Good morning, ladies and gentlemen, and welcome to Storebrand's third quarter result presentation. As always, our CEO, Odd Arild Grefstad, will start today's presentation by going through the key highlights of the quarter, and afterwards, CFO Lars Løddesøl will dive deeper into the numbers. At the end of the presentation, participants in the Teams webinar will have a chance to ask questions. To join the webinar, please follow the instructions on Storebrand's investor relations website. You will be placed in line to ask your question by using the raise hand function. To give everybody an opportunity to ask questions, we kindly ask you to limit yourself to one or two questions at a time. Now, without further ado, I give the word to our CEO, Odd Arild Grefstad.
Thank you, Daniel, and good morning, everyone. We have seen yet another quarter of volatility as financial markets grapple with the effects of inflation and higher interest rates. I'm very pleased with both our operational performance and our risk management in the quarter. Storebrand continues to show resilience in various scenarios, and with the numbers we present today, I feel very confident that our strategy and execution is still taking the group in the right direction. Now, let's move over to this quarter's highlights. The Storebrand Group delivers a group profit of NOK 670 million in the third quarter, with an operating profit of NOK 717 million. Underlying growth continues to be strong across the businesses, led by 22% annual growth in insurance portfolio premiums, and 21% growth in Unit Linked premiums.
The growth is partly due to strong operating development as well as acquisition of Danica, which we welcome into the Storebrand family this quarter. Despite market turmoil, our assets under management were still above NOK 1,000 billion , and we continue to see strong inflow, especially in the Swedish business. Mark-to-market effects from rising rates and wider credit spreads have led to negative financial results in the quarter. These mark-to-market effects will be more than offset going forward from a higher running yield in the portfolios. The solvency ratio was 174% at the end of the third quarter. The acquisition of Danica and financial markets reduced the solvency ratio as expected. The most significant negative effect came from regulatory factors in the quarter. Lars will revert with more details on this later on in the presentation.
Storebrand has now completed a share buyback program of NOK 500 million. Our capital policy states that if the solvency ratio is above 180%, the board of directors intend to propose special dividends or share buybacks. At the end of the third quarter, the solvency ratio is below the 180% target communicated to all stakeholders as a threshold for our capitalization. Value creation, run off of the guaranteed business, as well as expected increased buffer capital at the year-end means that we plan to be back and continue with share buybacks after the presentation of the full year results. We will revert with updated information on our Capital Update on December the 8th .
As you are well familiar with, Storebrand follows a two-fold strategy that gives a compelling combination of self-funded savings and insurance growth in the front book and capital return from a maturing back book of guaranteed pensions. Storebrand aims to be the leading provider of occupational pension in both Norway and Sweden and to build a Nordic powerhouse in asset management and continue fast growth as a challenger in the Norwegian retail market for financial services. The combined synergies stemming from capital, customer base, cost, and data across the group provide a solid platform for profitable growth and value creation. We have truly delivered on growth in the front book over the last years. At the same time, we have continuously worked with the back book to capital release. In the third quarter, I have welcomed two new members to Storebrand's executive management team.
Jenny Rundbladh has been appointed CEO of SPP Pension & Försäkring AB and Executive Vice President of Commercial Sweden. In Norway, Vivi Gevelt has been appointed CEO Storebrand Livsforsikring AS and Executive Vice President of Commercial Norway. I am very excited to have Vivi and Jenny on board. With their valuable experience and significant contribution within Storebrand over the past years, I feel confident that they have the capacity and capabilities to lead our life insurance companies in Norway and Sweden into the future. Let me move to our operating performance in the quarter. First, let's look at the occupational pension business. Total assets under management in Unit Linked increased by NOK 6 billion, equal to 2% compared to the same quarter last year. Unit Linked premiums increased by 21%, amounting to NOK 6.3 billion in the quarter, of which NOK 0.6 billion is from Danica.
Net inflow amounted to NOK 2.5 billion in the third quarter. This shows that top line income is quite resilient in volatile markets. It's also worth noting that we finalized the NOK 2.3 billion SEK portfolio transfer in the Swedish business, adding further scale. Let me now turn to asset management. Total assets under management amounted to NOK 1,001 billion, down 5% year-on-year due to weak financial markets. Net flow was NOK 7 billion year-to-date. Storebrand has now climbed to become the fourth largest asset manager in the Nordics. Storebrand has also provided the highest pension return both in 2022, the last three years and five years compared to similar default pension profiles in Norway. We have done this while maintaining our strategy of sustainable investments. Lastly, let us look at the development in the retail market.
