Good morning, ladies and gentlemen, and welcome to Storebrand's Q3 results presentation. As usual, our CEO, Odd Arild Grefstad, will present the key highlights of the quarter, followed by CFO Lars Løddesøl, who will dive deeper into the numbers. At the end of the presentation, participants in the Teams webinar will have a chance to ask questions. Details on how to join the webinar are found on the Investor Relations website. But without further ado, I give the word to our CEO, Odd Arild Grefstad.
Thank you, Johannes, and good morning, everyone. Increased global uncertainty, rising inflation and interest rates, combined with extreme weather events, are affecting society and our customers in various ways. In uncertain times, we are aware of our responsibility and role, and we gain trust from an increasing number of customers by giving advice and support. During the Q3, we have had more than 30,000 customer dialogues regarding P&C related topics. And I would like to express my gratitude to all the employees who have done an exceptional job for our customers during the quarter. It is in these challenging times we build trust and customer loyalty. Let me look at the quarter's highlights. Despite challenging times, Storebrand continues to deliver strong results in the Q3.
Storebrand's group cash-based earnings amounted to NOK 983 million in the quarter, whereof the operating result was NOK 605 million. We deliver strongly in defined contribution pensions, asset management, and banking, with the fee and administration income in the saving segment growing 14% year to date. We also deliver a strong financial result. We are on route to deliver NOK 1 billion annually in financial results, as mentioned in our last capital update. Insurance was weaker in the quarter, mainly due to rainstorms during the summer. Storebrand reports a record strong 204% solvency ratio, up from 196% last quarter and 30 percentage points from the same quarter last year. The solvency margin is well above the threshold for our capitalization of 175%.
In September, Storebrand's board of directors initiated a new tranche of NOK 500 million in the share buyback program. As previously communicated, the board intends to continue with share buybacks when the solvency ratio exceeds 175%. The ambition is to return NOK 10 billion in excess capital to shareholders by the end of 2030. Storebrand has entered into an agreement with ERGO International to sell its 50% stake in Storebrand Helseforsikring AS, and I will refer to this later in the presentation. As you are very well familiar with, Storebrand aims to take three commercial positions in the markets we operate: A, to be the leading provider of occupational pension in both Norway and Sweden, and B, to be a Nordic powerhouse in asset management, and C, to be a fast-growing challenger in the Norwegian retail market for financial services.
The combined capital, customer, cost, and data synergies across the group provide a solid platform for profitable growth and value creation. The commercial success is enabled by two strategic differentiators: leadership in sustainability and digital front runner. Storebrand continues to manage capital and the back book of guaranteed products for increased shareholder return and good pensions for our customers. Combined, this gives a compelling combination of yield and growth for shareholders, with self-funded growth and capital release. This results in a dividend policy of growing ordinary dividends from earnings and an ambition to return NOK 10 billion of excess capital by the end of 2030, primarily in the form of share buybacks, while generating additional excess capital, which might fund further growth or could be returned to shareholder. Storebrand continues a long track record of growth. We are active in structurally growing markets.
Growth in unit-linked and asset management has been somewhat dampened by the mark-to-market effect from the historically steep interest rate increase over the last year. But let me now dive into the different growth areas... firstly, our unit-linked results grew by 20% from Q3 last year, with a corresponding 17% growth in unit-linked reserves. Secondly, total assets under management have increased to record high levels this year, ending at NOK 1,131 billion in the quarter. This is an increase of NOK 130 billion compared to last year. Soft equity markets led to a slight decline for the quarter in isolation. Net inflow was NOK 15 billion in the quarter and amounts to NOK 42 billion for the full year. This flow is best in class in the Nordics, and we continue to see strong fundraising in alternatives.
This quarter, we closed Cubera X, with EUR 7.5 billion in committed capital. Thirdly, Storebrand's retail operation remains on a robust growth track, exemplified by the strong performance of our retail bank, with 15% growth in the lending volume year-on-year. For the insurance segment, we were negatively impacted by Storm Hans and the torrential rain in Oslo. Storebrand have a resilient organization with highly competent and engaged employees, and we take great pride in developing our people. It is therefore great to see our employee engagement score increase from an already high level, well above the industry average. Storebrand has significantly lower sick level rates, both compared to workforce by country and compared to our industry, measuring 2.7% in Norway and 2% in Sweden. This also shows an engaged and productive workforce.
