Welcome to Q2 2022 presentation of Protector's results. Remember to ask questions through email during the presentation, and we'll answer them following the investment part of the presentation and also at the end of the whole presentation. As always, I want to start with who we are, our performance culture, and we had a session with all employees this morning where we picked one part of the 12 statements on the screen that was bold, not because of my new hairstyle, but because we talked about equality, diversity, and inclusion and how we can create an open and diverse team, so we have some new ambitions that we will work on going forward in order to create that team.
We work on this every day and also when we have bigger opportunities or challenges that we want to solve or take advantage of. It is a pleasure to present the results today. They are strong. It's a strong set of figures with a combined ratio of 82.5% for the quarter. I'll get back to what the composition of that is and where the countries are. Also a very strong growth at 24% in local currencies or 25% in Norwegian kroner. I'll also get back to the composition of the growth when I speak about that later.
In addition to that, I have looked at our values again and found out that with a lot of activity in the financial markets, I need to find other competence to support me in presenting what has happened, so Dag Marius Nereng, our Chief Investment Officer, is with me today to take you through some of the activities we have been through and what effects those have on the investment side later. The total result is NOK 66 million with then a strong technical result and then a loss on investment side, but that is a quarter, and we look at this in the long term, and the relative picture is also different, so Dag Marius will get back to that.
Other than that, the key highlight is that the board of directors have decided to not distribute any dividend this quarter, and I will also get back to the reasoning behind it, but it has to do with mostly opportunities in the financial market. If I then go to the profitability, the first part of our first target or most important target, profitable growth, the countries all contribute this quarter to profitability. If I start with Norway, there are no large losses in the Norwegian market, so a normalized level is higher than what you see here but still at a very strong level. We see price increases coming through and an effect of cleaning up the portfolio, so it's a good underlying situation in Norway.
In the Swedish market, we've had some large losses, but we've also had a reduction of a very large loss from Q1 , which basically equal each other out, so the Swedish loss ratio of 65% is also slightly higher underlying. In Denmark, we've had about what we expect on large losses coincidentally, so that result is more in line with what we see as underlying and is a strong position in Denmark. The portfolio is changed in Denmark and underlying profitability good. In the U.K., that's where the large losses come from this quarter, so that is slightly better than what you see if you normalize.
In Finland, there is no concern even though the loss ratio is in the higher end, it's a very small portfolio, and that is volatile. If we look at the totality then, you can compare everything else equal. If you adjust for large losses, normalized, 2021 versus 2022, adjust for run-off, and adjust for other effects, and the other effects here is the COVID effect that we had in 2021, then you'll see a very similar loss ratio in Q 2 2021 as we see in Q 2 2022. As I've said before, everything else is not equal, so there are elements that are different, and the price increase, we see the price increases coming through, so obviously that is-
There is a medium-sized layer of losses that are higher in 2022 than what they were in 2021. We see a very strong development of the loss ratio in total and also when you look at the countries, one by one. With that, there is no point in going a lot deeper into the large loss and run-off situation other than just commenting that on the half-year basis with a combined ratio of 89.5%, we have what we would call a normalized large loss situation at 6.8%, close to seven, which we say is the normalized level. Then to the volume, which is actually even a bit stronger than what you see in the figure at 24% growth.
All countries contribute, but Denmark and Finland obviously has a very small quarter in Q2 , so the percentages are high, but it doesn't have a big effect on the totality. There are technicalities in Finland that gives the growth. In Denmark it is not about technicalities, it is about something that we are very satisfied with, and that is a one team approach in securing clients, larger clients with claims handling, underwriting, broker service, working together with the broker in order to secure the larger attractive clients in the market. So we have a good new sales situation in Denmark. When it comes to the larger countries this quarter, want to start with the smallest one, growth-wise in the quarter, Norway. We have a very strong renewal rate above 100%. Strong price increases.
Norway is the price increase winner in Protector in Q2 . Some new sales, but it is a very strong renewal situation in Norway. In Sweden, it is more about new sales. There's a strong renewal situation there as well, but lower than Norway. It's more about new sales. The new sales is in segments that we haven't been as present in before. We do it together with brokers, but it's a bit further down in segments, smaller clients in groups, facilities, and the majority of the growth from Sweden comes from three new agreements with and facilities with the brokers. That's an exciting development and something that we see as an opportunity going forward in the Scandinavian countries. Then U.K. has one of the biggest dates, first of April, as a renewal date.