Within P&C and individual life, strong growth continued with premium growing 23% year to date compared to last year. The overall combined ratio was 88%, and it's better than the targeted combined ratio of 90%-92%. We continue to attract retail customers in Bank, and in total we grow 17% compared to the same period last year. Let me remind you that this is standard residential mortgages with an average loan-to-value in the mid-50s. Overall, I'm very pleased with the commercial development year to date. The 1st of July , Storebrand closed the acquisition of Danica in Norway. Danica holds a market share of 5% of defined contribution pensions. In addition, the company has a profitable retail insurance business that will add premiums into the insurance segment.
In numbers, it means that our Norwegian occupational pension premiums will increase by 20%, and retail insurance premiums will increase with around 8%. The process of integrating the two companies is expected to take up to 18 months, but a formal merger of Storebrand Liv and Storebrand Danica will happen on the 1st of January 2023. We expect to realize significant cost and capital synergies. Danica delivered a result of around NOK 150 million in 2021. We expect to realize synergies on IT and some duplicate functions that will lead to additional cost synergies. We work closely with the Danica organization to build our new presence in Trondheim. Overall, we expect to realize above NOK 100 million in annual cost synergies where sourced IT systems from Danske Bank in Denmark is an important part.
In sum, I believe this is a great opportunity to grow in new segments and creating value for customers and shareholders. Storebrand acquired the savings platform Kron in this quarter. Closing of the acquisition is dependent on regulatory approvals. The acquisition will fast-track Storebrand's ambition in the Norwegian retail savings market. The platform is, in my view, the most user-friendly in the market and really makes savings approachable and available to a wide audience. The platform has a proven growth record, and there are strong synergies within the Storebrand group. When it comes to cost synergies, we plan to reduce the use of tech consultants and leapfrog some development that was otherwise planned to enhance the product offering in Storebrand. We will introduce more Storebrand mutual funds, bank accounts, and other new services to capture a larger part of the value chain.
We look forward to welcoming a highly skilled and motivated team with market leading digital service development capabilities. That together with the competence and capabilities in the Storebrand will create customer magic in the years to come. With that, I give the word back to Daniel.
Thank you very much for that, Odd Arild. Let's have a closer look at the numbers. Please go ahead, Lars.
Thank you, Daniel. Let's move into the figures, starting with the key figures. Adjusting for performance related expenses and special items, the third quarter operating result ended at NOK 746 million. We deem this to be strong in light of turbulent financial markets and the corresponding fall in assets under management. Special items of NOK 18 million are related to the integration of Danica. As shown in the graph on the lower right-hand side, the customer buffers in Sweden have increased in the quarter due to the transfer of a small pension fund in Sweden. In Norway, the buffer capital remains at a fair level despite higher rates and falling equity values. The solvency on the lower left-hand side shows both lower own funds and higher solvency capital requirements, or SCR.
The main reasons are, one, the acquisition of Danica, two, lower volatility adjustment, which I will revert to in a moment, and three, financial market changes, including reduced buffer capital in Norway and increased market volatility. At the second quarter, we reported a solvency of 195%. As communicated at the time, the acquisition of Danica would give a negative solvency contribution of 6 percentage points. Model and assumption changes have a negligible effect in this quarter. The regulatory factors, volatility adjustment, which I will call VA from now on, and symmetrical equity adjustment combined have a negative contribution of -10 percentage points. Market returns, including higher rates, higher credit spreads, increased volatility, and falling equity markets contribute a - 5 percentage points. Normally, the counter cyclical VA should reduce the effect of credit spread changes.
In this quarter, we see both lower asset values due to higher credit spreads and higher liabilities due to lower VA. This is highly unusual and is a result of significant changes in the interest rate differential between the Scandinavian currencies and the euro. The VA fell 29 bps in Norway to 23 bps, and by 15 bps - 4 bps in Sweden. We indicated that we got overcompensated by the VA last quarter. This quarter, the effect was unusually harsh the other way. The group result contributed by 2 percentage points while we set aside about 1.5 percentage points for ordinary dividends. The solvency sensitivity to equity and credit stresses has gone up because of higher volatility and lower buffers following the weak markets year to date.
We do, however, run a dynamic and active risk management function in order to maximize customer returns and, at the same time, protect shareholders' equity. This may reduce the actual sensitivities. Furthermore, as we enter into 2023 a couple of months from now, we will get access to additional buffers from the additional statutory reserves, which will strengthen the solvency position coming into next year. This picture illustrates how the VA is calculated, reflecting changes in credit spreads, but also the interest rate differential in Norwegian, Swedish, and euro rates. The latter part does not reflect the credit spread development it is intended to mirror and introduces basis risk in the use of the VA. It is, however, an integral part of the Solvency II framework and a positive contribution to the overall solvency.
