Welcome to our Capital Market Day. I will kind of chitchat for a few seconds still, because there are many people arriving to the meeting. In Protector, we do have a mantra. We should always start meeting at exactly the right time. We allow you investors kind of a half a minute delay or something like that before we really get started. It's an acceptably good morning in Oslo today. It is cold. It is wintertime. It's snowing a little bit this morning, and I look forward to do my cross-country skiing as always during the weekend, hopefully with some sun arriving then. Oslo is in lockdown, a pretty hard one at the moment. We are looking forward to going back to normal pretty soon.
We hope that vaccines will sort out the situation during the next two months, or something like that, in Oslo and in Norway. Okay, then I'm getting the sign that it has slowed down with people arriving to the meeting. I would like to start once more. Welcome to the Capital Market Day in Protector. It's good to see you again. It's two and a half years since last time we met at Capital Market Day, many of you have followed us through the normal investor presentation, hopefully you will kind of enjoy this perspective we do have today. It's impossible for Protector to start a Capital Market Day or an investor presentation without showing the slide you see here now. It's our DNA. It's who we are. We are different.
This slide was made around 15 years ago with all employees involved in order to define who we are. If you look at the middle section of that slide, there are four main targets. They were established 15, 16 years ago. Cost leadership and quality leadership should lead to profitable growth, which again should put Protector in a top three position in the market. I would like to challenge you to remember the middle section of the DNA statement here, because when walking through today's agenda, we will kind of constantly come back to some of these targets and to the DNA of the company. This is who we are. Please remember. All employees in Protector, they must remember the 12 statements you see on this slide, and hopefully if you at least remember five, then I will be happy.
The four targets and the vision statement, which is the challenger. In today's agenda, hopefully you will enjoy it. There are six people who will give a different presentation. The agenda has been sent out, and you can see it on the screen now. I will start this presentation, as you already have understood, together with Cathrine, who will arrive shortly, and talk a little bit about the moment of truth. Before that, I would like to draw your attention to the four elements which is today's news. In such a Capital Market Day, there are a lot of information about what we think you might look upon as important in Protector. It could be difficult to see what's the new things and what are old stories. The four elements which is new today is, one, we have entered into new reinsurance deal.
I will explain that later on the next slide. That deal was signed yesterday evening. It's a pretty important deal, and I'll come back and tell you a bit more about it. It's also kind of news that we have a year-to-date return on our equities above NOK 350 million. Obviously, you who follow us very closely, you could have estimated that figure. Some of you have been pretty close to understand where we are on the year-to-date equity return. Since many of you do not follow us that closely, then I think you will consider this as kind of new information. The company have now, during discussions in the management team and in the board, have changed its long-term target, and the most significant change is relative to the combined ratio for future, which is taken down from 94 to 90 to 92.
99 out of 100 of you do know that the lower, the better. You who do not know, you figure it out. The lower, the better. To go from 94 and onwards, that's a positive statement then. The board have decided on a new dividend policy, and I come back and explain that policy a bit later. First, the reinsurance deal then, before leaving the word to you, Cathrine. It is a pretty sizable deal that was signed yesterday. We are transferring reserves sized NOK 1.9 billion to a German-based company called DARAG, which is 70% of the reserves relative to workmen's compensation product in Denmark and workmen's compensation product in Norway. It means an external tick on prudent reserving practices from Protector.
If they had disagreed strongly on our reserves, we have had to pay a hell of a lot of money in order to get such a deal. As you can see on the slide, we have not, because the deal do not really influence on the profit and loss statement of Protector. It's a similar deal to what we have signed with the same company in 2019 on the change of ownership business, it is lifting our solvency capital ratio post the dividend from 190 to 209. That is the solvency capital ratio post dividend based on year end 2020. This deal has a cutoff date, at the end of quarter three last year, that is pretty normal procedure when it comes to these kind of deals.
You have to cut a date, then you work together for weeks or months in order to finalize a contractual agreement. You may arrive to a next second cutoff possibility in the air, you can postpone and postpone and always waiting for new figures. This is normal that this kind of deal will be, to a certain extent, will be retroactive because it is that. It is a funds withheld contract, which means that we are not really sending NOK 1.9 billion to the company as such. We keep the money inside our own company, and then we pay a certain agreed fixed interest rate on us keeping the money, also the kind of money who belongs to DARAG. This is also normal procedure. It's nothing unusual about it.
It keeps the money and the float, basically on our side, except for a risk premium transfer, which will be delivered to DARAG when the contract has been signed, and it has been signed. It is a real risk contract, meaning that we transfer the real risk. It's not a solvency-based risk as such. It is a real risk transfer contract with positive solvency results also then. 70% of the potential upsides and downsides of the reserves in future will belong to DARAG and 30% to Protector. It's symmetry between the two parties, and we will work together, for instance, on the claims handling side in order to optimize the profitability of these kind of reserves going forward. All new business workmen's compensation in Norway and Denmark from October 1st last year and up until the far future will be held in Protector.
This is a reserve transaction. It's not a going-forward type of contract, which is also normal when it comes to these kind of deals. It's a big deal. It's an important one, and it's the reason why I'm explaining that in detail to you. Okay, I leave the word to Cathrine. Remember again that cost and quality leadership is a part of the DNA of the company. The moment of truth that is claims handling because this is who we are and what we do. We deliver claim services towards the markets, the basic idea behind an insurance company. It must be very natural to leave over to you, Cathrine. The moment of truth. The floor is yours then.
Thank you, Sverre. I'm, as a claims director, glad that I get a few minutes to talk about claims handling. As Sverre said, it's the moment of truth. We have to act disciplined, structured, be prepared, and proactive to get results. As you can see, our main targets in claims handling are stated in three bullets, high customer quality, and we have to have correct settlement, which includes avoid leakage. We should do that with high efficiency. It not only depends on the claim handlers. We need carefully selected supporters and technicians. For instance, motor technicians or consulting doctors in-house in the company to make sure that we have the right quality and cost-effective solutions because they can get support quickly and every day. Also, it's easier to talk with a familiar part inside your office.
We have controllers and managers who have a reporting system to follow up our daily business, and I'm coming back to that a bit later, and I'm going to show you how we follow up. For 2020, we have called our project Falcon, and you see that four chosen areas, which is continually work done and developed during many years, at least for the three first of them. The Rolls Royce cost reduction and control has been with us since 2012, where we launched the concept, and it's now a part of our claims handling culture. We shall always place the liability of the claims where it belongs to the benefit of customer, broker, and Protector. Clean desk, no delays.
We are going to deliver that, and we do every day without compromising on quality. Quality is key, but we need to balance that with efficiency and have to deliver quickly to the market and keep our customer happy. We measure that by instant customer feedback, and for us, it's important that we follow up the dissatisfied so that we can learn what we can do even better. The newest addition in the Falcon project is the Pharaoh. It's a fraud project where we have specified some key fraud indicators, and we follow up by local experts that if something is suspicious, we have a structure to follow up. You can see the results for the project Falcon 2020 on this slide. It's good results, improvement in cost control. On the ICF part, it's good to comment that it's variation between products.
It's even better on motor. 88% satisfied, good or very good, is a good result on all project. The Pharaoh is new in 2020. It's limited results this year, but it has higher potential going forward. It will be a part of our Rolls Royce, our cost control in the future. As I said, we have a tool to follow up day-to-day. We have a management support system, which gives the manager all relevant KPIs 24/7. It's easily accessible. It's documented in one page. You can also go in different levels to make sure you follow up on the right things. Control is critical to make sure that we do right things every day. As I said, claims handling is the moment of truth. If you get a large claim, you certainly get tested. The moment of truth arrives.
We also have a system, a tool to follow up on large losses and to document that we have the right people on board from the start and make sure we can learn from them and follow up to get the best solutions, both in cost and quality. For 2021, the project is still called Falcon, only a bit smarter this year. It's now IQ Falcon, and we're going to deliver more innovation, even better quality, but balance with efficiency is key. To do that, we are going to deliver on all these four and get even a more strengthened position on broker satisfaction. With that said, I'll leave the word back to you, Sverre.
