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

Welcome to the Alm. Brand Interim Report Second Quarter of 2020. [Operator Instructions] Today, I'm pleased to present CEO, Rasmus Werner Nielsen. Please begin.

Thank you. Good afternoon, and thank you for taking the time to join me on this call on the Alm. Brand's result for the second quarter of 2020. At my side, I have Head of Investor Relations, Lars Holm. 3 weeks ago, we made an announcement with an upgrade of our guidance for the full year. And at the same time, we provided you with a preliminary half year result. Today, we are here to review the full set of results and giving you some more detail on how our business is performing. It's been a special quarter with a busy agenda, not just because of the COVID-19, but also because we have a lot of things that we want to develop within our group. Please turn to Slide 2. The results in the quarter were very strong with positive development within all our business areas. Like many other companies, we have been challenged with how to navigate in a world affected by COVID-19, and I'm proud to say that our employees have done a great job in servicing our customers during this special situation. In terms of earnings, the second quarter has been very good. You may recall the negative impact we had in the first quarter due to the COVID-19 effect on investment returns. The stretch in travel insurance claims and the write-downs on loans in the bank. In the second quarter, we have regained most of the losses on the financial markets, insurance claims has been lower partly because of lower activity in the society, and we are not seeing any need for additional write-downs on the loan portfolio in the bank. Adding Q1 and Q2 together, Alm. Brand is looking into a neutral effect for the COVID-19 so far. Underlying performance has been better than expected. And thus, we upgraded our guidance back in July 31, and we restated our commitment to deliver on the ambitious financial targets that we have set for 2022. And finally, I just want to highlight that we have entered into a partnership with, first, Group 4 Securities, and then the car sales company Semler Group, 2 different setups that we expect will fuel growth in our non-life business and help us achieve our growth ambitions. I will get back to this. Please turn to Slide 4. Non-life business made a pretax profit of DKK 309 million in the second quarter of the year, driven by an extraordinary strong technical result of DKK 237 million. And a positive investment result of DKK 72 million. The technical result benefited from a good development in the underlying business as well as favorable development in both weather-related and major claims but also from fewer claims as a consequence of lower activity during the lockdown due to COVID-19, which have added around DKK 30 million to our result. The recovery of both equity and bond markets has helped our investment return. Our investment strategy is a long-term strategy with respect to overall portfolio exposure. And we have made only small adjustments actually adding a little extra exposure in the period. Please turn to Slide 5. Premium income grew by 1.6%, i.e., somewhat down compared to the first quarter of the year. Most notably, within the COVID segment. Our sales force has, of course, been operating in an environment with fewer customer meetings as insurance coverage has not necessarily been top of mind for a lot of people while COVID-19 has been out there. In general, we saw customers being relative more hesitant in signing up for new insurance. And in addition to this, we had a number of corporate customers inquiring for downtime insurance. Please turn to Slide 6. In order to further grow our business, we're exploring various way of adding new distribution power to our Non-life business. We have developed major digital solutions across the value chain in our Non-life business, and we are rapidly accelerating our use of technology. We strongly believe that a digital future offers a lot of opportunities. And in order to use these opportunities, we need to have the ability to create and enter into ecosystems so that we can offer our customers intuitive and sincere solutions that are easy to use and meaningful. During the summer, we have formed a partnership with both Group 4 Security, this is a traditional setup with the aim of referring customers to each other and Semler where we are integrating our digital solutions. This is meaningful for both us and for Semler. And I expect this to be the first of more similar partnerships to come. For us, the partnership will be part of the toolbox that we will apply in order to get the 3% growth target by 2022. Please turn to Slide 7. The claims ratio, excluding runoff gains, was 7 percentage point better than in the second quarter of 2019, including in this is a positive effect from fewer claims in the quarter of 2.5 percentage points due to the COVID-19 situation. The expense rate was 17.5%, down a full percentage point as the effects from the cost savings program has started to kick in. And all in all, this leads to a combined ratio, excluding runoff gains, of 85.3%, which is well ahead of our expectations. The runoff result amounted to a gain of DKK 30 million, which corresponds to 2.8 percentage points. On this, we have seen positive results from accident, motor and workers' compensation's insurance. The combined ratio, including runoff gains, amounted to 82.5%. Now please turn to Slide 8. Both for major and weather-related claims, we've seen a very favorable development in the second quarter. In total, these claims amounted to only DKK 85 million in the quarter, against DKK 127 million in the second quarter of 2019. Compared to previous quarters, this is a very low level, and we would expect a return to a normalized level of around 3% to 4% of weather-related and 7% to 8% for major claims going forward. Please turn to Slide 9. The overall improvement in combined ratio filters down on both the private and the commercial segment. In light of this, the claims ratio was down 4.3 percentage points in the quarter against second quarter of 2019, and it should be stressed that both April and May was very good, but as society gradually reopened and returned to normal for many of us, we have seen the claims ratio trending towards normal in the month of June. Runoff gains amounted to 2.9 percentage points, which is satisfactory, and the expense ratio improved with 