We have said before that the commercial market, and especially on the motor side, has been very competitive and with prices that we don't find profitable. We always try to search and find out if we are wrong or if everyone else is wrong. Sometimes when the conclusion is everyone else is wrong, we have to question ourselves again and again because we don't really think that everyone else is wrong. But we have been disciplined, and there may be something we haven't understood on the motor side U.K., but we have not won a lot of volume there at least. Commercial sector with very little growth in Q2 , but a good renewal situation. Public sector, however, has come back after a couple of years of low new sales.
It is public sector that is driving the growth in the U.K., with good new sales and good renewals, on first of April and in May and June as well. The total situation here is that we have a high renewal rate. We keep our clients, they want to stay, and we manage to make them stay. We have price increases that are lower than what they have been previously, but still above what we expect of inflation to be. We have new sales through known segments, public sector U.K., and some new segments, but within a very known product in Sweden Motor. The summary of the countries, altogether, I won't spend too much time on this.
I just think it's important to say that, last quarter we said, "Trust us, the underlying realities are strong on the profitability side." If you look at H1 year, you see a combined ratio that is more in line with our long-term target. There is not a lot of volatility between the countries that is coincidental. You should expect that there is volatility on a quarter level, between the countries. With that, I want to invite someone who knows a lot more about investments than me, Dag Marius, please. Dag Marius will speak about the activity during the quarter and focus on the interest rate environment.
Thank you, Henrik. For those who don't know me, my name is Dag Marius Nereng, and I started as the Chief Investment Officer in Protector in 2015 when we insourced the investments. The results from the investments this quarter was a loss of NOK 175 million. We focus more on the long term, but in the quarter, the underlying performance of the companies in our equity portfolio and in our fixed income portfolio was very good. We are happy with the start of the year. It has been an eventful quarter, and a lot of volatility on the financial markets. With interest rates rising, that has a lot of implications for Protector.
The risk, the cost of risk in the bond portfolio is increasing, but we have a positive solvency effect of the rising interest rates, and the yield in the portfolio increases also. On the left chart, we can see here that three-year swap rates in our markets have increased by 50- 100 basis points in this quarter alone, following a very high increase also in the Q1 . That is very helpful for our yield. To this date, the reference rate or the risk-free rate in our portfolio is 1.8%. If you do a weighted average of those swap rates, you can see that the average is higher.
We don't have the full benefit of the increased rate curve in our yield so far. If it stay at this, it will increase further in the future. On the right chart, we see the development in the spreads in the high-yield market. This year, the Euro spreads has increased a lot during the year. In our home market, the Nordics, where we do most of our high-yield investments, it has been a flat development more or less until the end of June. We have managed to increase high-yield investments with NOK 500 million in June mostly with what we believe are very healthy returns going on in the future. Of course, we expect higher cost of risk.
Our solvency effect, we get a very positive solvency effect of NOK 200 million from increased interest rates due to discounting in this quarter. This is very important for us. Since we have a history of floating interest rates in our bond portfolio, and our liabilities have a longer duration, this is a big impact on every quarter on the solvency. Now we have this big rate increases, and that's the impact is very, very high.
We have discussed during the years what to do with this kind of risk that we have because we have to set aside capital because we get punished every time the interest rates fall, and we get the benefit when the interest rate increases like it has been done this year so far. With a higher, very high interest rate, we have to set aside a lot of capital, and with a lower interest rate, we do not really plan for it and very negative interest rate. What we have been discussing historically then is that, should we decrease this risk and mitigate it by aligning the bond portfolio's interest rate duration with the liabilities.
In order to do so, we had to kind of lock in 0% interest rates, so we didn't feel that that made a lot of sense. Now with the more normal interest rates, I'm not sure what normal interest rates is anymore, but at least higher interest rates. We have gradually started to do that during the quarter. The effect of that in this quarter is a NOK 30 million loss, which is part of the bond portfolio results in this quarter. As I mentioned, we have a solvency effect of NOK 200 million, which all is only a balance sheet effect. It doesn't hit P&L at all. The total effect for Protector, the solvency is the most important part for us. It's a positive of NOK 170 million.
You can see the duration of the interest rate portfolio has increased to 1.1 during the quarter, and we expect to do more of it in the future. One thing to remember on this side is that since we now are moving in the direction of mitigating this risk, we will get more volatility on the P&L going forward, but more stability on the solvency, which is the most important part for us. This is portfolio statistics for us. The most important part for you to look at on this one is the bond portfolio is now yielding 3.9%. It's a doubling from last year. It's a 1.5% increase just in the second quarter alone.
