Alm Brand As Adr

Good morning or good afternoon all and welcome to the AlmBrand Q2 2024 Earnings Call. My name is Adam and I'll be your operator today. If you'd like to ask a question in the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. I will now hand over to CEO Rasmus Werner-Nielsen to begin. So Rasmus, please go ahead when you are ready.

Good morning and welcome to AlmBrand Group's second quarter of 24 conference call. With me today, I As usual, we have our CFO, Andreas Ruben Madsen, and our head of IR, Mads Tinko. This morning, we published our interim report for the second quarter. I will walk you through the operating highlights as well as our divestment, our energy and marine business announced on July 1st. In the end, Andreas will comment on the financials. Overall, I view our results for Q2 as acceptable, given the headwind we have on large claims and increasing motor claims. in the Danish market in general. And just to be clear, the development on motor claims does call for additional profitability initiatives from our side. On a positive note, I'm very pleased with our continued momentum on premium growth in Q2, as well as increasing synergies kicking in. Let's now look at the highlights. Please turn to slide two and some of the headlines for our business in the second quarter of the year. As mentioned before, I view our results for Q2 as acceptable given the headwind we have on large claims and the increasing motor claims in the Danish market in general. While motor frequency has been increasing for many quarters, we are now seeing higher average repair costs related to motor claims, which leads to a rise in our expenses for motor claims. This calls for even more profitability initiatives. Our growth is standing out again in the quarter, and especially I see a bright spot on our growth in the personal lines of 3.7. 7.3% year-on-year. We do take quite a bit of market share in personal lines with our strong bank partnerships as a driver. Synergies are kicking in as we planned and currently receive good momentum for claim synergies. Overall, synergies reduced our underlying loss ratio by more than one percentage point in the second quarter of 2024 year-on-year, while helping the cost ratio a bit as well. We keep a strong cost focus these days to safeguard the synergies are not eaten by general increases in costs. Based on our satisfactory results for the first half of 24 and a strong capital position, we announced a new share buyback program this morning of 150 million. This should be seen as part of the payout ratio for 24. In general, we have a keen focus on returning capital to our shareholders. And now I'll turn to slide three with our financial highlights. Insurance revenue for our continuing business grew about 2.7 billion in the quarter with a very satisfactory growth driven by personal lines as mentioned before. Insurance service we saw for our continuing business was 312 million compared to 425 in Q2 last year. And remember Q2 23 benefited from a very terrible claims experience. Investment income in Q2 was a profit of 65 million, which mostly relates to income in our free portfolio. I will comment on our divestment of energy and marine shortly. On this slide, you can see that our discontinued business made a loss after tax of 89 million in Q2, which is primarily related to regulations of a few old claims from before we took over Kolen in 22. In particular, the adverse development relates to a single offshore wind project dating many years back. This is highly atypical even for this book. Now, if we turn to slide five, I will focus a bit on the divestment of our energy and marine business to the Norwegian insurer GAR announced on July 1st. I'm very pleased with this transaction as it puts our energy and marine business as well as our people working in the business into the hands of a better long-term owner than us. Today, we have a strong position with the market for ensuring wind turbines globally, but we believe this market is set for a heavy expansion in the coming years, and we do not have the risk appetite for matching this. With the divestment, we are freeing up capital, which together with the cash payment amounts to a planned distribution of 1.6 billion to our shareholders after completion of the deal. At the same time, we are also freeing up management time to focus on our new position as the only large insurance company with a pure focus on Danish customers. We also see that the investment leads to a risk for volatility in large claims ahead. I will just run shortly with slide six that shows the transformation history since I took over as the CEO end of 19. It has certainly been an exciting journey to first refocus our company to a purely non-life insurance company by selling our bank and life company. Then we doubled in size by buying Kodan Denmark, and now we are divesting the globally oriented energy and marine business of Kodan to refocus our business to Denmark. We will now put a keen focus on how we can use our new scale in the Danish market for the non-life insurance to have its efficiency gains for many years ahead while gaining even more ground in the Danish market. And now let's continue on slide nine. The group made a technical result of 312 million in the quarter. Insurance service result from personal lines was 276 million against 161 million last year as premiums grew and the cost ratio was reduced. The runoff gains in this quarter was a part of the improvement in personal lines as well. In commercial lines, we have dropped in the insurance service results to 36 million from 264 million last year, driven by very high last claims and much lower runoff gains. Underlying claims were also a headwind in the quarter driven by motor and workers' compensation. Please turn to slide 10. Insurance revenue grew by 5.3% in the quarter compared to 5.6% last quarter, and we are very pleased to see the high growth level from Q1 continue into Q2. In personal lines, we are clearly taking market share on top of indexation and the price increases we do. We do consider 7.3% growth in personal lines a quite bright spot in our report. In commercial lines, we are seeing an acceptable premium growth of 3.3%. And moving on to slide 11 and the claims ratio. In Q2, the claims ratio were up 600 basis points year-on-year in Q2, with 480 basis points higher large claims than Q2 last year. The underlying claims ratio increased by 210 basis points year-on-year, driven by higher motor claims and general headwind on small claims. Commercial lines were also negatively impacted by workers' compensation. Moving to an undiscounted basis, we see a 170 basis point increase in underlying claims year-on-year. We do see this development calls for further profitability initiatives. And now, turn to slide 12. Combined ratio in personal lines dropped to 80.2 and Q2 from 87.6 last year. The drop was due to a lower cost percentage, but also had relatively higher runoff gains. Underlying claims in personal lines was flat year-on-year, which is more than acceptable given the strong headwind on motor in this quarter. Please turn to slide 13 and the commercial line. Combined ratio of commercial lines was an adverse development in Q2 growing to 97.3, which is clearly unacceptable in the long run. However, Q2 was impacted by very high large claims which will vary over time while runoff gains were quite low compared to last year. We are looking into how to handle the Q2 increase in underlying claims in commercial lines of around 4%, while we cannot entirely rule out a spillover from the above 8% reduction in underlying claims in commercial lines in last quarter. And with these comments, I will now hand over the word to Andreas, who will walk us through the synergies investment and guidance.

