Gjensidige Forsikring ASA (GJF) Earnings Call Transcript & Summary

Good morning, and welcome to the second quarter presentation of Gjensidige. My name is Mitra Negård, and I'm Head of Investor Relations. We will start this session with our CEO, Geir Holmgren, who will give you highlights of the quarter; followed by our CFO, Jostein Amdal, who will run through the numbers in further detail. And we have plenty of time for questions after that. Geir, please.

Thank you, Mitra, and good morning, everyone. Turning to Page 2. We generated strong results this quarter. But before discussing them, I would like to highlight a few important developments during the quarter. First, Lisa Legallais, CEO of the Pension business, has joined the group management team. This reflects the growing strategic importance of pension within Gjensidige and ensures that this business area is represented directly in key strategic discussions and decisions. At the same time, the product, pricing and analysis division has been integrated into the private and commercial divisions. This brings key capabilities closer to customers and operations, enabling faster decisions, stronger business ownership and better execution across the group. Second, an important highlight this quarter was the customer dividend payment from the Gjensidige Foundation. In May, NOK 3.1 billion was distributed to customers in Norway, corresponding to 11% of premiums paid last year. The customer dividend remains a unique feature in Norway and is highly valued by customers. It represents a tangible financial benefit, strengthened customer loyalty and retention. And reinforces Gjensidige's distinctive mutual heritage. Every year since our IPO in 2010, customers have received dividend payments, underscoring Gjensidige's long-standing commitment to sharing value creation with customers. Thirdly, our pension business achieved our shared top ranking in the 2026 recognized occupational pension barometer in Norway. This recognition reflects the strength of our customer offering and confirms the strong position we have established in a rapidly growing and highly competitive market. During the quarter, several new partnerships were established while key agreements were renewed. Broadening market access and reinforces positions in attractive customer segments. Let us turn to Page 3 for some comments on this. We have very recently entered into a partnership with Tesla, one of the most distinctive and innovative brands in the mobility market. Tesla has a strong position in Norway with around 1 in 5 new cars sold. As the market leader in Norwegian motor insurance, it is important for Gjensidige to be well positioned with leading mobility players. The partnerships -- partnership provides us a strong platform to developing relevant insurance solutions that can further strengthen the customer offering over time. We already have a strong position among Tesla owners. By partnering directly with Tesla, we can engage with customers earlier in the purchase process increasing our opportunities both to attract and retain customers over time. A new agreement with Privatmegleren is an important addition to our partner portfolio. Together with our existing real estate partnerships, it means that we now have a market reach of approximately 45% of private real estate transactions in Norway. We have also entered into a new partnership with Huseierne, a nationwide homeowner association representing around 300,000 members. In addition, we renewed our long-standing partnership with Tekna, representing more than 118,000 engineers and technology professionals in Norway. These partnerships strengthen our ability to reach attractive customer groups, create new business opportunities and support profitable growth over time. So let's turn to Page 4. We generated a profit after tax of NOK 2.122 billion in the second quarter. This included the announced negative impact from the Danish Supreme Court ruling of workers' compensation, which amounted to NOK 419 million, net of reserve releases. Adjusted for this, profit after tax was up year-on-year, driven by a strong insurance service result. Revenue growth continues to be strong at 9.3% in the quarter. We are well positioned for further growth, supported by the ongoing strengthening of the distribution capacity in Denmark, high market growth and improved distribution in pension and further opportunities from partner agreements and housing initiatives in Norway. In commercial, we will pursue various pockets of profitable growth, and Sweden already has good volume growth. We saw significant improvement in profitability this quarter. With the underlying frequency loss ratio down 4 percentage points. The cost ratio remained at a very competitive level of 11.7% and profit from our pension business and the financial results for general insurance also contributed to a very strong return on equity of 33.3%. The solvency ratio was robust at 189%. Turning to Page 5 for more details. Adjusted for the impact from the Danish quarter ruling, the insurance service result was NOK 2.794 billion and the combined ratio was 75.2%. I'm very pleased with this very result, thanks