Good morning, ladies and gentlemen, and welcome to Storebrand's Q1 result presentation. As usual, our CEO, Odd Arild Grefstad, will present the key highlights of the quarter, followed by CFO Lars Løddesøl, who will dive into the numbers. At the end of the presentation, participants in the team's webinar will have a chance to ask questions. Details on how to join the webinar are found on the investor relations website. Without further ado, I give the word to our CEO, Odd Arild Grefstad.
Thank you, Johannes, and good morning, everyone. Let's look at the Q1's highlights. Storebrand's group's cash-based earnings amounted to NOK 1,082 million in the quarter, whereof the operating result was NOK 688 million. This is a 31% increase since the same quarter last year. The results are driven by structural and market growth in asset under management, driving the fee income in pension and asset management, improvements and growth in insurance, and an increase in return on net financial assets. Furthermore, we continue to deliver a robust solvency ratio, which was 191% in the Q1. During the quarter, we completed NOK 0.4 billion in share buybacks, and last Friday we received a new approval from the FSA regarding additional share buybacks amounting to NOK 1.1 billion. The program will be executed continuously throughout 2024.
This means that we deliver on our ambition of increasing dividends and NOK 1.5 billion in share buybacks also in 2024, and that we are on the right track to deliver on our 2030 ambition of NOK 12 billion in buybacks. Let me now turn to how we deliver on our strategy. As some of you are well familiar with, Storebrand aims to take three commercial positions in the market we operate in: A, to be a leading provider of occupational pension in both Norway and Sweden; B, to be a Nordic powerhouse in asset management; and C, to be a fast-growing challenger in the Norwegian retail market for financial services. These positions are strengthened by our strategic enablers, people, sustainability, and digital frontrunner, together unlocking additional growth. Let me turn to how we have succeeded in developing our commercial positions in the quarter.
We continue to deliver strong double-digit growth across all business lines. Within Unit-Linked, we see strong structural growth with 19% growth year-over-year. The volumes have grown by NOK 30 billion in the first three months this year. The strong long-term growth in asset management has picked up the last quarter with an increase of NOK 70 billion in asset under management. Year-on-year, the growth rate was 15%. Within insurance, we continue to gain market shares, and we see the effect of increasing prices in premium volumes with a growth rate of 14%. Lastly, the loan balance in retail banking is growing 13%, and Storebrand is gaining market share. To further fuel our growth, we view the public occupational pension market to be an attractive opportunity, both by extending our existing corporate pension offering to public sector customers and by cross-sales to the retail market.
The public sector is a total addressable market of NOK 800 billion in asset under management. The market is dominated by one provider. In addition, there are some smaller public pension funds. It is a large market, which is growing and profitable. However, few public entities have been tendering their occupational pension. It is therefore promising to see EFTA's Surveillance Authority, ESA, supporting Storebrand's case that public entities must tender occupational pension plans. Altogether, ESA estimates that around 370 public entities have extended their agreements with the provider in the market in breach of their procurement rules. Norway has until June 15 to respond. We believe ESA's conclusion will increase the transfer market significantly, and Storebrand is well positioned to capture this as we already have a 100% hit rate in all municipality tenders since we entered the market in 2019.
Now, turning to our important work within sustainable finance in the Nordics. We are pleased to see that our strong growth in the Nordics is recognized in a sustainable manner by our customers and industry players. In the Q1, Storebrand Asset Management was honored with an award as the Best Asset Manager in Denmark by Morningstar. SPP was selected as the most sustainable player within investments by Söderberg & Partners in Sweden. And lastly, we are proud to once again be placed as number one in the Nordics on the SHE Index for equality and diversity. And with that, I leave the word back to you, Johannes.
Thank you, Odd Arild. Now let's take a closer look at the numbers. Lars, please go ahead.
Thank you, Johannes, and good morning to you all. Let me start by emphasizing that the numbers I present here are the cash equivalent earnings as defined by our APM. We have made one change from earlier by matching performance-related income and expenses quarterly. This is reflected in the comparable P&L numbers for 2023 that we present today. This is just a harmonization between quarters and does not change annual results. Let me then turn to the results themselves. The quarterly result ended at NOK 1,082 million, a significant improvement on the previous quarter. This is explained by strong growth, cost control, and improving insurance results. The fourth and Q1s are usually seasonally weak, and the momentum for further result improvements is good. The solvency position stays strong at 191%. The cash earnings per share after tax is NOK 2.09 in the quarter.