Thank you, Asmus. Please turn to slide 15 for an update on synergies. We had an increase in harvested synergies in Q2 2024 to 106 million from 62 million in Q2 2023. This implies 44 million uptake in synergies year-on-year, improving our underlying claims ratio with 1.3 percentage points and reducing our cost ratio by 0.3 percentage points year-on-year. The synergy uptake is currently concentrated, especially on the claim side. We remain confident that the synergies for the full year will add to the 450 million that we've stated. And now I move to slide 16 and the investment result. We made an investment result of 65 million, with the largest part stemming from our free portfolio. Financial markets were volatile in Q2, but leaving us with a decent return, mostly related to our bond portfolio. We maintain a conservative stance regarding our investments, but we are changing our portfolio a bit in order to get a higher expected return. And now finally, please turn to slide 18 for the outlook for 24. First, I will state our guidance for continuing business, which is unchanged relative to our company announcement from July 1st relating to the divestment of energy and marine. We guide for an insurance service result in 24, excluding runoffs for the remaining quarters of 1.15 billion to 1.35 billion. This includes expected synergies of a total of 450 million. The cost ratio is expected to be in the range of 18 to 18.5%, and the combined ratio excluding run-offs for the remainder of the year is expected to be 88 to 90. We guide for an investment result of around 400 million, and for other activities, we guide a deficit of around 125 million. Group profit excluding special costs is expected to be 1.43 billion to 1.63 billion before tax. The guide for special costs in the range of 200 to 250 million for the integration of CODAN and the realization of synergies. Then coming to effects from discontinued business, our guidance for depreciation and intangible assets drops to 350 million in 24 from 360 million, while the result for discontinued business after tax drops to zero from 75 million before. This relates to a few old energy claims of Kodam. And with this, I conclude my presentation and hand over the words to our moderator. Thank you.