to continued revenue growth, high operational efficiency and cost discipline. In terms of the consequences of the Danish court ruling, while some uncertainty remains around how many claims may ultimately be reopened and how the ruling will be applied in practice. The estimate reflects the current best -- our current best assessment. Danish workers' compensation remains an attractive line of business. At the same time, such developments will naturally be reflected in our pricing going forward. The principle is straightforward. Premiums must reflect the underlying risk and we have both the tools and the discipline to ensure that they do. The financial result in general insurance business was NOK 786 million this quarter, reflecting positive returns from fixed income instruments and equities. Our pension business delivered a pretax profit of NOK 245 million, adjusted for the change in CSM. This was supported by higher net income from finance and continued growth in the unit-linked business. The insurance service result was adjusted for CSM was lower this quarter, mainly due to lower profitability for the child pension product. Over to Page 6. Insurance revenue increased by 9.3% this quarter driven by effective price increases across all segments and helped by some volume growth in private. Growth was driven by both Norway and Denmark primarily through price increases with additional contribution from higher volumes in Norway. In commercial, revenues also increased across Norway and Denmark, reflecting price increases for all main products. Volume decreased mainly due to the consistent prioritization of profitability over growth as well as the termination of agreements with the fire mutuals in Norway. Our focus remains on writing the right business at the right price. If that means accepting lower volumes in certain parts of the portfolio, that is a trade-off we are comfortable with as profitability remains the priority. In Sweden, growth was supported by both price increases and higher volumes. The pricing measures we have already implemented has strengthened profitability and give us more flexibility in how we manage pricing going forward. Differentiated pricing will continue to be important as we work to further improve portfolio quality. Price increases will be broadly aligned with expected decreases in claims cost while selected products and customer segments will increase above this level. So moving to Page 7. I will say a few words about how this strategic focus has contributed to building a healthier commercial portfolio. Over the past years, our commercial portfolio in Norway has delivered strong growth, supported by significant price increases and a clear focus on profitability. We have achieved this growth while maintaining strict underwriting discipline. As shown on this slide, portfolio quality has improved, particularly among SME customers, but also for larger corporate customers. Our strong analytical capabilities, disciplined pricing and targeted execution have enabled us to retain more profitable customers while reducing exposure to customers with weaker profitability. This demonstrates the value of the tools, data and underwriting expertise developed over many, many years. As well as our ability to steer activities effectively. Our in-house distribution capacity provides us with an important advantage in executing these measures. The strong combination of high distribution efficiency, leading pricing capabilities and solid customer retention has increased our market share by 0.9 percentage points since 2021. On to Page 8. Progress on our operational targets is important as these are key enablers for delivering on our financial targets. Retention in Norway remained high at 90%, although it was slightly down from last year. This was mainly due to the termination of the agreement with the fire mutuals and in affected regions efforts are now focused on retaining customers and rebuilding volumes through our existing distribution channels and targeted commercial initiatives. In Denmark, retention remained stable at 87%. We also continue to make good progress on automation and digitalization. The digital distribution index improved further mainly driven by strong growth in digital sales in private. Distribution efficiency in private also increased. Commercial showed a slight improvement in distribution efficiency. As straight-through processing in Norway was at 41%. Over to Page 9. Sustainability remains an important strategic priority for Gjensidige and I'm pleased with the progress achieved during the quarter. We continue to make tangible advances across several key areas while maintaining a clear focus on ambitious targets set for 2030. While there is still work to be done, the results achieved so far demonstrate that our efforts are having an impact. The external recognition and ratings, we have received, provide valuable confirmation that we are moving on the right direction. And they serve as a strong motivation to continue strengthening of our contribution to sustainable development. So with that, I will leave the word to Jostein to present the second quarter results in more detail.

