handling as the most important area in Protector in the next three years. We haven't really said that very clearly earlier, so it's basically the first time. We come back and explain the reason why at a bit later stage. It's more important than U.K. The second priority is profitable growth in the Nordic market. It is our home market.
It is where we have the volume today. It doesn't really help us too much if we are delivering very good results in U.K., if we are losing control in our home market. So the home market importance is very strong. Must be strong and is extremely important to Protector. Remember that investments and insurance, they are twins. So we focus on both, not only on the insurance side. Who came first of the twins? Who is who? Is she the insurance lady and he the insurance guy or the other way around? Who came first? Give it a try.
Always the mother.
Yeah, but of these two kids then. Of course, the insurance baby arrived first. You need to build a good portfolio of insurance business, then you can invest the money out from the insurance industry. I try to remind Dag Marius and his team that remember, insurance is first and will always be, but investments are 70% of earnings after tax historically to date. Is it important? Should we talk about it? Obviously. We would like to share what we do in the investment side with you, because it is 70% of earnings after tax historically to date. And remember, that is with a float position which is not mature. The relative size of the float in future will probably be higher than in history. The investment portfolio relative size will be bigger because you will have more mature portfolios in more countries.
The only real mature market in Protector today is Norway, where our balance sheet and float portfolio has stabilized, basically. While in all other markets, the float position is increasing. In some markets like Denmark, it's increasing rapidly in that area. Insurance and investments are twins. But the lady here, she arrived first, and she was the insurance part of Protector. It's about U.K. It's about comeback and new profitable growth in Denmark with a new country manager on board. Obviously, there will be a discussion during the next three years about where to go after U.K. We are not in a hurry. U.K. has a very significant potential. We have talked about the Netherlands before, and we might enter Netherlands in future. But we have also slightly started to look at other alternatives. So it's something here called go public sector.
What we will have a look at during the next 12-18 months is whether we should not go to Holland or Netherlands in this coming period, but go an alternative route that could be public sector, the English-speaking world, like Canada or Australia or other places. Because as you know, we are the market leader in public sector, so we might find another route. The important thing is that we do think that we have a business model which is scalable and which is relevant for many markets. If you are looking three, five, 10 years ahead, you shouldn't expect Protector to be a Nordic company with a significant presence in the U.K. You should think that Protector will arrive to other markets, but in due time. And we have absolutely no time schedule on that element as of today, we don't.
Number seven and eight hasn't been given a number because IT and development in the staff functions in Oslo, they cannot be given a priority number seven and eight. How could they? IT is all over the development of Protector. There are two elements here, but they haven't been given a number. This is in priority order, one, two, three, four, five, six. They are not number seven and eight. They are not. Obviously digitalization of a symbol for digitalization and IT is an element of claims handling, development, and profitable growth, and trim thinking, and U.K., and comeback in Denmark. IT is always there. We will share some information with you about IT development in Protector today and in future. What about the good work then? We are the cost leader in the world.
I never ever met any company with a better cost ratio than Protector. It's a tick, isn't it? Smiling. Cost leader in the world, pretty good position to have. You could take a benefit out of that for future. We have been the quality leader in Norway 11 years in a row. We have a temporary quality setback in Denmark. We are only number three, which is unacceptable. My expectation is that we will not reenter the number one position in Denmark this year. It will be next year. My thinking behind the quality position in U.K., Maureen and Henrik, is that the first survey in the market will put Protector, Maureen, directly.
I need the charts.
Right at the top. Just to manage expectation a little bit, and you can see I'm smiling. We won't take it too seriously if you are only number three in U.K. after spending 15-18 months in the market. But the feedback from the broker world in U.K. is very good at the moment, and we honestly think that we can take the lead position on quality directly in the first shot at the title in U.K. A few months from now, we will share the answer with you. I hope I do not have to explain that we are only number five. But I promise if we are only number five, we'll tell you. We will not keep that information away from you in that area.
It is extremely important that we start out in a good way when it comes to quality and the ambition to be quality leader in any market we enter. So cost and quality leadership has led to 20% growth the last 8-10 years, with a combined ratio the last eight years around 90%, and with a historical to date combined ratio 88.9%. So we are one of the very few insurance companies in Europe that have managed to grow rather quickly, and at the same time, keep a very, very healthy combined ratio. We do not expect the kind of super profit from combined ratio area, like some consumer-driven companies in the Nordic. It is very, very profitable at the moment. In my opinion, the consumer sector in Scandinavia will stay profitable, very, very profitable for the next three to five years.
Gjensidige is not at all a bad pick, if you prefer a low growth company, very solid, high quality in many, many segments. But a low level of growth, of course. So I think Gjensidige is a good pick as a share for future. But they have to buy growth, and we do grow organically in that area. So you will not see figures like mid 80s in the future when it comes to combined ratio. So our expectation is around 92%, as you know that. So cost and quality leadership has led to profitable growth. At the same time, we have managed to deliver better return on investment than peers. However, it started off slightly worse than peers in the first half year of 2017, which is what you could expect.
That it, we will, of course not be better than peers on return on investment, every quarter and every half year or every year. But our ambition is to deliver better, also risk adjusted, of course. Not just increase risk in order to get something back. The kind of segments we do live in is commercial sector. It is 60% of the business. The end game in U.K. is commercial sector, while entry point is public sector. Around 25% is the kind of market leader position we do have in the Nordic market in public sector. You can see one small element here, which is rather interesting, and that is the figure 3.366. So what you can see is that we are actually losing market share in public sector Norway. Why? Because profitable growth starts with the word profitable, not growth.
This is a demonstration that we do have the necessary discipline to walk away if we think prices are too low. In certain product segments, public sector, Norway, prices are too low. KLP is driving the market. They are unprofitable in this market, and they will continue to be unprofitable in this market. Have a look at the next quarterly figures and ask a question to them. How do you actually do in public sector? Because you have a consumer sector portfolio, KLP, which is doing very well. They are good, in my opinion, in consumer sector. They are not good, are not professional underwriters. So dear Mr. Competitors, you have to start earning money in that sector. It is my piece of advice to you. But okay. So we are losing NOK 50 million annual premium in the sector.
Of course, we care, but we do not really care. Because profitable growth starts with profitable in that area. In the other markets, we are picking up and also rather quickly now in Denmark. 2017 figures, you will see the same picture, difficult volume in public sector, Norway. But good development in Sweden and Denmark. Then we have this niche market where we lost a lot of money last year in the change of ownership area, but where you have seen the half year figures of Protector, where we have stated that we are back on track. A rather difficult segment. It is only for niche players. Basically, there are three players in the market. We are the market leader in the market and are back on track with the kind of segment here which is important.
But will, of course, relatively be smaller in future because U.K. and others are growing. Change of ownership is not. It is single digit growth on a low kind of level. This is a new foil. You have never, ever seen that one. If you should compare Protector with other companies, it is Tryg and If. What you can see is that we are picking up volume wise with Tryg and If in what they call the industrial and corporate segment. We will soon pass, I guess If and possibly also Tryg in volume in a comparable segment. At the same time, this is a new picture I never have been showed before. You can see that the combined ratio of Protector fast growing in this market segment is better than competitors. It is a rather interesting comparison in that area.
Our work is, of course, focusing in order to continue growing in our home market, which is their market as well, and continue to be at least equal on profitability, but then still growing. It is a strong point, what you see here. We have, again, nominated ourselves to be the Nordic champion attacking U.K. then. We are number one. You can applaud now, can not you? Okay. According to the stock market, that might be right then. We have done good on the Oslo Stock Exchange the last 10 years. As you were smart enough to invest 10 years ago, you know that story very well. You are smiling here. You entered in Protector 10 years ago, I guess. Keep up the good work. It is a kind of a tick.
I think that we have delivered a lot of good work the last years. Does not really help. We have to continue to do that in future. What about the balance sheet? I think that the main message now, very soon handing the word to Hans, is that we have finished building a strong balance sheet. It is kind of a tick. We are where we would like to be or higher in order to prepare for continued strong growth in future. As you know, we have picked up Tier 1 and Tier 2 capital in the last 12-18 months to rather competitive prices. As many of you know, even to slightly better prices than the A+ rated company called Royal & Sun Alliance, which is the owner of Codan in the Nordic market in that area. There is a simple comparison.
Have a look at it at a later stage, where you compare Protector on some key figures and RSA, and then you understand why the market is putting a better price on the Tier 1 loan of Protector compared with RSA. Remember, we are formally an unrated company, but the market is giving us a price comparable with RSA, which we feel is slightly unfair. We should have had better terms even, of course, which we have discussed with our investment bankers, of course. I see a couple of you are sitting in the room here. Next time, we would prefer to have even better prices out in the market, obviously. At the same time, we are happy with building up sufficient Tier 1 and Tier 2 capital. We do have a solvency capital ratio, requirement ratio, size 177% at the end of quarter two.
However, that improved to 186% the day after. Because we have signed a solvency-based reinsurance contract with one of the leading companies in the world called Hannover Re before summer with effect from July the 1st, which is picking up the solvency ratio of Protector based on the standard formula to 186%. The interesting thing with this kind of solvency-based reinsurance contracts is that you can add an option and a trigger to the contract. Let's say China go into a significant debt crisis, which some of you have predicted for a couple of years or more. If that happens tomorrow, worldwide financial markets will have a crisis. It will be big. We don't know how big, and we have a significant equity portfolio, and that equity portfolio could drop in value with 50%, let's say, overnight.
Then it is important that we are a company with a strong enough balance sheet to resist such a situation, and we are today. But we do have kind of bought an insurance policy, so we can trigger additional capital, retroactive if needed. It is not an unusual contract, but it's not very well known in investor market. Hannover Re is a very solid company. They do not deliver that kind of contract to any company out in the world, but they have signed up based on a long and good relationship lasting for more than 10 years with Protector. So we feel that this is a rather low cost safety net if a shock arrives to the market in that area. So the capital position of Protector is kind of today. It is tick.