Thank you. As a reminder, if you'd like to ask a question today, please press star followed by 1 on your telephone keypad now to enter the queue. And to ask a question, please ensure you are unmuted locally. And our first question comes from Martin Burke from SEB. Martin, your line is open. Please go ahead.

Thank you so much. Perhaps starting on premiums. Private premiums are growing quite nicely and then corporate premiums are still hovering somewhere below that. Do you see that there are any left effects on corporate or how should we expect that? That would be my first question. And the second question is going to be on your technical profitability in the quarter. We see sort of a switch around Q&Q between private and also commercial. Could you please elaborate on that and then please also take into the context of, take motor and work on something to the context And then finally, maybe sort of a more bigger picture question. I guess, Rasmus, you also had a slide on it in the presentation. I guess your tenure as a CEO, you have sort of kicked up a lot of dust and now that dust appears to be settling. Is this the book that you want? And then again, sort of your history as a CEO, are you able to So it's still an execute quarter after quarter. Thanks.

Yeah. Thank you, Martin. Maybe I can start with the first and also take the last one. I thought Andres can take the middle one. In terms of our growth increments, first of all, we are also taking the history into account. We are very happy with the development we see in the personal lines with a growth of 8%. we are definitely taking some market shares. And at the same time, we are keeping the underlying claims ratio at a stable level. So I think that is, as I said, that is the bright spot, and we are very happy with that. In terms of commercial life, we still have growth, but as we have said for some periods, growth is not necessarily the most important part in commercial life. It's more... the profits here that are important for us. And we are definitely working on that and I think Anders will come back to that now with what we see in commercial lines at the moment. But as such, growth in commercial is not the most important issue for us.

Yeah, I can elaborate a bit on our technical profits for Q2 and also the trend we're seeing coming out of Q1. On overall profitability, as we've gone through commercial this time around, it has a bit of headwind in large claims, which are higher than we would expect for a normal quarter. And that being said, I think I'll dive into what you guys are probably most interested in and what we are also most focused on, being that on top of that, we also do see some deterioration underlying profitability in commercial lines. I think if we look at it over the full half year we should keep in mind that we did have an extremely strong quarter in Q1 and there will be let's say some fluctuations. I think we had a bit of headwind in commercial also stemming from the fact that we didn't have I mean, as we mentioned before, especially motor and workers comp are the main issues, motor being the main issue. And then we didn't really have any tailwind, so to say, on the rest of also the underlying business in commercial. While we don't see the tick up we see year on year, as structural, we do see that there is some of this that is structural. We've seen both in private and commercial across the motor book. especially the average claims are also beginning to rise on top of the frequency issue we already had. And I think the main point for us is that we see a need to do further profitability initiatives. And as we saw last year, where we had the most need in private, we now can be satisfied that we see the effects from that coming as we plan. And I think it's going to be the same run this time in commercial. We'll have to start doing more on commercial prices being the main effect. And I can mention that we've already done things both in terms of the pricing for our new business, and we are also doing more and will be doing more in terms of getting the price right for the risk on the on the book as well. So we are not too worried going ahead, but it will take some extra work from us.