The gap between expected return and guarantees in the Norwegian guaranteed portfolios continues to widen, suggesting an expected increase in excess returns and rising profit split for customers and owners in the years ahead. We maintain our guiding from the capital markets day last December. The solvency position is down one percentage point in the quarter. The new buffer rules have had a positive contribution of three percentage points but are balanced out by increased risk in the portfolios. Over time, the increased investment risk leads to higher returns for policyholders and higher capital generation for shareholders. The higher interest rate level, 37 basis points in Norway and 30 basis points in Sweden, contributes four percentage points to the solvency, while an increase in the symmetrical equity stress and lower UFR have a negative effect of seven percentage points.
To sum up, we deliver a stable solvency ratio with higher expected return for customers and potential for higher value creation for shareholders. The sensitivities show robustness in all scenarios. Fee and administration income is up 13% from the Q1 last year. The insurance results have improved from the previous quarters but are still negatively impacted by a cold winter, slippery roads, and higher level of disability in Norway. Cost is up 7% and in line with plans. Financial results are strong and in line with the guiding following the higher interest rate level. The tax charge was 15% due to the high result contribution from Sweden, where the tax rate is lower. The normalized tax rate remains at 19%-22%.
The same numbers split into savings, insurance, and guaranteed show a 37% improvement in savings, a doubling for insurance, stable results in guaranteed, and a strong development in other as compared to the Q1 last year. Overall, cash equivalent earnings are up by 31%. As Odd Arild has already illustrated, the frontbook savings business in Storebrand continues to grow double-digit within UnitLink, asset management, and banking. The business grows with stable and acceptable margins. Kron is still in an integration phase with negative results, but customer satisfaction is high, growth is strong, and the path to profitability has been paved. We have had a long period with positive flows in asset management, but this quarter's flows are marginally negative, driven by outflow from the Swedish public PPM system that is under restructuring. This outflow was very low-margin business. The combined insurance premiums are up by 14% year-on-year.
The increase is roughly one-third volume growth and two-thirds price increases. The renewal churn is low despite the price increases. In P&C, we continue to increase our market share in the retail market. The P&C results in January and February were very weak but showed some improvement towards the end of the quarter. Disability remains at a disturbing level in Norway. Storebrand's disability results are better this quarter, but based on leading market indicators, this is still an area of concern. Further price increases are planned to reflect the higher claims. Our clear ambition is to be back on the targeted combined ratio for the whole insurance sector for 90-92 in 2025. For 2024, we expect a significant improvement from last year but not to the 90-92. The guaranteed business continues to fall as a percentage of total pension reserves.
Buffers were strengthened in the Q1, which allows us to gradually take more risk to improve returns over time. We notice that the results from guaranteed are below market consensus, which can probably be attributed to two factors: a negative effect from lower UFR and VA in the Swedish market, explaining approximately NOK 50 million in the shortfall, and lower profit split from Norway. The profit split in Norway is decided at year-end and is therefore back-loaded towards the Q4. You should not put too much emphasis on this figure on a quarterly basis, and I repeat that we maintain our guidance for profit split from the last Capital Markets Day. Other is up from lower integration costs after the completion of the integration with Danica and good returns driven by tighter credit spreads in the company portfolios. Finally, I leave you with our financial ambitions towards 2025.
The results we present today show that we are on a path to deliver on the NOK 5 billion result ambition and ROE target for 2024. Furthermore, we deliver on growing dividends and NOK 1.5 billion in annual share buybacks. We also show progress on our non-financial targets, and I encourage you to study our annual report for 2023, which was published last month. It has been built on the CSRD framework one year ahead of the regulatory requirements. Please investigate this for a comprehensive review of our targets and progress on a wide range of issues. Storebrand's ambition is to be in the forefront of sustainable finance through our commitment to society, through our own operations, and through our products and services. And with that, I pass the word back to you, Johannes.
