Alm. Brand A/S (ALMB) Earnings Call Transcript & Summary

Welcome to the Alm. Brand Annual Report 2019. [Operator Instructions] Today, I'm pleased to present Acting CEO, Rasmus Werner Nielsen. Please begin.

Thank you. Good morning, and thank you for taking the time to join me on this call at the Alm. Brand full results for '19. I'm here today with the Head of Investor Relations, Lars Holm; and Senior Investor Relations Officer, Mikael Bo Larsen. We have this morning announced our results, and I will, of course, guide you through this. But more importantly, we have also announced major changes to our company and our strategic agenda, which will define the road map for our future development. I'm very excited about this and, therefore, I will spend a fair part of this presentation giving you some insights into our new plan. But first, please turn to Slide 2 where I will comment on the fourth quarter and the full year. The last quarter of the year was satisfactory with ordinary profit before tax of DKK 152 million. The quarter was a mix of better-than-expected earnings in the online business in Non-life, a loss from runoffs, on-target earnings from Life and on-target or including some one-off earnings in the bank, and not to forget, severance paid to our former CEO. All in all, this is a significantly better result -- a better quarter versus the same period last year. As a consequence, full year ordinary pretax profit amounts to DKK 684 million, which is in line with our guidance of between DKK 625 million and DKK 725 million. In the 3 months that have passed since we announced our Q3 report and our commitment to review our strategy, we have indeed spent time and resources analyzing various options and scenarios on how to improve our earnings. We are rewriting part of our DNA, and in doing so, we present our guidance for 2020 that represents a significant improvement in like-for-like earnings. And in addition, we present new ambitions for 2022 that we'll look -- that we will work towards in the coming years. Please turn to the next slide. We have today announced several initiatives that effectively address how we conduct our business within the strategic framework of our company, including all of our 3 business areas: Non-life, Life and Banking. The initiatives can be divided into 4 headlines as shown on this slide. First, the structure. This is about how we organize ourselves with a clear focus on how we best meet our customers. Second is the costs. What organization do we need in order to ensure that we are able to deliver top quality services to our customers. And then we have profitable growth, or in other words, striking the right balance between, on the one side, growing premiums and business volume, and on the other, being disciplined on pricing, ensuring that we do not compromise earnings. And finally, ambitious targets. We have defined clear and detailed targets to allow our investors and other stakeholders to have full insight into what kind of potential we aim for. Section 1 and 2, the structure and the cost path, we have executed on this morning. Thus, most of this will have immediately effect, and I will go into details on this in a moment. Section 3 and 4, the profitable growth and the targets on how we develop our business in the time to come. Turning into Slide 4. In order to ensure that we are best positioned to meet our customers with our offerings and value propositions within Non-life, Life and Banking, we changed our organization. We have now established an organization that is much more oriented towards the customers, an organization that will be responsible for the total value proposition towards the segments across Non-life, Life and Banking. We break down the traditional silo thinking that has hindered the efficient execution of our strategy. Going forward, we strive for a seamless cooperation between sales, advisers, pricing and support teams, who together will deliver our services and products to the customers. At the end of the day, this is about creating a new structure that extends towards the future. We want a more agile organization, which our customers will benefit from. Reshaping our structure is key to our strategy and success. And now please turn into Slide 5. Profitability in Alm. Brand is not where I want it to be. The short answer to this is to either increase income or lower cost or a combination of both. Over the last months, we have analyzed and examined various what-if scenarios, and we have reached the conclusion that we need to effectively address the cost base of the company in order to produce a meaningful improvement of our profitability. Consequently, we have today announced that we are reducing our head count with 120 employees out of the group total of approximately 1,800. The layoffs are primarily affecting our headquarter and the bank, and the employees we have dismissed