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

Hello, everyone, and thank you for joining the Alm. Brand Q3 2025 Call. My name is Sami, and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to our host, Rasmus Nielsen, CEO, to begin. Please go ahead, Rasmus.

Thank you. Good morning, and thank you for joining us on our conference call. I'm Rasmus Werner Nielsen. As usual, I have with me today, our CFO, Andreas Ruben Madsen; and the Head of our IR team, Mads Thinggaard. This morning, we published our interim report for the third quarter. And as usual, I will walk you through the operating highlights, and then Andreas will comment on the financials. Please turn to Slide 2. I'm quite pleased with the overall financial performance in Q3, which has strong organic growth and good cost control at the same time as the underlying loss ratio was improving, helped by synergies and price adjustments. We reached an insurance revenue growth of 10% in Personal Lines, which implies we are taking quite a bit of market share with our strong bank partnerships as a driver, while price adjustments are still kicking in as well. Synergies are materializing better than planned. In Q3, we have reached a run rate that exceeds the DKK 600 million synergies per year originally communicated. Adjusted for a lower discounting effect on claims, we reached an improvement in the underlying loss ratio of about 3 percentage points year-on-year. Lower costs and lower underlying losses were the main drivers behind an improvement in combined ratio to 82.2% from 85.7% in Q3 last year. And now I'll turn to Slide 3 with our financial highlights. Insurance revenue grew to above DKK 3 billion for the first time ever, while the insurance service result of DKK 535 million was our highest technical result to date in the quarter. As mentioned on the previous slide, the quarter was characterized by strong growth and cost control, combined with a healthy improvement in the undiscounted underlying claims of about 300 basis points. We therefore see a clear path towards reaching our strategic target of a technical result in '25 of DKK 1.85 billion. Investment income in Q3 was a satisfactory profit of DKK 66 million, which was primarily driven by a positive result in the fees portfolio. And now let's continue on Slide 5. The group made a technical result of DKK 535 million in the quarter, up from DKK 400 million in Q3 last year due to synergies, premium growth and profitability improvements. The insurance service result from Commercial Lines was DKK 265 million against DKK 197 million last year, primarily driven by lower underlying claims. In Personal Lines, we also had a sizable increase in the insurance service result to DKK 270 million from DKK 203 million last year, driven by higher premiums and lower underlying claims as well as strong cost control. Please turn to Slide 6. Insurance revenue grew strongly by 7.5% in the quarter, just a bit lower than 8.3% in last quarter. I would say overall premium growth is very satisfactory with a continuing strong momentum. In Personal Lines -- I would say overall premium growth is very satisfactory with a continuing strong momentum. In Personal Lines, we are clearly taking market shares on top of indexations and the price increases we have implemented. We do consider the 10% growth in Personal Lines as a very bright spot in our report. In Commercial Lines, we see a continuation of the rebound last quarter to a premium growth of around 5%. And moving on to Slide 7 and the claims ratio. The Q3 claims ratio was down 220 basis points year-on-year in a quarter with a bit higher weather and large claims, but also with help from gain in the risk adjustments related to the approval of our PIM model to cover the Codan business. Run-off gains were 1 percentage point lower than in Q3 last year. The underlying claims ratio was 260 basis points better year-on-year, especially driven by repricing in Personal and Commercial Lines. Moving to an undiscounted basis, we see a 320 basis point improvement in the underlying claims ratio year-on-year. Commercial Lines stands out with an improvement of about 400 basis points year-on-year, while Personal Lines improved by more than 200 basis points. And now please turn to Slide 8. Combined ratio in Personal Lines improved to 83% from 86% due to a 1.3 percentage point lower cost ratio and 200 basis points lower underlying claims ratio. We are seeing motor frequency starting to drop, but still a continued increase in the average motor repair costs. In total, we therefore see a bit of stabilization in the overall motor claims expenses, while executed repricing and synergies are helping the underlying claims ratio down. Please turn to Slide 9 and the Commercial Lines. In Commercial Lines, we see a significant decrease in the combined ratio to 81.3% from 85.5% last year. The massive drop is driven by lower underlying claims as well as lower cost ratio. The same picture as in Personal Lines just with a more massive drop in the underlying claims. And with these comments, I will now hand over the word to Andreas, who will give an update on expectations for weather and large claims. Andreas will also walk us through the synergies, investments and guidance.