Based on historic variances, it is reasonable to expect a positive contribution in the coming quarters. According to our estimates, the VA is already up by more than 10 bps so far in October, following higher credit spreads and an increase in the interest rate differential between the euro and the Scandinavian currencies. Storebrand's group profit before amortization and tax was NOK 670 million in the third quarter and NOK 1,874 million year to date. The underlying growth continued in the quarter, as reflected in a strong operating profit despite persistent market turbulence this year. However, weak market returns have led to a negative financial results in the quarter and year to date.
This is primarily due to mark-to-market effects from rising rates and wider credit spreads in the company portfolios, which generates higher yields on investments going forward and a stronger financial result. Strong buffer capital levels and prudent risk management have secured sufficient customer returns in the guaranteed products and shielded the group's results from market volatility. The acquisition of Danica was completed on July 1st and is included in the group's accounts as of the third quarter. Danica's contribution to the group profit before amortization was NOK 35 million in the third quarter, driven by strong insurance results. Total fee and administration income amounted to NOK 1,507 million in the third quarter and NOK 4,421 million year to date. Adjusted for currency effects, the fee and administration income was unchanged.
Continued underlying growth in Unit Linked, asset management, the bank, public occupational pensions, as well as the acquisition of Danica, contributed to income growth. However, the growth is offset by lower assets under management due to weak market returns and by lower fee margins in Unit Linked due to the introduction of individual pension account during 2021. The insurance result improved to NOK 482 million in the third quarter and NOK 1,277 million year to date due to strong premium growth and lower claims ratios in group life and pension related disability. The group operational cost amount to NOK 1,272 million in the third quarter and NOK 3,598 million year to date.
Adjusted for the operational cost in Danica of NOK 77 million, the group's operational cost in the quarter was relatively stable at NOK 1,195 million. Overall, the operating profit amounted to NOK 717 million in the third quarter and NOK 2,099 million year to date. The financial items and risk result amounted to - NOK 47 million in the third quarter and - NOK 225 million year to date. Rising interest rates and wider credit spreads have resulted in lower mark-to-market valuation so far, leading to weak investment results and negative financial result, particularly in Storebrand's company portfolios. Running yield in the portfolios have increased accordingly. Net profit sharing amounted to - NOK 116 million in the third quarter and - NOK 143 million year to date.
The quarterly loss stems from the lower discount rate and increased need for deferred capital contribution in Swedish guaranteed liabilities due to a reduction in the volatility adjustment. The risk result has strengthened, particularly in the Norwegian guaranteed products with reduced disability and somewhat higher mortality this year and amounted to NOK 74 million in the third quarter and NOK 210 million year to date. Tax expenses for the group amounted to NOK 125 million in the third quarter and a tax income of NOK 247 million year to date. The estimated normal tax rate is 19%-22%, depending on each legal entity's contribution to the group result. The effective tax rate in the third quarter is higher than normal due to a lower contribution to the pre-tax result from the Swedish business.
Having spent some time on the previous picture, I will focus only on the most important points in the next ones. The group reports the results by business segment as shown in the bottom table. Savings reported a profit before amortization of NOK 401 million in the third quarter and NOK 1,197 million year to date. Profit before amortization and insurance increased to NOK 210 million in the third quarter and NOK 487 million year to date. In guaranteed pensions, it decreased to NOK 148 million in the third quarter and to NOK 633 million year to date due to lower profit sharing.
In the other segment, profit before amortization fell to -NOK 89 million in the third quarter and -NOK 443 million year to date due to weak investment returns in company portfolios. Within the savings area, unit link Norway is down due to the introduction of individual pension accounts as previously guided. Unit link Sweden is penalized by lower assets under management due to the market corrections. Asset management is hurt by both lower assets under management and somewhat lower transaction fees in the quarter. The retail bank has increased model-based provisions by NOK 9 million in the quarter. Despite the weakness in the savings numbers year to date, the underlying growth is strong and we expect improving results in the coming quarters.
In the upper left-hand corner, you can see how Danica contributes to increased premiums and assets under management in Unit Linked by approximately NOK 600 million and NOK 26 billion, respectively. The Danica assets are currently managed in external funds and are not included in the assets under management in the lower left-hand corner. The retail bank continues to grow, and we've had a positive flow in asset management year to date, as Odd Arild here also mentioned earlier, both shown on the right-hand side of this picture. In P&C and individual life products continue to show satisfactory growth and profitability. Health and group life have stabilized after a period of some volatility through the pandemic. Disability insurance has improved significantly from stronger employment market and price adjustments. With higher interest rates, we expect to see improving financial results from the investment portfolio next year.