As you can see, the bond portfolio is sized at NOK 12 billion. This is a massive increase in one quarter for us. We don't have the full benefit of the yield curve yet in these numbers. The rating in the bond portfolio is A, which is the same as the last quarter, but there has been a lot of movement. I told you that the high-yield portfolio is up by NOK 500 million . Since we have started to invest longer for more interest rate duration, we have invested in triple A bonds, which has kind of mitigated the effect of the NOK 500 m illion increase in high yield. We still have a flat A average rating in the portfolio.
We have to say that and repeat that these higher spreads, which we have seen in June and continued in July, has increased our appetite for investing in high-yield bonds. Expect that to continue. The spreads has widened with 52 basis points this quarter. Some of the kind increase in the credit duration of 0.45 years. It's not only the interest rate when we invest in a three-year bond duration. It's also that we like to lock in the effect of the increased spreads on longer duration. We get more bang for the buck if that's good risk. We feel that the underlying development in the bonds that we invest in is good, and it's at low risk.
Even though we expect a higher cost of risk in the future, we still feel that the spread increase is much higher than the increased cost of risk. The equity share is a little bit down from last quarter. Nothing much in that, but it's more due to the results being negative in the quarter. Our estimated intrinsic value is up during the quarter and this year, which is because we are very satisfied with the underlying performance in the companies. We acknowledge that it's increased risks and increased uncertainty in that number, but at least we are optimistic. We try for the intrinsic value to be robust. We are planning for in every forecast, in every intrinsic value calculation, we plan for at least one very bad year for every company.
Now with the recession on our doorsteps, of course, we are more uncertain on that point. To preempt a question that we got the last quarter, the number of shares in our equity portfolio has increased a lot. In the Q1 , when Russia invaded Ukraine, we saw a steep decline in a lot of stocks on the stock exchange. We follow a lot of them on our watch list. We took the opportunity to take a basket bet on 10-12 new companies to benefit from that kind of development. There is still no change in our approach to investing.
We like to invest in a concentrated portfolio, no changes to our largest positions during the year. We still think that if we have a combination of very good downside protection and very good upside potential, we kind of swing hard on those kind of actions. Is there any questions for me?
Yeah, one. You have said that yield curve is upward sloping, and you have, you haven't benefited from it. All of it. Could you give an estimate of how the underlying reference rate for your portfolio will be in 12 months if the current market expectations are unchanged?
Okay. If we go back to the chart that I showed you of the three-year swap rates. If you take the average of those swap rates at the end of the Q2 , they were probably around 2.5%, and our reference rate is 1.8%, which we show in this table in front of you. The difference at the end of the quarter was 0.7%, which we will get if the interest rates stay the same as the expectations. After the quarter, the interest rates have fallen a little bit more, so the difference now is probably 0.5% , and we don't know the movement, of course. We haven't fully getting all the benefits so far from it.
No more questions.
Thank you, Dag Marius. We move on to. See if this works. I don't manage to move the slides, but if I can get help. To the next one. We have the balance sheet, and Dag Marius has talked about the most important movement in the quarter, the NOK 200 million due to the changed, significantly increased discount rate. If we go to the next one, that is the same. The biggest change is about the discount rate, and of course we grow on the insurance side. The profit and loss, we've been through the key elements of that through the claims, the growth, and now the investments. You can have a look at that.
I wanted to finish this off by repeating the process we have continuously, but formally quarterly when it comes to assessing both what kind of capital we have, capital situation we have, but the more important part, discussing risks, both the risks that are obvious, insurance and market risk, but also all the risks that we can think of and that we need to consider when we look at our total capital situation. When we do that, there is one top priority, obviously, to do the right things in order to maximize shareholder return, and insurance is always a number one priority, if it is possible to find profitable growth. As you have seen, in Q2 , it has been possible to find growth. Let's see if it is profitable. That is later on.
We obviously expect that it is profitable growth that we see. There are many opportunities in the Nordic markets. In the U.K., we are disciplined, but we also see an upswing in attractive opportunities on the commercial sector as we speak. Let's see if that will turn into actual clients now in Q3 . In addition to the existing markets, we have also brought up the old analysis of new markets or other markets in Europe and continental Europe, in particular. We have talked about the Netherlands and Belgium previously, as you know, but we have also looked at other countries, again and refreshed the analysis on Netherlands. At the moment, we have compared Spain, which looks more attractive than a lot of the other continental Europe countries, with the Netherlands.