As one important step in developing our employees and increase personal productivity, we are encouraging all our employees to utilize AI-powered tools. Our goal is to democratize the use of AI and mobilize the whole workforce, and further develop AI-driven use cases across the whole group. Moving to changes in the executive management team. After 11 years in the top group management and the last 4 years as head of retail, Heidi Skaaret has decided to step down. Under her leadership, we have achieved strong, profitable growth in the retail segment in Norway. Heidi will continue as chair of the board in the bank and Storebrand Forsikring. From the first of November, Camilla Leikvoll will enter the role as Executive Vice President, Retail Market, and continue as CEO in Storebrand Bank. Camilla has excelled through several years in various leadership roles in the group.
She has been Strategy and Finance Director in the group before she, the last four years, has led the growth of Storebrand Bank. I am confident that Camilla has the qualities and competencies needed to continue the strong growth in the retail market. Now, turning to M&A. Let me first report on the progress of the Danica acquisition. We paid NOK 2 billion for the company, and we have now realized NOK 1 billion in hard capital synergies. Furthermore, we expect more than NOK 250 million in result contribution from the pension and insurance business annually. I am extremely happy with both the strategic aspect of the transaction and the financial performance. Second, on M&A. We have had a successful history of developing Storebrand Helseforsikring together with ERGO for many years.
After a strategic review, we believe that it is in the company's best interest to be further developed under the ownership of one owner. We are therefore pleased to have reached an agreement with our long-term partner, ERGO, that enable us to continue as distributor of health insurance in the Norwegian and Swedish market. The divestment has a positive financial impact on Storebrand's group result by NOK 1.1 billion, expected to be booked in the Q1 2024. We also expect a 4% positive solvency ratio effect in the same quarter. With that, I give the word back to you, Johannes.
Thank you, Odd Arild. Now, let's take a closer look at the numbers. Lars, please go ahead.
Thank you, Johannes. From the beginning of this year, the Storebrand Group reports our financial IFRS financial statements in accordance with IFRS 17 and IFRS 9. These replace IFRS 4 and IAS 39 from January first. The IFRS statement includes net present value, profit and loss effects of updated estimates and assumptions about the timing of future cash flows and insurance services provided. A short comment on the financial performance under IFRS is given in the quarterly report, and detailed disclosure is available under the financial statements of Storebrand Group section. For the remaining part of this presentation, I will report and comment on the familiar alternative income statement, in line with what we've been doing for a number of years. This alternative income statement is based on the statutory accounts of all the main subsidiaries and is an approximation of the cash generated in the period.
This quarter, we are back on the trajectory towards NOK 4 billion in result for the full year, with a cash equivalent group result of NOK 983 million, despite the weather-related claims in the quarter and high performance related expenses. We have currently accrued NOK 219 million in performance-related fees that will be booked at the end of the Q4. Furthermore, NOK 171 million in integration costs will be deducted from the ordinary results as special effects. The solvency continues to strengthen, with lower SCR following higher rates and reduced equity exposure in the guaranteed books. More on this in a moment. Cash earnings per share came in at 1.73 in the quarter. The fall from Q1 and Q2 is due to normal tax rate this quarter, while we had tax income in the two previous quarters.
We have chosen to change the last graph on this slide to show the development in expected return versus average guarantees in the Norwegian guaranteed portfolios. As we've had an asset liability mismatch in Norway due to Norwegian product rules, we now benefit from a significant improvement in expected return over guarantees, which will lead to higher pensions for our customers and profit split for our shareholders in the coming years. In Sweden, assets and liabilities are close to 100% matched, and everything is marked to market, so this is less relevant for our subsidiary, SPP. The second quarter solvency ended at 196%. The 10-year swap in Norway was up 36 basis points in the Q3 and 40 basis points in Sweden, contributing 2 percentage points to the solvency. Short rates were practically flat.
The biggest move is in market returns and business mix. Write-down of real estate and negative international stock markets contributed negatively, but was more than made up for by active risk management and reduced equity exposure in the guaranteed portfolios. The reduction in equity investments comes as part of our normal risk management, following the fast rise in interest rates and the corresponding effect on buffers available for the coming year, for the current year. This is linked to the Norwegian product rules and a need to protect the P&L rather than to protect solvency. In order to increase long-term customer returns, we expect to increase the risk exposure again as we enter into 2024. Hence, a part of the solvency improvement should be viewed as temporary.