Excellent. Thank you, Cathrine. I may suggest an applause in the room here then for Cathrine. What Cathrine was talking about was a part of the DNA of the company. It's first of all, a story about quality and high quality. Cost and quality leadership should lead to profitable growth, which again, should lead to a top three position. Remember, the four targets of the company. To us, claims handling is mostly about delivering high quality towards the market. Obviously, Cathrine, as you said, we are focusing on efficiency and cost control on what we are doing. High quality delivered to the market is key number one when it comes to claims handling. Let me take you back to the agenda. My opening statement here today have a title, we have just started or just begun.
The slide you see now on the screen is a historical to date summary of Protector. We are a 17-year young company. We have only started. You as an investor in Protector or potential investor in Protector, you are not that interested in the future of the company. You are interested, okay, in the history of the company. You are interested in the future of the company, obviously. The question is whether history is relevant or not, and we will argue it is. Let's have a short look back and then look forward through the rest of the presentation. It is a fact that we are cost leader in the world, that we have been quality leader in basically all the markets in many of the years that we have been in the market.
That has led to an average combined ratio sized 91.6 the last 10 years, and delivered a return on equity sized 19, and an annual share price development since inception January the 1st, 2004, sized 27. I wouldn't say that we are following in the footsteps of the gentleman on the slide here, Mr. Buffett, who has made a lot of his fortune on the insurance sector through GEICO, the big U.S. insurance company, or through Berkshire Hathaway, one of the biggest reinsurance companies in the world. However, after reading the letters of Warren Buffett, which is enjoyable, still, obviously his story relative to the insurance sector is pretty obvious. If you grow, if you are profitable, and in his definition of profitable, it has historically been a combined ratio below 100. Which we today would think is pretty high.
If you take that money you are getting paid by the clients and invest that properly, you will deliver high shareholder value, which is a fact. Obviously, the story today, 25 or 50 years later, is somewhat different because the free interest rate is close to zero. While in the '80s and in the '90s, it was sky high. I know that you, Mr. Buffett, you know that. You understand that, and you adapt to that reality as well. Today, long-tail business is not as attractive as it was, and the value of float has been reduced during the last decades. However, that has also created a discipline on the combined ratio side, where more of the profit should be expected to derive from, compared with return on investments. Everything else equal, that must be true. Okay.
What we are trying to indicate on this slide is that we understand why we are here and what we are doing, and that we are not necessarily following in the footsteps of Warren Buffett, but he is a role model anyway. Wouldn't you say, Dag Marius, in investment department? I think you have a picture in the office close to me here with Warren Buffett on the left side. The older guy on the right side. Charlie Munger. Charlie Munger on the right side. I think that your favorite is Warren, but Jonas' favorite is Charlie. Is that right? Yeah, that's right. That's right. Okay. A couple of words about the historical story of Protector. On this slide, you can see a cost leadership statement. We are cost leader in the world. It's a fact.
It's apple to apple with companies in the same segment, excuse me, same distribution strategy, same commission structure, same, same. You can't really compare Protector with a consumer-based company. That is not apple to apple. If you have a look at some of our peers with exactly the same distribution model towards the same segments, you will find that we are cost leader in the world. However, looking forward, it's not good enough. We are increasing the cost level as we speak, and there are reasons why. I will not spend too much time talking about it now, but our ambition is to flatten out the cost development you see on the screen and to take it down again to an even better position compared where we are today. We are good at cost.
We are going up somewhat for good reasons, and our ambition is to take that back down again. It will happen in the Nordics, and it will happen in U.K. for two different reasons. Hans and Henrik will talk more about that later in this presentation during this capital market day. It is a fact that we have been nominated to be quality leader in most markets, in most years. However, that history doesn't really help. We have to fight every day in order to earn the trust by our clients and the broker society. Cathrine is assuring that we are doing as good as we can every day in order to deliver that quality towards the market, and that's our job to try to do every day. Historical gold medals doesn't really help.
We have to fight every day in order to deliver high quality in future. It is also a fact that in 2020, we didn't really conduct normal quality surveys due to the COVID-19 situation. The only country where we did that survey was in the U.K., and then we'll talk more about that. We don't know exactly the status we have in the market at the moment. That kind of survey will be done as normally, before this summer then. Okay. Cost and quality leadership should lead to profitable growth. What you see on the slide here is the profitability type of story. You can also see that when entering 2018 and 2019, the combined ratio was going north. One of the reasons was that it was rate pressure in the Nordic market.
When I met you investors in 2016, 2017, and 2018, 12 times, four quarters a year, I repeatedly said, "It's rate pressure in the market. It's rate pressure in the market. That will influence negatively on the combined ratio in the long run." We tried to fight it. We couldn't do it. Either whether we were not good enough or whether the market wouldn't accept it. We saw a gradual poor development on the combined ratio. Additionally, we had done our own mistakes in Norway and Finland, for instance, and we have underestimated claims inflation on the motor side, and there has been acts of God hitting Protector, like Grenfell Tower fire.
That didn't really cost that much money, but it did cost a large amount of resources in order to solve the situation, to deliver high-quality claim settling towards the client, and to go to arbitration, to fight their financial settlement. That settlement ended out very well. However, with a lot of resources spent. We had this kind of grey silverfish type of crisis. I'm smiling. It was not really a crisis. A small, little innocent bug that didn't do any harm, but that did some financial harm to Protector. That ended with a decision from Protector to exit the market and to go out of the market. It was not only the grey silverfish alone who led to that decision, but it put a discussion in focus in order to check out whether we should continue to be in that market.
The decision that we have given update to you on earlier on was really to leave the market. As you can see on this slide, for different reasons, market price pressure, internal lack of discipline and quality in some areas, it happens in all organization, and acts of God. We are getting into financial, not trouble, but delivering poor technical result in 2018 and 2019. What do you do? You cannot deny. You have to understand. You have to find a way to get back. You increase prices, you improve quality of portfolio, Henrik and Hans will talk more about it later. You can see when arriving to 2020, it takes time in insurance. It takes time.
You have to decide, increase prices, contract is renewed six to 12 months from now, and then you have earned premium effect one-twelfth at a time before you get the result you deserve. 2020 ended up with a reasonably good combined ratio, again, 95%. As you know, we have guided on 90%-92% combined ratio in 2021. Profitability has been challenged, but we will argue that we are now back on track when it comes to profitability. Okay, back to the DNA again. Cost and quality leadership should lead to profitable growth. The fourth slide on that kind of series of slides. We have been growing from 0 to NOK 5.5 billion in annual premium, and we are adding new countries. The green part of the slide here is U.K., and Henrik will talk more about U.K. later.
This is the future growth part of Protector. We do expect some growth out of the Nordic market. Hans will talk about it. It is U.K. which is the growth engine of Protector for the next five to 10 years then. You compare Protector with peers like If or Tryg in the same segment, you can see that Protector has been growing to be number three in the market with an acceptably good combined ratio. You had taken a bit longer horizon than 2014 to 2020, you would probably have seen a slightly better picture in Protector, because a six to seven-year period like we see here is a bit shorter, and it is negatively influenced by the couple of last poor years, while we in early 2010, 2011, 2012, 2013, had very strong combined ratios in this kind of market.
What you see is a simple story. We are growing from zero to a third position in the broker society in the Nordic market with an acceptably good combined ratio. Beaten by Tryg on the combined ratio. Tryg is a good company, well managed, good discipline. Hopefully, we can challenge Tryg then and see whether we can be at least equally good as Tryg when it comes to the combined ratio in the Nordic market. That challenge is for you then, Hans, that we speak about the Nordic shortly. Okay. Cost and quality leadership should lead to profitable growth, which again should put Protector in a top three position in any market segment. This is just an illustration saying that we are getting into top three position in most of the markets where we do enter.
