Gjensidige Forsikring ASA (GJF) Earnings Call Transcript & Summary

Good day and welcome to the Gjensidige Q3 2021 Results Meeting for Analysts Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mitra Hagen Negård, Head of IR. Please go ahead.

Thank you. Hi, everyone. Welcome again to this analyst meeting. We will go straight to the Q&A. I'm sitting here together with Jostein and [indiscernible]. Helge will join us later in the meeting. He's busy right now. So please ask your questions.

[Operator Instructions] Our first question today comes from Vegard Toverud from Pareto.

Hello, again. I have a few more detailed follow-up questions. First of all, in Denmark, the NEM for Forsikring. Could you give us a number of how much premiums that have now entered the P&L from NEM Forsikring?

Yes, it's 0. It was closed in the beginning of October.

Okay. And what's your expectation for Q4?

The total premium volume is around DKK 109 million, so give and take around that number, and then yes, divided by 4, I guess.

And that would be with full effect one quarter in Q4, just to get the details right?

Yes.

It came in at the beginning of the month.

Close to a full quarter, not quite. It was around the 10th of October.

Around that?

Yes.

10th of October?

It's a day count. So it's [indiscernible] which day that was drawn. But I think it was around either 7th or 10th of October that we closed the transaction, but it was upon approval. Or was it -- yes.

No, no, no. It was in October.

Yes, 7th or 10th.

Yes. Around that.

Yes.

I don't have the exact figures.

Yes, it's DKK 109 million annual premiums, and then just the number of the periods that we have it in our books.

Excellent, excellent. I have 2 more questions. One is a quick one on bonds and price costs. It seems like the yield or returns there have come up quite compared to the previous quarters. Is there something you could -- or some details you could provide to this? And what we should expect there going forward?

The yield income -- but I think the result is positively influenced by bonds matured comp. So there's a realization in the portfolio, if I remember correctly, in the third quarter, one other large index-linked bond that was matured actually and gave a positive comp effect. And then of course, the unrealized reserves came down.

And then the expected yield there now?

3.3%.

3.3%. That's right.

Yes. Running yield for the whole maturity or amortizible.

Excellent. And...

And the reinvestment rate was 2.5%.

2.5% on reinvestment rate?

That's right.

And then just finally, the change of ownership [indiscernible] has historically been going to, as I understood from Helge, been sold in a different way than the rest of your insurance. With that background, what do you target as a market share in this market going forward?

First of all, I mean we haven't been participating in the [indiscernible] market until now. This is a new market for us in Norway. But in Denmark, we are actually have been a market leader in that product. It is distributed mainly through real estate agents. Yes, that's I think not 100%, but very close to that. It's a real estate agent distributed product, where that might change in the future, but this is how it has been. And we haven't specifically targeted any market share. But I mean, as Helge mentioned on the call, there has been estimates in the market for around NOK 3 billion market there. I think that was actually the [indiscernible]. Take that number [indiscernible]. And so it's -- we'll see whatever it ends up in. This is, of course, not collective market until January for us, so we'll see.

Is there any numbers you could provide, a market share you would need for this to be breakeven or things like that?

Well, I think as always, it's advantage to have a fairly large portfolio because that gives the proper risk diversification. In terms of [indiscernible] cost or anything that should require in a specific size, it's not that much. So it's -- so -- and -- I don't think they will give you a number on that one. But it's important over time here to get a fairly large market share with best possible data. And of course, when you distribute we have the change of ownership policy. We also have a lot of information about the risk object, which is beneficial to the ordinary property products as well. Because this is a new product, this also comes with a new requirement for the -- we call it [ taxators ] who are also the surveyors, who check the risk in terms of the fixed costs in the region, which it will be improved compared to the existing ones, which is often required.

Excellent. And if I understood you correctly, this would be a 5-year product. Is the liability for one selling a property in Norway, is that limited to 5 years under the new regulation as well? Or is there something ...

I think it's a guarantee period that's by law is that we have 5 years for this one. I think this is not something we have decided. It's regulated -- a part of regulation.

[Operator Instructions] We now move on to a question from Tryfonas Spyrou from Berenberg.

I just I'm trying to understand in terms of the margins that your peers acquired -- sort of margins better. And obviously, you've been ahead in terms of pricing...

Excuse me. Tryfonas, your line is very poor. Could you start once again and also bring your phone closer to your mouth?

Yes. Can you hear me now?

Better. Thanks.

