Good afternoon, and welcome to the Storebrand Analyst Conference Call. My name is Anna, I will be your coordinator for today's conference. For the duration of this call, you will be listening only. However, in the end of this presentation, you will have the opportunity to ask questions. If any time you need assistance, please press star zero on your telephone keypad and you will be connected to an operator. I will now hand you over to Head of Investor Relations, Kjetil Krøkje, to begin today's conference. Thank you.
Good afternoon, ladies and gentlemen. Welcome to Storebrand's second quarter 2018 conference call. My name is Kjetil Krøkje, and I'm Head of Investor Relations at Storebrand. Together with me today, I have Group CEO, Odd Arild Grefstad, CFO Lars Aa. Løddesøl, and Head of Economic Capital, Torunn Gjennings Eriksen. In the presentation today, Odd Arild will give an update on developments in the second quarter. CFO Lars Aa. Løddesøl will give an overview of the financial development and dig into some of the more technical elements in the quarter. The slides will be similar to the analyst presentation released this morning and are available on our webpage. After the presentation, the operator will open up for questions. To be able to ask questions, you need to dial into the conference call.
I will now leave the word to Storebrand's CEO, Odd Arild Grefstad, who will start the presentation on slide two.
Thanks, Kjetil. I'm very pleased to announce a second quarter result of 8 12 million. The operating result for the quarter is as strong as 645 million. This is a 16% increase from the corresponding period last year. Good growth in savings, combined with strong insurance results and continued good cost control, contributes the strong result for the quarter. The underlying solvency margin is strengthened with 3 percentage points in the quarter to 163%. Including transitional rules, the solvency margin is 167%. If you move to slide number 3, you see that in our Capital Markets Day in May, we introduced this picture to illustrate our twofold strategy in relation to active management of our organic products, as well as our growth in savings and insurance.
This is a continuation of our strategy for the last five years, but reflects that we are now in a strong, that we now have a strong balance sheet and are in a long-life solvency position. This means that we have the flexibility to use the balance more actively, and that the use of capital and cost going forward will be led by what creates shareholder value, and not only by reducing risk. In our product book, we will further develop our leading position within occupatioal pension, and use this position to grow within private savings. Growth within occupational pension and private savings drives the growth within asset management. In addition, the asset management area grows by, winning external mandates. That, is due to strong performance and administration, and also our strong position as a leading asset manager on sustainability.
Meanwhile, we continue to aim for at least internal 50% solvency ratio and manage for gradual capital release as the capital need for our organic business now has peaked. If we then move to slide number 5, let's take a closer look into this quarter's 3 percentage points movement in the solvency position. This movement can be divided into 3 main components. The first is the model changes and improvements we have done in addition to assumption changes from EIOPA. Our internal improvements have given a 1% negative movement in relation to changes in cost allocation. Assumptions from EIOPA has given a 0.6 positive movement. The main effects come from increased volatility adjustment, which, of course, has a positive effect. This is counteracted by some increase in the equity stress.
The second main element is due to market and business mix development. In Norway and Sweden, long interest rates have fallen by 9 basis points in the quarter, and this has, of course, led to a negative effect on solvency. On the other hand, returns have been strong, and this has led to an increase in buffer capital. And on top of this, the conversion from defined benefit to paid-up policies has been very low in the quarter. In sum, this has led to a 1 percentage point increase in the solvency margin. Thirdly, a good result for the quarter has built 3% in solvency margin, of which half is allocated to dividend. So we look at 1.5% increase from these elements. Then let's move to slide number 5.
Summing it up, we also see a strong result growth and building of buffer capital that has increased the solvency margin in the quarter. Equally important, we see that the sensitivities for lower interest rates and falling equity markets is considerably reduced in the quarter. Now, we see that a 15 basis point fall in the interest rate from today's level will reduce the underlying solvency margin with only 6 percentage points. Again, increase in buffers and increased asset duration has led to these reduced sensitivities. In sum, we now have a strong solvency position and are robust towards potential market stress going forward. Then, let's move to slide number six. We see that the strong growth in saving segment continues. unit-linked reserves grew by 18% compared to second quarter in 2017.
Assets under management grew by 14% since second quarter in 2017. During this quarter, we have seen a flat development in assets under management, and this is partly due to some assets under management reduction in Skagen, related to negative returns on emerging markets, as well as some outflow of customer funds. Our bank have had a positive development with 12%, volume growth in retail loans during the past year. Growth within insurance has been low, but we see now signs of growth picking up towards the end of the quarter, and the profitability is very good in this segment. If we then move to slide number 7, part of the growth within unit-linked stems from the Swedish occupational pension business in SPP.