At the moment, Spain looks more attractive than the Netherlands. We are in a process of evaluating where it could be attractive to copy the formula of Protector. We have no rush, and we have not decided to go anywhere, but we will go further into the analysis and try to understand what opportunities we have in new markets, and Spain will be thoroughly evaluated. There are opportunities on the insurance side. When there is turbulence, when there is, when there are a lot of events in the financial market, Dag Marius has mentioned the high-yield, the attractivity of the high-yield bond market, opportunities that we didn't see yesterday or today, they can be opportunities tomorrow. An example could be the real estate market, a bit further down the line.
There are other opportunities that we also can find attractive returns on risk return, and there is an increasing number of opportunities that where we see that it meets our hurdle rate of above 20% return on equity. With that, we have obviously evaluated and considered buyback and dividend in the quarter as we say we will do. Due to the situation, we, the board of directors has decided that this quarter we keep the capital in case there are very good opportunities that we should be ready to take. With that, it is just the summary of the results which we have been through before.
A strong quarter on profitable growth and good underlying development of our equity and bond positions, with a big effect from the interest rate on our solvency position, and a gradual reduction of that risk has been done and will continue to be done. Potential new opportunities with that turbulence in the market. I would like to ask you, Amund, are there any questions?
Yes. We have gotten some. Firstly, on inflation, how are you thinking about the claims cost going forward? How big an impact does the inflation have on your claims cost for already written premium?
Thank you. We have talked about inflation previously, and we follow inflation closely, both on a country level, but also on a product level and even further down because there are differences how inflation hits the different types of products and the different types of claims that we have, whether it is high share of labor cost or a high share of raw materials, and it is also a difference between smaller claims and larger claims. There are many factors that play into the inflation factor. When we say price increases above expected claims inflation, that is an evaluation that is weighted towards the portfolio that has inception in Q2 .
The product mix there, if that is 30% Motor and 30% property, and the rest other, then that inflation factor that we base the statement on is a weighted inflation on that product mix for that quarter. We follow that closely. I think it is more confusing than clarifying to speak about an exact number because Q2 is different from other quarters. We follow it closely, and we still believe that it is possible to achieve price increase slightly above what we expect inflation to be.
Thank you. Another question is, with the rising interest rates, the float, insurance float becomes more valuable. Do you think that will have effect on the market in general, and do you expect some combined ratio increase and increased competitiveness?
Yes, so that's a good question, and yes, we expect that the long-tail products, the products that have a long duration and create more float, will become more competitive than they have been with zero interest rates, where you have to have all your profits from the technical side. I think that it will most likely be more on the very long-tail products, and it will take some time. The important part is to evaluate for Protector the risk itself in an underwriting perspective.
Thank you. About U.K., you have good results and low claims currently. The market is huge. It has a long history. You have big incumbents. What factors make you comfortable in calculating the right or correct risks or losses, and what do not the competition see?
If I knew the answer to the last one, I think we would probably do better or grow more. The market is huge, and we need to gradually learn. In the U.K., there was a comment in the presentation that said more activity with brokers started in Q2 and increasing in Q3 . It's not only about the competitive element of the Motor product in the U.K., it's also about our activity towards the brokers so that we can see everything that we should see and get the opportunities we have. On the underwriting side, the factors that we evaluate is simply said, avoid the red clients, the poor clients.
That's what we try to do because the poor clients, they have a disproportionate large share of the large losses. Then it has to do with underwriting the client as a whole. Understanding that as an insurance company, we buy a part of that company, we become a part of that company by taking the responsibility for the risk they have on properties, on especially the liability, their operations, or their cars, or the people. Underwriting the client, avoiding the wrong clients is the most important start in underwriting. All the factors are different in public sector and commercial sector, and I could speak about this for hours, but I'm not gonna do that today.
Yeah. Follow-up was that what under or what segments or niches do you take market share in?
It is in the public sector. We're in U.K. still?
Yes, still U.K.
Yeah. It is in public sector and housing associations where we take market share in Q2.
Yeah. I have one more question on investments. The relative attractiveness between the equities and bond portfolio, in terms of risk reward, given the changes in the market?
We get Dag Marius up here, so you get a better answer.
Yeah. Thank you. We think they both are attractive, and they both reach our hurdle at 20% return on equity, and everybody understands the difference of the certainty in a bond investment compared to an equity investment. We have, if our intrinsic value estimates are correct, the upside is better in the equity portfolio, but the risk is higher. Both are very good at the moment, but we also see that there's increased risk these days, so it's harder to be certain.
Thank you. I can't see any more questions, but you can still ask questions to ir@protectorforsikring.no, and they will be answered by writing.
Okay. Thank you, Amund, and then it is just for Dag Marius and me to wish you thank you first for listening today and wish you a very good summer, and we'll see you for the Q3 presentation. Thank you very much.