Sorry about that. So my question is around sort of your margins, which are obviously way better than peers at the moment. You had a sort of price increases, I guess, for 2 years running perhaps ahead of peers. So now you're talking about putting price increases to sort of in line with an above price inflation. So I'm just trying to understand how can you sort of stay competitive enough, given all the sort of price increases over the last 3 years? And obviously these are expected to continue? That's my first question. And I guess my second question is on the runoff. It's currently running above your sort of NOK 1 billion expectations. Just can you give us a sense of what lines are driving this? Does that have anything to do with sort of trends around lower body injury claims in motor? And obviously, should we expect that momentum to continue going into 2022?

It is, of course, a balancing act of kind of what price increases you are able to put through. But especially in Norway, the competitive position is strong. We have the best data, both on the risk picture and the customers as such. And it helped through the customer dividend model, which means that we have a very good position here and are able to put through price increases. And then as we mentioned on the call or the presentation, the -- actually retention figures have been stable to slightly positive. And when that can continue is, of course, something we try to be very light-footed here and see that we don't put through price increases, that will lead to either mass exodus or a lack of new sales. But so far, every sign is actually very positive. New things is, of course, something to admit in the report because we report on earned premiums, which we reacted to that. But I mean the new sales is also going quite fast. I mean it's -- the portfolio is growing, both in terms of actual physical volume in terms of number of cars and number of customers in the private segment but also the premium volume. And whether that can continue for or how long that can continue is something that will be a speculation. But going into the very important 1:1 renewal for the commercial segment now with 40% of the portfolio renewing, our ambition is still to price above the expected claim inflation here in Commercial Norway. Also for private property in Norway, we've been very explicit of the price above the expected claims inflation, whereas motor is more in line with expected claims inflation. In the other markets, our position is, of course, not as strong, but I think we are getting a really good traction now in Denmark. And we are able to keep up the retention numbers and get to price increases, which are more or less in line with the claims inflation. But when saying this, these are very broad statements. We look at pricing at a very differentiated way, at very, what we call, micro [indiscernible], which are detailed in terms of what type of risk, what type of clients are here. There is also time-scoring models, which -- where the price increases will depend on your history with us. So it's -- my average numbers conceives a lot of details on the net, which are very, to a large extent, very much. Yes, Sweden Baltics, yes, you saw the margin improvements in Sweden, which is very good, based on I think 1 to 2 years of really solid work in terms of underwriting and risk selection. The Baltics, I think part of the problem we see there is that we haven't been able to procure the price increases that we should have been or haven't been consistent enough in our pricing there. And we are working on a number of measures to improve margin and get costs down there. Volume was actually picking up a bit again in the Baltics after some weak quarters, 2 and 3 quarters earlier.

Okay. That's very helpful. I guess part of the reason I was asking the question is obviously when [indiscernible] talks about growth, especially in private, they're saying that new customers, on average, are less profitable. So I guess I'm surprised a little bit, given you have such high levels of growth, at the same time, your underlying is improving quite a lot, so I think that's quite positive. But I think that's what has triggered the question on my part.

And then the [indiscernible] by line, I think it's -- there are 3 major lines that have been part of the plan [indiscernible] that have been going on now for 4 or 5 years. This is workers' compensation in Norway. It's related to personal interest in motor in Norway and workers' compensation in Denmark. These are all very long tail lines of business, large parts of business. And it has been going back to mainly to vintages 2018 -- 2008 to 2014. Obviously, that will benefit the hindsight. We were too conservative in our reserving. I think it's a result of improved health and safety, in worst cases, improved quality of roads and cars, which kind of -- we didn't quite capture a lot that, trend was there. If we look at about the interest in the motor line of business, I think it's been a long-term decline here. Maybe flattening out somewhat now, but it's still much improved compared to 10, 20 years ago. And this is probably as of both safer cars and safer roads. Number of accidents haven't necessarily gone down so much, but the consequences have been less fateful or serious than they were years ago.

And I guess should we expect that trend to continue going forward? How -- what is your view on that?

I think, in the short term, I wouldn't expect any change. But I mean maybe if you go for decades to have the quality of driving assistance systems and so on, we'll take this trend even further down. I think 1 or 2 years ahead, I don't foresee any specific change there. That's again -- here, this is a prediction. We don't try to look at the crystal ball here. I don't necessarily have any better view than you have. But this is okay, at least, our view.

We now move on to our next question, which comes from Phil Ross from Mediobanca.

Just a question first on the IT system. You said you started rolling out with private Denmark. I just wonder what sort of time line we're looking at for Norway, assuming that, that comes next? And what sort of extra capabilities to the IT system give you? I'm not sure whether that would sort of put you ahead of your peers maybe, or is it a process of catching up with peers' IT capabilities? And then the second question I had is just on the dividend, mainly out of curiosity really, I wonder why you decided to pay now and not wait till year-end? Or is that more of a formulaic calculation timing thing?