Thank you, Geir, and good morning, everybody. I'll start on Page 10. We delivered a profit before tax of NOK 2.79 billion in the second quarter with negative impacts from workers' compensation in Denmark and lower results from investments. The general insurance service result adjusted for this impact, was up almost NOK 600 million. The pension result was broadly in line with last year with higher net income from finance and unit-linked results and a lower insurance service result. Net finance was negatively impacted by revaluations of real estate, partly offset by higher lending yield and lower credit spreads. The result from other items was lower compared to the second quarter last year, mainly due to profit transfers from net repairs insurance and higher other expenses from general insurance. Higher results from Gjensidige Mobility Group, lower interest on subordinated loans and decrease in amortization of intangible assets contributed positively. Turning over to Page 11 to comment on the segments, starting with private. Private Norway delivered another strong quarter with the insurance services result up NOK 188 million from the second quarter last year. The improvement was due to continued revenue growth and a 1.4 percentage point improvement in the underlying frequency loss ratio, driven by motor. Claims inflation has been broadly in line with our expectations. The underlying drivers are still present, but we now have greater confidence in our expected range of 4% to 7% for motor and 4% to 6% for property in Norway. We continue to see somewhat lower inflationary pressure in Denmark and Sweden than in Norway. And as Geir mentioned, with strong profitability restored, pricing will be in line with the expected claims cost development differentiated by customer and product and for selected products and customer segments above expected claims cost. Turning to our private portfolio in Denmark. Performance continued to improve this quarter. The insurance services result reached NOK 74 million, up NOK 71 million from the second quarter last year, driven primarily by an improved margin. The underlying frequency loss ratio improved by 8.7 percentage points, supported by pricing measures in property and motor. The cost ratio was reduced by 1.9 percentage points compared with the second quarter last year. Implemented cost efficiency measures together with cost discipline are improving efficiency in our Danish private business. Moving on to Page 12, comments on the performance of our commercial portfolios. The insurance services result in Norway increased significantly by NOK 501 million from the second quarter last year, mainly driven by lower large losses and improved margin and revenue growth. The underlying frequency loss ratio improved by 4.2 percentage points, driven by all main products. The cost ratio was 8.1%. And the insurance service results in Denmark also improved this quarter, primarily driven by higher profitability, higher runoff gains and revenue growth also contributed positively. The underlying loss ratio improved by 3.5 percentage points reflecting effective pricing measures across all main products. The cost ratio was 11.7%. We maintain a strong focus on cost efficiency in both Norway and Denmark. Turning over to Page 13. Our Swedish business reported a NOK 56 million decrease in the insurance service results compared with the second quarter last year, mainly due to runoff losses. Revenue growth remained solid. The underlying frequency loss ratio increased by 1.3 percentage points, mainly driven by property and motor in the private portfolio as well as the higher share of leisure boat insurance. The increase in the underlying frequency loss ratio should be seen in the context of normal inherent volatility in general insurance and the seasonality in leisure boat insurance rather than a negative trend. We are very pleased with our partnership with Svenska Sjö, providing us with efficient access to attractive customer groups and high-quality leads. The cost ratio improved by 1 percentage point supported by higher insurance revenue and continued cost efficiency measures. Let's now turn to Page 14 for comments on our pension business, which delivered a pretax profit adjusted for changes in CSM of NOK 245 million. This was NOK 40 million lower than the same quarter last year. Net income from our unit-linked business increased slightly. This reflected the higher management income driven by growth in assets under management. Higher administration fees also contributed positively supported by growth in a number of occupational pension members and implemented price increases. This was partly offset by higher expenses, mainly related to increased staffing to support higher business volumes as well as higher IT costs. Net finance income increased, reflecting running yield and a slight decrease in interest rates. The insurance service sold adjusted for the CSM was lower, mainly due to weaker performance in the child pension product. We have taken measures to improve profitability that will yield results over time, including pricing actions and changes in terms and conditions. Let's now turn to the investment portfolio on Page 15. The results for the quarter reflected positive returns from both fixed income instruments and equities. This was supported by a high running yield and lower credit spreads. The real estate portfolio had a negative return driven by negative other adjustments in line with the general market and high yield requirements. The portfolio consists of 6 high-quality properties in Oslo Central Business District and is more or less fully rented with long leases and solid tenants. The match portfolio generated return of 0.6% net of insurance finance, whereas the free portfolio delivered 0.5%. Overall, portfolio risk remained low. We continue to maintain a well-balanced asset allocation with a clear focus on high credit quality. This gives us confidence that the investment strategy remains well positioned to withstand further market turbulence. Over to Page 16. The group's solvency ratio remained strong at 189% at the end of the second quarter. Solvency II operating earnings contributed positively to eligible own funds together with returns from the free portfolio. As usual, this was partly offset by the formulaic like dividend, which reduced own funds by 80% of profit after tax. The redemption of the Tier 1 loan in April reduced eligible own funds by NOK 713 million. At the same time, a higher share of Tier 2 capital was eligible this quarter. We still hold NOK 200 million in Tier 2 funds that are not currently included in eligible own funds, but we expect these to be included over time. Capital requirement increased during the quarter driven by growth. A significant part of the increase came from continued growth in the unit-linked business with higher lapse risk and market risk. The positive impact from this growth is reflected in own funds. In addition, higher capital requirements for equities under a standard formula contributed to increased market risk in the life insurance business. Overall, this leaves us with a strong capital position, providing continued flexibility to support profitable growth and shareholder distributions. And with that, I hand the word back to Geir. Thank you.