The combined ratio for the entire insurance area shows another strong quarter at 88%, better than the targeted 90%-92%. There is strong premium growth in all areas, in particular within P&C and individual life. The majority of the growth comes from price adjustments, while volume growth continues in P&C. The guaranteed portfolio is in long-term run-off, with the exception of public pensions in Norway, which is a growth area. The area shows satisfactory results with a small decline in disability and stable operating profit. The exception is Sweden, where the regulatory VA factor has led to an accounting loss of NOK 104 million due to lower applicable discount rate. This may be reversed in coming quarters. The overall reserves of guaranteed products are declining, although slightly up in the quarter due to a small portfolio transfer in Sweden.
As a percentage of total pension liabilities, the guaranteed reserves are now below 48%. The buffer levels have declined following weak equity markets and increasing rates, partly offset by significantly higher running yields in mark-to-market investments. Under other, we book integration cost of NOK 18 million in the quarter and NOK 38 million year to date. The return on company portfolios is weak following increased interest rates, but will yield significantly better going forward. Expected return in the next 12 months has increased by 2-3 percentage points over last year and is expected to contribute with an additional around NOK 700 million in return in company portfolios compared with the expected return we saw a year ago. An increase of funding expenses reduced the net figure by approximately NOK 200 million.
For those of you who are interested in more detail on Danica, you can find numbers in the back of this presentation. With that, I say thank you, and I leave the word back to you, Daniel.
Thank you, Lars. Before moving over to Q&A, let me take this opportunity to announce that we will be hosting a Capital Update presentation on the 8th of December here at Storebrand's offices in Lysaker. Our aim is to give you an update on what the higher interest rate environment means for our business and capital position going forward. We will open up for registrations next week, and if you're unable to visit us on the date, there's no need for concern. You will have the opportunity to participate digitally as well. With that said, we will now move over to Q&A and are happy to take your questions. Please use the raise hand function in the team's webinar to be placed in line to ask a question. It looks like the first question comes from Peter Eliot of Kepler Cheuvreux. Please go ahead, Peter.
Thank you very much, Daniel. I guess, well, two questions, please. The first one was just on how you think about the solvency ratio. I mean, I appreciate that, you know, you've communicated the 180% target and therefore probably felt that you should stick to that. I mean, but given that, you know, a lot of the fall that we've seen is not really economic, I'm just wondering, you know, whether you are tempted to look through it, or, you know, in particular, you know, whether, you know, what your thoughts are on sort of setting a solvency target, you know, based on the level without any VA benefit. Just interested in how you think of that?
The second one, again, on solvency. Appreciate that the guidance you gave that you expect to get to 180% after the full-year results. Just wondering if you could give us a bit more detail on the sort of the near-term moving parts. I mean, it seems to me that you're probably already above 180% today, given the likely move in the VA and other factors. So I'm just wondering if you can confirm where you see yourself and, you know, how you expect that to develop? I mean, I guess I'm aware we've got the negative impact from Kron coming up, but we should get some of the Danica back.
You know, you commented previously that there was little you could do in terms of sort of equity exposure or making yourself more defensive. Equally, I was interested in your comment that, you know, you have the ability to actively manage that exposure in the event that markets do fall. Sorry, a bit of a long-winded question, but just really an update of your current and future position? Thank you.
Thank you. First of all, around the solvency ratio and share buybacks. Of course, there is always thorough discussions in the board around these issues. When we put forward the solvency target of 180%, that was based on the totality, of course, in the Solvency II standard model that we have today. That is what we have calibrated all our risks around and where we have communicated to all the different stakeholders as a target for being overcapitalized. We visit that on an annual basis, and we do that in the fourth quarter and update, of course, our risk position and standards when it goes into the ORSA process this year. We will also have that updated when we go to our Capital Update the 8th of December.
Of course, you might say that the volatility you saw in this quarter is very much nothing to do with Storebrand's operations. It's very technical, but it's a start. It's a part of that totality you see in the standard model and that we based our targets on.
Going forward, you know that we also work very hard with our internal model, and over time, we will use this as a much more, well, targeted instrument for both setting capital targets and also targets for our capitalization.
When it comes to the second part of your question, Peter, you are correct that the calculator, the theoretical VA, as we calculated, has gone up by approximately more than 10 basis points so far in the quarter, and we've seen relatively stable markets which would indicate that the solvency would be around the 180% level now. However, there's no way we can, you know, report on the solvency on a day-to-day basis. We report on the solvency on a quarterly basis, and we have to adhere to the quarterly numbers as they come forward according to the rules of the solvency calculations.
