Gjensidige Forsikring ASA (GJF) Earnings Call Transcript & Summary

Hello, and welcome to the Gjensidige Conference Call. [Operator Instructions] I will now hand over to your host, Geir Holmgren, CEO, to begin today's call. Thank you.

Hello, everyone, and welcome to Gjensidige's Conference Call. This is Geir Holmgren speaking. And with me, I have our CFO, Jostein Amdal; and our Head of IR, Mitra Negård. Yesterday, we announced the sale of our operations in Baltics, ADB Gjensidige to ERGO International AG. I'm very pleased with the transaction, which supports our strategic priorities to create a leading Nordic P&C company. A strong commitment to improve profitability and growth in the Nordic has been important for me from day one. The sale of our Baltic business supports such a strategy and shows our clear Nordic market focus. And this transaction creates the best long-term values for our shareholders and enables us to focus all efforts on our core market in the Nordics. We have implemented significant measures in our Baltic operations over the past year and are pleased to see the strong improvement in the underlying profitability. Having said that, we believe that the Baltic operations will benefit from an owner with a stronger strategic focus and priorities in the Baltics to further develop the business. So I will now turn you over to Jostein, who will comment on the transaction details.

Thank you, Geir. As you have seen in our announcement, the agreed price for ADB Gjensidige is EUR 80 million. This is a fair price in our view, representing a 2x price to book multiple. The purchase price will be fully paid in cash at closing, which is subject to, among other things, customary regulatory approvals. The purchase price is subject to adjustments for changes in equity in the time span between the end of 2023 and closing. This transaction will only have a minor impact on the Gjensidige Group's financials and the financial targets remain unchanged. We expect to recognize an accounting loss of around NOK 120 million in the third quarter of 2024. The transaction is expected to positively impact the group's solvency ratio at the time of closing by approximately 4 percentage points. This is based on the approved partial internal model as at June 30. And with this, we'll now open up for questions from participants. Operator, could you please proceed, please?

[Operator Instructions] Our first question comes from the line of Tryfonas Spyrou from Berenberg.

I guess the first question would be from this NOK 120 million charge and getting my understanding of the difference between recurring value of the asset on your balance sheet and the purchase price or the selling price. I guess, do you expect that to have any impact on your dividend paying capacity for the year? I appreciate this might not be a cash-related item, but it does impact sort of [ ERGO's ] earnings. And so I appreciate that might have an impact. So any thoughts around how we should think about the payout ratio for the full year? And the second question is basically more sort of strategic. You said, Geir, I think you want to create a leading Nordic insurer and obviously, focus on your domestic markets. Does that mean with the sale of this asset, you're looking to do perhaps any other deals in the Nordics, given that you have more time to focus on the domestic stuff?

Yes. Jostein, probably you start and I'd continue.

Good. This will have a P&L effect, but not affect the dividend decision for 2024. So in effect, that will probably have slight effect on the payout ratio as such. But the dividend policy remains unchanged.

Can I just confirm that you can pay more than 100% of your profits? Is any sort of approval you need to take if you were to do that? Can you just remind us of all the mechanics?

Yes. It's absolutely possible to pay more than 100% of annual profits and we've done so a couple of times before. The key focus is on the solvency situation of the company. And if there's more than 100% payout ratio, there is a need for an application to the FSA. And between 50% and 100% payout ratio, it's a notification to the FSA. And the FSA will also look at the solvency situation when they look at the notification or the application as such.

Okay. So more on the strategic part of it, as the amount and our story on the Capital Markets last year, a very focused strategy within the Nordics on P&C business. This kind of focus will continue. We are looking for opportunities, both organic profitable growth and more inorganic growth. But it has to be smart and it has to be -- create good shareholder value as well, of course. And now the Nordic P&C market is consolidated. So we also see that there have been some minor portfolios in the Danish market during the last couple of years, and we had 2 acquisitions last year. But going forward, our main core focus is to grow our business in the Nordics within P&C mainly and not outside the Nordics. And if some inorganic opportunities arise, we will assess that, having in mind that on a long-term basis, our main focus is to create shareholder value.

Can I maybe ask relative to the past, do you have more or less appetite for bigger deals, i.e., not sort of small books and bottoms, but would you say you have more appetite now for somewhat of a bigger deal versus the past?

If it creates good shareholder value, we have, I would say, a good appetite, but it has to be smart, both financially and strategically and it has to be within the Nordics. It is important that we build future growth on our core capabilities and where we have competence. And yes, I think that's the core message for me regarding more strategic opportunities going forward.

The next question comes from the line of Jan Erik Gjerland from ABG.

When it comes to these EUR 80 million in proceeds and the 4 percentage points increase in solvency, should we assume you want to pay it out as an extraordinary dividend rather than to reinvest? Or how should we think about this proceeds in your accounts versus the opportunity to get more portfolios and you're enhancing your ROE by lowering the equity base?

Okay. I mean it's up to the Board to propose any dividends, and it will be based on more continuous assessment of the capital situation. So as for now, there are no plans for paying out special dividends. Excess capital is defined as before, and capital will be on a level being necessary for keeping the A rating and so on, the dividend policy. So that's the core view on how we look at this at the moment. Jostein, anything you would like to add?

No. As I said, the dividend policy stands and we'll assess the capital situation at any point of time to decide what to do.