We now see impressive growth in our Swedish business, and premium income has increased by 22% since the same period last year. The positive development is a result of good sales and very positive development in net transfers. SPP has been through a substantial digital transformation. It is now perceived to be a customer-friendly and a very strong positioned occupational pension company in the Swedish market. Slide number 8. We are actively working with digitalization of our front end and our value chain in Storebrand, both through our own digital innovations as well as through partnerships. In this respect, Storebrand Bank have partnered up with the Swedish savings app, Dreams. The savings app has introduced, was introduced on a small scale in January, and after full launch in June, the number of users has grown to over 30,000 individuals.
The app has also received top rating among savings apps involved. With Dreams, we are reaching a new customer segment. The the typical Dreams customer is a female under the age of 30. Slide 9. In Storebrand, we are also investing in more long-term saving solutions for our customers and are firmly committed to our focus on sustainable investments. It is therefore a pleasure to present to you another exciting new savings concept that we just launched called Våg, or Wave in English, where we give customers the opportunity to invest directly into the 17 Sustainable Development Goals. In other words, you can invest directly in the, in development goal that is closest to your heart.
For example, we just launched a portfolio where you can invest in gender equality based on the analysis of what companies score the highest based on their commitment to solving this important issue. Each portfolio consists of the top 40-100 companies contributing, solving each SDG. This is a concept we are looking forward to further develop on the near future. And with that, I give the words to Lars.
Thank you. Then we can turn to page 10, Key Figures. As Mr. Grefstad has presented, we are happy with the group result of NOK 812 million in the quarter. The operating result of NOK 645 million is somewhat better than what we expect going forward, driven by satisfactory growth and good insurance results. The solvency capital has been strengthened in the quarter, and the capital requirements have gone down. This leads to an improved solvency margin. The calculated tax charge has gone up in the quarter, explaining the lower EPS after tax and adjusted for amortization in the quarter. Turning over to page 11, Storebrand Group. We see that a satisfactory growth in fee and administration income.
Partly, this is explained by the acquisition of Skagen, but adjusted for Skagen and currency effect, we still see a 6.5% growth year to date. The insurance results are good in the quarter. The main reason is improving disability development. With an improved cycle in the jobs market, less people seek disability cover, and some of the previous disabled retired workers re-enter the workforce. Operating costs are under good control. In the second quarter, we have exercised a share purchase program for employees. The program had a very good uptake this year, and the cost ended at NOK 25 million. The cost is taken in full in the quarter. But the cost level overall is flat. We continue to reallocate costs from back office to selected growth areas. Taxes are estimated at 18% in the quarter and 17% year to date.
Tax is stable or still close to zero due to historic tax losses on the balance sheet. Turning over to page 12, this picture shows the same figures as the ones we saw on the previous page. Here, broken down into the result areas, savings, insurance, and guaranteed. Just to remind you, savings include non-guaranteed savings in Norway and Sweden, including unit-linked, asset management, and retail banking. Insurance is short-tail insurance risk, both P&C and life, which can be measured on combined ratio. Guaranteed is the defined benefit plans in Norway and Sweden, including long-tail and vested insurance risk and life longevity. Savings experienced good growth in line with our strategy. The operating costs in this area are increasing as a consequence of Skagen investments in digital solutions and other growth initiatives.
Insurance showed good profits from following implemented pricing measures, cost cutting, and a general decline in disability. Guaranteed has increased profitability despite being in long-term runoff. The conversion of defined benefit plans to paid-up policies policies is declining. The cost measures come through as planned, and we've been able to increase prices in certain areas. The percentage of guaranteed reserves as a percentage of overall pension reserves continues to decline and is now less than 60% of the total. More details can be found on the following pages, but I will wrap it up here so that we can open up for questions. Thank you very much, Lars. The operator will now open up for questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We have a couple of questions coming through already, and the first one comes from Peter Eliot from Kepler Cheuvreux. Please go ahead, your line is now open.
Thank you very much. I have three questions, please. I was wondering if, first of all, if just to understand your view of the underlying results in the quarter. I guess if I try and quantify the one-offs, I think, as I understand it, we've got probably NOK 120 million from reserve releases, NOK 53 million from risk results and paid up, and NOK 41 million maybe in the other. So that if I take all of those, that would get me to sort of around that NOK 600. I just wanted to check whether that was sort of in line with what your thinking was.
The second thing, or maybe just a little bit more on those reserve releases. I know you go through a bit of the drivers, but I guess it's the second quarter where we've seen quite significant. And I'm just wondering if you could comment on what we should expect going forward. And then final question, the very good development of the fee and administration results. But I guess if I look at Swedish unit-linked in particular, the reserves are up, but the income is down. And I'm just wondering if there's any sort of one-offs in there, or whether that's natural margin sort of pressure, or perhaps you just comment on the outlook there. Thank you so much.