At the same time, the board will suggest to the next general meeting in order to prepare for a potential even stronger growth than formally guided. If you are calculating these figures a little bit, you can rather easily see that this base scenario here is based not on 15% growth, but a higher growth level in that area. So we would like to prepare you for a potential situation where we stop paying dividends after the next general meeting. It is not written in stone. It is not really a firm decision, but it is a management of expectations. You could argue we have too much capital now with 186%, July the 1st, based on the standard formula. But we are asked by the U.K. market to have a very strong solvency position.
We do consider in these days to go for a formal rating, and it could be necessary to have a capital situation, even with a good distance to 150% in order to get a sufficient formal rating on the company, which could be valuable, especially in the U.K. market. Then we are talking about BBB+ or better. In my opinion, as a minimum, we should target for a BBB+ situation if we are asking for a formal guiding. However, as you know, the pricing on the Tier 1 loan is better than an A+ company, but we will not have that kind of formulating for the companies. Why not? Please ask them. This is a very strong capital situation.
It is a tick, it is done, and we do have a shock absorber that could be used if the financial crisis 2.0 were to arrive tomorrow or tonight, or next quarter or next year, or two or three years from now. We have talked to many shareholders the last 12 months on their view on the dividend policy of Protector. Many shareholders, big shareholders on the top 10 and top 20 list, have given the feedback, "We don't really care about dividends if you can continue with your profitable growth." However, it could be some of you who are looking for dividends also in the short term, then you should probably then walk away, and do not expect a dividend from Protector the next two, three years. The balance sheet is done.
The targets for future are equal on combined ratio, equal on growth, equal on return on equity, but higher than on the solvency capital target. Previously 125%-160%, now above 150%. This is the balance sheet walkthrough. Then I leave the word to Hans, and then I guess that we pick up questions after Hans, then we have finished the first session here. Country Manager and the guy in lead for the Falcon. Okay, Hans. An applause to Hans. Shouldn't we give it?
Thank you. Is it working, mic, yeah? Great. Thanks. As Sverre said, I established the company in Sweden in 2011 and in Finland in 2016. Today I'm here to talk about claims handling from a total company perspective. I'm very happy and excited to do that. The claims handling is very important both for cost and quality leadership, cost control, quality control, and to create profitable growth, which will take us to top three. When we take a perspective, a several year perspective, in improving our claims handling, it's a lot about doing the right things. It's a big organization, half of the personnel, huge amount of claims. We need to identify the most important things and focus on them. Doing the right things is important to us now. We have a history of projects working on, you could say three main things.
One is what you could call external quality or customer satisfaction. The other thing is Claims cost control, how much we pay out for a claim. The third one is efficiency. We have run a large number of projects, both locally and cross-border, in order to improve those three things the past years. I will go into more detail on these. The background for all this, the importance of Claims handling, is a huge amount of claims and interactions with customers. Last year we had 80,000 claims. We have 95 claims handlers working on handling these claims. When I look at the claims in Sweden, which is about 50,000 of these, we have an average of five interactions per claim. It is quarter of a million interactions with customers a year. Digital, email, mail, everything. It is a lot of interactions.
We know based on surveys that the most important thing for customer satisfaction is time. Is that we handle their claim rapidly. Because if we respond quickly, the customer does not need to worry that we will not handle the claim. They do not contact us, they do not ask us for information because we have already answered their questions. So they are happy. What is necessary to us is to have a structure and a control system, which makes it possible to make sure that we do this, deliver this in every claim, in all of these claims. Now we have a very good basis with the QlikView, our management reporting tool, which enables all claims managers to have control of each individual in their department, that they follow the criteria that we set up for quality.
We have a good technological basis to measure quality and to continue and improve. We, as Sverre said, and you know from before, we have a very strong quality position in the Nordic market. We are a quality leader in Norway since 11 years, in Sweden since six years. Much of this quality is made up of what we deliver in claim service. If we handle a claim badly, we get a lot of bad will. The customer will call the broker, the broker will talk to many colleagues. So we really need to handle all claims in a good way because we get a lot of bad will from bad Claims handling. We have been able to do that already, and that is of course, a big important basis for our quality leadership in most markets.
Then, another important part of quality, both for the customer and our point of view, is Claims cost control. We have a project that has been running for many years, called Rolls-Royce, and the first R stands for reducing leakage or cost reduction, and the second stands for recourse. We make a huge effort not to pay anything which we or our customer is not liable for. This could be anything from an invoicing fee, NOK 25, to a large construction error, which a constructor is liable for, or a counterparty vehicle. So our claims handlers will always do a lot of work into detail of understanding who is liable and try to find someone else to blame for the claim's cost, which would mean our customer would not even have to pay a deductible. This has been running for many years.
Most people, I would say almost all people within claims handling, have had individual targets and been measured on how many cost savings they do per year. We follow up with on monthly meetings. We talk about successes. We tell all the personnel when someone do something innovative, a good saving. We run this on our internet. You could say that Rolls-Royce has become culture in our claims organization.
Driving the Rolls-Royce as well.
Also driving the Rolls-Royce, picking up brokers to events in our 1959 Rolls-Royce. Rolls-Royce has become culture, and culture makes money. Year to date, this year, we have made 13,500 or 13,250 savings, which means individual savings found by our claims handlers. The total amount of these savings or cost reductions is NOK 260 million . We are ahead of our target, which is NOK 400 million this year. Almost every one of these savings are better for the customer, better for us, not better for our competitor. It is very beneficial for everyone, and it is a huge saving. I would say that the competitive position that we have on the motor market in Sweden is very much dependent on this working well, on all claims handlers trying to find these cost reductions in every claim, every day.
Another project which has run in Sweden for a few years, was founded in 2014. We had a strong growth on motor insurance, and we realized that we were five, six claims handlers, and if we would get the growth we wanted, we would need a lot of personnel, and we would need a lot of quality control measures in order to make sure that we would deliver the service we wanted. We made a vision that we will handle twice the amount of claims per person a year with increased quality. The vision was made top-down to start with, but it was based on an understanding what is possible based on what top performers in Protector did. Often, when we need to improve something, we can take a starting point in our top performers, what are they able to do?
What we realized when we looked at numbers, KPIs on claims handlers, is that the same people were best on efficiency and on customer service and on quality. They paid out the least money, they did answer the quickest answers, and they never got any complaints. Why is that? We looked at how they work, and we started the bottom-up process involving all employees in order to find improvements in systems, to discuss, to have change of experiences, in order to find the best way of working, a best practice. We set a target. We took a three-year perspective. We did, at that time, 1,200 claims per employee, and we said we managed to do 2,400 in 2017. Then we had yearly processes updating this target.
I remember that Sverre said, "You will make this, and it will go faster than you think." You were actually right. I think we improved a lot the first year, a lot the second, and then it slowed down a bit. The best thing with this is that we are in line with the efficiency target, and we have improved quality more than our initial targets. We have improved quality measured by Rolls-Royce. We have more than doubled the quality. We actually do more and at a lower cost. Another project which is run for all of Protector, is actually one of the best sales arguments we have when we meet customers. When we are out selling our brand and Protector in Sweden, we talk about cost and quality leadership and we need to explain to a customer what is quality.
Then we make service standards, promising them a claim. For example, if you register a claim on the internet, on our internet website, you will get a response to this, a written response directed based on your claim to you within 24 hours. There is no one else in the market who promises to do that for all products in commercial within 24 hours. Also, we, in order to make sure that we do this for the 80,000 claims, we follow up, monitor all people daily. Everyone in the organization is followed up every day that they never are behind on any one claim. The service standard is also detailed, so it is not only the first step, it is also next line of response. What happens next? What happens if you make a complaint?
If you make a complaint in Sweden, we will always answer your complaint within 24 hours. We promise to do that. We will always do that. We know that we will because we follow up daily. The results for Clean Desk this year is, on total, are pretty good. There are some variations. For some products, we do not have a critical mass, and the departments have not been able to do it all along. If you look at the big teams, in many of the teams, this has already become a culture to have a Clean Desk. There are people, many people in Sweden and other countries as well, who have set an even higher standard for themselves. They say that, "I will never have an email waiting when I go home at 5:00 P.M." Zero emails in my inbox.
How many people do that in your companies? Zero emails. Unheard of from my point of view. That is becoming culture now in Protector. To get a tighter grip on customer service and customer satisfaction, we have launched a test pilot on instant feedback. We are able to distribute a link, a customer satisfaction survey link when we close the claim, and we can get feedback. To a very large extent, the feedback has been positive, they are very happy. When they are not, we know it, and we are able to go directly to the customer and ask them, what can we do in order to make you happy about this? How can we make this good for this time or the next? This will be launched for all products from early third quarter, probably September.
You know that we have a very strong position on cost. We are cost leader in the world, and the difference is huge. We are better than 10 percentage points on average than our competitors, which means that we can price 10% lower, all other things like, and create a huge growth. This difference is not accounted for in claims handling cost ratio. We are actually about average on claims handling costs. If you compare with the best one in the Nordics, we are a lot behind. I think that the main explanation for this is that we have started with a quality focus, and we haven't really followed up on efficiency. It has been more important to have customer satisfaction and the claims cost control than efficiency.
Now, when we know that we have this opportunity, it is easy for us to put this on an agenda. Combining all these three things, customer satisfaction, claims cost control, and efficiency under one new strong vision, which is the peregrine falcon, or the Falcon in 2020. Our ambition is small, as usual. We will have world-leading claims handling in all aspects, not only efficiency and not only quality, both. When we started the vision, we thought, what should it be? As I said, regarding customer satisfaction, time is of the essence. We also know that it's important to do the right things and to have a good focus. We think that the quickest animal in the world, which uses its velocity to kill its prey, we're thinking that this is us beating the competitors. You see this happening?