have all been informed this morning. This is by no means very pleasant, but this is a necessary decision in order to preserve and develop the company and a necessary decision in order to allow also to take control of the future of Alm. Brand. Total one-off structuring -- restructuring charges amounts to DKK 85 million, and they are included in the '19 results. And on top of this, we do a DKK 30 million noncash write-down of IT assets relating to Bankdata capital market software so that it can start from a fresh in the New Year. The annual savings on the layoffs going forward will be DKK 100 million. Please go to next slide. With today's announcement, we increased our ambitions for Alm. Brand, as I truly believe we can do better than achieved in the past. Alm. Brand is able to offer full-scale financial services across the -- all financial needs, something none of our competitors can do to the same extent as we can. We know our customers value this, which is highlighted by the fact that more than half of the bank's almost 4,000 new customers in '19 came from the Non-life insurance business. With the new organization, we expect to accelerate even further going forward, thus making us able to grow top line in each of our business areas. At the same time, we continue to invest in digital solutions that will make our customer's daily life easier. However, we want to state today that we will never let growth jeopardize profitability. Profitability will be #1 in how we prioritize. And hence, if we're not able to get the income we expect, we will adjust our costs accordingly. And now please to -- turn to Slide 7. Everything I've told you so far, of course, needs to lead to something changeable. One of the cornerstones in what we are doing to successfully reach our ambitions and to unlock the full potential of our strategy is to make sure everybody knows exactly what to do and how to best add value for the customers and our company. All this transforms into specific targets for each of our business units. I will walk you through those at the end of my presentation. And on this slide, I will only highlight that an important part of this transformation is to replace some of the earnings that we have had in the past with an income stream that continues, that recurs and thus represents a better quality of earnings. If this, of course, especially -- it is, of course, especially the reversals of write-downs in Banking and the runoffs gains in Non-life that we forecast will be at a lower level. With a lower cost base and adding less volatile income sources, we will push total earnings in the right direction. And now I will turn to the numbers that we have made in '19. Please turn to Slide 8. Group profit before tax amounted to DKK 684 million in 2019, excluding one-off charges of DKK 115 million. If we take a glance at the ordinary profit in Non-life, Life and Banking only, this is placed as shown in the upper pie chart with Banking accounted for 9%. A similar breakdown of the restructuring charges reverses that Banking -- reveals that Banking accounts for 30% of this. I fully acknowledge that this can be viewed in many ways -- various ways, but we do believe that we have struck a fair and meaningful balance between the various cost components that we address. Overall, development in '19 was satisfactory relative to the guidance we have provided throughout the year. Growth has been moderate, perhaps a little soft compared to our expectations, and low interest rates have provided some headwind. But regardless of this, we are seeing healthy underlying business performance with combined ratio, excluding runoffs gains, of 90.8%, marginally lower than our expectations of 91% to 92%. Return on equity is close to 15% before tax, which is decent, but again, this is expected to improve as we progress on our initiatives. Now please turn to Slide 10. The Non-life business made a pretax profit of DKK 607 million in the full year of '19. This is in line with our expectations, but it also reflects that the runoffs results, although positive, is shrinking compared to previous years and thus in line with our previous communication. The technical result amounted to DKK 570 million and several factors influence this. First and foremost, our underlying performance improved. Major claims and weather-related claims were both on the low side, following a year with favorable weather that, although being very rainy, did not include any severe storms. Investment income improved after the losses we had in late '18 on the back of a setback in share prices. The market has rebounded in '19, which has produced a net profit of DKK 37 million. This includes a negative DKK 25 million adjustment in the VA interest rate in the beginning of '19. I have mentioned the interest rates before, and I'll now reiterate again, the low level has a direct impact on the technical