I have two more slides to go, and the first one here is pretty important because it's telling a story through the last 12, 13 years that we are moving from a long-tail product mix to a short-tail product mix. 10 years ago, with a high risk-free interest rate, it makes sense to have a more long-tail business because if you can be, according to Buffett, below 100 on combined ratio, you can earn a lot of money. It's basically right. With the risk-free interest rates close to zero, then you do not earn that much money, and you go more short tail. It makes sense. This is a deliberate development, but it's also a market fact when entering Sweden. There are property and motor products available, not really long-tail products. It's also a market fact that we are developing in that kind of direction.
It is a very significant change during the years, which is kind of invisible when you look at Protector every quarter. It is important. It leads to the next slide. This slide is more important than it may look because it is stating that capital consumption the last six, seven years is down from mid-40s to close to 30. To go capital consumption from 45 to 31, that is leaving a huge opportunity for the company to free up capital. The capital consequence of what you see here is very, very significant, and it may allow Protector to be slimmer on capital per volume. It leads to either building a strong balance sheet to continue to grow for future or to distribute more back to shareholders.
This is something that you don't see every quarter, but if you have a look for the last two, four, six, eight years, you will see a very different capital requirement development in Protector. It is important. The question is when looking back for the last 15 years, how did this happen? How is it possible to deliver such good figures through many, many years? The easy answer is it's about culture. In Protector, we believe culture eats strategy for breakfast. It is in our DNA, and we are the challenger. It's easy to say, difficult to do. To create culture, you all know, to say it doesn't really matter. You have to really do it, and you have to really deliver it. You have to put it in on writing. You have to understand it. You have to train. You have to educate.
You have to fail. You have to learn, loop, and start over again. We do our mistakes on culture. It's basically unacceptable. It happens. We have to try to find out as early as possible, what should we really do? Henrik, as you normally says, then you have a look in the book. Henrik is a crazy guy, you know. He will speak later. He brings that book basically, all over the place, every single place he goes to, and you are smiling a little bit. You know what I'm talking about now, Henrik, and you can explain that story to the people a bit later if you would like to. Now I have finished my introduction. We have only just begun. We have just started.
We are a 17-year young company, and we are proud to have delivered what we have in future. It doesn't really help if we don't understand what we have done of mistakes and what we have done well, but we have a good platform to continue on that. That's my final opening statement. Thanks a lot for your attention. You may applaud. Yeah. Then I leave the word to you, Hans.
Thank you, Sverre. I'm very happy to be here today and talk about the Nordics under the headline Back on Track. We have a great story of profitable growth, as Sverre have told you. We have had some painful learnings the past years on profitability and making profitability measures. The good thing about painful is that the learnings are greater the more painful it is. We have learned a lot the past years. Next slide, please. We would say that our turnaround in the Nordics is basically completed from a profitability point of view, but we have important improvement points. One is costs. Costs have increased while we have been decreasing volume. The cost ratio is going up. The second one is that we have quality effects of making big changes to premiums and agreements.
If we look on price increases, we have increased in 2020 and also in 2021, we will increase 45% more than inflation. We will maintain our underwriting discipline, both in making new business and in renewing business that we already have. The combination of all these is a good profitability outlook, both for 2020, combined ratio below 90, and also the coming years afterwards. Next slide, please. When we are in a turnaround situation, basically all parts of our DNA are important. We need to act as a challenger, we need to maintain relations, we need to make great decisions and have our cost efficiency. The most important part, and which is also guiding your expectancy on the future of us, is the second target, or the third, which is profitable growth. That's another prioritization. Profitability comes before growth.
Our way to create profitable growth is by having sustainable leadership. Next slide
[Non-English content] Hans.
Okay. Do you hear me now?
Yep.
Okay. Thank you. Technical issues is a part of every digital presentation, I suppose. Glad to be back. On cost leadership, we have a cost issue in the Nordics. These are all Nordic numbers that I'm presenting. It's not relating to overhead. Overhead and IT is still on a very efficient level. It's basically relating to many resources in the Nordics. As you probably all understand, when you go through a turnaround process where you renegotiate prices on thousands of agreements, that will require a lot of resources. We have basically not had the cost focus that we used to have during this period. You could say that it's deliberate, and we are able to handle it. Next, please. On quality, we are still, from the last measurement, the quality leader in the Nordic markets in total.
We do, however, have a lot of dissatisfaction with price increases. For brokers, it is much more work to present a price increase to a customer than to just a flat renewal. Another issue with the past years is that we have spent so much time on renegotiating contracts and prices, so we have not been able to maintain the service level that we want to. We have now turned it. We are back to quick response times, and I will also introduce a measurement to follow this more closely over time than just the broker satisfaction every year. Next, please. If we look on the claims results in the Nordics, it's rate pressure partly, as Sverre said, but in the Nordics, I would describe this as a self-made crisis. We have made too much, too fast.
One good example is that we entered health insurance in three markets at the same time and basically lost money in all markets, too poor control, not what's our standard of gathering data and making rational decisions. We have lost money in Sweden on real estate, partly for the same reasons, poor claims handling. We have lost money, as you know, on workmen's compensation in Denmark. That's hopefully now history with the new quota share agreement and a good reserve level. Next, please. When it comes to growth, one very important learning, both from a profitability and volume point of view, is the importance of renewals. I joined in 2011, the first year on this slide, and we have basically had a good underlying profitability for many years, and we have been able to focus a lot of our efforts on new sales.
Now in the Nordics, we are in a situation with a mature portfolio where we have a bit more than NOK 4 billion to renew every year, and that's a great opportunity, both to improve the profitability of existing contracts, but also to decrease churn, which helps us to keep growing. We have more focus on renewals going forward. Next, please. A bit more detail on cost efficiency is that we have basically decreased premium per full-time equivalent per employee, and we have increased cost the real way, which is all our costs, both for administration and claims handling. As I told you before, it's much relating to taking on a lot of work and not focusing on cost. Now, we are in a situation where we have improved quality of contracts, where we havealthough we have increased volume on some markets, we have decreased number of policies.
We have decreased workload, and we have already taken some, if you say low-hanging fruit, we have decreased people by 10, 15 people already, and we have an outlook to be able to right-size even more this year and going forward. Next, please. When it comes to quality, as you know, we have this yearly broker satisfaction index, and now we also pilot a broker feedback instantly in Sweden. We look on activity level, and all brokers that we have had something with the past month gets an SMS where they just get to respond with a number. If it's a low or constructive criticism, we contact them within 24 hours to solve the issue immediately. This also helps us to monitor broker satisfaction on an individual level, which is always important in Protector in order to improve results and performance over time. Next, please.
As you know, we have talked about the past year, we have done a lot of price increases. In the previous years, we were basically the price-pressuring leader in the Nordics. The last year, 2020, I would say we were the price-increasing leader. In 2021, we are more in line with a hardening market where prices in general are going up. We have some segments, for example, in Sweden, we have real estate where we are increasing by about 40% on average, based on the need in that segment. It's more modest than it was the last year. Still, profitability improvement coming from it. Next, please. Another very important part of the portfolio quality and profitability is contracts and de-risking the portfolio.
We have established a process where we identify issues and where we escalate them to a specialty function with the right competence in order to say, what risk can we keep, what should we reprice, and what should we basically not renew? We have been through some 5,000 policies and found a lot of small and some larger deviations. Next, please. When we are back on track, we obviously look for growth opportunities. As you know us, as a low-cost and high-quality insurer, we see a lot of opportunities on frequency products. Two very good examples of that is housing, where you have frequency claims. It's also a large loss element. It's motor, where you have very many claims, many interactions, a lot of administration. Cost and quality is very important.
You have a big opportunity in, I would say, the public sector in housing to increase market share, and also in general on all segments on motor. Next, please. The best example of where we have been able to keep consistency in making rational decisions over time is the public sector. This is the same structure in all Nordics and in U.K., basically. We gather a lot of information, so we gather more information than our peers, and we are, hence, you could say we are the market leader in understanding what the risks are. Our process is much about to make consistent, correct decisions over time. We will be rational, both when it comes to quoting a correct price level, but also in avoiding red risks or big risks that we don't want to have in our portfolio. Next, please.