Yeah. Great. Just to follow up, sorry, are you able to give us just to confirm what we should expect in terms of, you know, the net impact, Kron, Danica, anything else that, you know, are known knowns going forward?
The Danica transaction has been concluded now, and we will gradually take out synergies in the Danica transaction over time. That's unlikely to have a significant impact in the fourth quarter, but should come through during 2023 into 2024. With respect to Kron, that's a relatively small transaction, so about 1.5 percentage points in solvency effect. As I think I mentioned on the earlier, as well, we will coming into next year also have additional statutory reserve being released to increase buffers coming into next year. Those are elements that will impact the solvency coming into the fourth quarter.
Thank you very much.
Thank you, Peter. Next in line is Håkon Astrup of DNB Markets. Please go ahead, Håkon.
Hi, good morning. Thanks for taking the questions. Two questions from me as well. The first one on the transfer balance in Norway that continued to be a bit negative, NOK 1.4 billion in this quarter. Can you talk a little bit what is driving this development? The second question on your commercial real estate exposure in the Swedish guaranteed portfolio, and here I was thinking particularly on your fixed income portfolio that is linked to real estate and what kind of credit rating do you have here and are you concerned of any potential defaults given the recent negative backdrops that we have had in that market? Thank you.
On the transfer balance in Norway, we have repriced some contracts as with specifically on the disability pricing, which you can see reflected in much stronger disability results. That has also led to some negative transfers. I believe the current balance is probably positive coming into the fourth quarter, i.e., that we have more customer coming in than going out in the fourth quarter. These are normal variations in the market. Nothing significant the way we see it. With respect to commercial real estate bond exposure in Sweden, on the real estate, direct real estate exposure, we've done a very thorough assessment of values, and we obviously see what is happening in the Swedish listed real estate market.
That has been taken into account in the property valuations that we've done in Sweden. With respect to fixed income, I'm not sure if we have any.
Yeah. On the fixed income side, I think in general, we can say that it's a double A minus rated portfolio, and we're very confident with that portfolio, also now given what's happening with the real estate market in Sweden.
Thank you. Just a quick follow-up on the transfer balance. Do I understand you correctly that you expect a more stable development there in the fourth quarter?
Well, you can actually see it in the supplementary how the transfer both in Norway and Sweden over the last three and four quarters. We hope that this development is going to continue.
Okay. Thank you.
Thank you, Håkon. Next in line is Blair Stewart of Bank of America. Please go ahead, Blair.
Thanks, guys. Thanks for the presentation. A couple of follow-ups. Just on solvency to Peter's question. You talked about being able to recognize the additional statutory reserves. Just wondered how that works and what the impact of that would be. I'm interested if you can share any details as to how the development of your internal model is informing your own view on the right level of solvency, and indeed, when you might expect approval of your internal model? So that's solvency. My second question is on the Unit Link Norway segment, where I think you had a higher revenue margin, but a somewhat disappointing profit number. So what's happening to the expenses lying there, please?
The third of my two questions would be on the running yields. Lars, I think you indicated NOK 500 million in HoldCo benefits coming through. I just wonder if you could just confirm that, and also comment on the impact that we might see or expect to see in terms of profit sharing? Thank you.
Okay. Solvency ASR impact coming into next year, we get access to more additional statutory reserves, which will mean that we have more capital as buffers when in the Solvency II stresses in terms of what happens on the results. It increases our ability to withstand stresses under Solvency II stress framework. On the second question, internal model, we have an internal model which is you know close to finished, but it needs a lot of documentation, and it needs approvals on the documentations.
The ambition is to have the documentation ready by the end of next year, and then we hope for an approval by 2024, which will give us a better risk management framework that better addresses the actual risks in Norway and in Storebrand and the standard model in Solvency II does. Third question, revenue margin in Norway is positively impacted by the acquisition of Danica, which has somewhat higher margins in their business than we've had in our business. The fourth question out of the two was running yields, where I confirm that in the total company portfolios, approximately NOK 30 billion altogether, with 2%-3% higher running yield, we will get in the order of NOK 700 million higher returns.
We have about NOK 11 billion in subordinated debt that where with floating rates, where the margin will or where rates will increase by approximately NOK 200 million. The net figure is NOK 500 million plus.
Just to add on the Unit Linked Norway question, the expenses is also in a large part due to the Danica transaction coming into the books.
Where we expect to, of course, have synergies going forward.
Yeah. Okay. Yeah, that answers the expenses part.
Yeah.
Just on the profit sharing aspect of the profit sharing impact of the higher expected yields.
Well, those are yields in the company portfolio, so that's not directly impacting profit split. Profit split will come in the guaranteed portfolios. As we've said previously, we will focus on rebuilding buffers in the short term. Profit split is a few years down the road with the current market conditions.
