Good afternoon, ladies and gentlemen, and welcome to the Storebrand analyst call. My name is Dave, and I'll be your coordinator for today's conference. For the duration of the call, your lines will be on listen-only. However, at the end of the presentation, you'll have the opportunity to ask questions. If at any time you need assistance, please press star zero on your telephone keypad, and you'll be connected to an operator. I'm now handing you over to Kjetil Krøkje to begin today's conference. Thank you.
Thanks, and, good afternoon, ladies and, gentlemen. Welcome to Storebrand's first quarter 2017 conference call. My name is Kjetil Ramberg Krøkje, and I'm head of Investor Relations at Storebrand. Together with me today, I have Group CEO Odd Arild Grefstad, CFO Lars Løddesøl, Finance Director Sigbjørn Birkeland, and Head of Economic Capital Trond Finn Eriksen. In the presentation today, Odd Arild will give us an overall view of the development in the first quarter 2017, and Lars will give some more details on some elements in the results and economic capital development. The slides will be similar to the analyst presentation released this morning and are available on our web page. After the presentation, the operator will open up for questions. To be able to ask questions, you will need to dial into the conference call.
I will now leave the work to Storebrand's CEO, Odd Arild Grefstad, who will start the presentation on slide 2.
Thank you, Kjetil. Let's turn then directly to the results. The group result before amortization and write-down was NOK 671 million for the quarter. This is a strong result, driven by strong underwriting results and good financial results. The growth within savings continues, with widely guaranteed products are in long-term run-off. This is illustrated by a asset growth of 17% within Unit Linked and growth of 32% within retail loans. The underlying solvency position is increased by three percentage points during the quarter to 147%. Since first quarter 2016, we have resumed dividend payments and increased the solvency position with thirty percentage points. This represents a normalization of our capital situation and a real value creation for shareholders. The solvency ratio, including transitional rules, is 159%.
The real value creation is also reflected in our disclosure of the group economic capital of NOK 88 per share. Lars will revert to this measure later on. Then let's move to slide number 3. This slide illustrates the twofold strategy we have been implementing consistently through the last 5 years. The twofold strategy will continue to be important going forward, with capital-light growth within savings and insurance, and capital release from the guaranteed back book, which now has reached its peak capital consumption level. Then we move to slide number 4. Looking at Storebrand's solvency position, investment allocation and segmentation, together with strong returns and good results, strengthens the solvency position without transitional rules, with 3 percentage points from 144% to 147% in the quarter. With transitional rules, it's 159%.
It is also equally important to be aware, to be aware of the sensitivities. EIOPA has announced changes in the ultimate forward rate, UFR, methodology. It will fall from today's level of 4.2% to 3.65% over the next four years. This weakens, everything equal, the solvency position with about 7 percentage points when it's fully implemented. This is without transitional rules. And please note that, of course, these changes is very sensitive to the interest rate levels. The change will gradually be phased in by 15 basis points a year, and we expect between 1-2 percentage points effect from next year. Then let's move to slide number 5. Looking at the changes in the solvency position in the quarter, there are three factors worth mentioning.
One, is model and assumption changes that causes a 3 percentage points reduction in the quarter. This is mainly due to reduced volatility adjustment and increased equity stress, both of which are calculated by EIOPA. Two, Storebrand has had good results in the quarter, which has contributed to increased solvency position in addition to strong growth in defined contribution pension. Storebrand has now completed its reserve strengthening for longevity, which means that we have been able to further adjust our investment portfolios to Solvency II. This contributes to strengthening the solvency position. On the contrary, the increase in the paid up portfolio reduces the solvency. Overall, we see a strengthening of the solvency position of 3 percentage points from operations. Three, there have been good financial markets in Q1.
This means that we have not only achieved the expected risk premiums in the market, but also achieved returns beyond what we can normally expect in the quarter. We have chosen to look at this as economic variance, and equity, real estate, and reduced credit spread have yielded returns in the quarter. If we then move to slide number 6, to give some more comments around the peak capital statement. As we enter 2017, more than 50% of our assets in management are from non-guaranteed products. Taking a longer view, we see that the proportion is expected to increase to more than 80% in a 10 years time. This has very positive implications for capital requirements, quality of earnings, free cash flow, and dividend capacity. We work to significantly increase the latter and see strong increase in free cash flows going forward.