Coming back to the summary, I will not go through this again, but I would say that with the learnings that we have, the understanding of staying disciplined and focusing on renewals and portfolio profitability, all the key people, and I would say all employees, are excited about the future. We like the idea of staying focused and disciplined and using our learnings forever. We hope that you also are. Next, please. I hand over the word to our future CEO, Henrik, and our Country Manager of U.K., Stuart. Will be nice to hear what you have to say.
Thank you, Hans. You may get tired of listening to us speaking about the DNA of the company. Sverre mentioned that I may tell a story that's more of a personal nature, I won't tell that story because I don't think it increases your knowledge of the company. I will say something about why that story is important. Our DNA is a guidance for everyone, it does not mean the same every day or in the different companies. We always have to evolve the way we understand. One example is the challenger in the U.K. We are automatically the challenger when we enter the market. Now after four years, we need to understand what the challenger means in actually challenging ourselves. We have established practices. They may not be the right ones. We need to evolve that understanding of what the challenger means.
That's the same reason for the personal story, where it's not really anything genius that is said either in our DNA or in the book with the definitions of the values, but it is a guidance, and it is something that we together can understand, and it makes us go the same direction. With that being said, I will say some words about the history and focus mostly on the history of the U.K. up until now, and then I will hand over the word to Stuart, who will speak mostly about the future. We will cover most of the points that are in the summary through the presentation. However, I would like to just focus on a couple of points. One is that this is obviously a story that has just begun.
If we look at the graph on the right side of the slide here, we had people before we had clients in the U.K. We didn't do that in Sweden, and we didn't do that in Denmark. We have also invested a lot in people, even though the growth hasn't been as strong as it could have been. We've had lower hit ratios, especially in public sector, compared to Sweden and Denmark. Quality has been in focus from the beginning. The other point I'd like to make, which we won't cover in much detail, is on the reinsurance side. For many quarters and many years, we've said that we have had to invest in reinsurance in the U.K., casualty and motor. That is not the case anymore.
We believe that our terms on the reinsurance contract in the U.K. now is competitive, it is in line with market, and it is not a disadvantage anymore. If we go to the history and what we have learned, we have looked at some of the things that we have done well when we established in Sweden and Denmark, and some of the things that we have had to change, and some of the mistakes we've made. Obviously, we have to evaluate that and see if we can do it better in order to make U.K., which is in an earlier phase, a better company. First of all, starting in public sector, that's a good experience in both countries. We did that in the U.K. We also evaluate that as a good decision.
Insourcing claims handling, the moment of truth that Cathrine spoke about early, is also a good experience, we did it even earlier in the U.K., and a clear message to the brokers. What we changed a little bit, despite having a good experience in Sweden and Denmark, is clients before people. I talked about that previously. We have acted on the opportunities that we saw. In Sweden, that was building a significant motor book early. We also saw that that was an opportunity in the U.K., and we have done that. At the moment, we are looking at property due to a hardening market and very good opportunities in the U.K. On the mistakes side, it is more about people. Not being late in recruiting claims handlers is one area. That will deteriorate quality.
We have invested in a lot of specialists in claims handling, specialists in risk management, and experienced underwriters from an early stage in the U.K. in order to ensure quality. We have that team in place and we are prepared for future growth. The culture, that's difficult, and we have made mistakes. We try to learn, but the most important part is, as I've mentioned before and as both Hans, Cathrine, and Sverre have said, it is about focusing every day on that culture so that we understand and are able to live that in the company. If I move over to what we decided at an early stage is, and our philosophy in general, let's do what we know. When choosing segments in the U.K., there's a huge market. Stuart will come back to that.
We knew that public sector was one area to focus, and that includes housing associations, which was an opportunity that came our way. In the commercial sector, we've had to choose, dependent on our distribution channel and our brokers, what opportunities we see. If I go to public sector first, that is an area where we are top three today. It is very similar to the Nordic public sector. The market leader in the U.K. has more than 50% market share. That means that's the company we challenge. It is very similar in terms of how underwriting is done. We have an underwriting team in the U.K. who does all products for one client per person, which is the same as what we do in the Nordics.
If we go to the commercial sector, when speaking with the brokers and starting to see the opportunities in the U.K., we realized that the risk-managed approach, risk management, high focus on that, and on the claims handling side, being individualized was the right way to go because we saw a lot of very large competent clients coming through the competent brokers that we chose. We underwrite the brokers, and we have a selected approach to that. We are on a broker panel with two of the largest brokers. We'll be on another one very soon. We can handle that group of brokers and get close to them, get to know them, and work in order to make that value chain as efficient, as high quality as possible.
Before I leave the word to Stuart, the history in the U.K., as you can see on this slide, has been a lot of growth. I mentioned earlier that this is despite a low hit ratio in the public sector side. What you also can see here on the COR row or the COR box is a very nice improvement in the combined ratio. It almost looks like this is going to continue to a very low combined ratio level, going from 112 to 99 to 86 and what's next. What I would like to say is that there will be volatility in this. We're growing a large book of business, and this will move up and down. It has been a good start with some luck on the large loss side. COVID has influenced on a neutral position or basis.
Going forward, we believe that our portfolio is strong when it comes to profitability, but you have to expect some volatility. At the same time, there is cost in combined ratio. It's claims and cost, and cost is going in the right direction. That is because of scalability, and we don't have critical mass in all areas in the U.K. To the future, Stuart, I will leave over to you now.
Thank you, Henrik. Can we start on slide 50, please? Thank you. As Henrik said, the U.K. is a huge opportunity for Protector, and one of the key challenges is for us is deciding how we target our resources and the sectors that we look at. We've already spoken about segmenting into commercial and public, but we also look at the distribution within that sector, the brokers that we trade with. If we looked at this picture 10 years ago, the story would've been very different. In fact, even three years ago, it would've been quite different. It will be different again in six months' time. It's a very fluid market at the moment with lots of consolidation.
We chose the strategy to trade with a small number of the larger brokers because we felt that they represented the client base that we would be most capable of working with and would appeal to the products that we're offering. We also took a look at the U.K., and actually, the distribution across the U.K. in the commercial market is fairly even if you discount the fact that there's a lot of business centered in London. We started in the north in Manchester, and in 2019, we opened in London to harness the London market and to improve our distribution across the south and southeast. Next slide, please. More than that, we look more deeply into those areas where we feel we can trade or where we can add value.
We segment the in-scope opportunities based on size, based on the type of client, based on the composition, based on the trade, based on our core appetite. This gives us a very targeted and focused approach. We want to underwrite the client. We want to be able to trade with brokers and clients where our products can be meaningful, can be differentiated, and can add value. At the same time, we do take a look at what's happening in the wider market, and we recognize the fact that in the U.K. commercial sector, the distribution is relatively uneven. The top 10 markets control around 75% of the business in the U.K. Whilst in our early days we might have been targeting opportunities at a lower level, today Protector is competing against those top 10 or mainly the top five markets in the U.K. Next slide, please.
That's what we do, but how do we do it? I think this is probably the most important slide of the ones that I'm presenting, and it all comes down to one team. We started in Manchester, and we've grown into London. We are now approaching 80+ employees. We're delighted with the fact that we've onboarded 33 of those during 2020, a difficult period for everyone. We took the decision almost a year ago to send our employees to work from home just slightly ahead of the government lockdown in the U.K., and we were very, very pleased with the fact that that transition was more or less seamless. We had a couple of challenges in claims during the first month, but by the end of March, we were working effectively there as well, and we carried that out throughout the year.
We're delighted to return to our two locations, and we're very much looking forward to that. As Henrik said, we've now invested for growth for the future. We have a good team on board, and we are continuing to challenge the conventional market. Next slide, please. How do we know whether that's really been successful? The answer is that we look at our broker satisfaction index. In the U.K. in 2020, we conducted this survey again, and the results are shown on the slide. We continue to lead the markets in the quality and service delivery that we offer to the U.K., and we continue to maintain our distance to our nearest competitors by quite a substantial margin. This is reflected not only in terms of our underwriting approach, but also in relation to claims handling as well.