We have a new IT system from Sapiens. It's our really the best system that is in the market now. So when that is in place, given our better system than our main competitors, which have shown not in the earlier stage. It is a system that will reduce our operating costs in Denmark and [indiscernible], probably Sweden, before we go to Norway. And we decided to roll it out in that order and then not do all geographies in one go to contain risk. Because this core system rollout with international institutions are somewhat risky, and we've seen a number of less successful implementation in other financial institutions. So with some degree of cautiousness, we have done it in this way. It takes longer to then get the new system in place in all the geographies but it happens with a lower risk in my view. So when it will be in Norway? It's still a couple of years before we start rolling off in Norway. So we will now be working on private Denmark, and that's where the system is in place or next part going live is the commercial business in Denmark and then move on to Sweden and then to Norway. And also part of the reason for doing it in Sweden and Denmark first is that the system we have there were both more costly and less efficient in other ways than the system that we have in Norway at the moment. Both of the systems in Sweden and Denmark were in a way not owned by us but by FTC. Whereas the system we have in Norway is owned by ourselves. Timing of dividends, to argue in both ways, I guess in terms of when it should be now or later, or earlier for that matter. It is a fact that since we sold off the bank in 2019, we had a very high capitalization. And we said at the moment that we should -- our optimal way of using the proceeds from that sale was to invest in new non-life insurance business, in organic growth. And then that hasn't taken place. We have given ourselves a couple of years. We haven't bought anything big, small acquisitions. We can sum part of the different generating capacity or earnings capacity that we have underlying. So this was a good timing. Also remember that in 2020, we were restricted in a way from paying out dividends due to ongoing COVID-19 situation. So this was not [indiscernible] just we're saying we should have done this in 2020.

That's very helpful.

It's also, I think, fairly consistent if you go back a few years ago, go down the third quarter of all time.

Sure.

[Operator Instructions] We now received the question from Alexander Evans from Crédit Suisse.

Just on customer retention, if I look at your targets, you seem on track in Norway, and obviously outside of Norway, is I think about 6 percentage points behind. Is it possible to give a breakdown of where you sit in Denmark relative to Sweden and the Baltics, and how you think about that target going forward?

I'll talk a bit later about the numbers. But what we have in Norway is a bit specific, especially because of the customer dividend only because of the strong brand recognition out here. So I mean these are considered the 2 most driving forces of the high retention levels in Norway. And we don't have a customer model outside of Norway and we have a brand which is less strong at this. I mean I think it's picking up really in Denmark now, a number of efforts of our numbers here, bidding it and also not focusing our brands in Denmark to avoid the one [indiscernible]. Whereas we lag still in Sweden and the Baltics. It's also related to the weaker retention of [indiscernible] in Sweden and Baltics a bit to how we sell the product, to a larger extent to selling one product at a time more than selling the whole customer relationship. That kind of is keeping the retention levels down. But the ambition of Gjensidige is still get the customers. We are working on broadening all the customer relationships. And also we are, yes, doing things to keep them, keep their attention at the higher level in the Sweden and Baltics where it's weaker.

Sorry, I was just going to ask on product per customer. How would that relate in Norway relative to what you're seeing in Denmark? And it sounds like Sweden and the Baltics are more sort of around the 1 to 2. Is that right?

I think in what we call the core private part of the portfolio, which is either what we call it the [indiscernible] Baltics program or Affinity program, I think that's something like 4.1-or-something. 4.2-or-something, if I am Correct? Yes. Whereas we're not talking private segments, that's where this probably makes most sense to talk about, and -- but in Sweden and the Baltics, we are between 1 and 2 products per customer. And it is important to have a breadth in the customer relationship to get the retention up. If you look at the actual specific, do you think that in -- to get to this 85% outside Norway, we'll probably look at somewhat above 85% in Denmark and then get it closer to 80% in Sweden and high 70s in the Baltics segment . More to catch-up on this in the Capital Markets Day in November as well. Where we are at the moment in the third quarter, with the 29 outside Norway, it is 81.5% retention in Denmark, and 78% in Sweden, 68% in the Baltics. So there is -- I think it's an ambitious target but totally achievable. Or at least totally achievable, but, yes, over some time now it will be achievable, and it is improving.

Thank you. At this time, we have no further questions in the queue.

All right. Thank you, everyone, for dialing in here, too. We are available for you. Just contact us whenever if you have any questions. Other than that, we hope that you stay safe, healthy, and we'll speak to you soon. Bye.