Yeah, and then Martin, maybe to your last question or comment, maybe it was, thank you for the comments about the dust. Yeah, at least we have done quite a lot, as you say, the last years. And I think with the transaction of Energy Marine, which we just have to remember came in with the Kodan transaction two years ago, and we have proved that I think actually we got a quite good, quite nice price for that as well. I think now we have a purely Danish non-life company, and that is the only purely Danish non-life company we have in Denmark after the transaction of Topp and Yves. And I'm quite sure we will be able to benefit from that. From my point of view, it's most important that we are still a top three player. You see, we are all been waiting on this transaction, even top, so it's not really a big surprise. We do have scale. We've got scale with Kodan, which is of utmost importance. And then I think that we have a quite far distance down to the smaller insurance company owned by foundations. And when you look at them, they will definitely have a tough time going forward as they don't have scale as such. So I think there are still many things to do in the Danish market. Maybe there will be less structure. It is also not that common that a company like us do for transaction over a billion. a billion in four years. But we have many things to do still. And I think we have shown that we can execute on growth. We also shown that we can execute on cost. And I think these two things in combination will be the trigger going forward in gaining market shares in the Danish market.

So should I understand that as there is still a

a quite a good appetite for inorganic growth or how should I interpret that I think the way you see that the what what we see our growth in the personal lines I definitely think we will be able to continue and that will be the goal going forward organic growth not inorganic organic growth yes okay thanks

The next question comes from Asbjorn Mork from Dansk Bank. Asbjorn, your line is open. Please go ahead.

Yes, hi and good morning. A couple of questions from my side as well that haven't been asked yet. One is going to be a little bit more clarity on the severity of the average claim trends in Mork, both in private and corporate. I guess you've been, like your peers, been surprised by the frequency trends But could you just elaborate a little bit more? What is it that have sort of surprised you on the average claim side? I guess you were expecting inflation and web pricing for inflation also on the wage part and I guess imported spare parts on cars. So just a little bit of flavor of that would be interesting. Then a question on your private growth, which obviously comes in very strong. Is there sort of a trade-off at the moment? Because I could imagine growing quite significantly in your bank distribution. Is there a trade-off here between the growth that we're seeing and the underlying claims trend? So you are probably pricing at a little bit of a discount or that we know the new clients have a higher claims ratio. Is that also what is sort of delivering sort of the the lack of an improvement in the underlying claims ratio in Q2. That would be my second question. And then my last question would be on the discontinued operations, the old claims and adjustments we saw here in Q2. Is there a risk we could see something similar for the next couple of quarters until the deal closes? And could this also have a potential impact on the sales price, or is that fixed at this stage?

Thank you. Yeah, I'll start out with average claims on motor. I think you say what surprised us. I think what, you know, it's been, I think the whole market has been sort of working out what are the structural levels of frequency we should expect. That's been the first sort of difficult question we've all been sort of aiming for to understand. I wouldn't say that it necessarily is surprising as such, but I think the effect that we're seeing on average claims prices is a lag effect somewhat coming from that frequency uptick. And I think it has, for definition, been quite difficult for us and others to fully gauge what the effect would be, also even before we maybe had a better understanding of the frequency levels. But what we're seeing is simply that when the whole sector needs spare parts, the whole sector needs repair hours with mechanics and so forth, that sort of sector push is driving up prices for our repairs. And I think that is something we see and our peers see the same thing. And the short answer to how to solve this is that we will need to do further prices. That will be the main driver for us getting the right balance again. And we're confident that we'll get that right with some lag, but we'll start doing that even more and have started as we've seen these average claims come up. And then on the private growth and are there any trade-offs going towards our underlying claims I would say, in general, that is not a factor we see. It's true that we would see, on average, in general, new business being slightly less profitable in the first years, both from the fact that there's cost to bring the business in, and there is also a typical average trend from older insurance portfolios being more profitable. But we're not seeing this in any structural level if you look at what we're getting in in our partnerships compared to what we're getting from the rest of the business. But this is not a main factor for us. The main factor for our underlying loss ratios is back to motor in particular and some of the themes I just talked into previously also. So that is what's driving it. And for now, I think, as we mentioned before, we actually satisfied that we're able to to to be flattish year and year in the quarter and actually have a slight drop in in the average or in the underlying loss ratio for personal lines which shows that we have we have been we have been we've been getting the profitability we were aiming for and just to give you maybe also a size a scale idea we have been doing most on private maybe a factor of three to four in terms of magnitude to what we've been doing in commercial lines And that is the factor we need to balance out now to get it right also in especially commercial lines. And then the last question regarding the discontinued operations. I think it's fair to say that we've seen some quite extraordinary movements related to a few very old claims relating to a few very old projects. And even for this book, this is highly extraordinary and not something that you would see very often. And I see there's no sort of expectation to see this going forward. You see them as unfortunate one-offs. And that being said, also, there's no sort of impact in terms of the price in what trading we have or what reserve developments we have. in the period that we still own the business. So this is the risk that we have for now, and that's how it is. But we don't see anything structural going forward from the unfortunate events we've seen this quarter.