Thank you, Lars. We are now happy to take questions from the audience. Please use the raise hand function in the Teams webinar to be placed in line to ask a question. To give everyone an opportunity to ask questions, we kindly ask you to limit yourself to two questions at a time. The first question comes from Peter Elliott in Kepler Cheuvreux. Please go ahead, Peter.
Yeah, thank you very much. First question is on the insurance, please. Can you quantify the cost of the winter-related claims that you saw? Really just to sort of help us understand what the run rate might have been without those. And then my second question is, on slide 8, you show a very impressive increase in the expected return, opening the drawers. I mean, given that two-thirds of your portfolio is in bonds at amortized costs, that suggests that over the last couple of years, you've seen an improvement of, well, I calculated around 340 basis points from the rest of the portfolio. Seems credible feat. Just wondering if you can explain a little bit more the dynamics there and how you achieved that. Thank you very much.
Yeah. Should I start on the last one, and you can jump in on the insurance, Lars?
Whatever.
On the expected return, it's also the fact that bonds at amortized costs are coming to maturity, and we are able to reinvest at higher levels together with the asset allocation and the normalized risk premiums you see in the supplementary information, Peter. So it's also the fact that these bonds fall due.
And with respect to the insurance cost, I mean, you have the claims cost in the supplementary information, so you can take that out. And if you adjust for volume and look at historical numbers, you can make an assessment as to what is the unusual amount. But what we did see, and everyone else in the market saw, was that January, in particular, had a much higher frequency. And with a change in the car park from fossil cars to electric cars, the cost per accident is going up. That has been reflected also in the pricing and will be reflected in the pricing going forward. But to give you an exact number as to what is the unusual part and what is a usual part in a fluctuating weather environment is kind of challenging.
I must say we followed the numbers, of course, very closely during the quarter, and we saw a Combined Ratio well above 100% in January, also quite high in February, but much better than when the weather normalized in March. It has been quite a journey throughout this quarter based on the seasonality we have seen.
Thank you very much.
Thank you, Peter. We have a next question from Håkon Astrup in DNB Markets. Your line is open, Håkon.
Good morning. Thanks for taking the questions. First question on public sector pension. You mentioned that ESA estimates roughly 30 different tenders per year if the market opens up. What types of volumes are those 30 tenders? Do you have an estimate for the win rate or what you expect Storebrand could win here? That was the first question. The second question on insurance. Lars, you mentioned that the churn was low. Is it possible to be a bit more specific, for instance, as the churn came up versus last year? Thank you.
Well, if I start on the public sector, of course, this is a huge market. As I said, it's NOK 800 billion in assets under management. It's growing fast. It's very good pension solutions in the public sector. So what we are talking about here is more or less the whole market. And that is all municipalities, but also health services and so on. That is a part of this combination. So it's more or less that one-tenth of all these volumes should be in offering almost on a yearly basis. And of course, that gives you some impression of what volumes we can talk about in tender offerings here. And then it's, of course, exciting to see that Storebrand has 100% hit rate so far in this market. We don't expect to have, of course, 100% hit rate on tender offerings going forward.
We are very well positioned in this market. It's a very growing market. It's a healthy market. We are eager to see the outcome of the discussion with ESA.
If I may add a couple of comments, we've had and communicated an ambition to take about NOK 5 billion a year historically. We've increased that somewhat this year to NOK 7 billion this year based on information that there are more tenders coming to the market this year. And then, obviously, we'll update that when we have full clarity on the competitive situation after the final ESA letter is expected in June. So we may revert to that on the Q2 or third quarter with more updated ambitions.
But is it fair to say that NOK 7 billion in annual new premiums if the market opens up is very conservative?
Absolutely.
On insurance and churn, we have seen a slightly higher churn, but that goes both ways. We also have new customers coming in. As you've seen, we have an increasing market share since last year. We continue to take market share in this market within the P&C business and also in the other parts of our business.
Thank you very much. Thank you, Håkon. We have a next question here from Tryfonas Spyrou in Berenberg. Please go ahead, Trif.