Obviously, this will become more challenging with time, but we will continue to use this as a monitor, and we're pleased that it's also reflected in independent broker surveys that we receive from our broker contacts as well. We continue to deliver quality. It's continued to be recognized by both our brokers and our customers, and this will be a great platform for growth. Next slide, please. What can we expect to see from the U.K. in the future? As Sverre said, we will be expecting to see growth. That will continue. What we will also continue to focus on is our quality leadership position. We believe this differentiates us in the market. It's been shown in the surveys, we know it from customer feedback, and it's an intrinsic part of our DNA.
We won't be investing in the team to quite the same extent that we did in 2020 because we forward-loaded that investment. We're now very much ready to take on the next stage of the journey over the next two or three years. What we won't see is any change from our one team approach. We will continue to operate across both Manchester and London seamlessly so that we can deliver the service to our clients and to the broker community and grow our book of business profitably. Thank you. With that, I'll hand over to Dag Marius from Investments.
Thank you, Stuart. I'll start with my favorite slide on the development of our asset management. As you can see, it's been a 15.2% growth the last five years. In 2008, it was NOK 1.2 billion, and now it's NOK 13.5 billion. I guess in 12 years, that's 10 times the size and probably about 20%. You can do the calculation yourself. I'm not sure if that was correct. It is higher today. This is approximately NOK 165 per share, and the return from those investments you get as a shareholder. Of course, a lot of it is invested in risk-free assets. As Sverre told you, and you all know that the risk-free rate is somewhere just above 0%, but there's been an upward movement this year. If that continues, that will be really helpful for the return on this portfolio.
You get that risk-free return on all the bond portfolio, which is today around 85% of the investments. The rest, we kind of have to set aside equity for every investment that is not risk-free. The riskier the investment, the more equity have to set aside. Our equity portfolio part of the total investments has varied between 8.9% and 25.1%. Today, and you can calculate it because we give you the share portfolio, at least the top 10 positions, it's around 15% today. How will that develop in the future? We don't know. We are agnostic. That might go almost to zero, or it may be a lot higher, but then we have to take on other risk, and we always will choose what we believe is the best risk reward for the company.
Our high yield share has varied between 15% and 34%, and is now at the high end of what we have witnessed historically. That's kind of the main elements here, that you will get this returning in addition to all the insurance return that we get. This slide shows our financial underwriting method. First off, we start with a stress test that is so severe that it can withstand any financial crisis. If you have capital left after that stress test, we call that excess capital. We look at our allocation alternatives. If the best alternative is to invest in bonds or in equities. We look for new ideas and our extensive watchlist portfolio.
We have a light follow-up on all high-yield bonds in the Nordics, and we have a large watchlist of equities in the Nordics and in small mid-cap European companies, which we believe are within our circle of competence. Then, as most do, we do a thorough bottom-up analysis and our financial underwriting analysis, with the focus on key investments points and key risk, where we really try to dig deep and really to understand what is most important and what is the largest risk. And we showed you this build-up of our method in our last capital markets day two and a half years ago. The last point I have is a continuous process improvement, and you can see the difficulty and expertise box presented here. It was not there two and a half years ago.
That has been learnings that we have taken when we had not good enough performance in the second half of 2018 and in 2019. Then we tried to find a way to increase our hit ratio when we invest. The easiest way to increase our hit ratio is to reduce the level of difficulty. We have increased our basket of too hard, so much more companies go in the too hard basket, and we've tried to define our expertise, knowledge and the predictability and ease of the companies that we invest in before we do that. That's a new thing that we started with a couple of years ago. Also the position sizing box is new. How much money do we invest?
We made a mistake that we probably invested too much money early on when we thought it was a good risk reward. Now we are waiting until we have case evidence before we increase our position to the full position. That also depends on how much return do we expect to get and how easy is it to understand the business? What is the downside risk on it? If it's really low downside risk, and then we have case evidence, we go to full position, but that's new. One of our biggest successes on the investment side, the investment in Multiconsult, we would probably have taken a full position later on instead of two and a half years ago. Looking back, even though that was a successful investment, we would probably have waited with the full position until probably nine months ago.
After investment, we of course follow up these companies as good as we can, at least with a quarterly written update. On the investment strategy for equities, we then look for easy-to-predict companies to invest in that will have a high likelihood for a very strong performance then. Our favorite investment is in a company with a strong and expanding moat, with an acceptable price. Those companies are hard to come by. One example is the investment in Schibsted that we had a couple of years ago, which have a very strong moat. We also look at companies that are good companies with good market positions and with a strong track record, but with probably temporarily operational problems. Companies that we have invested in like that is Multiconsult and Elanders, which is our top two positions now.
We have invested in analytical resources, therefore we try to find underanalyzed companies. We try to find unpopular companies, which is ignored by the stock market. The reason for that is that we think it's easier to get success if the competition is low. We look for low competition and ignored companies. Of course, we focus on long-term results at least five years when we invest. So far, the results have been good. We are satisfied with the results, and as Sverre opened with today, we have a strong start to 2021 as well. When we update this slide and probably our first quarter results, we will see even bigger outperformance in the period. You can also see that a concentrated portfolio has added volatility.
Our returns will be volatile, and you have seen it historically, and I can assure you that will happen in the future as well, and not always on the upside. Knock on wood, we hope it will continue like this. As you also can see, the discount estimate intrinsic value that we have started to give you every quarter, that is down to 26% at the year-end of 2020, and now it's even lower. It's at record low levels. We really need to find good investments, and hopefully some of you can reach out if you have companies that are easy and predictable and ignored. Give us a notice and we will look into them because we need more good investments now.
Today, our top five positions is well above 50%, and that's due to our top two positions in Elanders and Multiconsult, which have had a really strong share performance the last 12 months. In the long term, we expect the top five positions to be somewhere between 30%-50%. Usually, we give you the share equity portfolio in our annual report that is due.
Today.
today. You already have it today, but this is an updated slide. You get our equity portfolio from the start of this month. The return has been above NOK 350 million so far this year. As you all know, what will happen in the future, we don't know. It's volatile. It's easy for you to guess because now you can just put in your Excel models the share numbers, and I guess that's pretty stable. We do some changes now and then, but you should have the opportunity to follow us then. On the investment strategy for bonds, it's probably mostly the same as most of you that invest in bonds, with a thorough bottom-up analysis focusing on the credit risk and the terms of the bond, redundancy, historical base rates, and the loss given default.
We always look at if this company go bankrupt, are we willing to own the company for the debt then? That's something that we have to be willing to do if we invest in a bond. Where we might differ from some of the competitors is that we are willing to sit on the sideline. If the risk reward is not good enough, we might not have anything in high-yield bonds. Probably we will always find some good companies to invest in, but we are willing to not invest for long periods of time. As you saw in March and April, if the opportunity arise, we don't have fund outflows. Nobody withdraws money from us, so we might act aggressively and take the opportunity that arise, and that is a structural advantage for us. I will come back to that later on also.
As in equities, we only invest if we believe we will get a return of about 20% on the company level. On the bond side, they consume less capital than the investment side, so we don't need that high return, but we need on the company level at least 20% return on equity. This is a slide showing the bond portfolio statistics. As you can see, we have increased the risk in 2020. The average risk premium has gone from 89 year-end 2019 to 210 year-end 2020. You can see the average rating, still a strong A-minus rating, but down from A-plus rating. The yield, even though we can see the risk-free rate has dropped with 1 percentage point, you can see our yield has increased to 2.3%. How much return should you expect from that portfolio this year then?
You have to deduct the cost of risk and how large is that? That depends on how much risk positions do we have in the portfolio. You can probably deduct 0.2% to a half a percentage point. An expected return will be somewhere between 1.8% to 2.1% for this year. Let's see after a year, but I would put that in the model if you have a model on this. What have the losses been so far? We have been probably lucky with very, very low losses the last five years. We have a historically high loss in 2020, but that's NOK 12 million and 0.11% of a portfolio averaging around NOK 11 billion. The losses have been low, but in the future, you should expect that to be higher.