Thanks, Peter. You mentioned a couple of gains in your first question. I would say that some of the reserve release is in excess of what we expect on a normalized basis. I would measure that at approximately NOK 50 million. All of the other things are basically things that are within normal variations and should not be accounted for as anything special. So, net, we're talking less than NOK 50 million in things that are of an extraordinary nature here. In terms of reserve releases going forward, for example, this liability is probably a long-term cycle effect, and we should probably not expect quarterly changes on that.
So we would guess that we will continue to see low visibility in the coming quarters with a very sound jobs market in Norway these days. And on fee and administration income and the margins in unit-linked in Sweden, we've had a particularly strong growth in Sweden in the tick-the-box market, which is a low-margin market, but that comes on top of the high-margin business that we have in the core business. And furthermore, there it may be some kind of periodic effect here. We don't see a general margin pressure in the Swedish unit-linked business, which is called other occupational pension, which is the core pension product that we sell.
So all in all, we're pretty, pretty, pretty confident, both in the Swedish unit-linked business as well as the results that we present this quarter.
Thanks. Thanks very much.
The next question comes from Jonny Urwin from UBS. Please go ahead, your line is now open.
Thanks, all. Good afternoon. So just two for me. Firstly, the EA stress tests are ongoing. I wondered if you had any initial observations or color that you could share with us at this early stage, please? And secondly, just on the model change. So it seems like the direction of travel on model changes over the last few quarters is now negative. I just wonder, are you now taking the opportunity to strengthen the model's conservatism now the ratio is in a bit better shape, just trying to tighten things up? Thanks.
Thank you. Thank you, Jonny. Yeah, if I may start with the stress tests. Yes, we are conducting the stress test.
... one of the threats is on increased interest rates. And not so it's very nice to view increased interest rates as a risk factor again. We have not completed the survey, and we'll not comment on it now. I think EIOPA have urged the companies to make publish statements on this Q1 next year, and we have prepared to do so. When it comes to the model changes, this is a natural association. It's based on different assumptions that we will exchange from one focus to another, and this is, we didn't know what I would say, a natural variance from one focus to another. Okay, thank you.
Ladies and gentlemen, if you would like to ask a question in this meeting, please press star one on your telephone keypad. We have one more question, and that's from Matti Ahokas from Danske Bank. Please go ahead, line is now open.
Yes, good afternoon. Question on the insurance segment. First of all, Lars, you mentioned there was NOK 50 million of reserve release is kind of out of the ordinary. Where, in which parts of the insurance segment were these, or if the other reserve release, if you could shed a bit more light on, on whether it was P&C or disability, et cetera. Then the second question is, we heard today from one of your non-life competitors that a very bearish outlook, or actually from two non-life competitors, a very bearish outlook on the Norwegian motor insurance market. If I look at your figures, it doesn't seem to me that that had, has had a big impact.
Just wondering, are you seeing the same negative trends as your competitors in Norwegian motor insurance? Thanks.
If I take the first on the insurance release, it's primarily related to disability, and disability comes primarily through on page 15, where you have the last line called Pension Related Disability Insurance Nordic. That is Norway and Sweden, but it's primarily from the Norwegian business, where we have this release related to lower disability. Peter mentioned also that we have a good risk result in paid-up policies of NOK 53 million. A part of that is also related to net disability, a component in that part. When it comes to motor insurance, you know that well, P&C is quite a limited part of our total insurance offering in Storebrand. It's much more life insurance and disability insurance and so on.
So I think the composition is very different when you see us towards other P&C companies. So in that respect, you don't see that much impact of it in our portfolio. I don't have any more information actually about the motor insurance impact as such nor in our results. It's quite limited.
How much is, by the way, a motor from P&C premiums, roughly?
I think if you look at the premium composition in the presentation, you see that the personal lines, it's I don't know what it was called. Yeah, one third, more or less. And then again, you have a pure P&C, which is probably half of half of that. And of the pure P&C, that's mainly motor, but also some housing.
Yeah. So great. Thanks.
Plus twelfth of the total premiums.
Got it, thanks.
We do have a follow-up question from Jonny Urwin from UBS. Please go ahead, line is now open.
Thank you. Yeah, sorry, just a quick follow-up. Consolidation in the Norwegian market has picked up a bit recently. I just wondered what you guys thoughts about that? Do you expect it to continue? Would you be open to be sort of involved in it? Thanks.
Well, of course, we follow very closely what happens in the Norwegian market when it comes to consolidation. We are both seeing now DNB and SpareBank 1 joining forces together when it comes to the P&C market and also Nordea buying banking operations. We of course follow this market very closely. We also see that this gives us some great opportunity in the market, meaning that we will be a provider, a direct provider, where we have a consolidation, where you well take out some of these players in the market. So we think it's quite a good space for us going forward, when it comes to our operations and in combination with the customer base we have. And the opportunity is to do our B2B2C strategy with the full strength of our retail offering.
Do you think it hinders you, that you don't have a massive P&C offering?