Hi there. Thank you for taking the question. So the first one is coming back on the guaranteed book and the spread between sort of above the guarantee rate. Appreciate your comments made on amortized bonds sort of running off, being a key driver there. I guess how should we think about that spread versus your original guidance at the CMD? Can you maybe remind us what were the assumptions that you used to get to the profit-sharing guidance? And appreciate you're not changing guidance yet, but I just want to see where we stand based on what you had before. And I guess related to that, sort of you talk about new buffer rules being almost used to improve the asset mix and perhaps do some re-risking across the book to increase that spread. Can you maybe share some comments with regards to that as well?
The second question, coming back on insurance, I guess appreciate your comments. You're still very cautious on P&C and disability, but clearly, the pension-related disability came down. I just want to get a little bit more color on how you think that evolved versus your original expectation and whether you have a little bit more confidence on getting back to that 92% target in the next couple of years. Anything you can share to give us a bit more comfort. Thank you.
Sure. On the guaranteed and the spreads, we saw rates were somewhat higher in the beginning of the Q4 when we were preparing the CMD material. Then it fell through the quarter, and then it came back up again in this quarter. So the differences weren't that different from when we made the assumptions for the CMD. And as I mentioned earlier, we are not changing the guiding based on this. But the spreads have widened significantly, and we and the customers will benefit from that going forward.
If we talk about insurance, of course, we are very happy to see the start of the year with the numbers coming out as they are. Still, there are lower, of course, numbers in insurance than we expect and hope for going forward. And we should bear in mind that the combined ratio of this Q1 is slightly worse than the Q1 in 2023. So there are still opportunities to increase, of course, profitability in insurance in a broad sense. Then, of course, seasonally, we expect the next two quarters to be good quarters. And the underlying, of course, price impulses have been really now taken into account in both the corporate pension disability products and gradually also into the P&C business. If we look at the disability, very happy to see the development in the results.
As Lars said, the underlying development in disability in Norway is still on a very high level. It's not increasing, but it has stabilized on a very high level. We see also the leading indicators like people on sick leave and so on is on a high level. We are very cautious following this going forward. Look at all our tools to manage this in the best possible way. This is an area we follow very tight also going forward.
Thank you. That's very helpful. Maybe. May I add one additional comment? So the published numbers are also helped by good results in Sweden and good results on the personal risk lines. So the average is a combination of still high disability in Norway with weak results and the P&C results we've discussed, and then helped by some other lines that have gone better. The flip side of this is that when the pricing has been set at the right level, the upside on the insurance results is quite significant.
That's very helpful indeed. Maybe just one follow-up on the guaranteed side. The portfolio actions you took on the asset side, I think, in Q1, would you expect those to accelerate that spread as well going forward, or is that already baked in your assumptions or what the spread will be? Just any color on the asset mix and the changes there that would be helpful. Thank you.
No, that has already been built in.
Thank you. Thank you, Trifones. We'll have a next question from David Barma in Bank of America. Please go ahead, David. It seems like the next question is from Johan Ström in Carnegie. Please go ahead, Johan.
Thank you for that, Johannes. So I'm looking at the solvency bridge from Q4 to Q1 in the appendix. So just curious if you can explain the solvency effects from these new buffer rules. I would have thought that the effect had been positive, but here it seems like some investment adjustments net out that positive effect. And then in Q2, if the health insurance sale proceeds and buybacks net out, do you expect the solvency ratio to grow further throughout the year, or will it remain fairly stable from these 191% levels? Thank you.
On the buffer rules, as illustrated on page 23 in the analyst presentation in the appendix, as you mentioned, you can see that we've put up a separate box indicating that the positive effect from the buffer rules were 3 percentage points. But then as we have the reason the buffer rules changed were because the authorities and ourselves wanted to increase the risk in order to get a higher return on these portfolios over time. And the increased risk capacity was used to increase the risk, which will generate a higher expected return going forward, higher return for customers and policyholders, and profit split for the shareholders of Storebrand. So this is a win-win situation with more flexibility around these rules.
When it comes to the solvency bridge, I think, of course, as Lars has said, we had the positive effect from the new rules and a better risk management possibility going forward also based on the flexibility in the rules. But we have also used the opportunity to take on some more risk in some of the guarantees portfolio where we see that we can risk policyholders' funds to get better pensions going forward and also higher possibilities for profit sharing for our owners.