The Symmetrical Equity Stress gives a slightly better support than usual due to technicalities in the way it is derived and contributes about 4 percentage points. Finally, good cash earnings give us in excess of 3 percentage points before we deduct ordinary dividends and the share buyback programs for a total solvency for the quarter at 204. This sensitivity table shows that our solvency is robust in all the illustrated market scenarios. Fee and administration income is up 12% from the Q3 last year. Insurance results are weak, following weather-related claims in the Q3 and generally weak disability results. Operational cost is below analyst expectations. Due to the summer, sales and marketing activity is lower in the Q3. Furthermore, we have started to realize the synergies from the Danica acquisition.
With higher rates, the financial results are significantly up from last year, in line with our guiding. Let me also repeat that, accrued performance fees year to date of NOK 219 million will be added at year-end if the outperformance is maintained. Amortizations make a jump in this quarter, caused by a write-down of intangibles related to the distribution agreement with Danske Bank and their closure of the retail operation in Norway. This is more of a periodization effect and will lead to reduced amortizations in the coming quarters, as well as lower cost, as Storebrand will discontinue commission payments to Danske Bank for the retail portfolio. Breaking the same figures into our reporting format with savings, insurance, and guaranteed, you see improvements in savings guaranteed and other versus last year, while insurance is weak. All four areas, however, show their best quarter so far this year.
In the interest of time, I will not go through all the numbers, but concentrate on the most important parts. We see continued good structural growth in premiums and reserves for Unit Linked. The margins show some decline, but volume growth compensates. Assets under management is slightly down in the quarter due to financial markets, but we continue to show positive flow, and we are winning market shares. The Q3 saw an increase in asset management transaction fees compared to the first half. The private equity fund, Cubera IX, is now fully invested, which means that Cubera X will start to generate fees from now on. To get the full picture on the value creation and savings, you also need to add back the accrued performance fees. The retail bank continues to grow with improved margins.
The result from the bank is almost double of what it was in the Q3 last year. In line with the rest of the insurance industry in Norway, the results, both in the quarter and year to date, are impacted by extraordinary weather-related claims. Furthermore, the higher disability levels continues to weigh negatively on the results. Importantly, significant price increases are implemented across the different products, with an aim to bring back the combined ratio to the targeted 90%-92% level. In P&C, price increases are close to 10% on average, while the different disability products face price increases of 10%-40%. So far, the price increases seem to be accepted by the market, but this is obviously something we follow very closely.
The main message in Guaranteed is that the operating result is stable, the risk results are good, and profit sharing is increasing. This trend should continue. With higher rates, we get immediate mark-to-market losses in the bond portfolios and a corresponding reduction in buffers. But the reinvestment rates improve, and the net present value of the liabilities fall even more. Next year's focus will be on rebuilding buffers in the Norwegian business. From 2025, 2026, we should see significant improvements from profit sharing in Norway in particular. Under other, we see how the higher rates comes through in terms of improved returns on company portfolios. And with that, I pass the word back to you, Johannes. Thank you.
Thank you, Lars. Before moving over to Q&A, let me take this opportunity to remind you that we will be hosting a capital markets day at the thirteenth of December here at Lysaker. The event will be virtual from our studio at Lysaker, with a focus on the company's growth strategy and ambitions going forward. An update on the implications from higher interest rates and the capital side of the business will also be provided. With that said, we're now happy to take questions from the audience. Please use the Raise Hand function in the team's webinar to be placed in line to ask a question. To give everyone an opportunity to ask questions, we kindly ask you to limit yourself to two questions at a time. And the first question comes from Tryfonas Spyrou of Berenberg. Please, go ahead, Tryfonas.
Oh, hi, good morning. Two questions, please. The first one relates to the property write down. I guess I was just trying to understand what type of real estate was written down, and how much more could we expect to come? And if it does come, would you look to offset the impact by reducing equity exposure again, or do you have any constraints here? And I guess related to that, why take more risk in 2024 on the guarantee side, given that the spread above the guarantee is now 160 bips? So it looks like you can get decent return without taking much risk. So that was my first question. And the second one is on the insurance Combined Ratio.
I'm just trying to understand how realistic is the 90%-92% ambition for next year, given that you're running, it looks, excluding weather claims, 96% as of Q3, and you could potentially have higher insurance costs next year as well. So it looks like you're aiming for more than 45 points improvement to come, mainly from pricing. Is that still realistic to expect? So those are my questions. Thank you.