Growth in savings and insurance going forward is capital efficient, so we will be able to combine growth and strong dividend capacity going forward. Then let's move to slide number 7. And let's go a bit deeper into the growth part of our strategy. The growth in the unit-linked business and asset management continues. The unit-linked business grew by 17%, and the asset management business grew by 6%. The growth within insurance was lower than we want to see. This is caused by our shift from expensive external distribution to more cost-effective internal distribution. This, together with the transition to a new disability pension product in Norway, implies a lower growth rate in 2017. Last but not least, we still grow our retail mortgage portfolio. We grew the lending portfolio by over 30%.
The new loans are mainly placed in the life balance sheet. With that, I leave the word to Lars.
Good afternoon. Please turn to page 10. 463 million in operating profit is somewhat weaker than the market, and we ourselves expect. It is a result of the speed of conversion from defined benefit to defined contribution, as well as lower transaction fees and somewhat inflated operating costs in the quarter. The group result of 671 million is strengthened by good financial returns. We've had a good return on our investments, benefiting both customers and shareholders. With a book return in Q1, we have, for all practical purposes, finished the reserve strengthening for longevity. The formal completion of this will happen at year-end. We will also strengthen our buffers, especially in Sweden. Please turn to page 11. Fee and administration result is down by 1% currency adjusted in the quarter.
We've had a strong insurance result with fewer large claims and reduced payouts on claims already reserved for. The cost level is slightly up in the quarter, but approximately NOK 30 million relates to issues that are non-recurring, relating to expenses from 2016 or of, otherwise, a one-off nature. Other costs are related to double expenses as we continue the transfer operations to Cognizant's Lysaker. We reiterate our stated objective of lower costs in 2018 compared to 2016. The number of employees is down by more than 10% since the beginning of 2016 and will go down further. We expect full impact from ongoing cost initiatives by the end of this year. The financial results are strong and lead to a profit split in the Swedish guaranteed portfolios, as well as a good return in company portfolios.
Tax is estimated at 19% in the quarter. Please turn to page 12. The lower table shows the same result as we saw on the previous page. Savings, non-guaranteed, shows declining results. The revenue is flat, but allocated costs are up as a result of the strategic shift in the group. The development is positive in all four underlying business areas, or business lines within, non-guaranteed savings, and we do expect improved results going forward. The insurance results are satisfactory despite low growth. Guaranteed shows a significant improvement from last year due to profit split in Sweden and lower allocated costs. Over time, this result will be declining. Please, turn to page 20. Storebrand has, for the last 15-20 years, published economic capital figures. Previously, this was done according to the embedded value method.
Last year, we changed to the Solvency II method, with, with a few specific, amendments. The amendments look at the specific situation for the group, realistic market expectations, and a method closely linked to the, previous, market consistent embedded value methodology. Please note that the numbers are as of year-end 2016. According to Solvency II, we have NOK 42.1 billion in capital. However, Solvency II does not include the value the life company generates in the rest of the group. Under embedded value, we can include the net present value of the value generated in Storebrand Asset Management from managing the, Storebrand life assets. This is called Victory Value and adds NOK 2.7 billion to the capital. Under Solvency II, we can only include value of existing business. Under embedded value, we can include future premiums on existing contracts.
As corporate pensions is a legal requirement in Norway, we have included future premiums on existing contracts and the profit that will generate and the cost of collecting these premiums. And thirdly, Solvency II requires a harsh stress from customer lapse. 70% lapse in the corporate market and 40% lapse in the retail, in the retail market is not really realistic in the small, in small markets like Norway and Sweden. We have adjusted these stresses to 20%. This gives us an economic capital of NOK 446.8 billion by the end of 2016. If we move over to page 21, we can see the movement in reconciliation reserve from 2015 to 2016.
First, we have made adjustment to assumptions and model changes, improving modeling and updated operational assumptions, reduced capital by approximately NOK 600 million. Secondly, we have the profitable growth in the business, combined with reduced costs, good returns, and reserve strengthening, minus margin pressure and an increased number of paid policies, makes operational changes, which positively impacts the capital of NOK 3.5 billion. Thirdly, changes in the interest rate level, volatility and volatility adjustment reduces capital by NOK 200 million. In addition, a new subordinated loan, as well as retained earnings , increase the economic capital to NOK 46.8 billion by the end of last year. With this, we have a total economic capital of NOK 46.8 billion.