Yeah. And as for the growth in solvency for the rest of the year, we provide this all else equal guidance. So all else equal, it should continue to grow throughout the year kind of when you match the health insurance proceeds with the use of funds for buybacks. And then, of course, a lot of things can happen in markets from now to New Year. So it's an expectation, of course.
I will advise you to look back at the CMD material in December where we described how much capital we expected to create and how we expect to use it. You can find that in that material.
Makes a lot of sense. Thank you very much. I'll hand it back.
Thank you, Johan. We have a next question from Hans Rettedal Christiansen in Danske Bank. Please go ahead, Hans.
Yes. Thank you. So I was just wondering in the asset management segment on the fee margin, if you could perhaps just explain a little bit around you're reporting 19 basis points this quarter. And you say in the report that the fee margin sort of had a negative effect on the results. Could you explain if that's sort of a level we should be penciling in going forwards or if there's any extraordinary stuff driving that this quarter? And then my second question is on the P&C result.
I guess there's been a couple of questions on this prior as well, but just on kind of the repricing that's going through the portfolio now, can you say anything about sort of how much of the portfolio has been repriced or at what stage in terms of when the inflation and the frequencies started picking up to give sort of an idea of how the trajectory will look going forwards as well? Thank you.
Should I start with fees from the asset management business? As you rightly point out, it's 19 basis points reported for the quarter. That's a consequence of the underlying fixed fees and good performance fees in some of the funds that have performance fees. What we've not seen this quarter is transaction fees from the real estate business and also lower on some of the alternative investment business. We were helped by good performance fees, relatively speaking, this quarter. We were not helped by lack of transaction fees. Going forward, we expect more transaction fees when now the real estate markets are picking up again. From the private equity business, when we are closing some new funds in the rest of the year. Hopefully, the performance will continue to be good also going forward, but that will deviate from quarter to quarter.
Yes, on the P&C side?
Should I start on the P&C side? Well, so a lot of the corporate business has been repriced as it's an annual repricing at the beginning of the year. There are some large contracts that will be repriced a little bit later in the year. When it comes to the individual lines, it's a little bit more of a rolling price increase as these are kind of falling due on a rolling basis. Can you is there sort of a date that you started repricing? I guess it's not so fixed, but of course, can you say anything how far along in the private portfolio you have come? In the private portfolio, we've come far with repricing the portfolio.
But then, of course, we need to, as this has been an extraordinary winter, we need to still assess the need based on that and also based on the expected claims inflation and general inflation going forward on what we're going to do forward-looking. So I don't think we have seen the end on the pricing cycle as such.
Hans, I would add that we look at all the information we have at any point in time is built into the pricing. The pricing happens continuously throughout the year. We also look at different customer groups that have young people, old people, etc., will have different claims history. The more information we get, we build that into the tariffs on an ongoing basis. The pricing happens continuously throughout the year. So right now, we are in an uppricing cycle because of the high claims through the winter. Then at some stage, hopefully, this will stabilize or go down again. Then we will have a positive overhang as we go into a repricing the other way kind of. So this is the nature of P&C insurance.
Okay. Thank you very much.
Thank you, Hans. We have a next question from Jan Erik Gjerland in ABG. Please go ahead, Jan Erik.
Thank you for taking my questions as well. First one to the asset allocation, which was sort of a jump in the quarter. Is it more to be expected going forward from sort of improved solvency ratio and risk appetite in the Norwegian guarantee book, or is this sort of what we have seen with the 3% change in the buffer rules and the 3% increase? Is that what you expect to do, or is it more come, so to speak, if that's a possibility? Second on the disability, sorry to move back again on that one. Could you shed some light into the split between Norway, Sweden, and the third entity in that piece of business and shed some light into where you are on the repricing path in Sweden, Norway, and then the last one, please? Sorry about coming back to that one.
If I should just start on the guaranteed business, I think it's fair to say that we have a very tight risk management model where we utilize the buffers we have at any stage. And in a normal market, we build buffers with the rates we see in the market now. We should have a higher return well above the guarantee levels as indicated in the material as well. That will lead over time to a stronger buffer capital situation and, of course, somewhat higher risk-taking. But it will be neutral to the risk appetite that we have. But it will create, in a normal situation, better pensions and higher return for shareholders.