Thank you, Tryfonas. On your first question, we mark to market our real estate portfolio at real value in every quarter, which means that if the market changes, we will have to reevaluate it up or down, also in the future. But with the current yields in the portfolio, if interest rates stabilize, et cetera, then, you know, we don't expect any further write-downs. In terms of risk management, this is, you know, if you have less buffers, we take less risk. When we enter into a new year, we get new buffers according to the Norwegian product rules, which means that we will be able to take more risk to the benefit of both customers and shareholders, starting in the new year.
It should be said also that the buffer rules are changing next year, so we will have more long-term buffers, which will be positive starting from January 1st. On the insurance combined ratio, we are implementing a number of different measures in terms of underwriting, cost, and efficiency things, as well as price increases, as I mentioned in my presentation. And our aim is to get back on to the targeted 90-92. And then we'll see if we can reach that next year.
And just may I not add a bit on the real estate side also, because we have increased the discount rate now on a very broad range, especially in the Norwegian market. Increased the prime yield up to 4.5, this 0.5 percentage point increase in this quarter. And if you look just only on the impact from increased interest rate or increased discount yields in the portfolios, we have actually a write down in the portfolio in Norway over the last year of around 20% and around 11% in Sweden. Then, of course, there has been increased in rents that has mitigated this somewhat, but it's a huge impact when you look at really what is done to change the discount yields in the portfolio.
We feel that we really are on the right place when it comes to the well, valuation based on the market conditions in the Nordics today.
Obviously, the flip side of that is also that the running yield on the real estate portfolios increase as well, which means that the return from real estate will increase significantly going forward.
The quick follow-up on the 20% you mentioned on Norway and 11% in Sweden. Is it the magnitude between the two geographies based on the mix? So, Norway is more based on because you have more office space there and Sweden is more diversified. Am I right to think that, or is it anything you can add there on the magnitude of the write-downs in each country? Thank you.
Well, it is different markets, and also it's a more diversified portfolio in Sweden compared to what we have in Norway. And, we have mark-to-market valuation of all the properties in Sweden every quarter. So this is based on the valuation that we have got this quarter.
You will find more information about this in the appendix of the presentation that you may have in front of you.
Thank you.
Thank you, Tryfonas. We have a next question here from Peter Eliot in Kepler Cheuvreux. Please, go ahead, Peter.
Hi, thank you very much. And congratulations on the strong results. And when I look, I mean, there's strong results across the board, but just looking through the numbers, I guess there were three areas where I saw a particularly positive impact, which I'm struggling to explain. So I was just wondering if you could help me on those. The first one was insurance division had a very strong financial result of NOK 86 million. The second one was Helseforsikring, which, I mean, obviously, is now leaving the portfolio, but still it had a very strong quarter after recent weak quarters. So there was an NOK 86 million swing, actually, quarter-over-quarter this time around. And thirdly, I noticed a big step up in the fee income for paid-up policies.
So just wondering, yeah, what, what's happened really in all, in all of those three cases? My second one is very, very quick, but on the Danica synergies, just, just wondering if you confirm whether that is already included in the solvency ratio and how much that contributed. Thank you.
Yeah.
Should I start? Yeah. So basically, on the insurance division and financial results, and the next question on the health insurance division, it kind of goes into each other because the health insurance division is reported after tax in the financial line. So that result has contributed to the higher financial result in the insurance division. And the health insurance company had a better Q3 than it had had year to date. There's been a lot of volatility in the numbers. So I think it's yeah, it's driven by, by lower claims for the business than we have had earlier, and also price increases. And then, of course, we expect this business to go out of the group in the Q1.
And then quickly on paid-ups, this is mainly that we have taken aboard new low-guaranteed business that is reported under that line, which has increased the margin somewhat in this quarter.
Okay. So that NOK 150 million that we saw this quarter, that's a sustainable number going forward?
On the fee line?
On the paid-up.
Yeah, on the fee line-
Paid up, yeah
... it should be a sustainable number, on the fee line, but with some variation, because some of these, closed pension funds we have taken over is short-tailed, so they won't stay in the result forever. But yeah, it's sustainable as of now.
With respect to the Danica synergies, obviously, when we take out cost, both in terms of double systems as well as personnel, then we will get the synergies into the solvency and the PNL as well. In terms of the capital synergies, that capital has already been incorporated.