By deducting what is related to subordinated loans, we get an economic capital, which belongs to the shareholders of NOK 39.6 billion or 88.4 NOK per share. I take the liberty of mentioning that before 2008, in the financial crisis, groups like ours were typically valued at embedded value times a multiple. In addition, value of new business was often added to that by a factor of 10 or so. The value of new business written last year was approximately NOK 500 million.
That's all I was going to go through now, but I would also like to make mention to you that there is a lot of good Solvency II capital information in the appendix this time, and I'm sure some of you have a particular interest in looking into that, and we'll be happy to take questions on that topic as well. And with that, I leave the word back to Kjetil.
Thank you very much, the operator will now open up for questions, please.
Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad, and I'll open up your line for your question. So if you have a question or comment, please press star one. The first question is from Paul De'Ath from RBC. Please go ahead.
Yep. Hi there, thanks for taking my questions. A couple, please. Firstly, just looking at margin pressure that seems to be coming through in the non-guaranteed savings business and also, to some extent in the banking business line. It'd just be interesting to hear kind of where you think that's going, are we at a point where, you know, it's not gonna go, margins are not gonna go down any further, or, you know, essentially what direction is there? And then the second question is on the capital runoff.
So you've very helpfully given a chart on slide 6, which gives an illustration of the, you know, the assets under management, which, I mean, it looks to me at least that the high capital consumptive guarantees are running off pretty slowly over that period. Would it be possible to have any kind of indication of what is the lifetime of those capital consumptive guarantees? Because those are presumably the ones that will be releasing the most capital over the future period. That'd be great. Thanks.
Okay, if we start with the margin pressure on unit-linked, if you go into the supplementary, there seems to be margin pressure on the Swedish business. That's more of a technical issue that's quite stable. In Norway, there is some margin pressure on defined contribution contracts. However, there's also a shift in the balance sheet from defined contribution contracts to, or the growth in paid-up policies is much higher, sorry, pension certificates, is much higher than in the defined contribution contracts, which is a positive shift in the total development of margins in the unit-linked business.
So overall, the unit-linked business has a fairly stable margin development, and also what we see in the market now is fairly, fairly stable. On the bank side, I would like to refer you to page 14 in the booklet, where we have a picture showing that the margin during the last five quarters went down from 120 basis points to 103 basis points, and up again in the last quarter at 109 basis points. We were extremely competitively priced and had a low margin in the end of last year. We repriced the contract in December last year with an effect from February, and we haven't seen the full impact of that during the first quarter.
At the end, during March, the margin was 117 basis points, which should combine with the additional funds under management or additional lending should improve margins and revenues in the next quarter.
Yes, and, quickly on the capital run-off, on slide six in the presentation. You are right that the guaranteed liabilities runs off quite slowly. But, fortunately, as we have also discussed before, what also happens is that the capital requirements runs off faster than the actual reserves. And there's a couple of reasons for that. One is that the duration gap, which exists in this book of business, gets lower every year since this is a closed book. Second, as the old policies gets paid out to customers as pensions, the average interest rate guarantee goes down in the book, also, releasing releasing capital from the book. So what we have said is that we have now topped up, topped out on capital requirements from the guaranteed back book.
It will start to run down slowly in the first couple of years, and then it will accelerate in run-off after the first 2-3 years.
Okay, thanks.
The next question is from Jonny Urwin from UBS. Please go ahead.
Hi, guys. Thanks for taking my questions. Just two, two quick ones. Firstly, now the longevity reserve strengthening has finished, does that change anything for you in terms of what you can remit up to HoldCo? Does it open up any entities that perhaps you haven't been able to remit cash from before? Secondly, the customer buffers in Norway fell. Was that because of the long, like, finishing off the longevity reserve strengthening, or is that another reason for that? Thank you.
Yeah, just to start off with the longevity reserve strengthening, very much as you say here, during the period we have been doing longevity reserve strengthening, we have not been able to take up a dividend from the life insurance company to the holding company. Now, we finish that during this year. Of course, the life insurance company will also be possible to give dividend to the holding company.