Okay. The second question is then your size in Sweden is, of course, larger than the Baltics and you also increased profitability in Sweden. Is it large enough for you to continue to build the scale in Sweden from a low level and make it even more profitable like Norwegian business? Or it is, say, like then in the Baltics potentially you can think about concentrating then on Denmark and Norway?

Yes. The Swedish -- our Swedish business is much more integrated in our group structure than the Baltics operations have been. We can argue that we have synergies, being in Sweden regarding competence, capabilities, pricing methodology, understanding of insurance risk and so on. So that's very important. But of course, I agree. Over time, if we are not satisfied with having a position between 1% and 2% in the Swedish market, we have to grow that. But we have to grow it in a smart way and a profitable way as well. So if you ask the same question in, yes, 5, 7 years' time, I'm not satisfied still having the same type of business in the Swedish market. But I'd also note, many things happen around us within the mobility industry, for instance, which also asks for a more Nordic presence by the insurers than being a -- having a single position in one of the markets. So the presence in Sweden is also important due to more how we look at the market going forward, especially within the mobility industry, but also more general.

Okay. Finally, on the more strategic view, are you keen or ready to have a sort of a 3-way merger for you being the biggest one in Norway, anyone in Denmark who wants to play with you and/or Sweden? Is that something we could think about? Or is Gjensidige a company that wants to expand on their own, bringing their brand into the different countries?

We are looking at both more organic ways to grow, both in Denmark, Sweden, and to keep the great position we have in Norway. But we're also assessing different inorganic opportunities going forward. Have been doing that during the last year as well when I started in this position as a CEO in Gjensidige. So there has been consolidation going on with the Nordic P&C market and I expect that you will see more consolidation going forward during the next 3, 4, 5 years. And Gjensidige wants to be a part of that. But it has to be clear that it should be right, both financially and strategically.

The next question comes from the line of Youdish Chicooree from Autonomous.

I've also got a question just on strategy and M&A generally. I mean, I think 3 years or 4 years ago, you did, I think, 4 or 5 acquisitions in the mobility space. Are you still keen to keep those businesses and invest further? Or would you consider an exit as well from these businesses?

Yes. My core focus -- my main focus is on P&C business when it comes to M&A and opportunities. When we are looking at what's happening in the mobility space or more that type of industry or business, we are more looking into partnerships and necessarily not acquisitions. So when it comes to acquisitions, the core focus is on more pure P&C insurance business.

Right. Okay. Can I ask just a clarification on Sweden? I believe you said that, like, if in 5 years or 7 years you are not satisfied, you might look at other options. But do you have like a -- I mean, how profitable can you get this business based on the scale you have in that market?

I would still say that we can improve the profitability in Sweden. Even being a small player, we can. As we have seen during the last years, we have improved the profit in our Swedish operations. We have been more selective when it comes to risk selections, and we have improved our way of doing business, how we set up partnerships, how we do the distribution, how we do the risk pricing. So that will be the core focus going forward as well. And we still have a potential to improve organically the business we have in Sweden, [ both and comfortable ]. But more important to improve the profitability.

The next question comes from the line of Vinit Malhotra from Mediobanca.

My one question is on just -- I'm just curious, when you have had the Baltics, how much was it a drag, let's say, or distraction for management time? And I'm just asking because presumably, this sale means that -- presumably that you could spend more time on the Norwegian market where you're trying to raise prices and do so many things. And I'm sorry if this was addressed. I missed the first opening one or 2 minutes of the call. But this is my only question.

Okay. Yes. Our Baltic operations -- well, the business we have been doing in Baltics have been very much separated from the core focus or the business we have been doing in the group. I would definitely argue that we are having synergies when it comes to the Danish, Norwegian and the Swedish business, but not so much synergies just when it comes to the Baltics business. And that's due to the similarities between the markets are -- you can find them in the Norwegian, Swedish and Danish markets, but the market in the Baltics are different. So the management focus hasn't been very much distracted by what's happening in Baltics. But having said that, this topic has been brought up in almost every Investor Meeting I have had during the last 18 months. So there have been kind of a focus on what are we doing in the Baltics, how to improve the profitability, how to improve the business. Is that strategically right to have this business in the Gjensidige and so on? So it's -- we've been doing the strategic review and looking at how -- what kind of competence do we have in the group, where can we find the synergies, where are our capabilities? It's a clear understanding in the management team that we should focus on the Nordic business. And that's the background for having this divestment.

The next question comes from the line of Thomas Svendsen from SEB.

So, just a small question. When is the estimated time of closing of the transaction?

Jostein?

The process now is that we need to file the applications for the different FSAs and the competition authorities. This is -- especially the competition authorities, it's a fairly lengthy process and a bit hard to predict when it will happen. So that's why we said, we expect second half of 2025, at the latest, early 2026, but it's little bit out of our control.

Okay. And that's the time we get the solvency effect?

That is correct.

We currently have no questions in the queue. [Operator Instructions] We have no further questions in the queue. So I will turn the call back over to your host for some closing remarks.

Okay, everyone. Thank you very much for your attention. And if you, during the day or a couple of next days have any questions, you can forward them to Mitra and we will revert as soon as possible. So to conclude, we are very pleased with this transaction and look forward to continue on our path towards becoming a leading Nordic P&C company. And saying that, we wish you all a pleasant day and a nice summer.

Thank you for joining today's call. You may now disconnect your lines.