provision for claims, and we estimate a total negative impact on the combined ratio of approximately 1.4% for the full year. And lastly, our cost ratio on both private and customer (sic) [ commercial ] customers is up a little as we continue to invest in digital solutions. Please go to next slide. The underlying combined ratio was stable at 82.6%, included in this is the headwind from the lower discount rate. The underlying claims ratio has been stable throughout the year with a marginal increase in Q4, and for the full year at par with last year. The combined ratio including runoff gains at 1.4% amounted to 90.8%, as mentioned before, a positive development in the underlying business. But in Q4, we had a quarter with negative runoffs results. This is new. We have seen a change in how the Labour Market Insurance have ruled in a number of cases, which has led to somewhat higher compensation compared to what we have previously forecasted. We monitor the situation closely and will change the premium prices if necessary. All in all, we have had both positive and negative deviations from what we would expect from a normal year. But in total, we believe the Non-life business had a satisfactory year. Please turn to Slide 12. Just an additional comment on major and weather-related claims, both are below the normal range. As mentioned in the Q3 call, we experienced some heavy rain and cloudburst in August and September. And this time, I will add that the rest of the year has been raining, but with no serious storms. So as seen from an insurance company, actually a couple of decent months. And apart from comparisons being extremely low in Q4 '18, nothing really to comment about. Likewise, for the major claims, with numbers reflecting an average year, a little to the positive side. Please turn to the next slide. We are now on Slide 13. The headline is growth in premiums. Premium income grew by 1.7%, and as such, in line with what we've witnessed for the first 9 months of the year. Our premium income portfolio is split between private and commercial customers almost 50-50. And for especially the private customers, we obtained premium income increases short of our expectations, partly explained by a very competitive environment. The numbers are just short of 1% premium income growth for the private segment and 2.6% for the commercial customers. The latter have improved following targeted adjustment to a specific part of the portfolio where claims have been high compared to premiums. And not forgetting, negative discount rates have had an effect, although little, on growth in premiums. On both private and corporate customers, we are working on having only one set of policies per product, and at the same time, letting the price reflect the risk. Now please turn to the next slide, the private customers. The combined ratio for the private customers was a satisfactory 87.2%, which reflects both a stable claims ratio development and a flat cost development. Included in the number is a favorable development in both weather-related and major claims, which, in total, had a cost of DKK 100 million as in 2018. All in all, weather-related and major claims affected combined ratio with only 3.7 percent point. Runoff result was positive with DKK 91 million, which corresponds to 3.7 -- 3.4%, i.e., flattish compared to last year and still representing a notable contribution to overall earnings. Please turn to the commercial customers. For the commercial customers, we have combined ratio rising to 91.6%, which is caused by significant changes in runoff results. We have seen positive '18 numbers on 3.9%, turning into a negative '19 number of 0.5%, i.e, a drop of more than 4 percent points, which relates both to the before-mentioned changes in ruling at the Labour Market Insurance and the number of casing -- cases relating to liability insurance on personal injuries. Also, I mentioned back in Q3, the claims ratio have gone up and is now at 76%. That is an increase of close to 5 percent points partly driven by increases in claim expenses on building insurance and part of this being claims on concealed pipework. The expense ratio is up a little to 15.6% partly driven by investments in digital solutions. Bottom line, as a result of all this, the -- as a result of all of this, the technical result dropped to DKK 224 million, compared to DKK 351 million in '18. And surely, our new organization will look into how to navigate to improve this. Then I will move on with Life Insurance. Pretax profit for full year '19 amounted to DKK 96 million, which is both satisfactory and in line with our expectations. I'm happy to notice that the business volume of this business continues to grow, and we now hold investment assets on behalf of our policyholders of more than DKK 16 billion, reflecting both inflow on new contributions and a solid investment return of 9.3% before