Okay. Thank you. Just the ASR point, what's the impact of recognizing an additional year's ASR?
Sorry. I think one way to think about it is that you start with a 3% buffer, you know, similar to the interest rate guarantee at the start of the year, and you can use that to mitigate the gross stress down to the net stress in the solvency calculation. That gives an idea of the magnitude.
Is it possible to express that in solvency points or is that too simple?
I would say it's a little bit hard to do that on the fly, so I'm not going to try to do that.
Thanks, guys.
No, but I think what you see is that maybe approximately NOK 3 billion in the additional statutory reserves will be utilized at year-end.
Be available.
Will be available. Of course, if that has all impact to shareholder, it would be close to 10%. If it has nothing to do to shield the shareholders only into their customers, it will be 0%. I think it's something in the middle of those numbers that should be available.
Yeah, that's great. Thanks a lot .
Thank you, Blair. Next in line to ask a question is Vegard Toverud of Pareto Securities. Please go ahead, Vegard.
Good morning, and thank you for taking questions. I'm just I would like to follow up on a couple of questions previously here. On the real estate portfolio, which you have in Sweden, at least done a really thorough revaluation of. It seems that it has at least in some resulted with a flattish mark to market or assessment of the real estate portfolio. Could you provide some more detail into what the Swedish revaluation resulted in, and what potential of the revaluations or movements that explains this flattish development? That's the first question. On the Danica side and Unit Link in Norway, is it possible to give some kind of indication on the time you expect before you could start to take out costs?
I understand that it's 18 months until you are fully merged, but can you start to take out the double costs already next quarter? Also on the margin side, how long will you expect it to take before the margins are more aligned with the margins on your book?
If I start with the real estate in Sweden, we had external sales of a couple of properties in the first half of the year, which gave a positive financial impact. Then there was some negative revaluations in the third quarter, giving a total full year effect of approximately zero in valuation change.
I'm just looking at the balance sheet numbers. It seems to be that it's on your balance sheet, a flattish development quarter-on-quarter on real estate in the customer portfolios.
It's also currency.
We can come back to that now.
It could be a currency effect.
Yeah. Okay.
When it comes to Danica, the actual merger time is already now from the 1st of January 2023. The two companies merged together by year end now. We gradually take the different portfolios from the systems of Danske Bank in Denmark into our already existing systems in Storebrand. That will happen gradually throughout 2023. The synergies that stems from that also then will gradually come into effect during 2023 and should be fully effect in 2025. 2024, I meant, of course.
On the income side.
Well, well
Will you continue to have the difference in margins or will they-
We align the-
Merge?
the products with the Storebrand products. There it will of course be also pricing elements that will continue into the new products into Storebrand, into the different segments of the market. The alignment of the product will be done into our systems and existing products.
Vegard, I think you could add that, you know, the Danica portfolio is to a large extent an SME portfolio, while the Storebrand portfolio is a large corporate portfolio. There are differences in the portfolios which also impact the average pricing.
Thank you.
Thank you, Vegard. Next in line is Thomas Svendsen of SEB. Please go ahead, Thomas.
Yes, good morning. I have two questions. First on costs and given what's happening on the macro side with full stop of the economy and sharply reduced disposable income, et cetera, should we expect you to slow down your organic investments in growth in 2023? And could you remind us how much, how big portion of your cost base is, sort of, investments in organic growth? Second question, I can see that paid-up policies declined quarter-over-quarter this quarter. Should we expect that to happen in Q4 or continue in Q4? And what do you expect for 2023 in paid-up policies?
Well, looking at the cost now for 2022, we see, as you saw from the numbers, still very strong organic growth in the business, and we are also positioned to take that strong growth further into 2023. Of course, we have to use the cost to get the growth going. Saying that, of course, we try to be as thorough as possible and reduce cost in the most effective way in the business. We work very much with our cost base as we speak. You should expect growing top line and also growing cost lines in Storebrand going forward to capture the growth we actually see that we capture in the business today and we expect to capture also going forward.
Thomas, while there are many businesses that are very exposed to the macro environment in terms of stepping up, as you said, this is not really the case with Storebrand. We see strong underlying growth in all of our products. We have a natural inflation hedges in many of our products in terms of repricing. In the pension product, as long as people have an employment, they continue to have a mandatory saving within their pension plans. You cannot take the money out before you retire according to a fixed plan. Basically, our business is quite resilient to the turbulence in the market and the higher inflation.