We believe that we have done some right things, but we have probably also been lucky. This slide, I'm not going to tell this fantastic story for the fourth time, it's more as an example that the exceptional returns that we got in 2020 probably is not a one-off, but it will be infrequent when it happens. We don't know when. We have a structural advantage compared to the competitors. If our stress tests are good enough, and we believe so, they are severe, they should withstand any financial crisis, then we never have to force sell any securities at the bottom.
We are able to invest at the bottom because we have no customers that will withdraw money. We hedge all our currency positions, but if there are movements in the currency market and banks ask for more collateral, we have a lot of risk-free bonds that we can put up as collateral. That will be no problem for us. We usually have excess capital that we can deploy. You should expect that when the next opportunity arise, Protector will act aggressively if we assess it to be an outstanding risk-reward. We might be wrong in that assessment. We might think it will go a lot worse, and it comes up again, and then we will miss it. You should at least expect us, if we assess it as good risk-reward, we will act aggressively.
This is helped by our close cooperation with the CEO, CFO, and Chief Risk Officer. Even though Sverre was instrumental now in March and April, I have strong belief that that will continue with Henrik as the CEO from October then, or sometime in September.
He is even nodding.
He is nodding here. That's an acceptance. We are agnostic, as I've told you. We are looking at all opportunities. We don't know if the best opportunity is high yield. We thought it was that in April and March. Could be equities, could be buyback of our own share, could be something else. We will do what we believe is the best. No silo thinking here. The last slide for me is the performance of the total bond portfolio for Protector and the total high yield portfolio. The high yield portfolio has the last five years averaged a return of 7.5%, which we are very proud of. I cannot guarantee that it will be lower, but I expect it to be lower in the future. We will do our best for it to be a high number.
I'm especially pleased with the low drawdown when we have financial turbulence. In this period of time, we have two times when the market has had a lot of low volatility and dropped a lot. It was after oil price collapse in the fourth quarter of 2014, which kind of made ripples in 2015 and 2016, and now in COVID-19 situation in March and April. You see that we have a very stable return in the period. The return is only one part of the equation. The capital consumed is also really important. On the right-hand side, you can see that the capital consumed is very much lower for us than our peers. That's of course because we have to comply with the Solvency II rules, and they don't, so we have a focus on it.
Again, we get a very good return on the capital consumed. That was my last slide, and I'll leave the word back to Sverre then. Thank you.
Thank you, Dag Marius. I love listening to you. I guess that you'll understand that you have only been on the lucky side, on the investment side the last seven years or something like that. The good thing is that the harder you work, the more lucky you are then. Thanks a lot for your presentation, Dag Marius. The next agenda point is long-term targets and shareholder distribution. However, in order to get to shareholder distribution, I need to speak about capital allocation. It could have been written down long-term targets, capital allocation, and shareholder distribution then. Before moving to that part of the presentation, just reminding you that there is an opportunity to pose questions through the presentations. I guess, Amund, we have three or four questions at the moment. There are still room for more questions if you would like to.
Just pop the questions. Let me start with the long-term targets. If we go back a year or something like that, our communication long term, meaning three years, was 94% on combined ratio, return on equity above 20%, gross written premium expectation the next years to arrive on a modest figure, size five, because price increases were going up, churn is higher than normal, and growth expectation is lower than historically. Finally, we had a target to be above 150% when it comes to the solvency capital ratio. That's history. In beginning of February, when we met in a normal kind of investor presentation going through the full year of 2020, quarter four 2020, I gave you a pretty detailed update, which you can see on the screen now. What do we expect on the combined ratio side in 2021?
We do arrive from 94.8% or 94.6%, including change of ownership business, if you would like, to something this year. This build-up you see on the screen here is pretty detailed. Some of these figures, they are facts, it's realities, it's happening. It's no risk relative to these figures, and some of the other figures are obviously estimates or best estimates, or you could even argue guesstimates in that area. It's a combination of facts and estimate stuff in order to try to update you on how we view 2021. Our message to you early February was, you should expect a combined ratio between 90%-92% in 2021. The question is, what has happened since beginning of February? Not too much, which is good. In the insurance sector, if nothing happens, it's normally a good thing then.
You may argue that we are slightly ahead of budget when I speak now. It's stated on the slide here that we may have a slightly increased margin of safety. The last bullet point on the slide you see here. No negative big surprises on the large loss side. Obviously, on the long-tail business, we don't really know. On the investment side, we have already updated you on the fact that we have started the year very well. We are on schedule in quarter one. You should remember that on the combined ratio side, quarter one is normally the worst quarter for seasonality reasons in Protector. You should expect quarter one to be higher than an annual guiding 90%-92%. It will normally improve a little bit in quarter two.
We will normally see quarter three as the best quarter in Protector for seasonality reasons, and then quarter four will very often be close to a year-to-date situation after quarter three. To manage expectation, we should normally be somewhat above 90 to 92 in quarter one. We will talk more about that when we meet in Amund in beginning of May or late April when we deliver the quarter one results towards the market. The situation ending March is okay. We are of the opinion that our competitive position is good or strong entering 2021 to 2023. Have a look at the slide, read through and think through. We think that we are in a better position today than one or two years ago when it comes to our competitive position. Next question, what about the market?
The market situation is hardening, meaning prices is going up. There are a number of reasons why. One is that the risk-free interest level is around zero and has been for a long period of time, meaning that insurance companies earn less on investment portfolios, leading to increased underwriting discipline in the Nordics, in Europe, worldwide. You have the COVID-19 crisis and very significant losses relative to COVID-19, sometimes on the direct insurance side, which is companies like us, but absolutely on reinsurance side. Reinsurance is losing money as we speak. Prices is going up. It's a hardening market. There are some other reasons also that you can argue that it is a hardening market. Market is, to a certain extent, on our side at the moment.
Not too many insurance companies are talking about it because they try to pretend that they are very good and or we are very good. To be honest, it's a hardening market. It should support us a little bit. Sometimes it's on the other side. It's a soft market. It's difficult to get the right prices through the market. Now it's a hardening market. What about risk level in Protector? In my opinion, the risk level in Protector entering 2021-2023, which is the long-term period we are talking about at the moment, is slightly reduced. More diversified company, four countries with at least close to critical mass. We have a more short-tail product portfolio, and price increases in the Nordic entering 2021 is still higher than claims inflation. I think that there are some arguments saying that the overall risk is going down.
As Henrik talked about entering U.K., it's a different market. It's more volatile. It is bigger risks. Liability claims cost more. You could see motor claims or motor liability claims in U.K. sized GBP 5 million-GBP 10 million. That is very, very rare to see in the Nordic market, but it happens every year in U.K. Not necessarily in our portfolio, obviously every year in the market. There are also reasons why risk is increasing in Protector. Okay, what about the long-term target?
When we balance out our competitive position, our entry point entering 2021 and try to look two to three years ahead, we have decided to reduce the combined ratio long-term target down from 94% to 90% to 92%. You have also heard that this year Hans predicts possibly slightly below 90% in Nordic market, allowing U.K. to be a bit higher because we have a more fresh new portfolio in U.K., a bit riskier than a more mature portfolio in the Nordic market. It makes sense. Also because cost ratio in U.K. still are slightly on the high side, waiting for the critical mass type of volume to arrive. Okay, from 94% to 92% is our expectation. A bit of a difference between the different markets, obviously. We stick to return on equity 20%.
You may argue that 20 is too high, and you should lower that to, for instance, 15. Let's go 10 years back. We had a return on equity of 20 as a target, but with a risk-free interest rate size five. It's more difficult today to deliver 20 compared with five to 10 years ago, but we stick to it because it is a matter of discipline. It's good to have a high hurdle rate, Dag Marius. You have a hurdle rate size 20 on the bond side. You have a hurdle rate size 20 return on equity on the equity side. We, Henrik, and we, Hans, have that kind of hurdle rate when we write business in the insurance sector. It is a matter of discipline. It's good. We won't be incredibly sorry if we only deliver 17% in some years.