When it comes to the Buffer Capital situation, we released on market value adjustment reserve during the first quarter. That was very much due to asset allocation and changes based early in the quarter due to segmentation of the portfolios. So, we changed the segmentation and changed the asset allocation somewhat and released some of the market value adjustment reserve attached to them, and that was used for Longevity Reserve Strengthening.
You also saw that this change in allocation and segmentation also gave a very good impact on the solvency capital.
Yeah. Also, on the, just to follow up quickly on the cash remittances, can you give us an idea of the quantum? Like, is it going to be, a material number?
You mean the resource generation from life insurance company? Of course, the life insurance company.
Yeah.
It's also the owner of SPP, so it's the main contributor of resources and therefore also cash flows in the group. Last year, it had a profit after tax of NOK 1.5 billion.
Great. Thank you.
The next question is from Ashik Musaddi from JP Morgan. Please go ahead, Ashik.
Hi, thank you, and, good afternoon. Just a couple of questions. First of all, you have given the capital that has been generated in the quarter, 3 points, operating earnings. Does that include any sort of capital release from your guaranteed book or not yet? And once it starts releasing some capital, I mean, how should we think about the projection of this number, 3%, once capital is getting released from the guaranteed book? That's number one. Secondly, in terms of cost, can you just give a bit more color about what happened to the cost? You mentioned that there was some one-off, and then there was some strategic allocation changes in the savings business, which led to the increase in cost.
Can you give us some color, what those are, and, and where do you actually think that the cost will be going towards in the future, i.e., are you looking for a flat cost base in the savings, non-guaranteed business, or are you looking for a declining or increasing? So any thoughts on that cost would be great. And thirdly, can you just remind us about what is the duration mismatch in the Norwegian life book or, and the Swedish book? Thank you.
Let me start with your first question regarding operating earnings in solvency movement from Q4 to Q1. Actually, we had an increase in the paid-up policies, which was somewhat above what we expected. So actually, this quarter, we had a larger, or we had the balance sheet working somewhat against the numbers. What was helpful on the numbers was, of course, the longevity reserve strengthening and the good returns that allow for more buffer capital, which actually net took down the net capital requirement on the guaranteed products, in total.
On the capital generation, we have said that we expect to create up towards 10 percentage points of capital each year now for the first years. And then, as we talked about earlier in the call, we do expect capital requirements from the backlogs to run off after that period, and that should increase capital generation from that level. And on the cost in the first quarter, there were certain items relating to bills that were simply should have been paid in 2016, but were paid in 2015. That accounts for approximately NOK 10 million. Then there were we had some people working on a change in the...
A technical change in the Norwegian disability law, and the changes taking place in our product and how we manage our customers in that transfer. That led to an additional cost for the quarter of approximately NOK 10 million as well, and those costs are now behind us, so they won't be repeated. And there were certain other elements which were of a non-recurring item or non-recurring nature, which means that you can deduct about NOK 30 million if you want to look at the underlying costs. Then in addition to that, we still have double costs from the transfer of a lot of things to Cognizant, where we have people employed in Storebrand to teach people in Cognizant to do a number of manual tasks that will be done out of India in due course.
Those double costs will gradually go away during this year, and by the end of the year, we should see that a lot of these tasks are only done in India with no additional costs in Norway. That's part of the cost program that we have communicated earlier and will bring down costs during the year and into next year. As I said previously, we'll get the full effect of these, the current things taking place by the end of this year. Yes, on the duration mismatch in the Norwegian portfolio, on the paid-up policies, it's roughly around four years. It's less than that when you include the other products. In Sweden, we are more or less duration matched.
Thank you. That's very great. Thank you.
The next question is from Matti Ahokas from Danske Bank. Please go ahead.
Yes, good afternoon. It's Matti Ahokas here from Danske. A couple of questions, please. Firstly, just to confirm that, is it possible to upstream all of 100% of the profit from the life company, in 2017, in theory? The second question is more of a detailed one. Thanks for a lot of interesting slides in the back of the slide package. I'm just looking at the insurance capital allocation and obviously return on equity in the insurance division, which is extremely high. This is the same slide you had at the Capital Market Day in May, but, I'm just looking here, the capital allocation for the insurance business looks fairly low. What's the basis of this NOK 1.3 billion? I know it's a bit of a detailed question.
Sorry for that.