When we start this work now, this spring, we start by setting a structure for all of Protector. We start with the vision, world-leading claims handling. We say, what does it mean in terms of customer satisfaction? We need to exactly define on how to shorten lead time, how to improve communication in all forms. We need to take the next step of claims cost control, continue the good work in Rolls-Royce, but also improve on negotiating terms with the workshops or entrepreneurs, whatever we use. We set the agenda for efficiency. The project is responsible for setting structure, gathering information, making sure that the vision is worked on bottom-up in the whole organization, but the one who is responsible for delivering the result is every business unit. The line management is, of course, involved. We will be involved in the target processes for every year.
We have already started to set the same targets for efficiency in the whole company. We have the same way of measuring efficiency for motor claims in all countries, and that is the start of making everyday benchmarking culture. We have some risks. We always have a risk when we work cross-border. It is a matrix, but we know it, and we will work on it. We have some critical success factors. It is important to get the employees on board. The way of doing that in other projects, in Rolls-Royce, in Clean Desk, in Formula 1:17, has been to have competitions, to show successes, to make it an important part when we choose employees of the year, how have you performed in these projects? That is how we will do it also for Falcon. We have a project organization, and we know what the most important KPIs are.
What sort of bottom-line improvement could you expect? Do we target? Our claims handling cost is 7.5%. If we improve that in the range of 25%-35%, it would increase the bottom line by 1.5 percentage points-2 percentage points. That is a lot of money if we have a NOK 7 billion turnover. We could also, as we have done so far, use our cost and quality leadership to achieve more profitable growth. It is really about improving our competitive position. The quality improvements also hit the bottom line. When we do a cost saving, of course we get a better margin, but also if we have a good customer satisfaction, we are able to have a higher renewal rate. We do not lose any customers. We are able to push price increases a bit more because they are very happy with the claim service.
After all, there is only one company who will be able to document 100% Clean Desk for all Claims, all year, every employee, all country, all products. That is how we are going to strengthen our competitive position. Thank you for listening.
Thank you, Hans. We stay here for questions on the company update and the claims handling area. So feel free. Yep.
You have those 95 persons, what is the total number of employees in the company today?
I am not quite sure. Merete, is it 275, or how many employees do we have in the company today? We are around 100 in Claims handling. Are we 275 in total?
Around 275. So 40% of the employees then. Remember, we have not really started to build up a Claims handling department in the U.K. so far. There is kind of an entity with around 20 people with only two or three in Claims handling. When we grow and mature portfolios in different countries, we will have close to half the employees in Claims handling area.
The 95 people is also Claims handlers. There are some Claims managers and other people working relating to Claims. You could say that close to half of the people time spent.
We have a question from the computer here, from the webcast.
Yep. We have a question from Denmark actually. The question is, you are targeting 15% growth from 2017 to 2019, but in 2017 it is 24% in the local currency. That suppose that 2018 and 2019 will be quite low growth to get to 15% growth for the whole period.
The question is, does our figures when it comes to growth match up, being above 20 in 2017, will that add up to lower than 15% or even lower than 10% at the end of the period? The answer is no. You should kind of forget about 2017 now and have a look at Protector going forward and our official guiding statement going forward. It is 15% every year, 2018, 2019 and 2020. That is kind of our expectation. Could be volatility related to it, of course. What you have seen so far is that historical to date we have been above. We might be, but that must be profitable growth, of course. It might be lower as well. Okay, so going forward 2018, 2019, and 2020, 15% is our kind of formal guiding towards the market. Other questions?
The pricing, your cost of the new insurance instrument with Hannover Re, you said it is roughly a percent, like 10% like a Tier 1 bond.
What is the face value? Percentage of what?
Okay. What is actually the Hannover Re price is slightly above Tier 1 capital. A percentage of something is slightly above. That is, it's not kind of figure we will kind of release very clearly, but it's above NOK 10 million annually. With a certain seeding level, today's seeding level. It's above 10, but not with a lot. That's kind of what we are paying at the moment. And lower than 20 obviously, then, in that area. Yep.
You state it's an option driven platform solution. Is it so that you have given away something on the upside, so you actually have risk that can remain on top of every cases? Basically what you use the maximum and then you have sort of a risk on top of that again?
Again, a question related to the Hannover Re option deal here. The way it works is that if we go below a certain level capital-wise because of a shock in the market, then we pull the trigger. Obviously we pay more in such a situation. What we do after that is that we gradually rebuild the capital in our own books. For instance, with spreads going the other way around again after a shock, they normally return after a period of time. Many of the losses in a financial crisis has proven to be, in history at least, possible to get back, not necessarily, but very often. The question is also related to whether we give away any kind of upside, if I understand you correctly, and the answer is no.
This is a capital release, kind of reinsurance contract with, of course, a risk element transfer included. If not, it wouldn't have been allowed. We have discussed with Finanstilsynet, and they are aware of the deal we have done, and they do not formally accept and write a letter this is good, but they haven't given any critical feedback. This is prudent, and it doesn't give away any upsides. You pay for capital, and as you can understand, if a financial crisis occurs, capital is very expensive. Now you have pre-arranged the price for capital in a critical situation. That will be looked upon as very competitive, seen from a price point of view, if and when a new crisis arrives, for instance, to the financial world. Our expectation is, of course, that it will return. Yes?
You communicated more flexibility on the writing side than previously weigh that against growth. When discussing ROEs, I understood you, and maybe I am reading too much into it, but you are firmer on 20% ROE targets. Is that the correct assumption? You will capital, but you will still look to the 20% ROE target.
The question is whether we have opened up for slightly more flexibility, or at least communicating a slightly higher flexibility. I think we have had it always, that we might swap 20% growth and combined ratio 94% with zero growth and combined ratio 92%, because it makes sense for shareholders. The question is related to how fixed we are on return on equity, and response is that we are fixed to that target. We will manage what we are doing in order to, through a cycle, to deliver 20% return on equity. Remember, there are two elements now on it, which is influencing a lot on the return on equity compared with history. One is on the negative side. Return on fixed income portfolios will be lower because the yield today is 2.3%. Historical to date is a lot higher. Obviously, we will suffer.
All insurance companies will suffer. Return on investments are getting lower as we speak. Return on equity from any company out there will be lower. That is on the negative side. However, Protector has restructured the balance sheet. That is a tick, it is done. We have a higher gearing in the company, represented by three elements. Tier 1, Tier 2, and a 100-year deal. So it is easier to deliver return on equity around 20% for future compared with history, because the balance sheet structure is better, and it is to the benefit of the shareholder. As we all know, the cost of subordinated debt is rather competitive, seen from a capital point of view. Because those money are not sunk when we get them, we reinvest them.
It has been money for free the last three years, because investment income has been higher than what we pay in interest rate for it. The restructure of the balance sheet is to the shareholders' benefit. The fixed income return is to the disadvantage. They will hopefully equal out, more or less. Yes?
Just to be clear, because you also with the through the cycle adding to the ROE target.
Yep.
Should you optimistically for one to three years target a lower ROE to capture growth below 20%?
No. The answer is whether we would like to compromise on return on equity and let's say we could accept 10% return on equity for a couple of years in order to get 25% the next coming years. That is not our thinking. Our ambition is to keep the discipline around a target around 20%, but you will have volatility on the investment income side that will create a volatility around 20%. Some years lower, some years higher in that area. But that is depending on how we invest money and the market and not any planned lowering on return on equity in order to build a beautiful future. We are a bit afraid of that kind of way of building values. More questions? One more question, and then we go to investments then.
From the solvency ratio, you have increased it from, I think last year it was 125%-160%, and now it's above 150%. You mentioned a bit about it earlier, but what is it that you see this year that you didn't see last year that makes you want to increase your solvency ratio target? Now I'm increasing capital in the U.K., but why are you increasing-
The question is why we gradually are increasing the solvency capital target and strengthen the balance sheet, how much we are doing it. We do not see the world very differently today compared with a year ago. We knew that we would continue to build balance strength in order to prepare for future. But we were slightly careful not to communicate too much in a too early situation. Let's do something first and then communicate more at a later stage. Yes, the increase in solvency capital ratio and the target in the company is also linked to the U.K. ambition we have. Many clients in U.K., they prefer to place business with slightly more formal solid companies. And the solvency capital ratio is one of the elements that big clients in U.K. are looking at.
There is an alternative route which we have checked out, whether we could buy access to a high-ranked rating entity, for instance, a Lloyd's Syndicate. And we do have an agreement up and running today with such a structure. But we have not put it into play because the price and administrative challenge is too high. We would prefer then to strengthen the balance sheet in order to compete in the future U.K. market with a stronger balance sheet. But also, as you have seen on one of the files, we consider to put the capital strength into play in different areas, for instance, then increasing retention. We do have a plan to increase the retention from today around NOK 25 million - NOK 100 million. So quadruple the retention. We should probably have done that earlier.
That gives slightly higher expected profitability in future, but slightly higher volatility in that area. There are many reasons why we are building a very strong balance sheet. It also enables Protector to go more on risk in investment sector when attractive. Probably not now, but it could arrive a situation a year or two from now where to go harder in and take more risks on the fixed income side, for instance, could be more fruitful than today, where spreads are close to a historical low level in that area. When timing is good, we also have now a stronger capital base in order to go more on risk on the investment side. Remember, investments is also core business in that area.
Then we stop with questions at the moment, and if you have more questions related to what we are discussing now, feel free to come back at the end of the presentation. And then to the Chief Investment Officer, Dag Marius Nereng. Welcome to you, Dag Marius.
Thank you.
After Dag Marius, there will be a break, as you know.
As Sverre has already told you, in Protector, investments are core business. I think it is worth repeating that history to date, 2/3 of our net profit has come from investments. We are growing rapidly. Our net financial assets and float has tripled the last five years. Sverre has already told you that we will keep on growing. In the fourth quarter of 2014, we insourced our asset management. You can see now that we are almost managing all the assets ourselves now. That is two fixed income funds today. The equity share has varied a bit and has come down now from year-end 2016. That is purely due to us not having good enough investment ideas, probably because the stock markets are at all-time high levels. At the last year's Capital Markets Day, we updated you on our investment philosophy. There has been no change since that time.