pension return tax. The total bonus rate has rebounded in the fourth quarter from 11.4% to 16.1%. And although lower than the 18.6% at the year start, this figure still represents a strong level, which allow us to offer competitive interest rates to our customers. Please turn to next slide. The total amount of pension contribution into the Alm. Brand group is the sum of inflow to Life Insurance and inflow to pension schemes within the bank. Life saw pension contribution of DKK 1.8 billion, which was made up by regular premiums of DKK 800 million and single premiums of around DKK 1 billion. Growth in the regular premiums was 4.7%. And although we are now up with 20% over a 3-year period, we would still like to accelerate a little more on this. As seen in previous quarters, growth in regular premiums is driven by the corporate segment. Single payments were down from a very high level in '18, but still at the right side of DKK 1 billion mark. Contributions into pension schemes within Banking also added more than DKK 1 billion, reflecting a continuous strong focus on this. All in all, pension contributions into the group amounted to almost DKK 3 billion, which is very satisfying. Then I turn into Banking. Profit before tax increased to DKK 67 million, and as such, the bank produced earnings in line with our expectations of DKK 50 million to DKK 70 million. However, on this slide, we have done a breakdown of the bank's profit. Core earnings increased to DKK 84 million driven by strong growth in trading income, income relating to customers' remortgaging activity and a stable interest margin on bank lending. But the income side also included a significant reversal of write-downs. And although this is good news for both our customers and the bank, this is, of course, not a sustainable income and that we can base our bank on. Further, our vast deposit surplus that runs at around DKK 5.8 billion, i.e., further up compared to end of Q3, has cost us dearly. And in our numbers for '19, it's an investment portfolio loss of DKK 60 million. And lastly, reported profit is affected by the depreciation of the value of customer relationships from the acquisitions of the retail banking activities from Saxo Bank. All in all, the result is made up by a number of elements that we would like not to have in our P&L statement. As mentioned in the beginning of my presentation, we are doing major changes on group level, but also important for the bank is that we have already made significant initiatives on pricing. We're introducing new account fees and charging negative interest rates on deposits above DKK 750,000 made by private customers, which will have an effect -- isolated effect of approximately DKK 40 million. In addition, cost initiatives around DKK 20 million was already in place before today's restructuring. This means that with today's announcement and the initiatives already taken during the fourth quarter of '19, we have made initiatives that in total should benefit the bank's earnings by some DKK 90 million on an annual basis. And thus, to make sure you get me right, don't add DKK 90 million to the '19 results when you forecast '20. The DKK 75 million we had in reversal of write-downs will not come back this year, which is why we guide DKK 100 million before tax in '20. A tough figure, but with a more reliable income and costs, including DKK 37 million in write-down on customer relationships. Please turn into the next slide, the business volume. The business volume within the bank continues to grow. The business volume has grown by DKK 1.6 billion compared to a year ago and is now at DKK 22.8 billion. The growth reflects an increase in mortgage lending in trajectory and is a result of both new customers coming into the bank and remortgaging by existing customers, which, unfortunately, sometimes is combined with repayment of bank loans. Bank lending is fair at DKK 5 billion, but behind this number is a huge activity with almost 1/5 of the loan portfolio being turned over during the year. Also, leasing is a very stable business for us, although we have seen tendencies that more car importers offer leasing arrangements directed to the retail customers, which is changing the dynamics in the markets. Still, we see growth in the corporate leasing market, thus allowing us to keep business volume and earnings stable. And then the outlook for the year 2020. Our guidance for '20 is that we expect a consolidated ordinary pretax profit of DKK 650 million to DKK 700 million, including -- excluding runoff results in Non-life. This is equal to a like-for-like increase of the result of approximately DKK 150 million or close to 30%. And as usual, we provide our guidance on each business area. For Non-life, we expect pretax profit of DKK 525 million based on a combination ratio of approximately 91%, which reflects continued improvements in the underlying