We see growth opportunities, significant growth opportunities in the business we have. In order to maximize the bottom line, we have signaled that we will accept an increase in cost, while we're obviously reviewing the cost base to the growth plans as we look into the financial plans for the next three years.
On the paid-ups, you see that the premium or the claims that are paid out to pensioners, pension payments are larger than the asset returns. That means that in expectation, the portfolio will gradually and slowly go down in AUM, and that's what you have seen in year to date this year and what we expect also next year. It can be somewhat affected by transfers from defined benefit during the year.
Thank you.
Thank you, Thomas. The next question comes from Jan Erik Gjerland of ABG Sundal Collier. Please go ahead, Jan Erik.
Thank you. A couple of questions from my side as well. On the buffer levels, what is the new sort of normal buffer level you will seek to become or come to with these new higher interest rates? You probably don't need the same kind of level that you had in the past. What should be the new normal? You are now around 6%, what should we expect from the rebuild, as you talked about, Lars, for some couple of years on profit sharing down the road a couple of years? Isn't that more coming earlier than you should expect?
I will continue to guide on a couple of years down the road in terms of profit split, but you are correct that the previous levels that we've held in Norway to 10%-12% is probably higher than we need going forward. However, there are some differences in the different sub-portfolios, so we need to try to optimize that. Overall we would continue to guide on a couple of years down the road before we can offer any large profit split.
Okay. On the insurance side, you were very strong on both the disability and group health. Is this the new normal after the repricing, or is this sort of a blip that will come down a little bit but at a higher normal level, so to speak, going forward?
As you know, there has been some volatility in those results through the pandemic period, and we expect with the repricing that we've done now and that we will have a more stable and positive results going forward.
Okay. Back to the previous one on the recession potentially coming and unemployment is so sort of still very low in Norway. What should we expect from higher increased unemployment in Norway from the inflow to your unit link business both in Norway and Sweden? How large is actually that amount if you think about it? As you said, you cannot withdraw the money, but what kind of effect would it have for the unemployment to go up by 3-5 percentage points?
I think it's hard. What we have seen earlier in this type of situation is that unemployment rate has limited impact directly on the savings numbers. There is also, as you know, very strong impulses with the savings from first the corona this year. You have the discussion actually in the turbulence that you should strengthen the corporate pension schemes, discussions with the labor organization about increasing the minimum savings rate from 2%-4%. I see very strong impulses for even stronger corporate pension savings going forward. That's why we also have done price adjustments and ensure very strong buffers into our risk products, is that when you have negative development in unemployment, that also tend to have negative impact on the disability numbers.
That's more effective to have seen in the previous years, not very much on the savings levels and growth that we expect to be strong also going forward.
Okay. Just a clarification on this statutory balance that you will sort of start the year with. Could you shed some more light into is this something new that has happened in the Solvency II situation, or is this what you normally get, or what is changed, so to speak, into next year, into the 1st of January next year, with this change? If you can shed some light to that.
This is very much as it has always been, that you're only allowed to use ASR for one year return between the guaranteed rate of return and 0% rate of return. When we have 10%, you can use 3 percentage points in the first year, and then you have 3 percentage points for the next year.
What is new this year is of course with the turbulence we have seen in the market, we will use some additional statutory reserves to keep the booked return above zero. When we use that one year, well, the next year you start with fresh then additional statutory reserves and can once again use statutory reserves down to 0% booked return.
Yeah.
that is nothing new, but maybe the new thing is that this is a year where we actually draw on these additional statutory reserves that is much higher of course than one year's interest rate guarantee.
Okay.
Thank you.
Understand. Will you revisit your targets, solvency targets on the 8th of December Capital Markets Day?
Yeah, as I said, we do an annual walkthrough with all our assessments when we do our ORSA. That will be finished before we enter into the update date of December.
Thank you, Jan Erik, for your questions.
Thanks a lot for your time.
Thank you very much. The next question comes from Ulrik Zürcher in Nordea. Please go ahead, Ulrik.
Thank you, Daniel. I've two questions. I was wondering if you could specify the run-off gains in the disability?
Second, I was wondering how you see if you forget about credit risk on the property portfolio, how does your yield there scale with inflation? Or if you could, do you have too much property, everything else to say, versus, for example, more capitalized covered bonds?
Run-off disability. What was it from? Yeah.
Run-off gain and disability, we haven't specified any run-off gains in disability this quarter.
No, I don't think there is any special run-off gains in that portfolio. No.
The increase is the very solid combined ratio. That's just your price hikes.
Yeah. Yep.
Okay.
With the bond portfolios, we have presented that on a regular basis. We have a very, very strong bond portfolio, double A average.