We still look for great companies with a strong track record, great management. We are still long-term oriented. Of course, we like to buy the companies at a fair price, and that is the problem these days. It is also important to mention that when we look at a company, it is not enough for the track record to be strong. We also have to believe that they will keep on performing so that the drivers for that strong track record is still intact. Last year, we showed you this. This is all our portfolio companies. They have kept on performing. One more bar this year, and they are all growing. This is our portfolio overall.
Some of the companies started with a low base, but overall, this has been almost 20% sales growth every year in the last 10 years, and even stronger EPS growth of 22.2%, implying that the companies have also increased their margins in the period. In the bottom left part here, you can see our top 10 holdings. There have been some changes to that from last year. We have sold our shares in B2Holding and in AF Gruppen that both reached our target price. Sverre was showing you that AF Gruppen was the only company that has beaten Protector the last 10 years. Our expectation is that that will change. AF Gruppen keeps on performing, so that may be a bad decision.
We sold our shares in Norwegian Air Shuttle for different reasons, and we sold our shares in Intrum when they made this terrible merger with Lindorff, really destroying shareholder value. There we have some synergies with the bond side of our investment department because Lindorff has already bonds outstanding in the Nordic market, and we considered buying them, and therefore they made an analysis on Lindorff. But Lindorff was barely covering their interest rates. It was a poor risk-reward from a bond side, so we didn't identify a lot of equity value. When Intrum then paid SEK 18 billion , it was an easy decision for us. We sold all our shares the day of the announcement. Now the shares are down 20%, I think, since they announced the merger.
Hopefully it stays that way, so you won't come back next year and say, "You're stupid." We have fewer investment ideas. We only bought two companies since last year. One of them was an old idea. We bought back the Schibsted shares that we sold in December 2015. The underlying performance of Schibsted has been better than our expectations, and the share has come down 30%-40%. As you can see, it's now our second-largest holding. We have, for the first time, moved outside of the Nordic market, buying a company called zooplus that I guess some of you don't know. But if you have a pet at home, and I guess being investors, we like to save money. If you enjoy the convenience of getting the pet food delivered at your door, you now know where to go.
Because zooplus is the clear market leader in online pet food sales in Europe, with a market share of about 50%, growing rapidly and investing all the earnings into new growth. But something happened after we bought our shares in February. In April, the U.S. market leader was bought at an EV/sales multiple triple that of zooplus, and the zooplus shares started to rise as well. Now we have sold one-third of our shares. This is a slide that we showed you in our Q2 report. We're very proud of the performance so far, and we are promising that we will not repeat it. You can also see here that it moved sideways the last period. The reason for the outperformance is that our company has a much better development on the EPS growth the last three years than the Oslo Stock Exchange here.
There was also a well-timed insourcing of the asset management because we have no oil exposure. We insourced it in Q4 2014, and that was the same period that the oil price collapsed. Timing is everything. Some of you may also remember that at the Capital Markets Day last year, our 12-month forward P/E multiple of our total portfolio was 15.1, and now it is even lower. The reason for that is that our investments has kept on performing and delivering EPS growth, but our portfolio has moved sideways since last Capital Markets Day. This is a good thing for us because we have ever-increasing flows. We like to buy more. We will need to buy more bonds and equity every year, and it is better for us to buy them cheaper than more expensive.
You see the opposite direction of the Oslo Stock Exchange in the same period. Moving to the fixed income side. No changes here as well. We still look for sound companies priced with implied margin of safety. This is our total fixed income portfolio. The change here since last year is on the rating side. That is the most important change. Last year, our total portfolio had a rating of BBB+, and now it is an A- rating. You can see here that Sverre already told you that the yield is a meager 2.3%. The interest rate duration is 0.4, meaning that if you believe in a higher interest rate, we will quickly reap the benefits of that. The credit duration is three years, and 85% of the funds are managed internally. In the bottom left corner, you can see the changes in how we invest.
We are taking less risk now, and that is because we will not reach for yield. Every time we make a bond analysis, we have a fair spread assessment, and that is a fixed hurdle rate that investment must pass. When the spreads are tightening, fewer and fewer investment ideas passes that hurdle, and then we would rather invest it safe and wait for a good opportunity for us. This is how the portfolio is spread on all the sectors, and you can see it is well-diversified. The biggest change here is the movement from senior bank bonds to covered bonds. The reason for that is that the difference now, the senior bank bonds is a BBB+ bucket, and the covered bonds are AAA.
On a five-year credit duration, it is only at 25 basis points that you get extra for taking that extra risk, and we do not think that is worth it. We have also made a change from a Tier 1 bank to Tier 1 insurance. During a financial crisis, like in 2008, all the Nordic insurance company delivered very good insurance results, including Protector. You all remember that not all the banks did that, especially the Danish banks. So we think that is much better risk reward. Over here, you see how the Norwegian high yield market, the sectors there, and the biggest sector is the oil service part, and we have no exposure at all. So we dare to deviate a lot from what you can call the benchmark, because we look at the investments individually.
In the Swedish market, the biggest sector is the real estate market. We have just very small investment grade companies there, and we have reduced it also the last 12 months. That is due to the very high housing prices in Norway and Sweden. This is a bucket of our senior bank bonds for portfolio surveillance. The count up here is the number of bonds that we have in that bucket. It is 29 companies, and we have invested NOK 778 million in that bucket. It is 12% of our portfolio. The credit duration is 1.3 year, and the interest rate duration is 0.3, and it is a BBB+ bucket. The yield down here is what we get. That's before tax. That's why I am not so enthusiastic about it. We do not get any more. That is what we get. A spread of 54 basis points we get.
For those of you who are equity investors, the yield is combined the Norwegian interbank offering rate of 0.8, NIBOR what we call in Norway, with a spread of 54 points, and that gives you the 1.3. You can see the spread development here, down 70% the last year. That's why we sold, we reduced this bucket a lot. This is more of an overall picture, our biggest buckets. You can see that we have bought instead of the senior bank bonds, we have bought the covered bonds. It has also fallen, but a lot less. I told you that we increased our exposure to the Tier 1 insurance. The best one you cannot buy, that is ourself. Some of the else are also good, and we think that is much better risk reward. This is not the total market. These are our investments that is combined in these buckets.
Here we included a new company. The spread did not rise in that period. It was us buying a new company. We have showed you this before, and here you can see some other figures. Here the yield is 2.5%, much better. That is our internally managed portfolio. The reason why it is better is because we have higher risk here. It is a BBB+. In total, it is an A-, and here it is a BBB+. We are very proud of our performance so far, but you can see that the benchmark has moved even better than us this year. The reason for that is that oil service spread has been tightening more, and we do not have any exposure. Expect if the spreads continue to tighten, we expect them to continue to improve more than us because we have now much less risk.
This is some of our tools that we use in our investment process. Jonas, he will now take you through one of our only non-listed equity investment. More he will give you insight in how we work when we look for companies.
Sverre asked us to give a short case example on how we approach an investment. As Dag Marius said, we will do that on Compusoft, which is the only non-listed portfolio holding. Protector owns some 5.8% of Compusoft. What do they do? Compusoft provides a design and sales tool for multi-branded kitchen and bathroom retailers. Where the customer gets this-
It's like the better if you're standing close to the computer there for the webcast presentation.
I'm-
Sorry.
Yeah.
We forgot to tell you.
Thanks. What they do, they provide a design and sales tool for multi-branded kitchen and bathroom retailers, where a customer can see his kitchen beforehand in the right dimensions, and see how it will look like, the product specification, and what the price would be. Some 80% of revenue is recurring, and historically, Compusoft has been, as you see, a capital light compounder. Remove cash, and you have a return on invested capital of some 100%, very low capital requirements for growth. They managed to grow at a high pace historically, while being able to pay out most earnings as dividends. That's, of course, a very valuable combination. How do we approach this as a possible investment then? Pilots, they run pre-flight checklists to ensure that they do not overlook anything that would make a plane crash.
We would try to do something similar in having a systemized approach to support the evaluation and ensure that we do not overlook anything important. Here you see a small picture here on what we call our financial underwriting model, and we will not go through all items and evaluation points today, but we will look at these four we believe important points for Compusoft. Starting then with number one. If you Google 'kitchen computer-aided design,' you would instantly find 20 programs available for free download. So key question here is, what is protecting us from getting killed by competition? We think the answer is product catalogs. If you are a multi-branded kitchen retailer, for instance, you would like to have all the products you sell easily available in the customer offering.
As you use your CAD tool to make the customer offering, you would need to have all the products you sell easily included in the CAD tool, in the right dimension, with the right visualization, with the right prices, and the product description in local language. Compusoft have some 130 employees working with establishing and maintaining such product catalogs in their system. They have some thousand of that. You need scale in terms of user base in order to be able to make that fixed cost investment of maintaining all these product catalogs. Compusoft is the leading player in Europe in terms of market share and product catalogs. You also need to have a vast amount of product catalogs to have an attractive customer offering to the very fragmented bathroom and kitchen market.
The entry barriers here is the fixed investment needed to establish all these catalogs and given the limited size of this niche market, that makes entry more or less not viable. We see very limited or basically no entry here over time, and we see a lot of small players folding. Compusoft also have agreement with manufacturers of all these different kitchen tools, for instance, to get their product catalogs before they are published, so they can have the quickest lead time in updating them in the system, because a retailer when they have a new product to sell, they would not like to wait three months before easily included in their customer offering. Product catalog is a key advantage.
Second, they have a well-established support and customer organization or support and service organization, and won industry prizes for best customer service five years in a row. This is quite support intensive with a lot of trainings and so on for new sales reps. They are very strong in this with local presence in each market, and that is also an advantage. We also see some signs that there exists a competitive advantage here. The first is pricing power. They are being able to rise prices above inflation every year. Whenever you can raise prices without having to have a prayer session, it is a good sign. Secondly, the last five years, they have churned to competitors of some 0.4%, whereas 80%, 90% of their customers are won from competitors. That is some 20:30:1 ratio, and that is done despite Compusoft having premium pricing.