We will not. We will target 20 on return on equity. We have had a bit of a debate when it comes to growth targets because you have been used to see Protector delivering double-digit or even high double-digit growth during the history. The question is whether we should go out to you now and say 10 as a long-term guiding, or whether we should say something lower, five to 10, or whether we shouldn't say anything at all. What we have decided to communicate is disciplined growth. You should expect future growth from Protector. We will not now focus on a figure. I think that the word discipline is not really new in Protector, because if you have a look at the DNA of Protector. If you go back 10 to 15 years, we always said cost and quality leadership leads to profitable growth.
Profitable before growth. Okay? Internally, we have always, Henrik, been repeating the mantra that growth is not important unless it is profitable. However, we are focusing even more on the disciplined element internally and also a bit more clear communicating. It's not really a change of policy. It's not. Again, it's a matter of discipline, and the word discipline is a pretty good one when it comes to discipline, isn't it? In the short term, you can see a guiding size 10 this year, and we have updated you on the January 1st renewal so far. Let's have a look and see when we deliver the different quarters. It's not very important to Protector whether it is six or 10 or 14 or whatever, as long as we deliver a healthy return on equity.
Okay, let's go to capital allocation, which leads to share distribution or to distribution to shareholders. This slide here is a slide you have seen many times before. Our first priority is insurance growth. Second priority is allocate capital to investment if you have good ideas that are meeting hurdle rates. The third priority in Protector is to have sufficient cash and capital available for financial crisis that will occur in future, because they will. We need cash. Not really talking about liquidity, because we will always have liquidity in a property and casualty insurance company. We are talking about being solid enough and have cash available to move quickly if there are options in the market. Priority number four is buyback if share prices are very low and if it makes sense. Priority number five is to pay dividend to shareholders.
You know that we are in a kind of situation where we have so much capital at the moment that we would like to distribute capital back to you shareholders also then through dividend as already communicated. Let's have a look back in time. What have we actually done on capital allocation? One, explained a bit earlier in my introduction, we have reduced capital consumption per volume very much during the last 10 years. Out of workmen's compensation business in Denmark is one example, but there are many examples there. Gradually we have taken down capital consumption relative to the volume development in the company. Two, we are optimizing capital consumption when it comes to bond portfolios. You can't compare us with a fund management type of company because we have to have a look at capital consumption per bond in that area.
Dag Marius and his people, they know what they are doing. We have always capital consumption as an element in a decision process to pick bond number one, or two or three. To us, it's obvious. It is Solvency II regulations. It is the same for all insurance companies in Europe. We have to understand these kind of capital consuming regulations properly and act accordingly. You have a different setup, you as investors. We are not equal. We are not playing on the same ground. We have bought back shares. Through history, we have bought back 26 million shares. So far, it looks like that this kind of decision has been good and has created shareholder value. We have paid dividends. If you have a look at the slide, you will see that it is not really a consistent story. It's not stable dividend.
Surprise, it was not meant to be a stable story. We are not predicting a stable dividend. That's not our philosophy. We will allocate capital in the best possible way in order to maximize shareholder value. That's the capital story. That's what we have done, one, two, three, and four in that area. It's also kind of a fifth element. Have a look at a fifth element. We haven't only done one, two, three, and four, we have done one, two, three, four, and five. There are many other capital allocation alternatives which we are facing as an insurance company. Obviously, Tier I and Tier II capital, we should have as much as possible. If you can use it, let's have it. It's cheaper than cost of equity. We buy additional reinsurance for capital reasons only because regulations do not necessarily copy risk.
There could be a difference between how European governments or regulators are looking at a risk compared with our own view. Regulators risk view is a capital fact. It must be followed, and we may buy reinsurance in order to offload capital consumption. We also buy reinsurance to offload risk are two different things. It's a bit technical, but it is important. We buy solvency based reinsurance. It is risk transfer, but the main reason could be solvency. We have that kind of deal, if we have updated you on it before, and it is also kind of an option that we can use in turbulent investment environments. If the next financial crisis arrive tomorrow, we can retroactively push the button on that kind of solvency based reinsurance deal. We sell change of ownership reserves, and we sold Bertelskon reserves last evening, size NOK 1.9 billion.
We have put options, and we hedge on the investment times normally. If you are looking at this kind of slide here and accumulate these kind of elements, they do represent a lot of capital, potentially reducing and improving on our capital situation, reducing the requirement with NOK 1 billion of each, which means that it's not really necessary to hold NOK 1.5 in order to deliver a profitable growth story in the future. Capital allocation, what have we done? one, two, three, four, but also on the slide you see here, many other things. We have many instruments that management can use in order to optimize the capital structure of the company. What about future then? This is kind of history. What have we done? What will we do in future? We will put priority to a profitable growth on the insurance side.
We have said that a couple of times. We can repeat it, then we will find out what to do. Obviously, we have a simple draw methodology on the screen in order what if, and then we go A or B on this kind of area. I think I've been through it and I explained it. Do we have excess capital today? Yes. How much? A lot. How much is a lot? It's a lot. Do that mean further distribution to shareholders in future? Probably, yes. Before talking about that, let's have a look at the new dividend policy decided in the board a week ago. What we are saying is that we should very often expect a dividend to be paid, for instance, size 20%-80%. It's not a narrow bond. It's pretty broad, isn't it? It's really saying flexible, 20-80.
You could say 0 to 100, in that area. It's stating flexibility, but it's also stating that if capital is above 180, you should probably expect shareholder distribution, either buyback or dividend, to be paid over time, because you don't really need 209. The kind of capital situation we have today, meaning at the end of last year, after the new reinsurance deal, that level is 209, and that is a capital kind of level compared to the reinsurance companies of the world, and we don't really need that much capital. Okay, we are in the capital allocation game in order to maximize your returns. Only a short comment on succession before starting to respond to the questions. How many questions do you have, Amund, now?
We have about 10 questions.
10 questions. Good. We have to start moving. The summary of today is that we have released new information about a reinsurance deal year-to-date, equity return, about long-term targets, and about shareholder distribution. Thanks for listening. It is a story about profitable growth. Investment is core business, but there is a new element on the slide. Can you see? It's actually changed from the opening slide. It looks like the same, but it's not. The new word here, or two words, is capital allocation. It's not only about profitable growth and investment, it's about capital allocation. It is changed. We have delivered a good shareholder return in the first 17 years. What's your call for the future? That's the question. We have read something written by McKinsey, Henrik, when it comes to succession.
It is a note written, actually, I think about 10 years ago. I still think it's valid. That is concentrating on the last 100 days of a chief executive, me, leaving to Henrik, and to you, Hans, and to the rest of the team. We started that succession period many, many years ago. I think the most important part of this slide here is just to say that we started many years ago. We have involved management and board in a transparent and open dialogue about roles and responsibilities. While working on it, let's have fun. That's the basic idea here. What you should expect looking into future is that I will kind of retire during the autumn, and leave the floor to Henrik, that you have met in this presentation, and you will meet many more times in the future.
You have seen him before. You have met Hans, the number two manager in the company, talking about the Nordics today. The important element here about succession, it's not about me, or Henrik, or Hans, it's about us. It's about Protector, the DNA of the company. You have 25 people or something like that on the screen. They are all key people there. They should deliver the future. My picture will obviously disappear. It has already, which is a good thing. I will leave the place to better people replacing me then. Looking at Henrik smiling here. No. In between, you will be father once more, I understand. You are also kind of being active on other areas then. Now we are ready. I must admit something, it's so incredibly boring to talk to a camera.
I really hope I can see you soon in person. Also it will be more energy around the questions then. We go to the questions. They will be answered either by me or by any other of the people who have been giving presentations so far. Thanks a lot for your attention so far, and let's go to the Q&A.
Yep. It will be questions to you, Hans, Henrik, Dag Marius, and then you again. First question to you, Sverre. You say that the cost of capital on the reinsurance deal is very attractive for you. Why would your counterpart, DARAG, go into such a deal?