Thank you, Jostein. To summarize on Page 17. Overall, we are very pleased with the strong performance this quarter. At the same time, it is important to recognize that the general insurance is inherently volatile, and that is the volatility. And that this volatility has been in our favor during the first half of the year. Our strategic approach remains centered on the 4 priorities: customer empathy, profitable growth, resilience and disciplined capital management. Together, these priorities support solid financial results and long-term value creation for customers and stakeholders. We are well positioned for further growth, and we will continue to focus on cost efficiency and profitability. Based on the progress made so far, we remain confident in reaching the financial targets for 2026. We also see a strong foundation for continuing this positive development in the years ahead. And with that, we'll now open the Q&A session.

All right. We will now continue with our Q&A session. [Operator Instructions] So we will start first with the question we have received in our webcast player. It's from Qian Lu in UBS. Qian asks, the underlying frequency loss ratio improved by around 4 points year-on-year despite a strong comparative base. How much of this reflects continued favorable claims trends versus pricing and underwriting actions? And should we view the Q2 level as a sustainable run rate for the summer quarters going forward?

I can start on that one. We have highlighted that from quarter-to-quarter, there is some volatility in also the underlying frequency loss ratio and that we have seen a favorable claims environment over the first 2 quarters of 2026. Having said that, the improvement is, to a large extent, a result of the discipline we have in our pricing, where we are focused on profitability ahead of growth. And we've seen that -- we got the price increases through more than the claims development has actually pointed. So it's been a combination of disciplined pricing actions and some volatility around the claims picture.

Okay. Moving on to Qian's second question. Gross written product growth in private slowed to 5.6% year-on-year in Q2 from 9% in Q1. Is that primarily a reflection of moderating price increases, or are there any volume or portfolio mix effects to consider as well? And could you provide some color on current pricing versus claims inflation trends across your key markets and major lines of business.

Yes, I'll start on the first part of that question on the written premium that we have seen. And as was mentioned by Geir under the presentation in the first half of this year, we have seen some churn due to the termination of the agreements with 7 of the 8 fire mutuals. So that's part of the explanation and this not -- this, of course, will not be repeated. So this is a temporary effect in 2026. But if we look forward there, I think there is a continuous strong growth in Private Norway. It is strong and will continue so. We have introduced today important new partnerships and the renewal of one very important one with Tekna -- and we are taking steps to strengthen our distribution efficiency and distribution capacity. In private in Denmark. So it's -- if you look at kind of all these items together, I think there's reason for optimism about future growth, both in written and earned premium for the private segment.

I'll read the second question in writing here before we move over to the Teams participants. The second question is from Roy Tilley in Arctic and he asks, can you say a bit more about the Tesla agreement? Is this the same agreement that Tryg Enter currently has?

The agreement with Tesla was actually signed just before the weekend. I don't know the terms and conditions regarding the Tryg agreement, but we are now Tesla's main and core partner in Norway going forward. And as already mentioned in the presentation, we do have a quite good market share when it comes to insurance regarding the Teslas on Norwegian roads. But now we are having a position where we actually get in touch with the customer from day 1. And this is a very good starting point, maintaining good customer relationship and developing further this relationship. And also what we put down this kind of agreement as a signal of the strong position we have within motor insurance with another good agreement, which is very supportive of future growth within motor insurance.

Thank you. All right. We'll move to the participants in Teams. And the first question is from Thomas Svendsen in SEB. We are now opening your line.

So yes, to this idea of introducing VAT on insurance premiums, that has been, again, launched here in Norway. So how much do you think your net premiums or price to the clients has to be increased to sort of get breakeven on the profitability level, also considering that your costs or a lot of your costs also will be VAT deductible and also on an extension to this, do you think this possible increased tax burden will be shared between you and your clients? Or should we expect the clients to pay all the net tax increase here if it happens?