Can I just specify on the disability side, it is the price hikes, and it's also quarterly variations in actual claims. You will have both going in, but there is no specified run-off gains as such. Just to be clear that there will, you know, be variations around this level. I'm sorry, Lars.
No. I don't know exactly what your question was on the credit portfolio.
No, sorry. It was on, not on the credit portfolio, but on the property holdings.
Yeah
I was wondering how, because you own that, the part you own directly, you have a yield on that? I was just wondering how, because if that yield didn't go up, that would not be competitive with, for example, covered bonds now. I was just wondering if you get a higher yield on your property as you reprice the rent?
Okay. Now that, then I think I understand the question. Our property portfolio is mark-to-market, and we use external valuations on the whole portfolio or different actually external valuations. That is a mark-to-market portfolio that will be adjusted each quarter according to the external and internal valuations. When it comes to the attractiveness of that asset class versus other asset classes, that is of course something the investment department looks very closely at now when interest rates have changed, you know, in an unprecedented way. It's a natural assessment to do to have a look at what kind of asset classes are now best suited to support the guaranteed business going forward.
At the same time, these are not very liquid asset classes, the real estate portfolio, so it takes some time to make adjustments.
What we have seen is of course that the yield has increased, but also that the rents has increased and the KPI adjustments that has been also quite strong. This is mitigating effects when you look specific on the real estate portfolio.
Okay. Thank you.
Thank you, Ulrik. The next question comes from Hans Christiansen of Danske Bank. Please go ahead, Hans.
Hi, thanks for taking my question. I have two. Just on looking at the AUM development this quarter at NOK 1 trillion, and then the internal assets in particular of around NOK 500 billion. If you look at the divisional basis of your report, you have NOK 300 million in Unit Linked reserves and then NOK 276 billion in guaranteed reserves. I was wondering why is there such a big difference between sort of the reported internal number and the divisional-
Yeah
numbers this quarter?
No, I think the answer here is that you have some of the AUM that comes from the life insurance companies. Some of that, those are outside of Storebrand Asset Management. I think that's the easy answer.
For example, the Danica acquisition now, all those assets are managed outside our asset manager, where they have been over with Danica up until now. That doesn't have an effect on the asset manager's AUM, but on the Unit Linked reserves.
Yeah. Of course, we have open platforms, so our customers also in the pension space can choose other than the Storebrand managed funds in their allocation. There is not a one-to-one link there.
Just a follow-up. If, say the shortfall is NOK 45 billion this quarter, and then you have Danica, which is coming in with NOK 23 billion. If that shortfall is increasing, does that then mean, that your customers are choosing, an increasingly amount of sort of externally, managed funds?
No, I don't think that is a trend. I think I will assume that what you see in this quarter is that Danica has come in and is very much managed so far with Danske Capital.
Okay. Thank you. My second, it's not so much a question as a request, but in the capital position update in December, could you provide us with any sensitivities on your real estate portfolio that would sort of better help us look at the potential risk there?
Yep, that's noted. Thanks.
Thank you, Hans. The clock is already 11 :00 A.M. but we'll take one last question from Peter Eliot, if you can keep it short. Please go ahead, Peter.
Thank you very much for the opportunity, Daniel. It was apologies for coming back on the share buyback topic, but it was just a follow-up to understand position a little bit there. My two quick questions were, I mean, first of all, the first question was Just understanding fully what your constraints are there. So obviously, you know, you've set the 180% target, but I'm just wondering to what extent that is sort of enters into your discussions with the regulator, with rating agencies, et cetera. So, you know, if you had wanted to do a share buyback despite being below 180%, you know, what would the constraints have been?
And the second question is just on the process. You know, you tend to wait until one has finished before you ask authorization for the next one, which involves a couple of months delay. I'm just wondering, you know, why perhaps one could not ask for authorization earlier so that, you know, when you are in a position to do back-to-back buybacks, that would be possible? Thank you very much.
Well, first of all, the capital targets that is set for a group is set by the board of Storebrand, very much based on our own processes, where we have seen the levels for our capitalization and put forward 180%. That is clearly set by the board and communicated to all the stakeholders. That's how it is and that's how it will be going forward if we change that also level of our capitalization. We can of course go and we hope to also have a process where we can start as soon as possible after the launch of the year-end results to start as soon as possible with a share buyback program. Not have to wait six weeks or so after the quarterly results.
Thank you very much.
Thank you, Peter, and thank you everyone for your questions and for tuning in. Ladies and gentlemen, we've reached the end of today's presentation, and we look forward to hopefully seeing you here on the 8th of December for a Capital presentation, or Capital Update presentation, or otherwise on the 8th of February for our fourth quarter results. Thank you all for tuning in, and have a nice day.