If you look into the supplementary information, you could see that the risk-taking in Sweden with higher buffers is higher to create higher expected returns and more capital creation for shareholders and returns for policyholders. This is very dynamic. Where we have risk capacity, we take risk to the benefit of all stakeholders.
To add on that as well, it's a very good dynamic because when we now have a bit more risk, we have also more tools to do risk management. It's easier to gradually reduce risk if it's needed to shield solvency and the buffers that is available. So it's a very good I very much prefer the situation we are in today compared even what we was three months ago. Even if the solvency ratio is 1 percentage point lower, in my view, it's a much stronger solvency position, actually.
If you look at the sensitivities also, you will see that if the equity markets were to fall, the solvency may actually increase due to the fact that the symmetric equity just tend to overcompensate somewhat on equity movements. So that's an additional cushion, you could say, in order to shield us from equity market movements going forward and protecting the solvency.
Kjetil, do you want to answer on the split of?
On the second one, yeah. Let me start and you can help me. So first of all, the split between Norway and Sweden, the brunt of the business is from the Norwegian part of the business, and then the smaller part is from Sweden. In general, the Swedish business is more profitable and stable and has been also historically. And it also follows the macro that the problem with disability in the Swedish society, it's much smaller than in the Norwegian society. So the Combined Ratio is higher than what we report of 88% in the Norwegian business and quite a bit lower in the Swedish part of the business where we see less uncertainty in the pricing than we have done historically in the Norwegian part of the business.
Is it typically a 1st January repricing effort, or is it through the year as well, as Hans asked about?
It's very much front-loaded when you look at the B2B business. As we have talked about before, it's quite a significant increase in prices that now are in place from the 1st of January. I will add that has come true without any increase in the churn.
Is it about 20%, or?
I think we have already talked about that. Some of these portfolios, we are around 30% increase in prices that has been taken into account from 1st of January.
Thank you.
Thank you, Jan Erik. We have a next question from Thomas Svendsen in SEB. Please go ahead, Thomas.
Yes. Good morning. So back to this big public market possibly opening up. So could you help us describe a couple of scenarios now on the process? If, I guess, 15 of June, Norway says no and just retreats the old arguments, and how long will it take before the full process is completed then? And second scenario, if Norway agrees with ESA arguments, how long will it take then?
Yeah. Let me start. It's always difficult to make timelines for regulators and authorities. It's a very difficult thing to do. First of all, I think the statement now from ESA is extremely clear. I have almost never read such a clear statement. So I really hope for all players now that the Norwegian state finds the opportunity to compare with the statements from ESA. And of course, that will open up the market very fast. Saying that, I think we already see much more dynamic in this market. It's a much higher level of tender offerings this year compared to what we have seen the years before. So it's an important impulse, but we see opening of the market anyway that will be helpful for the flows.
It's very hard to say if we start with a process towards ESA, how long that process will take, but it has a tendency to take some months and even a year if that starts.
Even without the ESA letter, we saw that there was a right wing or a blue wind covering Norway in the elections last year. That has led to many more municipalities publishing that they are intending to do a tender this year. We do expect a higher volume this year regardless of the ESA letter. Then the ESA letter will most likely impact significantly the opportunities in the years ahead.
I agree with you, Lars. I'd like to say this is not a burden for the municipalities. It's a help to get a better economy in the municipalities. It should be a no-brainer to go and test the market. The pension for everyone in the municipality will be the same. That is regulated. This should be a very good thing for the municipalities to go out in tender offering anyway.
Okay. And thank you. And since this seems to be a big opportunity now, could you just give an update on the business model here? How have you gathered the assets? How have you charged the fees? And also when you look at business margins compared with the big player in the market, how do you see those margins? And do you think those business margins will go down when you starting to gather market share here?
Kjetil and Lars can comment on the margins. I will just say that this is a combination when you go into tender offerings between more qualitative elements like sustainability, quality of delivery, the B2B2C possibilities and opportunities, what you can deliver direct to the employees in the municipalities, and so on. And of course, more hard economics. And if you want to comment on that.
Sure. If you look at the solvency requirements, the capital requirements for this business is much lower than the guaranteed business in the private sector due to the fact that they do not create payroll policies when people retire. So it's a more dynamic pricing mechanism, which makes the capital charge much lower. The margins are similar to what we see in the unit-linked market. And the ROE meets our ROE targets. So Kjetil, I don't know if you want to.