business and an average ratio of major and weather-related claims. For Life, we expect pretax profit of DKK 100 million, again, a lot of transparency and predictability on this one, but also a result that reflects the very efficient way we handle our Life business. For Banking, we also guide a pretax profit of DKK 100 million after DKK 32 million of write-downs of customer relationships. This is driven by cost savings of DKK 50 million and the immediate increase in interest income and provisions of DKK 40 million. And Other area, i.e., primarily headquarter costs, will bounce back to a little lower than the normal level to DKK 60 million, reflecting no extraordinary items expected here. Now please turn to next slide. On this slide, I will walk you through the expected earnings development from '19 to '20. The 2019 pretax profit before extraordinary items added up to DKK 684 million, and substracting DKK 85 million in restructuring charges and DKK 30 million in write-downs leaves with a reported profit of DKK 569 million before tax. If I then step back for a moment, the DKK 684 million on ordinary profits includes DKK 77 million in runoff gains and DKK 75 million in reversal of write-downs, i.e., a total of DKK 152 million. You can argue about how much of this will be recurring profit, but you may look at it as a conservative way of state -- and state that the last -- that this at least represents a volatile earnings stream. If this is our assumption, then our base earnings is DKK 532 million, and it is this number that we want to grow from looking into this year. You might even argue that the DKK 532 million has been earned in a year with favorable weather condition and also relatively low major claims as well as some extraordinary income from remortgaging in the bank, which will leave you with a lower number on a normalized earnings in the business we used to have. However, with the measures we are taking, we expect immediate effects from our restructuring of DKK 100 million, and we expect underlying business to develop, i.e., organic growth and price initiatives to be around DKK 50 million to DKK 75 million. In total, a like-for-like comparison will increase our profit before tax with more than DKK 150 million. This is ambitious, but we are confident. And now please turn to the last slide. As previously stated, we have announced new financial targets today, targets that will reach into 2022. We believe the targets are ambitious and represents a significant step-up in our profit. However, the message from the Board of Directors has been crystal clear since the change of management. We need to do better and the new target is a result of this request. Today's change of our organization, including restructuring charges, will pave some of the way for the targets to be achieved. However, we are fully aware that we still have a lot of work ahead of us in order to succeed. Non-life is set to grow premiums income by 3% annually, while reducing combined ratio to 90%. This involves increasing our premium income and at the same time ensure a disciplined approach to pricing. And if we have to choose, then price and profitability is the most important. Further, we want to reduce the cost ratio to 16%, and this implies working actively with a broad range of our cost components. The Life business is set to grow regular pension contribution with 7% annually, and this will involve both continuous progress on the corporate segment as well as increase in inflow for group customers. And for the bank, we know this is a big focus area for all of you. We clearly see Banking as an important part of our future offerings to the customers. This is something that distinguish us from our competitors. However, we no longer accept this business area to yield an unsatisfactory return on the capital employed. With a target of minimum 10% before tax and depreciation of customer relations by end of 2022, we believe we have set an ambitious goal for ourselves and a proper minimum level of return for our shareholders. An important message is that if we cannot deliver on 10%, then we need to do something better. Historically, we have been a high dividend-paying stock and this will continue. We only want to set aside capital for growing the business and/or any changes to our capital requirement, which will at least -- which will be at least 70% will be paid to our shareholders. We believe that a simple payout ratio instead of our previous model will increase the transparency around this, which is important to us. It will not be easy to achieve this, and it will be the ultimate test for our new organization. However, I think nothing is less than acceptable. And again, if our plan for higher income comes short, then we will revisit our setup and look into our cost base. With this, I conclude my presentation and hand over the word to our moderator. Thank you.