Thank you, Peter. It seems like we lost connection with you here, Peter, but we'll get back to us if you have any follow-up. We have a next question-
No, that's perfect. Thank you very much.
Thank you. It seems like the next question comes from Ulrik Zürcher in Nordea Markets. Please, go ahead, Ulrik.
Thank you. Two questions for me. I was wondering about the repricing of the insurance component for pensions in Norway. Is this mainly towards large clients so that we will see a significant improvement already in Q1, 2024, given the first of January renewal date? And secondly, you increase prices in non-life with 10%. Is this the same for motor, and are you increasing prices above claims inflation per motor in Norway? Thank you.
Thank you, Ulrik. With respect to price increases, they happen individually based on the risk of both the different industry lines as well as on the customer basis. So, there's not, like, one number that will hit everyone. But, it will reflect the development in claims inflation. And as I said, the average number is a single digit on average in P&C and in different products with disability, it's higher than that. In the regular insurance, sorry, the disability insurance linked to the pension contracts in Norway and Sweden, you see that the results are fairly robust this year, so there is less need for repricing there.
It's more within the group life products that there has been weak results and the corresponding price increases.
But will these be renewed first of January, the majority, or-
Most of them are renewed that year, and yes.
Okay. Thank you.
Thank you, Ulrik. We have our next question from David Tarman in Bank of America. Please, go ahead, David.
Good morning. Thanks for taking my questions. Firstly, on solvency, so if the real estate valuations were 6% in the quarter, it suggests about 8% hit on solvency. So, excluding that from the market return bucket, it seems like there's a +13%, which sounds like it's coming mostly from the de-risking. How much of that 13% should we expect to be reversed next at the start of next year, as you put on more asset risk? And then secondly, on leverage, so a separate release on the RT1 issuance from the life unit. You have eligibility constraints and a lot of excess in the group, at least from a solvency perspective.
So, why are you not reducing your leverage in the life business at this point? Thank you.
With respect to the real estate, the impact from de-risking is 7-8 percentage points. So, there are some other elements in there as well. And with respect to when we take on risk again in the beginning of next year, we will have new buffers, and because we have new buffers, the impact will be less than the 7-8%, even if we were to go up to the same risk level, all else equal.
Yep.
Yeah, and I think I think we have talked about it before also. Next year, we will have the new legislation in place, so we can utilize all the buffer capital, not limited to one year's result, in the life insurance company. And that means that we will have additional buffers that we can account for in the solvency calculation, mitigated with somewhat higher exposure, risk exposure. So it's a combination of this that will impact the solvency ratios, start of next year.
Yeah, and on the Tier 1 contemplated issuance, it's part of normal refinancing, 2, 2 loans that comes to call next, next year. And, I think it's fair to say that we, over time, will not be, having Tier 2 capital. That is not, counted in the solvency calculation. I think that's, that's point 1. And of course, we will also, do a thorough, assessment of the, the level of debt in the, in the group as we, as we do on a, on a continued basis. That being said, the leverage of the group of 20% is, is still in the, in the lower end in the, in the sector.
Thank you.
Thank you, David. The next question comes from Håkon Astrup in DNB Markets. Håkon, please go ahead.
... Good morning. Thanks for taking the questions. Two questions from me as well. The first on solvency and share buybacks. You mentioned that, if you have a solvency ratio above 175, you will continue with share buybacks. Should we expect, a new share buyback, buyback program, right after the, the current one is finished, or you need some, or how should we think there? That was the first question. And, the second question on the, insurance result and on the financial result in insurance segment. What is the, normalized, result there, given the current interest rate environment? Looking at the asset mix, it seems to be mainly fixed income. So I was thinking, around, four point five, five percent. Is that, a okay estimate?
Let's start with the solvency question. We are very pleased now to be in the market more and less continuously with share buybacks, front loading the goal for NOK 10 billion, with NOK 1.5 billion in share buybacks annually. And our goal is to be in the market constantly. Then, of course, it's some issues around GMT and so on, that we have to figure out. But our goal is to be in the market doing share buybacks, more or less constantly with this level of capitalization.
Yeah. On the expected return in the insurance segment, I think on the eligible assets, 4%-5% seems fair. We gave in guidance last Capital Markets Day about, with about NOK 1 billion in total financial result, and we will be sure to update that when we have a new financial, no, a new Capital Markets Day now in December.