1.8 percentage points to 18.4%, due to headcount reduction and tight control with overheads. Please turn to Slide 10. For the commercial customers, the combined ratio has dropped to 81.6% i.e., significantly lower than we're used to. The key driver here was the reduction of 8.8 percentage points and the claims ratio driven by lower weather-related and major claims but also claims on content and real estate. Also here, the latter effects are partly due to the situation around COVID-19. Runoff gains amounted to a satisfactory 2.7 percentage points and the expense ratio remained at a fine, 16.5%. And now please turn to the Life business on Slide 12. Pretax profit for the second quarter amounted to a satisfactory result of DKK 30 million. The result reflects a continued satisfactory development in the expense and risk result, this amounted to DKK 10 million as well as an improvement -- an improved interest rate -- interest result of DKK 12 million against DKK 7 million in the second quarter of 2019. The technical result then amounted to DKK 26 million. The results and investment allocated to equity made a small plus, thus regaining the loss from the first quarter. The return on the policyholders' investment assets was 4.1% and thereby turning the half year result into a positive 1.7%. The bonus rate is at 13%, which in the current economic environment is still in at a satisfactory level. Please turn to Slide 13. Premiums totaled DKK 361 million in the quarter and is made up by DKK 175 million in regular premiums and DKK 186 million in single premiums. The growth in regular premiums was a modest 1.7%, well below our medium-term target, but partly is comparable by the special situation around COVID-19 and to some extent, also by customers having a preference for margin return products, which we do in the bank. And now turning to our last segment, Banking, on Slide 15. Core earnings in the bank amounted to DKK 43 million in the second quarter of the year compared to DKK 50 million in the second quarter of 2019, which is a satisfactory development that reflects both the income-generating and cost reducing initiatives that we have put in place. Further, in the numbers also included a satisfactory development in trading income following the recovery of the financial markets. We have made no further write-downs on our loan portfolio and although a little early to conclude anything, we have seen no signs among our customers that they are hurt because of COVID-19. Instead, we have again made a reversal of write-downs as some of our customers have had an improvement in their economic situation, primarily within the agricultural sector. And as stated also a quarter ago, we are confident that the total amount of write-downs on our loan book reflects a prudent estimate on the credit quality, and we are pleased that most of our customers are private houses. Investment portfolio earnings was a loss of DKK 7 million, included in this the negative interest rates on the cash surplus in the bank as well as funding costs. In total, the quarter generated a pretax profit of DKK 43 million, and this, we are very pleased with. Please turn to Slide 16. Business volume is pretty unchanged as you see. Repayment of retail loans continues at the same pace as seen in previous quarters, and thus, the new loans that we add to our total retail lending portfolio can only offset this. Especially coming to the leasing business, the special situation due to COVID-19 has had an effect both on demand for new cars and in some cases, on the manufacturers supply of specific cars. This has reduced the amount of new business coming in and based on this, we would expect earnings to slow down until the market has been fully restored. Please turn to Slide 17. The result in the bank translate into a pretax return on mix during the quarter of 9% annualized based on both recurring and nonrecurring income. A positive result was still a job to be done. In the graph, we have done the math on a rolling 12-month basis and adjusted for amounts related to customer relations. And then we got to a return on equity on 5.9% pretax. The solvency remains at a robust level of just below 22%. And then please turn to Slide 19 for the outlook of the year. Back on the 31st of July, we announced that we upgraded our guidance for 2020 following a very satisfactory second quarter. The new guidance is that we expect a consolidated ordinary pretax profit of DKK 750 million to DKK 850 million, excluding any runoff results for the rest of the year against the previous guidance of DKK 550 million to DKK 700 million. The new guidance is based on both a better-than-expected development throughout our business and a recovery in the financial markets, which means that we have now fully recovered the loss from investments that we suffered in the first quarter. We see a healthy development in all our businesses, but in terms of the change of guidance, then the Non-life is the most important. As usual, we provide a guidance on each business areas. For Non-life, we now expect a pretax profit of DKK 700 million against the guidance given back in March of DKK 500 million. This is based on the more stable development in the financial markets and continued strong development in the technical result. And our base assumption is now that we will achieve a combined ratio of approximately 87% to 88% for the full year. For Life, we expect pretax profit of DKK 100 million. No changes to what we have guided before. But of course, with the earnings achieved so far, we have become even more confident that we'll deliver on this. For Banking, we expect a pretax profit of DKK 90 million against our previous guidance of DKK 80 million. Improvement in the underlying business continues to add us some comfort. But in all fairness, we should remember that the reversal of write-downs has added a little more tailwind than expected. And other, i.e. primarily headquarter costs will be at around DKK 60 million, reflecting no extraordinary item expected here. So in total, our guidance reflects a business with all major parts moving as we would like it to. And for us, the following months are all about execution. With this, I conclude my presentation and hand over the word to our moderator. Thank you.

[Operator Instructions] It appears that there are no questions today, so I will hand the word back to the speakers for any closing remarks.

Okay. Thank you for listening in, and see you next quarter. Bye.