Yeah, could I start with the last question, Matti? Actually, what you are asking for is the low number on capital on slide 30. And actually, what you need to take into consideration is what you see on slide 27, where you see that on the group level, there is a tremendous risk diversification from the P&C into other risk elements, bringing down the SCR from insurance on the group level.
How much is the figure on 20, slide 27? I'm looking here. Where can I see the diversity?
Yeah, you see that the risk diversification factor from health P&C is 36% and from the health 67%. So, all other equal, 100% increase of capital charge from those products, on a stand-alone basis on the 30%, goes through to the group level.
Without the diversification, this should be roughly double?
At least a lot higher, yes.
Great.
When it comes to upstreaming capacity from the life insurance company, in theory, of course, you can be able to upstream. We have to look at a lot of elements to do so. We have to look at the solvency situation and everything, but it will be very much based on the solvency position and how we are able to upstream to the holding company by year-end.
But looking at the solvency position now, do you think that's too aggressive thinking, or isn't the solvency position good enough already in the last company to upstream the profits of the year?
I think we have to look into that in more detail by year-end. I think it is aggressive to say that we upstream everything from the life insurance company. But, there will be, of course, a new source of, upstreaming from life insurance to the holding company, by year-end this year.
Great. Just a quick follow-up on the paid up policies. The operating costs were down quite a lot. Is this a function of the new cost allocation system, or was there something special in the first quarter on the operating cost in the paid ups?
Yeah, that's correct, Mateo, that's part of the cost allocation. We're also doing a lot of measures across the group, obviously, including in the paid-up policies space, to automate as much as possible and bring down costs. Cognizant is a source to cost savings as well, but cost allocation is the main factor.
Great, thanks a lot.
The next question is from Blair Stewart, from Bank of America. Please go ahead.
Thank you. Good afternoon, everyone. First question, just on economic capital as you define it. Does that include the UFR? Do you assume that that's part... Is that part of your economic capital definition? And as a follow-up to that, or the second part to that question: What do you think the return on economic capital is to the business, given that you were talking earlier, Lars, about how we should be valuing the business? Be useful to know what the return is. Second question, looking at the slide that you've produced, I think it was slide 30, where you give the solvency capital allocation per segment.
Just looking at it very quickly, I notice the guaranteed book has an SCR of around 6% of the technical provisions or the guaranteed reserves. The savings book is broadly the same. I know that includes some of the banking reserves as well, but it struck me as strange that the two were broadly the same in terms of capital intensity. I wondered if you'd comment further on that, please.
First of all, to the UFR, yes, we are using the same UFR for economic capital calculations as we do for Solvency II. i.e., we are using the ultimate forward rate of 4.2% currently.
Then on slide 30-
Should I just comment on return on economic capital? I was not telling you how to value the stock there. You know that very well. I was just reminding you that this used to be an important measure for the analyst market, so that's all I want to do.
Yeah, yeah, of course, but... And I accept that, but the point about the multiple of embedded value would be that it would trade on a multiple of embedded value, depending on the return on embedded value. So, if you're putting forward an NOK 88 per share economic capital, equity capital value, what's the return on that 88? Because that will determine what the multiple is, whether that multiple is 0.5 or 1.5.
That's correct. Now, I don't want to go into a discussion on that. I think you can do that calculation yourself. We are measuring this on return on equity, and the objective of the group is a return on equity of the IFRS equity on 10%, and we're about at 9.5% currently, and we're working hard to get that up to 10%.
Just to follow up, sorry to follow up again, but if you're suggesting that you can generate 10 points of economic capital a year, that would be about NOK 2.7 billion based on today's SCR. So it would suggest a return on that economic equity of about 7%.
That's fair, but we can look into that a little bit more later. Let's go to the capital allocation point.
Yeah, yeah, it's a good observation there. As, as you said, you need to subtract the bank from the savings, yeah, and then you're, I think you're on 5% SCR on the unit-linked products. Remember, although that these products are also generating capital, so, in total, these products are actually contribute with capital to the group.
Mm-hmm.
Looking at the guaranteed business, you have the SCR of 6%. However, these products have a very small capital contribution, so in fact, they have a negative capital contribution to the group as a total. Yeah. Looking at the net SCR, and then I define the net SCR as the SCR less the own funds contribution. The capital requirements from the guaranteed business is between 4% and 15%. So, quite substantial still on some of the paid-up policies. Also to remember that the SCR are very different in characteristics. While the SCR attached to the savings business is first and foremost a capital requirement for future earnings to disappear. The capital requirements on the guaranteed business is linked to the risk of losing deferred capital or shareholder equity.