Okay. I guess I don't have to repeat the question. It was heard by every listener, since nothing here, that's fine. That's a good one. I think that there could be two or three reasons why this could be a good deal for the two of us, not only for one of us. One is that the return on equity requirement in Protector is 20. I do not know the exact return on equity requirement in DARAG, but I know that in European insurance, you normally see a return on equity requirement size eight-10. That's one reason why this may be looking a lot better in an insurance environment. The second reason is that when we are building up capital requirements in Europe, we have a diversification element in that buildup. That diversification element is very different from different companies.
It could be very different in Protector versus in a Germany-based reinsurance companies. The deal is potentially consuming less capital on the other side. You could call it a capital type of arbitration between the two of us. Could be different views on the reserve side, that they expect to win some money on the reserves because they have had all figures available when signing the deal. I think it makes sense. This is not a very strange type of situation. Good question, though.
A follow-up on the reinsurance deal. What was the logic of including the Norwegian book as well?
Okay. We had to. We would be happy to sell off the Danish workman's comp book separately, because that has shown historical losses, while the Norwegian workman's comp book has shown historical gains. If I had been alone in this negotiation, I would have sold Denmark, not Norway, but I wasn't. We had to kind of do the two, which we expected from the very early beginning. There is no such thing as a very free lunch, but it could be a good deal for the two of us.
Yeah.
Thank you.
One question for Hans. Could you be more specific on the cost reduction in 2022? Will it be flattish in 2021?
As you can see from slide 35, it goes down about one percentage point from 2020 to 2021, and then another one to 2022. It is partly driven by a slight volume increase, and it's driven by a full-time equivalent decrease, so number of people goes down and volume goes up, basically. Does that answer the question?
Yes. Could you be more specific on which country will drive the development?
The main driver now in 2021 is Denmark, and it depends a bit on the volume development. We are ready to implement right sizing in all Nordic countries, and it will be based on how the volume develops in each country, basically. We are planning for it in every country.
Thank you. The next question is for Henrik. Could you describe which products you include in the GBP 0.6 billion of public market in U.K. and the GBP 2 billion in commercial?
The lines of business are property, motor, and liability, which is EL and employer liability and general liability.
The next question for Henrik is how will the company work to ensure that the knowledge from the latest underwriting cycle and the counter-cyclical behavior in capital markets get encoded in the company's DNA in order to repeat the successes after the leadership changes?
I guess this is also about learning from the mistakes then. This is something we work on every day. We have been working on it for a long time. Even more intensified following poor loss ratio results. I think it's twofold. Part of it, I think part of the question was about the DNA, how we ensure that it is embedded in the DNA, and it is a cultural aspect. We believe in local decisions on the underwriting. The people who know what the market is, what the products are, how risk management is done, and they know the brokers and the clients should make the decisions. However, we have grown from one country to five countries, from some countries being a project to most countries being organizations.
Through that transition, we need to balance control from a company level on the most critical underwriting factors and local decisions, as I mentioned previously. We are working with that. We have established, Hans mentioned macro scoping and the deviations. That's one example where we align our underwriting methodologies and align the critical factors in underwriting. It's about DNA and it's about some kind of control or bureaucracy, which we don't really like, but we need it.
Thank you. The next question is for Dag Marius. Could you please say how much equity the average high yield bond now consume?
Okay. That will be a technical answer, but I will try, because we look at every bond and every investment individually and the capital consumption, that varies a lot. That depends on the stress level. On the bond side, if you have low credit spreads, we expect them to be much, much higher in our stress tests, and if they are very high, we don't expect them to be so much higher. It also depends on the credit duration, but on average, in a normal situation, probably around 15%-20%, but that's solvency capital. In an earlier, I think two and a half years ago, we tried to explain the difference on the return on solvency capital and the return on equity, and it's about to reach a 20% return on equity. It's about 15% on the solvency capital.
We consume 15%-20% solvency capital, and that's before diversification effects. A little bit technical, but hopefully I answered your question.
Yep. One more question for you. Your equity holdings has varied over time, but it has always remained within traditional boundaries as Sergio Fontana says, and in absolute values below your own equity. Should the opportunity arise, would you consider increasing it further, and would you consider buying private companies?
Yeah, we consider buying private companies. That's something that we have looked into the last couple of years. Haven't done anything yet. Haven't really decided if we will try to do it. It's a different ballgame, but a lot of it is the same. If it can do that successfully, we will have a base that is bigger and that's a good way to increase the equity portfolio. We look into it and we'll try to do everything that's sensible to do. If the opportunities are very good in equity markets, we will go after that very hard. We can invest a lot more than today. We probably then would have to decrease risk in the investment portfolio on the high yield side. We try to do what is best for the company.
What I forgot to mention in my presentation is that on the equity side, we have to deliver a 20% return on equity on company level. Since it's so much higher risk, we add the margin of safety as well.
Thank you. The next question, and the next questions are to Sverre.
Okay.
When you compared Protector with Nordic peers, and you have a large cost advantage, could the better combined ratio stem from stronger underwriting with the peers, or could you elaborate on this?
Yeah, I think also, Hans, you could have done, but okay. Despite the fact that we have a lower cost ratio compared with the Nordic peers, we have an equal combined ratio of around seven years compared to If, and a poorer combined ratio compared to Tryg. Why is that? I think it's fair to say that the reason is because we have been growing our portfolio pretty aggressively from zero to NOK 4 billion annual premium. We take on more new clients than competitors. It's more risky. We have a cost advantage, but it is eaten up by risk differences in that area. My expectation going forward is that it should be possible for us, and it has been explained by Hans, to keep more of that kind of cost advantage in the company and not give everything away to the market.
Should be possible when we have a more mature portfolio, which is sizable in that area. It's a good observation in that kind of question. It's a very relevant question. My expectation is that we should probably do slightly better than If and Tryg the next five to 10 years ahead of us, because now we are on more equal playing grounds, and we have a lower cost ratio, and that will continue. Underwriting discipline and claims handling quality are the two moment of truths.
Yeah. We have four more questions, but only two minutes, so we need to choose someone. A question to the product mix: If longer-term interest rates continue up as it has done lately, will you consider increasing the exposure towards longer tail business again?
Possibly, but it will take a long time. It's more like employee liability in the U.K., Henrik. I think we might see some kind of increase in volume in that area. Possibly. It will take a long time. For all practical reason, I think the answer is no.
Yeah. About your quarterly buyback proposal, have you talked to the Norwegian FSA about it?
Buyback or dividend?
The buyback or dividend.
No, dividend. Okay.
Dividend, yeah.
The way it works with FSA is not really that you talk and get some kind of acceptance in that area. We have a normal dialogue with FSA, like any insurance company or bank in the Nordic market. My expectation is that as long as we are absolutely within the guidance from Norwegian and European authorities, shouldn't be any issues on the kind of decided dividend positions we have at the moment. However, no guarantees given in that area. Yes, we have a normal and good dialogue with FSA, like I think we have had for the last five to 10 or 15 years.
Yeah. One last question. Sverre, you and your team has delivered a fantastic shareholder return. You own a lot of shares. What are your plans with these holdings after your retirement?
Okay, I have to call my wife first then because the investment committee of family Bjerkeli consists of two people. Many of you know that we borrowed some money a couple of years ago, three years ago, whenever it was, in order to buy more shares. The first thing that will happen is that I will sell some shares when we pass 100. That's a promise given to my wife, and I have to keep that. If not, I'm in deep shit. I will sell some shares, and then later on, I will see what's happening in that area. My expectation is that I will follow the company, Henrik, for the next 17 years to go. We are 17 year young today. We have only begun, and that's my expectation.
You have to behave properly, Henrik, together with Hans and the rest of the team, and you, Dag Marius, as well. Thanks a lot. Time is out. That's good. More questions, feel free to pop them. We will come back, and if they are relevant for many of you, we will populate these kind of questions in writing as always. Thanks a lot for listening. Next time, hopefully, a physical meeting. Thank you. Big applaud. Big applaud.