Well, as you know, this is committee set down by the authorities to evaluate a broad set of taxes and they have come up with, amongst others, adjustments to now start investigating or restart investigation of introducing VAT for financial products in Norway. There is quite some way before this could be a reality. Highly uncertain, I would say. But for us, a substitution of the current finance tax, which is an increased employer tax and tax rate for the company with the VAT isn't necessarily so bad. The numbers we have is from this committee that's been set down, which said that they look at increasing tax revenues by NOK 2 billion to NOK 3 billion for the whole sector. If that is correct, then this needs to be captured somehow in our pricing. And really, the -- as usual, the kind of the market situation, we will determine the kind of who bears the burden of certain increased taxation. And as you correctly point out, this also means that we can subtract more of our incoming VAT. So the calculation is actually quite complex. And it's also a bit of a complex VAT to introduce, and that's the reason why very few countries in the world actually have this VAT on financial services or non-life insurance in general.

Just to add a few comments. This is still a proposal to do the assessment. So this is something we will definitely support with the information and analysis from our side as well throughout the process. But when it comes to actually from a more structural view on this, it could be a benefit to actually change the existing tax and financial activity going back to more normal tax level on employees' tax and company tax as we see in other parts of the Norwegian business as well. This could be helpful. So -- but any kind of VAT on non-life insurance, we'll have probably a negative impact on the premium level for customers as well. So this is the kind of total mix of the consideration.

Okay. Could I have a second question quickly. Last quarter, you talked about increased competition on accident and health insurance products. Anything new on that?

Nothing new, but we are still in a position where we prioritize profitability before volume growth in Commercial segment. In this presentation, we had also a slide where we're describing the kind of activities we do to improve the quality and the performance of our commercial portfolio within insurance in Norway. We see that over time, we have managed to improve underlying frequency loss ratio, and that's due to the kind of expertise we are using to do the right risk assessment pricing and to make sure that customers that leaves us are the customers with weaker profitability. So that's the kind of ongoing work we are doing with this portfolio. And doing the right thing on pricing. We're also in a position where we actually is still a very attractive provider for customers with the right risk level and where the pricing is good.

Great. Moving on to the next question from Vash Gosalia in Goldman Sachs.

Thanks, everyone. Maybe one or two questions from my side, and it's a little bit of a follow-up from Qian's question on the GWP. So maybe just shifting your attention to commercial where you've shown a growth of 3.3%. Could you give us one, a sense of what's happening in -- within the 3.3% how much is pricing versus how much is volume in the sense? Have you given up some business just because it's too competitive or pricing is not there? So that's the first one. And maybe just in connection to that, could you give us a general sense of competition across the commercial space. And then the second one in Sweden, there was obviously -- it was impacted by runoff results. Could you just give us a sense of what is within those runoff results? Is it more of an industry trend? Or is it a one-off?

Okay. When it comes to what's happening within Commercial, Commercial Norway and Denmark. As we have told, what we see on the volume side is -- we terminated the agreements with the fire mutuals in Norway by start of the year. This has a negative impact during the first half year when it comes to volume growth. We are still happy with the total result of that kind of termination. It brings down the cost level. It is very positive that we have a direct relationship with the customers. And we see that we maintained to continue with our large proportion of total kind of total customer portfolio earlier regarded as a part of the fire mutual commercial customers. But kind of one-off short-term negative impact when it comes to volume growth. If you look at the total growth we see in Commercial segment, it's driven by price increases, and that's a result of how we have ran this business for the last quarters and prioritizing profitability before growth has been important for Gjensidige as well. As earlier mentioned and as earlier, part of our strategy as well.

Sorry, can I just have a quick clarification that bit. So it seems like the Fire Mutual was your explanation for the private segment as well, but it's also the explanation for commercial. I just wanted to understand, does it like sit across both the groups or because I believe you answering Qian's question on private, but I'm just trying to understand what's happening in commercial. Sorry, if I have gotten that mixed up.

Yes. The agreements with the fire Mutuals are both in Private and Commercial segment in Norway, and they are more specific down to some regions in Norway. We still have one agreement with the largest fire mutual, and this is going very well. They are doing well in the business. They are running the business efficiently, and we have a very good kind of cooperation. If you look at what's happening with the termination-- after the termination of the 8 agreements with the fire mutuals, in private and commercial, we see that we are -- tend to be a little bit lucky within private segment compared to commercial when it comes to proportional customers that we have maintained. But still, in total, we are very satisfied with the total kind of success when it comes to keeping the customers. But we are losing some customers and that has a short-term hit on the volume growth as well, both in private and commercial.

Understood. And then if you could just help me with the runoff results in Sweden, please?