Thank you very much. That was very clear.
Thank you, Håkon. We have a next question here from Roy Tilley in Arctic Securities. Please, go ahead.
Thank you, and good day. Just two quick questions from me. First, on the insurance segment again. Looking at premiums for own account, the growth seems to be slowing down a bit in Q3. I think it was up 8% versus the same quarter last year. So I was just wondering what's the reason for the slowdown? Is the retention level different, or is there something else? And how much of that is price driven versus volumes? And then second question on solvency. At 204%, you're NOK 7-8 billion above your 175% target. Given the liquidity in the share, can you realistically only do buybacks, or would you need to do some extraordinary dividends as well? Thank you.
Do you want to start on the growth, Johannes?
I can start on the growth figures. I guess one of the reasons why the growth is slowing down a little bit on top level is that the Danica acquisition is now out of the comparables. So if you look at the underlying growth numbers, growth is still very strong in most lines. That said, we also commented earlier this year that we had some transfer out of the insurance business at year end last year. So growth continues, but we have no M&A in the basis anymore.
When it comes to solvency and dividends, we have a very clear policy, and we are aiming to grow annually our dividends, and on top of that, doing share buybacks. Now, we are at the phase, as I said, of NOK 1.5 billion annually, and that is really front loading towards our goal of NOK 10 billion at the end of 2030. So, but we of course have these two tools to over time meet the right level of capitalization of the company.
Thanks.
Thank you, Roy. We have a next question here from Thomas Svendsen in SEB. Please go ahead, Thomas.
Yes, good morning. Two questions. First, on the cost side, if I look in the annual report, you state that you have 2,161 number of employees, year end, 2022. So where do you expect to arrive, after acquisitions, year end, 2023? And, should we expect number of employees to continue to increase, organically into 2024?
Well, should I answer that? Well, of course, we have increased this year, mainly due to acquisitions, so that has added the number of employees. Storebrand is really growing. When you look at the different business line with more than 10% growth, there is of course somewhat increase in also the number of employees. But we are following very closely the relative numbers, cost income ratios, cost ratios, and so on, and have very high focus on growth that should be taking out the opportunities for us to be more effective comparable going forward. So we are aiming very much to make sure that we increase and do better when it comes to these relative numbers going forward.
But the main focus is, of course, to grow the results, and having high top line, growth, somewhat less on the cost line, with then a very strong growth in result going forward.
... If I may add a comment, there is also some insourcing taking place in order to improve efficiencies as we have automated some tasks. And also, we have had, especially in the IT organization, we've depended on consultants in the past, which we are reducing the dependence on so on consultants and having full-time employees instead, which is a cost away, a cost-efficient way to manage the number of employees.
Okay, thank you. And second question on buffer capital. So if you look at market value adjustment reserve and the ASRs combined, a year ago, they were at around 7%, and now we are at 5.6%. So I guess the first question is why should we take this number up given where the solvency are and given also the sales gain you're getting in the Q1? And since you have decided you will take it up, which level should we target of those buffers combined?
With the changes in the product rules in Norway, there will be more individualized buffers and more sub-portfolios within the guaranteed liabilities. So there is not one number that will fit all of these portfolios. It will depend on the duration in the portfolios, the guarantees in the portfolios, and the buffer levels. So, but in general, I would say that we were, in the past, with a lower interest rate level, comfortable with 10%-12%. We are comfortable with a lower level of buffers on average now, but as I said, it will be very dependent on different sub-portfolios, depending on the risk in those sub-portfolios. And, as I mentioned also earlier today, we are focusing on rebuilding buffers in 2024 in Norway.
However, there will be profit sharing in Norway already next year, and then there will be more profit sharing in 2025 and more in 2026. And with the current interest rate level and the reinvestment rates that we are now generating, you should see quite significant improvement in profit sharing in the years ahead.
Okay, thank you for that.
Thank you, Thomas. We have a next question here from Jan Erik Gjerland in ABG Sundal Collier. Please go ahead, Jan Erik. Apologies, it seems like the next question is coming from Hans Rødtjer Christiansen in Danske Bank. Please go ahead, Hans.
Yes, good morning. So, my first question is on the fee income and asset management, and your AUM is up around 13%, year-over-year, but the fee income development so far has been quite limited due to the transaction fees. But specifically in Q3, your fee income has increased now by about 10% year-over-year. So does that mean that the effect from the lower transaction fees are sort of rolling over in the portfolio and the run rate going forward, which will be higher? And then my second question is just back to the previous question on share buybacks and specifically on the dynamics of when it ends on the 22nd of December.