[Operator Instructions] We have a first question from Asbjørn Mørk from Danske Bank.

A couple of questions from my side. First, maybe a high-level question. But now you've spent a couple of months on the strategy, what have been your mandate from the beginning? Have everything been in play? Or has the structure of the Alm. Brand group sort of been fixed from the beginning, so this is what you've been working with? Could you just elaborate a bit on that?

Asbjørn, yes, I can do that. The mandate was a very clear mandate from the Board that I had to make -- revisit our plan within the current strategy. And so you can say within this current strategy, everything was old.

But that means just hypothetically you did not have a mandate to, for instance, sell the bank if you did not see it as a core part of the group.

We have announced this plan today that -- and we see the bank as an important part of our future strategy also.

Okay. That's helpful. Then I need to go to the bank because I think that, as you also said, is going to be a question -- focused point on questions today. First, if I look at the outlook from here, I acknowledge the DKK 40 million and the DKK 50 million you mentioned going into 2020 as high income and lower cost. But if you're going to cut quite a lot of FTEs, and if I do the back tracking, it sounds like 60% of your restructuring will be within the bank, how are you able to take out more than 70 FTEs in the bank and still grow earnings at the same time? It seems a bit ambitious to me.

Yes. It's a good question, Asbjørn. We do not -- we only cut 30% of our -- the DKK 100 million is connected to the bank. And then we had, already beforehand, cut DKK 20 million in costs in the bank, be it IT and also some staff there. So in total, it's DKK 50 million, but it is only the DKK 30 million that are connecting what we did this morning. And then you have the DKK 40 million in income growth also. So in total, this adds up to DKK 90 million.

And how much has been, you can say, extraordinary income during 2019 from the remortgaging?

I think we have -- we would say DKK 10 million to DKK 20 million is what we account for. So if you normalize the -- a normal banking year, you are around 0 to minus 10. And then when you add up the 90, I think we get quite close to 100.

Okay. And then if you need to deliver more than 10% pretax ROI, acknowledge this is before intangible impairments, so we need to look at this number growing to almost DKK 200 million by 2022. If this does not materialize, you said if we can't make 10%, we need to do something else. Does this mean -- because the 10% has been mentioned also by your predecessor a couple of times. Does this mean that if you're not able to deliver 10%, then the bank is not necessarily part of the core setup?

We firmly believe that we can deliver the 10% with the plan we have. And you are right, Asbjørn, that we still have to do something during this year and next year in order to reach the DKK 200 million. But at the moment, we definitely think we can do that with the new setup we have.

Okay. And then a final question on the bank. The -- we had the FSA report last week where they basically stated that they did not find the core earnings satisfying for an ongoing business. How have your discussions been with them around the announcement that you came with today? And I guess, my question is, are they satisfied, will they be satisfied with what you're doing today?

We have not discussed today's announcement with the FSA yet. But I would say that it's -- as the FSA visited us in August and September, and they found, you can say, almost what we knew and what you knew, Asbjørn. And with this plan, we are trying to answer some of this.

Okay. If I may go to Non-life then and your targets for 2022. So the 3% premium growth per year going forward, do you expect that this means you will have to take market shares? Or do you think this is going to be growth in line with the market?

No, we announced 3% as a bit over the -- you can say, the normal increase in index, and so we expect to take back some market share.

And how will you do that?

That is exactly why we turned our organization to focus more on the segments instead of the 3 old silos. So we expect with this new model, we will be able to meet the customer much better than we have done before, working as one unit, creating one value proposition for the customer.

It's just that, to me, it sounds a bit peculiar that you will take market shares and be more disciplined on pricing, at the same time, while you have a distribution that, all things equal, is less strong than your peers. But maybe that's the glass half empty look at it?

Yes, maybe it is.

We have a next question from Per Grønborg from SEB.

Still a couple of questions from my side. First of all, back to the DKK 100 million in cost program, DKK 30 million is coming from the bank. You were talking about reducing the cost ratio in P&C by 1.4%, I guess that's mainly DKK 70 million that is coming from that side. Is that correct?

No, there's also some in the Life and some on group level as well.

Okay. Can you split out where the DKK 100 million is coming from?

Yes. I would say that 50% is coming from -- 60% is Non-life and then you have 30% in bank and the rest is between Life and Other.

Okay. So with -- when you're taking down your cost level, excluding claims handling costs in the P&C company, still you expect to sell more than you have been doing up until now. You addressed that also on Asbjørn's question. It looks like you're taking down your sales force, both in Banking, both in P&C, and you believe that by unifying that -- they will unify to be able to sell significantly more despite that there are significantly fewer people?

Yes, it's a good question. We're actually taking off people in the back-office functions, primarily. We're merging back-office functions within the 3 old silos, and in doing so, we are able to take out some costs.

Okay. So it's primarily back...

No, it actually is not. It's not the customer, you can say, employees we are taking off.

Okay. That was -- on the cost, the DKK 100 million, I assume -- are you or will you be out announcing major layoffs this week?

No, we have done it this morning. This morning, we have taken out...

You already did it this morning? Okay. You're saying DKK 100 million, will that -- is that the effect you'll get already in 2020?