The two reasons for customers changing from competitor to them is, one, product catalogs, not fully covered, not quickly delivered, not in good quality. The second one is lacking customer service and support. We think that we have a strong, defensible, competitive position here, which is important. The second point, we have had good historical development, and that is nice. Key question, why? Is the drivers of this intact for the future? Historically, Compusoft has grown mainly by gaining market share within the kitchen solution segment. They have some 30% market share today in Europe, and we expect that to continue to 50%, 60% over time. If we look at the market as Germany, for instance, the number of competitors has gone from 14 to two, and they are still growing very nicely in Germany.
Across Europe, there are still many of these small competitors that are continuously bleeding customers to Compusoft. The scale disadvantages are just so big, so they would need to fall over time. Another very important driver for growth going forward is. We expect the bathroom solution to continue to eat market share and continue to increase prices a bit every year. Although growth might be in percentage-wise a bit lower than in the past, given their size now. The second important growth driver is the same solution in bathroom. They have acquired a competitor. They have the most comprehensive product catalog overall in the market and are rolling now out this in new countries in Europe, utilizing their existing sales and support infrastructure. Here, the competition is mainly local and quite weak.
They grew this 20% last year, and they have actually been holding back a bit in order to get all these product catalogs in place that the customer needs before pushing the product. We think there is a high probability of this also being an important driver for growth going forward with a long runway. If you look at margins, they have scaled in the past. The reason is, for every new customer you add, you need to add less and less new product catalogs that you need to maintain that. This scales as well as development and sales and support. They have grown sales a bit faster than the cost and headcount in the past. We expect this driver to be intact for the future, and management also expect and plans for that.
The question here is the performance drivers intact? We think yes. We think the most is intact, and we think the growth and margin drivers also is there for the future. A quick peek at the balance sheet. They have very asset light and a net cash position of some 1.5x EBIT. We do not expect that to change, but we also note that we have some significant untapped debt capacity. They have almost 100% free cash flow conversion and reoccurring revenues. A private equity owner would like to take out six times earnings out of this, and that is of course, a plus and added safety for us. Going forward, we also expect most earnings to be distributed as dividends.
Then when it comes to management and organization, we have a founding long tenured and very strong management team here that have the biggest ownership stakes in the company, and they made the success happen. Having a strong owner operating management is something that we value highly. So that's a big plus. Also 40% of employees own share in the company and some a very significant stake. Very low turnover and 3% of revenue is spent on employee training. Then finally, they are very customer-focused, and if that means sacrificing short-term growth to not risk diluting service quality, so be it. We really like that all stakeholder interests are aligned here, the customers, the employees, management, and shareholders. Then we also have some other, we call checklist items here that we like to go through before making an investment.
We will not go further into them today. So what can we expect in terms of returns there? We try to take a probabilistic approach to investing, identifying a range of future outcomes and the likely one for each one happening. We agree a bit with Charlie Munger that not doing this makes you a bit like a one-legged man in an ass-kicking contest. Not good. But here we have three scenarios, and it looks a bit imprecise, and we have our share of detailed spreadsheets as well, but we do not want to mistake precision for accuracy. But in the first scenario, we have that management will meet their internal budget. We believe they will. They have always done in the past, and they have a very strong position to do that. But also surprises in business are usually on the negative side.
The second scenario is a bit slower, where the launch of bathroom in new countries is not successful. Market share gains in kitchen is worse. Then we have a lower ending multiple as well. Then the final scenario, there is always an opportunity that we end up looking like idiots here in five years. Here we think and hope it's quite small. So the expected return here, we get it from earnings growth and dividend and buybacks, plus multiple expansion contraction. Combining these scenarios, we get it to 17%, and that is quite high. So then we have some safety margin as well in being a bit off in our probability assessment there. Then when we get new information, we need to update this. So for instance, yesterday night when we had sent away this presentation, we got the Q2 figures for Compusoft.
We need to look and see, is there anything here we would like to change? But they were good. They were 21% year-on-year EBIT growth. So we're happy with that. But to summarize this case, the key risks here is, one, anything that would dilute the importance of these product catalogs that makes the entry barriers here. Second, we have short product life cycle in software, and that is not optimal from a durability point of view. Thirdly, we have the market, kitchen and bathroom retail market is very fragmented. But we have a consolidation trend, and that is on balance negative for Compusoft as customers get a bit more bargaining power. And it's a bit lower barriers as well for competitors to go in and take a retail chain with 1,000 stores, as you can invest in making a tailored solution for them.
And then of course, loss of management and key personnel is a risk. But overall, we think we have good margin of safety here with low downside probability due to sticky reoccurring revenues and a strong competitive position in a small niche. We think we have a quite high probability of continued value-accreted growth. That together then gives us a good expected return. Then we are very happy partnering with a great management and organization that have their interests aligned with ours. So that's a bit highlights on Protector's investment in Compusoft and, hopefully, some insights into how we approach the case. Thanks.
Excellent, Jonas. We are 15 minutes behind schedule, but I think we can manage that during the next couple of presentations. So we still have time for Jonas and Dag Marius for a couple of questions on the investment side, if you would like to. Yes?
Yeah, I would like to know how many people you employ in this very important part of your company?
Seven. Next question. Okay, it's even on the next slide here. Seven people on board. What we obviously call a big chunk of analysts then, Dag Marius.
Yeah.
You have met one of them now, Jonas, our kind of Chief Analyst. A nice title you have got, Jonas. Another question, yeah?
Yeah, two questions. First, you mentioned you invested in 10-11 holdings.
Yeah.
What percentage of your holdings lies in those?
Oh, I am not sure, but I guess like we have 14 holdings. So that is about 90%, I guess. Yeah.
To repeat the question, 10 biggest holdings goes for a bit more than 90% of the totality of the equity side.
Right. Compusoft, how long have you been invested? This is your only unlisted investment. Are you looking to increase that number?
Repeat the question.
Yeah. The question was, Compusoft is our only unlisted company. Will we increase the number of unlisted companies? The first question was-
How long have you been?
Yeah, how long we've been invested in Compusoft. We've been invested for, yeah, I think it was April last year. We bought our first shares then. The owners was selling a bit more shares later on the same year, and we bought some more. If the investment idea is good and it's unlisted, then it's okay for us. No problem. Like 20 more of these. If anybody needs money and have good investment ideas, we have a lack of investment ideas. Dag.Marius.Nereng@protectorforsikring.no. Please. Yeah.
Follow-up. How do you deal with the, obviously a low liquidity there.
Yeah.
How do you deal with that risk?
The question was liquidity risk. That's a downside, being not listed. We are long-term oriented, so kind of benefits as well, because they don't have to try to increase their next quarterly earnings to please the markets. They have the long-term approach. We have an exit agreement in this special case in four years, have the possibility to do an exit, stock exchange listing or a sale of the company. Hopefully, we will just renegotiate and keep on being invested here. We think the growth maybe, yeah, 10, 20 years out, yeah.
Again, to fill in for Dag Marius a little bit, yes liquidity is obviously an issue. It is, but it's not important to Protector. The balance sheet will grow, the float will grow. We are long-term investors, and we are not managing a fund where we have to manage volatility in that portfolio. We can take our own decisions. So we are slightly in a better position, I guess you agree on that one. Of course, liquidity is an element to consider. A final question, and then we go for a break.
I have a question from the webcast here.
Yes.
It's on one of the previous foils on the top 10 holdings. Pandora has been down a bit in 2017. Can you explain your views on that stock?
Yes. We believe in Pandora . It has been a poor investment for us. The growth has been a very strong track record. That is the reason why we have bought it. Now they started performing a bit less good, and the stock has come down. We think the risk-reward is still good, but I think it is too short a time period to go through each and every investment. Of course, it is our third largest holding, so that says that we still believe in the company, unless we would have sold it.
Okay. It is five past 12:00 P.M. I guess we still go for 15 minutes break. We will be shortened down the two next presentations slightly and still have some time for questions at the end of the session. So 12:20 P.M. then. Thank you so far. Take your seats, please. Thank you. I guess we are starting up again. There are a couple of people coming in now. So one, two, three, here we go. I got a question in the break here. Not really a question, but a comment. It was a question related to listed companies or not. It was given an example for a good unlisted company that you maybe should have bought shares back in 2003. Guess what company? Protector. The share price in 2003 was NOK 1.87.
We understand that AF Gruppen has outperformed Protector on the stock exchange the last 10 years. If you have compared us with AF Gruppen since we started the company in 2003, I think that the performance would have been even better then. Okay. We continue with IT and digitalization. We are 20 minutes behind schedule. There has been a lot of good questions, I think, and it gives me the opportunity to go a bit faster through the IT section as such. I have earlier given a statement that we are different when it comes to IT. We are the only company, as far as we are aware of, in the Nordic market, possibly also in Europe, developing all IT systems ourselves.
Time to market is faster, the number of innovations are higher, and the cost ratio is dramatically lower than any competitors out in the market. Some of you have seen this slide before. What does it have to do with the buzzword digitalization? It is a lot of press coverage and interest around this buzzword, artificial intelligence, robots, digitalization, et cetera. My first AI seminar was in 1988. I went to Brussels in order to learn about artificial intelligence in the financial sector in 1998. It is not exactly new this year. It is not. I think that if you should understand our position towards these kind of words, which may or may not be important for future, you have to go back to the starting point of the company.
We had at that time, and we still have today, senior people with background from market leading players worldwide when it comes to developing insurance software. The present chairman today, he has a background, a consultant called Trond Høye, which was the IT director in the early years in Protector. He is still working with Protector. He has a background from the IT industry and I do have a background from the IT industry, insurance, software development. And we have other people internally in the organization with that kind of background today. We took a bold decision, one of the values of the company. We will develop all systems internally. And that is basically also the position when we meet AI or digitalization or other robots or things like that. If you go back in history and see what did we do IT wise the first five years.