Thank you, Rasmus. Now please turn to Slide 11. The slide illustrates the level of major claims in the last 11 quarters compared to our indication of a normal level. We've decided to reduce the normal level indicated to 6% from 7% before. This changed assessment follows the recent approval of our PIM model, but it's also backed by quite low actual levels since Q1 '23 and ongoing portfolio changes. The 6.3% level of major claims in Q3 '25 is thus slightly above the new normal level for the group. And on Slide 12, we show Commercial Lines being relatively high with 11.3 percentage points of major claims compared to the new normal indicated of 10 percentage points. The normal level for major claims in Commercial Lines was 12 percentage points before the change. And now turn to Slide 13 regarding the weather-related claims, where we also introduced a new normal level as well as an indication for the seasonal pattern of claims. As you may have noted, weather claims have climbed a bit up in recent years and the average for the last 11 quarters of 3.3 percentage points is above our old expectation of 2 to 3. We have reassessed the structural level after the recent PIM approval, and we now see 3 to 4 percentage points as a better indication of the yearly normal level. We're also providing an indication of seasonality for the weather claims. We point to 35% for Q1, 10% for Q2, 25% for Q3 and finally, 30% for Q4 as a normal distribution over the year. Overall, our changed assessment of structural large claims and weather claims do not change our structural expectations for the insurance service result going forward. Now I turn to Slide 15 for an update on synergies. With the DKK 158 million in synergies harvested in Q3 '25, we have actually passed the promised run rate of DKK 600 million per year back from the acquisition of Codan. And as flagged previously, we expect to end the year with a run rate of around DKK 650 million. This will be the ending of our synergy accounting. We had a nice jump up in harvested synergies in Q3 of DKK 40 million from DKK 118 million in Q3 '24. This implies an improvement in an underlying claims ratio of 0.5 percentage points and in our cost ratio of 0.7 percentage points year-on-year. And now move to Slide 16 and the investment results. The investment result was a satisfactory profit of DKK 66 million, primarily driven by a positive return from our free portfolio in combination with a small profit from our match portfolio. Returns on bond and equity were the key drivers for the strong result. I should also mention that we expect our Tier 2 cost to drop looking ahead as we have now bought back DKK 400 million of Tier 2 bonds out of the previous DKK 1.3 billion issued. The buyback of Tier 2 bonds was driven by our lower capacity for Tier 2 capital following the PIM model approval. And finally, now move to Slide 18 and the outlook. We upgraded our guidance for the insurance service result in '25 by DKK 100 million to DKK 1.75 billion to DKK 1.85 billion. This is due to realized one-off gains in Q3 as well as a strong underlying result. At the same time, we narrowed the guidance range to DKK 100 million due to being close to the year-end. The cost ratio guidance is unchanged at 17% for '25, while the combined ratio, excluding run-off results in Q4 is expected to be 84.5% to 85.5%. The combined ratio guidance range is narrowed as well. The guidance includes synergies of DKK 600 million and the effect of implemented pricing efforts in Commercial as well as Personal Lines. We upgraded the guidance for the investment result in '25 by a new DKK 50 million to a guidance of DKK 300 million, while the guidance for other income and expenses of minus DKK 125 million remains unchanged. Consequently, group profit, excluding special costs is expected to be DKK 1.93 billion to DKK 2.03 billion before tax, excluding run-off gains for Q4 '25. In addition, we guide for our restructuring costs of DKK 175 million, of which DKK 25 million relates to the separation of our Energy & Marine business, while we expect depreciation of intangible assets to affect the income statement by around DKK 335 million in 2025. Please recall that we are hosting a CMD here at our headquarters on November 18, and we hope to see as many of you as possible. And with this, I conclude our presentation and hand over the word to our moderator. Thank you.

[Operator Instructions] Our first question comes from Mathias Nielsen from Nordea.

My primary question on the first thing is if you could remind us a bit on like what we should think about the pricing tailwinds into the Q4 top line growth. If I remember right, I think it was around 1st of November last year, you started to implement the price hikes a bit more broader. So what should we think about the top line growth year-on-year when we look at Q4 numbers and into '26 as well?