Yes. We think...

We'll assume that the first -- that at least 1 month they will still be on the payroll until they go into the restructure count?

We will have a full year effect in 2020 of DKK 100 million.

And there will be an additional small effect next year, I guess?

Yes.

Okay. Perfect. On the FSA report, you say that this was more or less as expected. I'm sorry, I read it quite differently. I read the FSA addressing massive flags in the admin routes in the bank, basically in all areas. I could imagine fixing this must be pretty costly, getting these resources in. They basically said that you were way behind on AML, that you were having significant problems in your credit management, et cetera, et cetera.

I think I answered, the question before was on the income and bottom line in the bank, and that we fully knew. The other thing -- the other 4 issues around -- more around our procedures, especially in credit, we have discussed a lot. There are some major issues and some -- a little bit minor issues. But all in all, it will be handled within the line organization we have today. So it's not about hiring a lot of people fixing this. It's not at all about that, but it's about getting things fixed and cleaned up within the organization we have, and it is not good enough. So that is how it is.

Okay. That's pretty obvious that it wasn't good enough. It just looked like this was something -- but you are basically believing that even with the cutdown you're doing in back office, you would be able to handle the issues brought up by the FSA?

Yes.

I assume you have known the key conclusions for some months before the rest of us got to know what was in the conclusions?

You're right about that.

Yes. Then one final issue -- comment. You talked about 7% growth in Life. It's probably not that important to the big picture, but this is growth within -- with profit product. Isn't that a quite ambitious target to set in a market where people clearly are moving to the market-based unit link-based products, which, for -- in your case, is on the balance sheet of the bank and not on the balance sheet of the Life company?

You have a good point there, Per. And we are, of course, looking into this at the moment. We made 8.8 in growth in '18 and almost 5 in '19. So we expect that we, with some hard work, can do that. Of course, how the interest rate changes, we do not know at the moment, and that will most likely have an effect on this.

We have another question from Asbjørn Mørk from Danske Bank.

Yes. Just a follow-up question from me on the runoffs in Q4, Non-life. So the negative and the runoff losses, you mentioned the Labour Market Insurance. I just wanted your thoughts on whether you see this as a one-off or whether you think there is a risk that you might be underprovisioned here and that we should see a risk here going forward? And then if I may add on top of that question, what kind of runoff level do you expect in 2022?

Good question, Asbjørn. What we have seen is lately and for some time that this Labor Market -- that the government are asking for some higher -- you can say, higher percentages when they come with their conclusions on the single person. And I don't think it's the one-offs we are looking into but we don't know yet, and we will have to discuss that within the insurance community how to work on this going forward. So we need to have a look at this during the next quarters to see the development.

But maybe -- this is Lars, Asbjørn. Maybe I could add. We don't expect negative runoff from this going -- in 2020, but it's going to most definitely have a negative impact on our combined ratio, but that's included in our guidance.

Okay. And then if we look at 2022, what -- does this mean we should expect 2% runoff rather than 3.5%? Or how would you look at that?

Yes, you should definitely think about 2% instead of 3.5%. And maybe between 1% and 2% actually, as we have said for some quarters now, unfortunately.

We have another question from Per Grønborg from SEB.

Yes, it's Per again. Just forgot one thing. The improvement in the bank, DKK 40 million, can you split out how much are you actually getting from negative rates on retail deposits?

Yes. I would say the negative rates are around DKK 10 million. And then we're putting some -- yes, yes, that is around DKK 10 million.

Then the DKK 20 million -- DKK 30 million in fee hikes, that reflects you are closing the gap up to peers, so it seems like pretty much in light of the quite modest size of your bank.

Yes. Maybe I'll answer that, Per. We're also raising some lending rates on some clients. And actually, that's, now at present, is actually making us on par with peers on the fee side.

Okay. So it's also all the vitals. It's not only fees, okay. Then it sounds much more reasonable.

We have no more questions for the moment. [Operator Instructions]

Okay. Thank you very much for participating. Thank you.