At least we made the first robot. The first underwriting solution was up and running, underwriting risks untouched by man in a cooperation with Skandiabanken. The full process from cradle to grave was done untouched by man. That was in 2004, 2005. Robots in the financial sector is nothing new. We haven't made many robots since then. We could maybe have made more. We didn't know it was a robot because we didn't use that phrase. But it was underwriting risks untouched by man. Probably one of the first solutions in that area in the world. We had the competence to do it, and why not? But at that time, we didn't really have a professional IT setup. It is get the system up and running, produce policies, do Claims, manage cost. It's not really important, just do the work and wait for critical mass to arrive.
The next five years, then we are gradually moving towards robustness, but we are still not there. But doing well, employees are happy. Internal customer satisfaction survey shows that we are pretty good in IT. We do insource operation. We pick a person from the Oslo Stock Exchange and put that guy in place of the insourcing of the operation. Higher quality, lower cost, better interaction with the development entity of Protector. Get Sweden up and running, get Denmark up and running. And that didn't cost too much resources. So gradually moving towards something called a robust architecture, but not really a very solid architecture, neither at the end of this period.
However, today we do have a situation with a pretty stabilized architecture, a good development environment, and we are increasing the speed, and we have probably done more the last two, three years than the first 10 years in total IT wise. So it is a story migrating from a firm decision to develop all IT systems internally. We understand it must be quick and dirty in the beginning, but we know that at the end of the day, we will have a robust architecture and continue to develop more and more good software in a close cooperation with the business unit people and deliver that out to the market. We have more than 500 system releases a year. How many do you have in your company? 500. Okay? So it's 1.5 per day every day, including Saturday and Sunday.
We release a new version of our systems today and nobody notices. Unless a few users in a Claims handling department in Denmark or in accounting department in Norway or in any other business unit in that area, there are very few companies in the world, not only in the financial industry, that are releasing systems every day internally. The systems do not fall down. That would have been a stupid idea. It is not a risky business to do it in that way. Today, I think that the situation is that IT gradually is playing an accelerator role, supporting the business units in order to move faster and faster. When Hans is talking about F17, double efficiency in Claims handling, it is also about IT.
You can go a long distance without IT, but at the end of the day, you need IT improvements in order to support process and routine development, increase efficiency and quality. I think that this statement here is rather important. There is no such thing as an IT problem. If you as an user can articulate what you need precisely, we can deliver it, whatever it is. People pointing at IT should normally point at themselves. If you can describe what you need, you will have it. No limits, no budget restrictions, will not take many months or many years. Whatever you like, you will have it, but you have to describe it. That is possibly the most difficult thing. Digitalization does not arrive by itself. You have to describe exactly what you need, which is the difficult part, not really developing it.
That's not the difficult part in Protector. I have heard stories about other things in other companies. We do not really care. This is who we are. Of course, there is a potential for digitalization, but it has more to do with insurance people working closely together with IT people, make them love each other, and then you will see magical things happening. You will see digitalization arrive gradually in that area. We will say it's not about digitalization, it is about educating people to prepare for future. It is about people. Okay? Business people and/or IT people in that area. Then it's about efficiency and methodology and architecture, and how do we move from spending 70% of all time spent in the IT department on maintaining present system portfolio, reduce that to 30% and increase project resources from 30% to 70%. Easy to say, difficult to do.
How can we deliver 1,000 IT innovations in the future per year with less than half the resources and free more capacity to bigger IT projects? That is the challenge. That has something to do with architecture, methodology, structure, discipline, culture in that area. It is not about digitalization, it is about people, and then it is about a prudent platform for developing and improving systems every day. Then it is about digitalization in that area. Yes, there will be more client desktops in the future. Yes, it will be more broker desktops in future. Yes, we have started to implement instant feedback. Yes, we can simplify processes and routines and make people available for other items than punching information that you already have received into a certain system. Yes, it is an opportunity to digitalize Protector for the future, but it starts with the people.
It is followed up with a prudent platform for developing IT system. Then you can start to build AI or digitalize the company. What you will see is a gradual movement towards a more efficient IT organization in Protector interacting better with the people. That's the story. I think we are well prepared, and we are not at all worried about any technology development that will outperform Protector in future. We have the knowledge, we have the capacity, we can spend as much money as we would like to, but we cannot spend more than 1% of revenue because we simply can't, because we don't have users capable of describing what they need faster than what they do at the moment in that area. It's not about digitalization, but it's a future element to consider.
Possibly slightly arrogant from our point of view, but this is who we are. I think we know a lot about IT. We have been good at that during the first 13, 14 years of history of Protector, and we are not at all afraid of the future. But there will be good initiatives from competitors, especially in the consumer sector. I think they will do a lot of good things in future. Happily enough for us, they will focus on consumer sector, because that's where the big money is, in Gjensidige or If or Tryg or Codan or others in that area. While we specialize in our segments, and that's the only thing we do. This is IT and digitalization, and then I leave the word to U.K. and pick up questions also in that area at the end of the presentation.
Henrik and Maureen, feel free. Thank you.
Thank you. After the second quarter presentation, we left off with Grenfell, which obviously was a very significant incident, not with a huge financial impact to Protector, but operationally we are affected by it. Also, obviously, the tragedy that it involves with very many people directly and indirectly affected by the incident and also many parties involved in the totality post the accident. We have obviously learned a lot since the second quarter presentation, but our conclusion and statement around the risk, Kensington & Chelsea as a client for us, and U.K. as a market for us, has not changed at all. What I'll get into is what we have learned in terms of risk management and how we will approach this market going forward.
Last time, we mentioned that there are many forces working in our direction or for us and the client at the moment. Government puts pressure on the issue with tower blocks and fire safety in the U.K. We are helped by fire brigades, the police, politicians, and other insurance company, the insurance market, industry experts as well. We need to do our activities, and one of the most important elements of our approach is to help the clients focus. They have pressure from the outside, and the pressure is enormous on very many actions at the same time. We can help them prioritize. In our approach here, we have both an internal and an external approach. The internal part is split in two, where we have done those in parallel.
One is to educate our people, so understand the issue with tower blocks and cladding on tower blocks better. The other one is to update our routines, processes, in order to avoid similar situations in the future. The third one is obviously then to understand what is our portfolio today. How does it look? We had this building in our portfolio. Do we have more of them? We knew we had more of them, but what state are they in and what do we do to prevent a similar incident happening? The external approach is to meet our clients and to require more information on these types of risks going forward when we quote them. We have completed most of the actions. We have looked through our portfolio. We have almost 100 tower blocks, with what you could say is a similar situation as the Grenfell Tower.
However, with around 38 or exactly 38 buildings that we see as high-risk buildings. We have been street viewing, so using the internet in order to see the state at the time of the Google car driving around. But then after that, going to the actual site and looking into the more details of the technical state of the buildings. At the moment, we see that the clients are ahead of us. So when we come to the clients and we tell them that you need to look into these seven tower blocks, and you need to improve them, they have already started. They have removed cladding, tested cladding, and on the ones that have the most combustible claddings, everything is removed already.
I think we are learning, and we are helping our clients to prioritize where to put their focus and their funds in order to improve these types of risks. When it comes to the Claims handling part of this process, we are there to help. We are there to help with cost control for all involved parties' benefit. Let's not leave lawyers and solicitors writing memos to each other. Let's make sure that we have a structure and keep cost control on the Claims handling side. We need to identify what parties that can be involved and where we can find recovery options. We can add structure and project competence into a large and complex project, which this is. Not many people, even in the larger companies, and people with lots of experience, have been involved in such an incident earlier.
This is new to very many people, and we can also pull in experts from our reinsurers and our network outside of that. We do stand firmly behind our U.K. operation, and that's a statement we gave very early. It has not changed, and I think it was important for us to have all the documentation structure we have in our risk evaluation process going into the U.K. Then we could be confident in saying that this is an unprecedented event. It's unfortunate that it has happened, and it's a tragedy. But now it has happened, so let's make the best out of it. Most likely, when we look back at it, I think that Protector as a company will be better, more competent, and we have had a free marketing from it with our name coming out there.
As long as we do our job well, this could be a positive for Protector as a company. But let's not forget the tragedy in it. Okay. Just to remind you, and I won't spend a lot of time on this, why we went into the U.K. and what we did before we entered. We looked at our competitive advantages, cost, quality, and is it possible to get profitable growth and a top three position. After analyzing 11 countries, we concluded with that U.K. was the best place to go, so we did. Getting further into U.K., looking at facts and figures there, we saw a situation where our competitive advantages are even bigger. Cost is higher, and we will have lower cost than Scandinavia.
Quality, very difficult to find out before you enter a market, but the indications from brokers, quality is poor. A top three position was easy to see in public sector, and of course, we find segments in commercial sector where we can reach a top three position. It's about defining where we go. The status at the moment is that none of our findings have been proven wrong so far. The cost element is strengthened, quality element is strengthened. Maureen will speak a little bit more about that very soon. But the words below these three boxes is the most important element, and I think that's something we understand better and better. U.K. is more different from Scandinavian culture, and especially Protector culture, than we have seen before. Our people is who drives the business, and culture is extremely important to get implemented in the U.K.
Thanks to Henrik for the beautiful illustration on the bottom on the previous page here.
Yes. Thank you.
That was all Henrik.
All right. Then just an example of how we approach the actual business. We had an extensive project of defining what market we wanted to go to. That was U.K. Then once we get into U.K., we collect data. One thing that is different from investments, I think investing in a company and insuring a company is very similar in many ways. We need to evaluate that company, and have facts, systemize that, benchmark it against each other, and then we will find out what risks we should not go for. So we are looking for where is the downside risk, whereas in the equity market, you look for the upside risk. One of the things that is important and that we have the benefit of on the insurance side is that you have a claims history.
The bigger the client is, the more claims they have had, the more significant that history is. We have more than 400,000 claims in our U.K. database now. You heard Hans say we have 80,000 claims in Protector per year for all our segments. So we have more than 400,000 claims in our database, starting to get good significance within each product area in the public sector, and the quality of the claims history is better than in any of the other countries. One example of a new segment is housing associations. We have mentioned that earlier, that that was a new sub-segment of public sector. We have entered, we have clients there. We believe that this is our market. Fairly low deductible levels. Many small losses, which means that our cost leadership is more important.