Once again.
Do you think it hinders the, the Storebrand's, you know, proposition, given you don't have P&C? Like, would it be helpful if you had more of a, a P&C offering than you do?
No, I think what you see now from Storebrand, we are very much a savings company. It's personal savings, and it's a very strong position on corporate savings. We are building the retail savings out of that. It is supported by insurance, but very much mainly on the personal lines that has allocation towards savings. And to have a one-stop for buyers in the market. We also offer banking operations and P&C business. But I don't see that as a main element that we don't have more P&Cs out there.
No, and I also think it's important to note that for the individuals, we have a full-scale P&C offer that is for corporates. We don't insure large claims or anything like that for corporates. But that's another assessment, of course.
Thank you. Thanks very much.
We have Peter Eliot again from Kepler Cheuvreux. Please, the line is now open.
Thank you very much. I just want to come back firstly, actually, on the point about the reserve releases. And you mentioned sort of, you know, possibly just less than 50 is one-off. I guess if I think just off the top of my head, that would imply that an underlying combined ratio is more in the sort of 85 or low 80s. But you still seem to be guiding to 90-92 as being appropriate. Could you just sort of square that for me? And secondly, perhaps I could also, you mentioned Skagen briefly, but could you just say again what the current sort of flow situation there is and what your outlook is? Thank you.
Yes, on the combined ratio, you are right. But the combined ratio figure that you reach there is also a result of actually very good underlying results currently due to the fall in, in particular, in disability, but also non-motor claims and low other claims that we've had in the quarter. So you know, there, it's not going to be stable 99, 90-92 in every quarter. We've had a couple of quarters that are better. It's partly explained by reserve releases, but also partly explained by simply a good low claims in the last couple of quarters. Furthermore, we've had a cost cutting program within the insurance business, which are giving the necessary results so that we have a competitive offering.
We can use that competitive offering in increasing distribution spend, marketing spend, and other things in order to reestablish the growth that we have mentioned, or we told you during the customer day, that we will invest in growth of 5% per annum, and we are using our measures to get back in growth.
When it comes tp Skagen , well, it's about some outflow of assets, but it's very much according to the plan we have put forward when we acquired the S kagen On top of this, this quarter, as I mentioned, we have also some of the Skagen fund has very much an emerging market skills. And, based on that, you also have seen emerging market have had a negative return. So that also contributes to a negative element into that in the management of Skagen in this quarter. But altogether, very much in line with the plan we put forward when we could when we did acquire Skagen l ast year.
Thanks very much.
We have one more question before I let that person through. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. The next person who would like to ask a question is Matti Ahokas from Danske Bank. Please go ahead, line is now open.
Thank you. If I may continue on the market consolidation. Obviously, with the moves of If again, in terms of selling the bank, has that created more kind of questions also as the strategic rationale of Storebrand Bank for you? Obviously, you have a much bigger life offering, whereas If is focused more on the P&C side. But, does it raise questions also from your point of view, that you should definitely own the bank? And on that same note, have you considered external bank distribution of P&C products more nowadays as another distribution channel? Thanks.
Well, you know, we are always looking at the different opportunities in the market. But I will say that, having a large pension and savings operations, and especially when it comes to the payout base of these products, it's important to have a good solution when it comes to banking to support that. I would not say that it has changed our view of it, but as I said, we are of course are looking at different modes in the market, both when it comes to production and also distribution of, well, P&C, and banking operations.
You can see they said last week that they had a number of parties interested in their bank. Have you been approached by potential buyers of the banking operations?
Well, it's a small market, you know, and we know all the different, you know, players in this market. I think, as I said, after, you know that in this market it was very much DNB, Storebrand Bank, and the former Skandiabanken that was operating as direct banks. Now there are only two, Skandiabanken and Storebrand Bank, and I think this also creates a great opportunity for us going forward on the banking side.
What about the banking, external bank distribution for P&C products? Have you considered that?
... us being a producer for other banks, you mean? Yes. Yeah, we, well, we have a small P&C operations that we just talked about. Our main insurance operation have the scale to watch over selling pension products. And the way we look upon our P&C business is more like an add-on to be sure that we provide a full-fledged of retail products for our customers, our large customer base. And we don't see us as a more natural, well, producer for others when it comes to our insurance business. We have contracts, and we are quite active when it comes to, well, agreements like, well, different agreements in Norway with academic, what it's called? White Collar Union. Yeah, White Collar Union.
We also provide insurance for the Rema, which is one of the largest grocery stores chains in Norway. So, so we do produce for all the players, so it is possible, but that has not been our main focus. Thanks.
Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Thank you. There is no questions coming through, so I'll hand the call back to you again. Thank you.
I just want to thank everyone for joining the call and also remind you that we will be present in London on Monday, and we hope to see several of you there. So, have a good afternoon from our side.