No, I think the only thing we can say to add to it and from the previous question as well, it's a total market of NOK 800 billion in AUM, over NOK 50 billion in annual premiums. If 10% of those annual premiums tenders each year, that's NOK 5 billion in new premiums and the AUM that comes along with it.
Okay. Thank you.
Thank you, Thomas. We have a next question from Vegard Toverud in Pareto. Please go ahead, Vegard.
Thank you. Just returning to the disability result in the quarter. In the guaranteed part of your report, you mentioned reactivation as supportive for the risk result. But the improvement in the insurance segment is significantly more. And there you highlight the continued problems with disability and the need to reprice even further. So are you able to provide some information on how to interpret this since the communication seemed to be different from those two areas? And it doesn't appear that the risk result is improving that much neither in the guaranteed part. So that's my first question. Second question, on cost, it seems that unit-linked in Norway is dropping Q-on-Q and year-on-year despite the high growth, whereas on the traditional products, costs are increasing. So the question is really if there's any reallocation of costs going on in Norway.
And then just lastly, on the guarantee fee, which is now NOK 75 million, is that the level we should expect for the remaining of the year? Thank you.
Starting on disability, I think first of all, it's a very different portfolios and segments, of course, in the guaranteed products compared to the open products in defined contribution. The age is very different. It's a much older population in the guaranteed products. Of course, also pricing and our estimates on reactivation and so on might be very different in these different portfolios. That leads to different also result in these portfolios.
So basically, if you have a payroll policy, you are on average 66 years old. And the reactivation for that part is different from the people in the unit-linked business, which on average are about 44 years old. And what we see where we have an increase in disability is particularly among young people. So it's totally different portfolios and segments in the society. And therefore, you will see somewhat difference in the development. On the guaranteed fee, it's a dynamic fee, which means that when interest rates are high, then the risk for not meeting the interest rate guarantee is lower. And therefore, the fee for guaranteeing that is also lower. And similarly, and that's a protection, obviously, if rates go down, we can increase the price because we take more risk. So this is a dynamic price, which has been like this always.
Now with higher interest rates, the fee goes down.
On top of that, there's been an allocation also from defined benefit into payroll policies this quarter due to the fact that, of course, most corporate has for a long time ago closed their defined benefit and moved into defined contribution. There are still some companies that have some bulk of the asset in the open defined benefit. And in this quarter, we have seen some, well, some companies have hard-closed their defined benefit schemes that was open into opening defined contribution. And then you have seen an allocation into payroll policies also. So you have both a volume and, of course, a price element into this that you can see from the numbers also.
Yeah. I guess the last one was on costs between guaranteed and savings. There are not any large changes in allocation here. But there are, of course, some variation quarter on quarter on where cost is spent and the allocation keys that are used to distribute those costs. So there's nothing kind of special other than normal variation.
Okay. Thank you. Just for clarification there on the guarantee fee, if I remember it correctly, several years ago, it used to be that it was recalculated on a yearly basis. If I interpret you correctly now, it's more on a quarterly basis if the macro factors would change.
No, it happens annually. Yeah.
Okay. So then Q1 would be the first with the new input factors.
Yeah.
As previously. Okay. Thank you.
Thank you, Vegard. We have a next question from Ulrik Zürcher in Nordea. Please go ahead, Ulrik.
Thank you. My question might have been answered. But so I understand it correctly, it's like this dynamic pricing. It's what's caused the drop in the pension guarantee business in Norway. Sorry, the drop in fee margin.
Yeah. A combination then of some transfer from Defined Benefit that ends up in payroll policies on the volume side. And then also some price elements with higher interest rates and lower price for interest rate guarantee.
Okay. So we should expect roughly this level for the rest of the year?
That should be the best estimate, yes.
Okay. Excellent. Sorry, last one on public sector. Do you have roughly what kind of return on equity are you getting on that business?
I think, as Lars said, it meets our target for return on equity as we have increased to 14%. It should be about that then.
Great. Thank you.
Thank you, Ulrik. Håkon Astrup from DNB Markets is next in the queue. Please go ahead, Håkon.