This is our home turf, just like fleet market, motor market. When we start in a new segment Housing sector, we hear lots of concern from brokers and people that we know in the U.K. These are social housing clients who live there. You will have people who are not very good at living, and they will burn down, and you will have lots of losses. That's the kind of intuitive outside view. We believe in facts. We went together with one of the leading brokers in the segment, got access to claims history, and started understanding where the problem or challenges are and what the important factors are. One important factor is the flood element. Lots of smaller housing units. We've seen just recently a client with 25,000 housing units. 80% of them are in a valley, where all surrounding area is higher.
I think lots of people can try to predict weather and floods, but that's fairly difficult. What you can see is, or what you can try to avoid, is a client with most of their housing units in a valley. Because it will rain at some point, and if they don't have defenses in place, they will flood, and there will be large claims. That may not be in their claims history because it doesn't rain every five years as heavy. We've developed models which we haven't had before. We're not used to this to this extent in the Scandinavian market. Developed models trying to understand how to assess flood. There are market industry models for flood risks, and they are general, and everyone uses them. We need to be the challenger, find out how can we avoid the bad flood risks.
The housing sector, these are maps, topography maps, and flood maps that we use, and we go into object underwritings. We look at the units in order to understand that risk. Whereas the rest of it is more of an analytical approach. Just as Jonas explained, we need to look at the performance of the housing association. We look at publicly available assessments from the government. Do they take their responsibility as a housing association in a good way? They're evaluated twice a year by the government. We have those type of figures. Then once we've looked at that, what type of people live there, the flood risk, the claims history, then we'll end up with some kind of a conclusion. The point is still then to avoid the red ones like it is in all other segments.
Just one simple example, which I won't spend a lot of time on, is motor fleet insurance. I mentioned that that's also our home turf. We should beat everyone because of our cost leadership in motor fleet, just like the housing sector. It's an analytical approach, so if you can calculate correctly, then we can price lower than our competitors and earn more or the same amount of money. The difference in the U.K. public sector to Scandinavian public sector is that focus on risk management is much bigger. We, in addition to benchmarking claims frequencies and average claim sizes and looking at their own claims history, we systemize post-accident routines, what kind of driver training they have, who is allowed to drive the different types of vehicles.
When you combine all of those factors, we believe that we also, on the fleet side, can avoid the red risks, where large loss risk is bigger in the U.K. than what it is in Scandinavia. A quick look at the market situation so you understand what type of market we are looking at. U.K. sounds very big and complex. In public sector and the housing sector, we see a very similar situation in the U.K. to Scandinavia. One big market leader, basically a monopolist, or at least they have acted like one, before we enter the market. We have done the same in all these countries. Gone head to head with that market leader. The same is in the U.K. For local authorities or municipalities, it is Zurich Municipal. They have more than 50% of the market and even a bigger share in the housing sector.
They have high cost, poor quality, and they do not work with brokers. Brokers have a big share of this market, so they want us to be in the market. There have been some questions about our plans for new offices, and U.K. market is big. We cannot serve all of U.K. from Manchester, but Manchester is our hub. It is where we started. We have told you about the reasons why we went before. Good broker share. It is a good market for Protector in Manchester. We get access to high-quality people, more loyal probably than what we will find in London, and the cost is lower. But we will go to another location. Before we do that, we need to make sure that Manchester has implemented the culture of Protector.
We need to get Manchester up to speed so that someone from Manchester can come with the company to a new location, and the next location will probably be London, and then we will see if we go to another one later. Timing, not really sure. We will see how it goes in Manchester first. Then I will leave the word to Maureen, Regional Manager on the stages.
Thank you. I would like to start by saying that the opportunity for Protector in the U.K. is significant. There are a number of players in the U.K., but there is definitely a lack of service delivery and proposition. With that in mind, I am going to concentrate on giving you an overview on what I think are the top three areas. The first one is about the people. We have got 20 people on board now, and we have got four people in the pipeline. It is a good mix of experience and quickly developing talent. You have to bring people in initially, especially on commercial sector, people who have got a lot of knowledge and experience and have got a reputation and a profile in the marketplace. It is very important.
But it is also as important to bring new talent in and to bring new talent in to bring them through and develop their career in the Protector way. We have got a very good blend now and starting to build a good blend actually of talented people, new to the business and experienced people who have been in the market for quite a while. The most important thing, though, underpinning everything is culture. Your brand is everything to Protector being successful in the U.K. and people are the brand. So bringing the right people in is really important, having the right kind of culture. I am heavily involved in everything we do within the U.K. I am out and about in the market, as a lot of the people in the team are. It is really important that positioning in the marketplace, we are very strong in that.
There has been great growth already in the U.K. Henrik has spoke a bit around public sector and housing associations. I think on commercial sector, I will just give you a bit of feel on commercial sector. Our broker relationships again, are very unique. Having unique relationships is a big differentiator in the U.K. market. Most of our competitors will deal with each and every broker. They will look at every risk that comes into the market. We are very targeted and selective with who we deal with. We believe unique relationships is another key to success, and we only at this moment in time deal with the national brokers, Marsh, Aon, JLT, and Willis and Gallagher. Also about understanding the people within each of the organizations. So relationships are key.
Having the right kind of people within Protector, with the right kind of relationships in the market, who believe in the culture and can deliver that culture to the market, is really important. To say that we are already getting a reputation of having a good band of people within Protector is really quite true. We know that because brokers are giving us the feedback. Every time we take somebody in, it is, "Wow, this person is coming to Protector." It is all about raising our profile and brand awareness. We are also getting the feedback from our competitors in the market. We are attracting the right kind of talent. People see the value of what they see of Protector already in the marketplace.
There is a lot of movement in recruitment in the U.K., but we only want the best people and the people who see the value of the culture of who Protector are and where we can make a difference. Going through who our brokers are. We have made great inroads with the brokers. So we're starting to build some fantastic relationships, and we are now starting to get referrals from our brokers, from clients who have seen the value of what we can give to the market at Protector. So we're starting now to really break into each of our key brokers. But the market is extensive. We have to keep our discipline around unique relationships, and we will do that. But we need to also build good relationships within those key broker houses and bringing the right people in who have got good existing relationships in place is key.
Our main focus in H2 alongside bringing in and continuing to bring in good people, continue to find the right opportunities and to grow the business is the insourcing of claims handling. It's so important. If you work in the U.K. market, one of the things you will see straight away is that there's a lot of complacency from the existing markets, and there's a lot of dissatisfaction with brokers on service delivery. Quality in claims handling specifically is key. We are already receiving some good feedback from our claims handling, but it's very early days. We've got a long journey to go. So insourcing of claims handling. Delivering on quality, being number one is key to everything we do in the U.K. So insourcing of claims handling is key and bringing in the capability and the competence to do that.
Sverre asked earlier on where we thought or where I think we're going to be when we have the broker quality survey. I am really excited, and I can say that I can't wait for the survey. I know from a number of people in the U.K. office that they feel the same because we know we're doing a good job. We know we're starting to make a difference in the marketplace. We're getting fantastic feedback. But it's a big job to do. So we expect to be high up there and near the top. If we're not, then we know we listen to what the brokers and our customers say, and we learn from that. But fingers crossed, when we do have that survey later on this year, it'll be a good result.
It's a great opportunity for the U.K., and I'm hoping this time next year we'll be able to deliver to you even more good news about the U.K. and where we are.
Can I? Just one question to you, Maureen.
Yeah. Okay.
Before you entered or started in Protector, we talked about the culture of Protector, and we talked about targets, which could look something like what we see here in the beginning. Can you just tell us how you reacted then and how that journey has been?
I always believed in the culture of the business, and I understood the business targets. For financial targets, in fairness, I genuinely put my own three-year plan together and said that if we hit NOK 5 million in three years, or at a stretch NOK 7 million, I think we're doing a great job. Because it's all about controlled growth and doing it in the right way and making sure that you bring the profits in. It takes time to get your relationships going in the market. To say that we should, I am pretty confident we'll hit the NOK 15 million-NOK 20 million mark. Just getting to the end of the second year and not even two full years of trading is a fantastic achievement. So it is. It's the Protector way. It is the culture. Everything we go out there and talk about. We're passionate about our business.
Protector is passionate about everything they do, about cost and quality leadership. There is definitely a gap in the market for it, and we are being very well received by the right brokers and the right clients. Yes, I perhaps underestimated, and will be the first to say that. But yeah, it is a fantastic opportunity, and we are actually delivering on that. Our competitors are definitely keeping a close eye on us, but are not sure what we are doing that so well, which is great. Okay.
Okay. So I think the only thing to say about this is that these are the same figures we showed after the second quarter or during the second quarter presentation. As you have seen, we can say we're ahead of schedule for 2017. So it's looking promising on the volume side. I think there are some. We said 20 people. We don't need to spend time on the summary here. We could rather spend some time on questions.
We will have questions to U.K. or to IT. Yes.
The discount rate that is highlighted, which was set down to 0.75%-. How does that reflect this in this year's account, and how could it affect your account when it comes to Claims and discount rate? If you can separate.
In this year's account, it will not be affected. Of course, we'll have a different situation in a potential Grenfell claim if there is a liability there for the personal injuries. But in general, no effect. We haven't had a lot of exposure on the liability side during 2017. But going forward, this will change. So when we look at claims history, we need to understand how would that have changed, if the discount rate was what it is now. The effect on the larger personal injury claims is high. So this is about, for us, without our own portfolio of claims. It's about understanding. But I also think understanding that this is an opportunity, because there are companies with legacy, with a lot of claims in their portfolio.
If they need to or will try to recoup some of their losses based on this, then we are in a fresh start and a better position.
Next question here.
Regarding Grenfell, the gross exposure is still very hard to project, of course. But the net exposure, you still sound very confident is very limited. Can you elaborate a little bit more on the range of uncertainty, and how you see that evolving over time? Is there a cap on this at all? What is the likely impact on your premium pricing and the cost and terms of reinsurance after this?