Will you then have to wait for a new approval from the FSA and board, until April 2024, or can you apply before this time and don't need to wait for an AGM?
Thank you, Hans. On fee income in the asset management business, transaction fees sometimes they will be, you know, more in one quarter and less in a different quarter. It will be slightly different from quarter to quarter. What we have seen in general is that with the significant rise in interest rates, there has been less transactions within real estate in the last year and a half, whilst this has picked up somewhat in the Q3. And if the real estate market should, we should see more transactions happening in the real estate market in the quarters ahead, then transaction fees will increase.
As I also mentioned earlier, we do expect to see some fees coming out of the Cubera X private equity fund that we have started to or we fully invested the Cubera IX fund first of October, and that therefore we will get fees from the X fund starting from now. In terms of the share buyback details, we will have to apply in order to get to be allowed to have a new tranche. We are likely to make that application over the course of this year. We will probably release the Q1...
No, sorry, the Q4 numbers on February 7, before it's relevant to start another share buyback program, and once again, dependent on FSA approvals. And then you may remember that we also need this AGM approval. So in the beginning of April, we need to have a new AGM approval in order to continue. So there will be some stops in the share buyback program over the course of the year-end, as well as during the times of the AGM. But our ambition is to have a maintain a program that rolls on in a predictable manner quarter after quarter, with some of these technical stops.
Okay. Thank you very much.
... Thank you, Hans. Then the next question is from Jan Erik Gjerland in ABG. Please go ahead.
Thank you for taking my questions as well. The first one is, back to the buffer levels and the individualization of the buffers in the paid-ups portfolio. Could you please clarify a little bit how you have done it with the risks of the highest portfolios, those who maybe have 4%, 5%, or 6% guarantees? Have you sort of closing that risk now fully down, or do you really need to sort of build the buffers again on top of sort of closing down the risk in each of these individual levels?
Or should we think differently, that you haven't closed the fully risk with with long-term bonds, and that you actually then have to build some buffers inside some of these very hard levels to build buffers when you don't have any sort of risk appetite to build anymore? So it will take some years maybe to get there. So just let us know how you're thinking about these sort of previously five portfolios. Now, we probably will have 10 or 15 or 30 portfolios, and how we should think about them in the context of profit sharing. As you mentioned, Lars, starting next year, and then increase and then significantly at these interest rate levels. Thank you. That's my first question.
So, as I said, if there is risk capacity in the sub-portfolio, we take risk to the benefit of the customers and with a profit split opportunity for shareholders. If there is no risk capacity in the sub-portfolio, then we take no risk. So basically, everything is locked in with long-term bond yields. And it's... There is very little opportunity for profit split, neither for customers nor for shareholders.
Could you give us a hint of how much of that 140+ portfolio, which is sort of in the area of being in satisfactory buffer levels and risk capacity, versus those who actually are not?
No, I cannot. But, we may try to revert on that on the Capital Markets Day in December. We could possibly share some more light on that, but I don't have those numbers in front of me.
Okay. Thank you. The second question is about the buybacks and the dividends, as someone else asked about first. Is it so that the NOK 10 billion is what you want to distribute as a share buyback, and that the running earnings could also be more extraordinary dividend, or the running earnings increase could be just paid out as dividend and increasing dividends, and that you should actually be patient with the share buyback, not only being in that NOK 10 billion number? Or should we think about the share buyback being a combination of your increased earnings and the NOK 10 billion in excess capital? Thank you.
Well, I think, as I said before, we use the different tools, ordinary dividends, it might be extraordinary dividends, it will be share buybacks, and of course, we will use these tools to get the right capitalization over time. And we have set a very clear target of NOK 10 billion of share buybacks at the end of 2030, and we are very well on our way to, as I said, front-run that target. And of course, the NOK 10 billion is not a hard stop. We also generate even more capital that can be used for the growth of the business or additional share buybacks or dividends.
And we look at this, and of course, the board needs to make that decision based on our dividend policy every year end, and we are doing that. But I can just say that we use these tools to get the right capitalization over time.