All right. That was very clear. Thanks a lot.

The next question comes from Matthias Nilsson from Nordea. Matthias, your line is open. Please go ahead.

Thanks a lot. So my first questions will be on the same topic as some of the others have touched upon. And I know that in the report you say some of which have already been initiated on initiatives for the commercial line. So the first questions will be on like, why not all of them? Is that because of the big renewal date being the 1st of January? Or how should we think about that? And then secondly, you don't really write something about the initiatives on personal lines, should we expect anything on top of the ordinary price increases on personal lines as well? And then on my last question on the buyback, it's of course nice to see something now, but should we expect that this could be raised in connection with the Q3 results if we see no negative surprises on the underlying performance and investment short?

Yeah, let me try to walk you through that. we've had initiatives going both in personal lines and commercial lines to profitability. I just mentioned the scale before. When I say that we'll need to do more, some of it is obviously timing, and you're right that especially the two big renewals are 1st of October and 1st of January for a lot of the commercial business, especially the larger commercial clients and the broker-driven clients. So there is obviously a timing thing here where some of it will be in front of us, And that being said, I also think that we've spent time, especially during this quarter, sort of diving into it, and it's always sort of a delicate thing to do, pricing, also when you're doing it across a book, which, I mean, we know that motor is an issue, but motor is not the only part of this. We also mentioned workers' comp as a theme, and there are also other lines, so getting the right balance sort of retaining the customers we want to retain with overall profitability, which makes sense, and getting that through and getting it through just takes some time. So that's why we still have some of this in front of us. And personal lines has been, has in terms of magnitude, been the primary sort of, yeah, that's where we've done most until now. But we'll also be needing to do more in personal lines going forward. And that is especially due to that a lot of the things that have been rolling into this year and have been going on now throughout this year have mostly been driven by the effects that we saw coming from frequency. And we still need to catch up with what we're now also seeing on average claims. But we're confident we'll get there in time. And then in terms of buyback, Obviously, we can't do any guarantees looking forward, but our overall thinking is that now we have a sensible profit for the full year, or half year, sorry, and we have a comfortable capital position, so we feel that we are in a good place to start this out now. If we have a sensible Q3 and the Q4, we very well may increase this also going forward. That depends on how the rest of the year goes. So we're very comfortable with the levels that we've been able to put into play now.

Thank you. That was very clear. Maybe a short follow-up. Have you seen any positive or negative surprises in Q3 so far?

Nothing major, no.

Thanks.

No further questions at this time, but as a reminder, that's star followed by one on your telephone keypad. We have a question from Jan-Erik Gillen from APG. Jan-Erik, your line is open. Please go ahead.

Thank you. Just one follow-up on the discontinued operation. Was all of this sort of old project found in the process of selling it, so the buyer really wanted not to have it, or did you really find it yourself? That's the first one. And what kind of runoff loss are we talking about? Is it 150 million or is it 50 million? Thank you.

Yeah. Hi, Henrik. Well, it has nothing to do at all with the process we've had in terms of selling the business. There's no relation to the timing of this going into that. It is in actuality And I can't go into too much detail here as we never do in terms of single customers or claims, but it is a single project, especially, which has driven a lot of this. And I would say, to answer your question, that it's closer to 150 at least than it is to 50. So a lot of this is prior year claims, which have had an adverse effect. development and we see them as highly extraordinary and in no way, just to repeat that, in no way related to the process we've had with selling the business.