It's quite, quite different, the kind of SCR as such.
Okay, good. Thank you.
I have a question now from Jonny Urwin from UBS. Please go ahead.
Yeah, thanks. Thanks for the quick follow-up. I just had a query on the level of operating earnings in the quarter, because it feels like, you know, this quarter is a relatively normal sort of environment for you guys. So do you think the operating earnings of NOK 463 million is a sort of normal-ish run rate? I know it's difficult to answer, but any color would be appreciated. Thanks.
Okay. What I think I mentioned a little bit earlier, within the savings non-guaranteed, we see a very positive development. Maybe we could look at page thirteen, you have the profit per product line within savings non-guaranteed. You see Unit Linked Norway, that's where we have 23% AUM growth from last year. We expect that AUM growth to generate a stronger earnings going forward. Unit Linked Sweden, 20% AUM growth, also should generate increased earnings going forward. The asset management segment, we said that the 90, the 100, or the 98 this quarter did not include any transaction fees or other fees that usually would come through.
Also, with the strong development in assets under management in this unit, we should expect to see increased earnings from this area as well. And in the banking part, retail banking, we mentioned that there was a one-off cost in the first quarter, which was incorrectly allocated to this quarter instead of paid last year. And we also talked about the margins and the volume growth within the bank. So in all four of these areas, I foresee a stronger or positive development in fee and administration income, which will positively impact the operating earnings going forward. In the other areas, in insurance, we did have a good result, so that's you know a fair result this quarter.
In guaranteed, we had a very good result this quarter, but primarily due to financial effects, which comes under the line. The transfers between defined benefit and defined contribution typically happens more in the first quarter than it happens in the following quarters. That shift in earnings from defined benefit business happen, has happened, will happen to a lesser degree in the rest of the quarters this year.
Very clear. Thank you.
Ladies and gentlemen, just a reminder, if you have a question or comment, please press star one on your telephone keypad. Thank you. For the moment, we have no further questions, so I'll hand you back to your host. So we have a question now, sorry, to interrupt, from Blair Stewart, Bank of America. Please go ahead.
Sorry. Thanks for taking it, guys. Just one follow-up. On slide 27, where you give a breakdown of the SCR, the risk absorbing capacity of tax is about NOK 5.1 billion. Could you just give me a bit of color as to how that's calculated? I think it's at least 10 years' worth of tax that goes through the P&L. I don't think you're actually paying any tax at the moment, given you've got deferred tax assets. So just trying to get all those moving parts and trying to understand how that NOK 5.1 billion is arrived at, please.
Yeah. When it comes to the tax, what we do is, first and foremost, we look at the difference on, on the values of assets and liabilities, in the IFRS accounts and in the solvency accounts. And that creates actually a NOK 2.4 billion of deferred tax, in the solvency calculations. The next thing we do is, of course, to see what happens to the cash flows in the different stresses. And what happens then is, of course, after then, we are increasing the liabilities, quite significantly, in some of the stresses. And we are actually, let's see if we have other sources of income that can come against these losses, from other parts of the business.
And then we are moving into a more economic capital world, where we are measuring both new premiums and risk premiums on the assets, et cetera. That creates alternative sources of income, and which we can use them to both remove the deferred tax from the opening balance and or as such, or utilize that. And we can also utilize what we create of of tax tax credits. And so all in all, we are generating enough enough income to reduce the SCR with with the tax rate.
I would also like to add as a comment that this level of deferred or risk absorbing capacity of tax as a percentage of both SCR is, looks quite— is in line with other European life insurers .
Yeah, it's about 14%. But just given the company's tax situation, I just wondered how that fitted together.
Yeah.
Thank you.
Thanks.
That's currently all the questions coming through, so I'll hand you back to your host. Thank you.
Thank you all for joining the call. We will be at the Threadneedle Hotel tomorrow morning at 8:00 A.M. If anyone wants to join that analyst meeting, please drop us an email if you want to join the meeting, and have a nice afternoon.
Ladies and gentlemen, thank you for joining today's call. You may now replace your handsets.