Thank you. I just have a quick follow-up question on Kron. Continue to burn cash during the quarter? I know it was a one-off. But can you just give us an update on how the integration process is going there and what you expect going forward?
Yes, absolutely. So Kron continues to do extremely well in terms of customer satisfaction. They continue to grow very fast, almost NOK 1 billion a month coming in new funds from that business. The integration on the platform side has happened now in the beginning of the Q2. We've integrated on the platform basis. And we're constantly integrating Kron to become the retail savings app of Storebrand. So we expect a continued cash burn, although at a lower level throughout the rest of this year, also into 2025. But from 2026 onwards, it should give positive contribution. And the growth means that we will have quite significant positive development from Kron in the years ahead.
Yeah. At the end of the year, we expect to see the bank and the savings area as a totality where we also will merge Kron into our Storebrand Bank. At the end of the year, this will be one line with the bank and savings when we communicate the results to you.
Thank you. Have you thought about, say, you talked about integrating the bank and Kron closer. But say rebranding the bank as Kron, is that something that you have thought about?
No, I haven't thought about it. But maybe I should. So take it with me.
Thank you.
Thank you, . It seems like we have a follow-up question from Peter Elliott. Please go ahead.
Thank you very much. Sorry to come back on the municipality business again, actually. But just to understand how this might play out going forward, I mean, assuming that Norway agrees with ESA's view and municipalities therefore have to tender, I appreciate it's in their interest to tender. But if they're reluctant to do so in the first place, could it be that even if they have to tender, they can do so without really having any intention to change? And related to that, I just wanted to clarify exactly what you meant by the 100% hit rate that you quote. I mean, I don't think all municipalities have gone to Storebrand to date. So presumably, you're saying that some have tendered, but you haven't given Storebrand an opportunity to quote. And those are the ones that's gone to somebody else.
Sorry, just to clarify exactly what you mean by the dynamics to date would be very helpful. And maybe one other one, if I can, quickly. Within the other result, obviously, the financial result this quarter was sort of distorted a little bit by markets. Are you able to give us sort of what the underlying run rate is, so sort of the quarterly rate we should assume going forward? Thank you very much.
Thank you. I love to talk about the public sector and the municipalities, so by all means. Now, I think, first of all, hit rate is very easy. Since we entered this market again in 2019, there has been 7 tender offerings open in the markets. All of these 7 tender offerings have been won by Storebrand. That is the 100% hit rate. The problem has been that there's been too low volumes on tender offerings, of course. That is increasing anyway now. But of course, an opening of the market where you should assume that a municipality should go at least at a tender offering every 10th year, you would have 30-40 tender offerings every year in this market.
I must say, when we first enter into a tender offering, then it's a very strict process, a very regulated process, with very strict criteria both on the cost, the results, and all the financials around such a tender offering, and also how to weigh the more quality elements. That is a very thorough process where the best provider will come through and win the tender offering. If there will be tender offerings, there will be much more dynamic in the market.
So basically, the public procurement rules are very, very strict. So if you go to a tender, then there's a fair process.
And an external body that have used it and everything. So it's a very thorough process.
If you look at the guiding on other and quarterly run rate, last year, we had integration costs from Danica in the other operating cost element. So that has gone away. And therefore, on the operational cost, it should be somewhat lower than it was last year. And in terms of the financial result, that's a combination of, obviously, the amount of company portfolios we have and the subordinated debt we have. And it will be impacted in terms of we've just paid out NOK 1.8 billion in dividends, which we will no longer take a return on. And we are now starting a share buyback program in addition. So that will take away some of the liquidity we have as of right now. But then you can probably make your own calculations based on the interest rate level in the market.
And I can add on that.
Sure.
Based on what we published on the CMD last year and as Lars alluded to earlier today, roughly NOK 500 from that line is expected for the full year. And of course, we started better now, but also due to some of the periodization effects Lars said. So NOK 125 on the only financial part of the financial element should be a reasonable run rate. But then, of course, with a clock around it, as Lars said.
Right. Thank you very much.
Ladies and gentlemen, I think that concludes today's presentation. I am aware that we have received some questions by email. So we will revert on those as soon as we can. Our next set of results are due on July the 12th. And we look forward to seeing you then. Thank you. And goodbye.