Okay, just have a follow-up then on the basis of what you talked about, Lars. The next separate date you can start a new buyback program is in your Q4 numbers. Wouldn't the Capital Markets Day be an excellent opportunity to sort of get the approval and then restart just after the twenty-second of December, and then actually be in the market for January and February and March and April, up to your AGM, actually? So you have ample opportunities to be there and actually ask for a larger mandate, and you just knock NOK 500 million.
Thank you for the advice. We will evaluate that together with the other input that we have. Thank you.
Thank you.
Thank you, Jan Erik. We have a next question from Vegard Toverud in Pareto Securities. Please, go ahead, Vegard.
Thank you. I have a few questions. First, on the cost, it seems like the cost level in Unit Linked Norway and Asset Management is dropping, Q-on-Q. Is it possible for you to give some color on this movement and if the Q3 level is what we should expect of costs from these areas going forward?
As I mentioned, we are now taking out or realizing synergies from the Danica transaction. So, while we've been running the cost of Danica's primarily Unit Linked business in Norway, so we have had double costs there for a while. So we should be able to take out additional synergies from that transaction through the Q4 and into next year.
So there's nothing with the cost levels for those two areas in Q3 that is one-offs, and this is the level we could expect-
I think what we-
going forward?
I think what we wrote in the quarterly report as a general comment is that the Q3 has somewhat lower activity levels, seasonality, and it had so for many years because of the summer vacation. So that is a general comment on cost.
... but no more summer vacation this year than previous years?
No. That's right.
Excellent. On the Swedish side, it seems like the indexation fee is quite a lot up. The thirtieth of September is a special date, so is there any catch up in the recognition of fees in the quarter? Or is this a level we could expect also going forward for the indexation fee?
There is a little bit of catch up in the numbers for the Q3. But we are below what we expect over time, when we get full indexation fee. So it's dependent, as I'm sure you know, of two things, the consolidation in the portfolios and the level of inflation. So with a high inflation, it means that the indexation eats up a lot of consolidation. And if inflation goes down, you can then get a full fee on a smaller indexation.
So for those of you who don't follow that, that's a bit technical, but it will depend on these two factors, and we make an evaluation in the end of each quarter of what is the most likely scenario for the indexation fees, as we will take them on, as you said, thirtieth of September, will depend on the consolidation at that time and the inflation at that time.
Is it so that we could expect a level of around NOK 40 million also per quarter going forward?
If we get full indexation, it's in the order of NOK 120 million, I think, per annum, so that would be NOK 40 million a quarter. With if inflation comes down and returns are maintained at decent levels, that should be achievable this next year, and the year thereafter.
Okay. And just, finally, then on the company portfolio in Sweden, which seems to have some varying returns over the last quarters, is it possible to give us an indication of what to expect going forward in the return from the Swedish portfolio?
Most of the Swedish portfolio is, like the other company portfolios, invested in short-term fixed income instruments, and will therefore follow with a little bit of a delay the interest rate development in the country.
Okay. Is it possible to give some color on the movements from quarter to quarter in the portfolio return?
It's a mark-to-market, short-term fixed income portfolio, so it will depend on the development in the fixed income markets.
We can do a little follow-up on it afterwards, Vegard, because I don't have the exact figures straight in front of me here, but we can do a follow-up on that.
Yeah. Excellent. Thank you very much.
Thank you, Vegard. We will also follow up on the outlook on the Capital Markets Day on that area. It seems like we're running out of time, but we'll take a last question from Tryfonas Spyrou in Berenberg. Please go ahead, Tryfonas.
Oh, hi. Thank you so much for the opportunity. I just have one quick question on the proceeds from the sale of the health business, the NOK 1.1 billion. You haven't mentioned any your thoughts on what you do this are these coming back to shareholders, or are these sort of allocated to maybe small bolt-on deals in the pension? So any color on or some early thoughts on capital allocation will be appreciated. Thank you.
Yeah, well, first of all, of course, that goes into the liquidity of the holding company when the transaction is done. We look at this together with all our proceeds and solvency situation, and it will be a part of the distribution, of course, when it comes to both to share buybacks and dividends going forward. But it's also, of course, a part of the strategy to do bolt-on M&As if we see opportunities for doing that. So it's a part of the ordinary business as we view it.
Thank you.
Thank you, Tryfonas. It seems like that was the last question, so that concludes today's presentation. We once again remind you to save the date for our Capital Markets Day on December thirteenth, and look forward to seeing you then. Thank you and goodbye.