Yes. Thank you, Mathias, Andreas here. Let me try to give some flavor to that. Well, you're right to remember that we did actually start the current repricing in Q4 of last year. So as such, we would expect to see the effects coming from the extraordinary price initiatives slow down a bit as we go into Q4 and further as we obviously migrate into next year. So it will be coming down a bit from what we've seen in this quarter. And maybe I could just give you those numbers also to help you out because if we look now, it's more or less what we also communicated the last time around. But looking at Personal Lines, where we have a 10 percentage points growth year-on-year, pricing would come to around 4% of that. And in Commercial Lines, we see of the total of 5 percentage points growth, we would approximate something like 2 percentage points coming from repricing on a net basis.

That's very clear. If we then move into the next year and think about that, like what is the expectations on claims inflation when we look into '26? What should we think about that? This is above -- quite above ranges when you ask some of the Nordic P&C insurers at the moment. So what are you looking into?

Yes. Well, I think our overall read is that we still -- our main focus or our main sort of -- the area where we are most affected by claims inflation remains motor. We still see some quite significant price hikes in motor coming, especially from higher spare parts. So what we're also communicating around what we're seeing this year is that motor claims in total is more or less where we expect it to be given that frequency has come down a bit. But on the other hand, we've seen this uptick in claims inflation. For now, I would expect that to more or less, let's say, flatten out at these levels. That would be our overall expectation. We don't have evidence yet that this has softened. In the longer run, at some point, we would expect market dynamics to help us to push down again to a more normal level for motor. But we're not -- for now, we are expecting more flat movements. And I don't see any very big themes for the rest of our book as it stands right now.

So if we try to put some numbers on that on claims inflation, is that around 3% to 4% claims inflation next year? Is that what you're trying to allude to? Or how should we think about that?

That's not off. I would say something around the vicinity of 3 percentage points, also maybe roughly corresponding to what you would expect to see from wages on an overall basis.

Sure. And then my last question on the capital side, like in terms of expectations of buybacks into next year. If my memory serves me right, like the ongoing buyback is ending in March, and that's why we should expect a new one if there's going to come a new big one, if that's correct. That was the first part of that question. And the second part of that, is there any -- do you see any limitations on how much you can buy back and then need to go to the foundation again? Or is that something that you think you would be able to handle in the market at the current situation?

Yes. As a general comment, I think I'll start by saying that before we dive into very specifics on the whole strategy around capital and buybacks, I think we like to leave some news effect also for the CMD. But -- so what I can do is I can restate that we -- and you're right to assume that we are sort of at full capacity until sometime in the spring next year. We do have a surplus capital. And in an overall sense, we would like to prioritize also a share buyback in all likelihood when we handle most of that surplus capital. We don't see any news in terms of liquidity. We do -- the amount of buybacks, which we are able to do at this point within the year would be -- within the safe harbor regime would more or less stand also in the next year.

[Operator Instructions] Our next question comes from Martin Birk from SEB.

Andreas, maybe if you could just continue along the lines of capital. You have a solvency ratio target of at least 170%. How is that impacted by this PIM model improvement? I assume that now -- well, I assume that it's also going to be -- we also need to address sort of the total absolute capital base, which will be strictly lower following the payout, which is due in March.

Yes. I mean -- thank you, Martin. Well, in overall terms, the 170% is our capital ratio. That's what we have been aiming for. We've had that for some time now. You're right that we also naturally have a lower surplus in absolute numbers. All else equal, the 170% stands. But I think as I also adhered to before, we'd like to give the full update and transparency both in terms of overall capital, how we strategize around the surplus and also how the different parts of the capital base, we see the targets for Tier 2, RT1 and so forth. We see that as natural to give an update for when we get back to our CMD on the 18th of November.

Okay. So a bit of a cliffhanger again, Andreas. But would you also provide an update on when you actually expect to reach the 170% or just above the 170%?

I think we would at least give you, I think, the guidance needed in the toolbox to sort of make the right assumptions about that. But the exact timing and others, I think, is a very specific sort of exercise that we could maybe do that. I don't see maybe that as a core part of the CMD presentation as such. But we hope to give guidance that will give you qualified, sort of the qualified assumptions needed to get to the right timing.

We currently have no further questions. So at this time, I'd like to hand back to Rasmus for some closing remarks.

Yes. Thank you for listening in again, and we look forward to see you, hopefully, all of you on 18th of November at our headquarters at Midtermolen. Thank you.

This concludes today's call. We thank everyone for joining. You may now disconnect your lines.