The question is related to the financial consequences on Grenfell Tower and both reinsurance cost for future, but also the potential uncertainty in the cost for our own account. First, when it comes to the cost for our own account, we have given a statement to the market that is a firm statement. It will not be changed. GBP 2.5 million, give or take, is what we pay. It is capped. You shouldn't worry about it. I repeat, you should not worry about it. What about reinsurance prices? That is a bit more tricky question, of course. Obviously there are two reasons why reinsurance costs on the casualty side could increase. One, Ogden. But that is like for everybody else, so it doesn't really influence the competitive position. Secondly, Grenfell Tower might influence the reinsurance prices.
It's slightly early to say what the outcome on this will be. I think it's fair to say that the risk management and underwriting experience post Grenfell has been communicated very professionally by Henrik and Maureen and their team to the reinsurance world in order to say that this is an unprecedented accident. It's nothing about poor underwriting quality. It shouldn't really influence the reinsurance pricing in our opinion. That remains to be seen. We have today a very strong balance sheet, and we have been through a story where we have increased the balance sheet. Also in order to prepare for a potential situation where we will increase retention a lot. If reinsurers act unprofessionally in this area, we might increase retention. Risk is improving in U.K. as we speak, as part of the storytelling Henrik did here.
Yes, reinsurance prices could change slightly. We don't expect any big surprises, not at all. The communication with the reinsurers, which we have had through December, is supporting the idea that we will still have competitive prices on the reinsurance side casualty-wise. Because it is an unprecedented claim. It's nothing wrong with Protector or our underwriting team. Another question here.
Regarding IT, how many magicians do you have working with IT and how are they organized?
Okay, how many magicians or development people do we have in Protector? There are around, I guess, it's 14 or 15. The IT director have a direct reporting line to myself. He was not on the picture here. He will be in future. We are about to recruit a new person in order to be in charge of the IT area in Protector. In the meantime, we have a good management team consisting of three people. That's a flat organization. They are out there doing the hard work every day. There are around 14-15 people, and we could add another five the next couple of years. The challenge is to add five and then double efficiency. That's the target there. That's on the IT side. There's another question here.
Yeah, on IT as well. One of your main competitors in Norway is contemplating changing its entire core IT system. Understood you correctly, you are now focusing on incremental changes, so you are not planning anything similar. Is that right?
Yes. We do not think it is a good idea to throw away what we have in order to buy something else. That is a stupid move. So good luck to the competitors. They will probably be delayed, and it will probably cost what they expect, multiplied with P. There is a question here.
You have been into the insurance industry for many years.
Many years.
I just want to understand the reinsurance attitude towards you, because I heard others saying that reinsurers always get paid what they have delivered to you at the end of the day. How many years do you think you need to pay for the Grenfell just to be even with the reinsurer over time?
That's never going to happen. This is not a part of the dialogue we have in the reinsurance industry. It is a dialogue professional reinsurance people do not have with professional insurance company. Equally, we will not expect any repayment from Kensington & Chelsea, never ever in U.K. Why would we? Of course, Ogden and risk and increased insurance sums is discussions we have with the client at the moment. That might increase prices on Kensington & Chelsea somewhat. They will never, ever get paid back. That's the way it is, and that is accepted. We are not worried about it. There are no such thing as a free lunch, of course, in the reinsurance sector, but they will not calculate back this kind of premium. Then we will walk away and find another panel of reinsurers supporting Protector. There is a market out there.
It's working. Yep.
Yes. More to the IT. Do you have a tailor-made system for each country? Or do you have the same system just with a different language scope?
Okay, do we have a tailor-made system for each country, or is it basically one system with language differences? There are slightly more differences than on the language, because the product structure and the legal situation is slightly different in every market. There is some kind of uniqueness in every country when it comes to IT. Basically, we have a single system platform. It is called Protector Insurance Application, and the claims handling system is called something very easy to remember, called Claims. Basically, they are equal, and then you adapt to the certain differences in each country. I wouldn't say that the architecture here is robust enough. It is not. We are migrating, especially the Protector Insurance Application architecture will take a couple of years. In the meantime, we don't have a problem with it. It is a good question. It is not very easy to answer.
Basically, it is one system in two areas, two different systems. But it is not working perfectly. We still have a way to go. The next question.
You discussed on page 28, and again now on the comments, that you will increase retention going forward, and you made also a projection for this also. At what kind of level of average do you expect to have on retention, and what are we putting in base case going forward?
Okay. What is the average expected retention in future? I guess that in the near future, we should expect NOK 50 million, but in certain situations you will see NOK 100 million, in that area. But I think it will take a few years in order to change reinsurance structure a lot. And the reason why is because the reinsurers would like otherwise. And we also have kind of already signed the property contract for 2018. That is signed, that is free in that area. It will be a transfer period that will take time, but you could see a NOK 100 million claim arriving as early as quarter four this year. I don't think the reinsurance structure will change that much more during the autumn, but it could in that area. Hopefully, we will have a retention on NOK 100 million in 2018 in certain product areas.
It is a rather complicated question and it takes a lot of time in order to explain the structure. We will be back to you at a later stage in order to try to update. As you understand, the balance sheet is more than strong enough to put it into play in order to increase retention up to peer level. Remember, some of our peers have NOK 500 million retention, which is much, much higher than what we are communicating now. If you are looking three to five years ahead, I would estimate us to move from 100 to 250, which would make sense. We will come back to you on this year. Not very early. Follow-up question?
What will be then the impact of that change?
It will be a slightly increased profitability and slightly increased volatility. It is a good story, isn't it? If they have the stomach for some kind of volatility. That kind of volatility is still very, very small compared with the financial volatility in investment portfolio. Of course it is added, 100 million claim in stress test, but it doesn't really influence us at all then. Moving upwards towards peers makes sense, more profitable, slightly higher volatility. There is a question behind here.
Question from the balance sheet. If you look at the numbers now and you can give them to zero, to strengthen the solvency by enormous 30 percentage points. If that is our new level, look into 2018 and 2019. Should we calibrate the dividend versus the growth? It could be both dividend calibration or we could strengthen the solvency even more.
Actually, I don't really I'm so old, so I don't really hear too good. Did you catch the question, Henrik? Could you repeat it?
No.
The question was, the solvency ratio being strengthened.
Yeah.
By not paying any dividend. What will we do then, when it comes to growth compared to that? Was that the-
Yeah. You reach the new level 1st of January, 2018. The question is, should we expect zero for 2018 as well because it will strengthen even further? Or will there be a calibration between growth and solvency looking into 2018 and 2019?
Okay. What is our comment on the solvency ratio going forward? As you can see from another foil series, there is something called a base scenario. That is based on somewhat higher growth rate than communicated, than 15%. Actually, it is based on 20% growth. If you deliver return on equity at 20% and growth 20%, solvency capital ratio will remain stable. That is what is indicated in the communication we have delivered to the market now. If growth rate is lower than 20% and return on equity is 20%, obviously there are two options. We can start pay dividend again, and/or start with buybacks. That is an option. If future does not follow what we here call baseline, which actually is a bit more aggressive than what we have guided, then we have to come back to you in order to discuss dividend and/or buyback policies in that area.
In the meantime, we prefer to have a very strong balance sheet in order to maneuver ourselves into the U.K. market and prepare for a potential very strong growth in future. Okay?
Just a follow-up. What we might hear is that certain stakeholders would require to have an even higher solvency. That even if you grow below 10% and you would not get any dividend because of those stakeholders would like you to increase the solvency ratio as a matter of-
It could be. It could be that in a certain situation that we would continue to stay on a high level, let us say closer to 200% might be a situation. There could be big groups of clients in the U.K. demanding a formal rating from the company. Let us say A- rating. It could be difficult to get hands on that kind of rating with a solvency capital ratio size 150%. Yes, the dividend policy statement is not written in stone, but it is a management of expectation and let us consider the different options we have in the future. In the meantime, we are a very, very solid company, guiding on a good return on equity for future and a strong growth. I guess we have to come back. There is another question here.
When it comes to the growth in the U.K. then, which client groups are really those who demand the 200% Solvency II ratio? Is it the current public sector client, or is it a new sector? Is it the housing association, or is it the commercial side, or is it even industrial side?
What type of clients is requiring very high solvency ratio and/or a formal rating?
I think it's not really a special segment. It's in order to get access to the whole segment. Certain large clients, they could even be small, in public sector. Certain clients or parties in housing associations, and in the commercial sector. Probably more on the larger side, Maureen.
Yeah. I would say it's more about the opportunity going forward. On the whole, it's not been too much of a challenge. But as we start to step up the growth and look at the bigger opportunities, then there are more demands on having a rating. Because most of the insurers in the U.K. will have a rating.
I think we are ready for a final question then, and then there is a wrap up, a one-minute summary from my side then. Is it the final question? Okay, very good. The summary then. We appreciate a lot that you have spent the time together with Protector on the Capital Market Day preparing for continued growth. What we have been through, keep up the good work. We have a strong balance sheet. It is a tick, it is done, it is strong enough. We have communicated a change of target solvency capital ratio above 150% going forward. Not written in stone, but at the same time, a rather clear statement about the dividend policy, which we predict will be changed. That we, for a period of time, if growth continues on a very strong level, will not pay dividend out there.
We have been through the Strategy 2020 and the eight priorities we have. For once, we have spent a lot of time on the claims handling side, which is the moment of truth and is critical for increasing the competitive position of Protector Forsikring moving forward. Investments, they are core business. It is core. It is not a left-hand job in that area. It is not about digitalization, it is about people, processes, and digitalization. The U.K. is ahead of schedule, and it starts and stops with the DNA of the company, the culture of the company. This is who we are. Those of you who have not bought shares, go home and buy. If you have, just smile and wait for the further development to come. I will not, of course, give any comment on the share price development of the company.
Just a friendly comment to you when leaving this room. Thanks a lot for your attention. Have a nice day.