Okay. On the price increases, both on the personal lines and on the commercial lines, could you shed some more light into how much you really hiked your prices in the personal line and really when you have done it so we can understand what kind of magnitude you have behind you versus in front of you. And also on the commercial side, the price steps you're thinking about, did you do anything last year on the motor side or is this all coming now into going forward from the 1st of October renewal and the 1st of January renewal?

Let me try to walk through that. Well, in terms of magnitude of price increases, both in personalized and in commercial lines, a rough number in terms of the new business, we're looking at something like at least in the vicinity of 10% on motor, depending on when we're talking of the timing. But we have hiked that continuously as we've gone forward for the new business. And then if you look at the, it's a bit, you know, for the book as such, we have more of a portfolio approach and our approach is very much driven by looking at the total customer, also profitability, not only single lines. So we have definitely seen customers seeing very significant double-digit price increases in both personal lines and commercial lines targeting the, you know, the portion of the overall book, which is least profitable. So in new business, maybe roughly around 10% mark, at least for motor. And commercial lines, it's not that we haven't been doing things in commercial lines. We are always doing things where it needs to be done. It's a question of the magnitude of what's needed. The things we have overall in place running in commercial lines, it's not enough now as we see. both motor come in and also the workers' comp, as we see at least, some of that also being structural and we need to do more to do that. So it's a question of increasing the overall size of the initiatives. We have been doing stuff all along.

Okay. Just one question on the larger claims you had. It sounded like it was in property for commercial side. It's hard to say anything is one-offs in insurance, but is that kind of a frequency issue, or is it just that you were sort of bad luck this quarter versus where we have been thinking? So how much of that, although property losses this quarter was more nothing that really would stand out in the next quarters to come? If you look at it in the long-term trend, these sort of losses come and go. But if you look at it in this time, how many percentage points of the commercial line combined ratio is this talking about or underlying claims ratio?

You can say in terms of the last claims, you can always talk about lock and unlock. But I think the name of the business is that we have large claims now and then. And we had some quarters without too many in commercial. And now this quarter, we had a few more than normal. can say that it's expected and i think it's more or less about that it's a you can say we call it smaller large claims and it's very much connected to small fires and things like that so we have it's nothing uh fundamental or anything else like that it's just you can say in that way it's just stochastic or unlocked as you can name it

Hi, Jan-Erik. Just with a follow-up on, I mean, now we have, I mean, looking at the continuing business where we renew the energy and marine segment, we, of course, have a bit of change in what we see as a structural level for large or major claims. So now we see a level ahead of around 7% for the group. And that would translate into 12 to 13% for the commercial lines. So we are seeing, I mean, a 4% higher last loss level in this quarter than we would normally expect. So there's really no changes as such structurally.

Thank you. Can I just have one follow-up on the investment side? You mentioned that you were sort of trying to find... to turn the portfolio a little bit so you can have a higher expected return. What do you mean with that? Would you take more risk or would you just change the portfolio or would you look for other investments?

Yeah, this is something we have been working on for continuously over the last years, but it's a long game. And that's because what we're doing mainly in investments is we do not wish to introduce a substantial amount of extra volatility in the book. So what we're looking to do is primarily harvest illiquidity premium from doing more illiquid investments and targeting in that respect very, very safe with low credit risk and simple products, but where you are able still to harvest some premia on the liquid side. And as we see more of that actually being committed slowly, but over time, we do see a better mix. And that's the main strategy we're working for. We don't want to introduce too much volatility, so that's the way we're working at it.

Okay, very clear. Thank you for your answers.

We have no further questions, so I'm going to go back to Rasmus for some concluding remarks.

Yeah, thank you, and thank you all for this question, and I wish you all a nice day. Thank you.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.