Tryg A/S (TRYG) Earnings Call Transcript & Summary

Good morning, everybody. My name is Gianandrea Roberti. I'm Head of Investor Relations at Tryg. We published our full year results earlier this morning, and I have here with me, Morten Hubbe, our Group CEO; Barbara Plucnar Jensen, our Group CFO; and Johan Kirstein Brammer, our Group CCO. With these few words, over to you, Morten.

Thank you, Gian. And we start on Slide 3 with our financial highlights, where we reported Q4 pretax result just below DKK 1.6 billion, actually up 30% year-on-year, of course, including Trygg-Hansa and Codan Norway. And we're very pleased to report the highest-ever Q4 technical result of DKK 826 million for the quarter for Tryg classic alone. And that, of course, contributes to the highest ever full year technical result of DKK 3.7 billion. Investment income of DKK 941 million for Q4, which, of course, includes RSA Scandi result for the quarter. Combined ratio of 86.2, driving the technical result of DKK 826 million, with good growth, improved underlying claims, Alka synergies as the key drivers. Underlying claims improved 80 basis points for the group, while being flat for Private, in line with recent trends. As I mentioned, total investment income of DKK 941 million. Bear in mind that you need to split it into 2 as we also do in the P&L, where DKK 373 million is more classic investment result from Tryg, with equities and properties contributing well. And then DKK 568 million net profit contribution from RSA Scandinavia. As you know, this is the equity accounting methodology that you've now seen for a couple of quarters. And we will, of course, return to the strong operating performance in Trygg-Hansa and Codan Norway. Finally, a big surprise, we will be paying a dividend per share of DKK 1.07 for Q4, bringing the total full year to DKK 4.28 per share and a solvency ratio of 188, slightly higher than expected. And we, of course, maintain our first year '22 guidance of a solvency of 195 to 205. On Slide 4, we elaborate on customer highlights. As you've seen in previous quarters, we have implemented, in 2021, a new method, which measures both touch points like, for instance, buying insurance on the phone and a full process, for instance, claims handling, which could cover many contact points. We're very pleased to see improvements from 84 to 85, driven by mainly an improved telephone contact measurement in Commercial Denmark and improved process measurements in Claims Denmark and Claims Norway. If we move on to Slide 5, we show the highest ever Q4 technical results in Tryg classic and, as I mentioned also, for the full year. And for the quarter, the technical result of DKK 826 million, up 6% from DKK 780 million year-on-year, positively driven by higher premium income and lower underlying claims and negatively impacted by lower runoff gains and no positive COVID-19 impact, which is clearly different to the year before. Private continues to improve through higher volumes and help from higher runoff gains, but then also slightly lower weather claims. Commercial improved underlying profitability, but reported a lower result year-on-year. We see a lower level of runoff gains and a higher level of large claims pulling downwards. In Corporate, we continue to improve the underlying claims, and at the same time, the reported numbers are helped by much lower large claims year-on-year. Sweden continue to improve underlying claims as well, really positive, but we do see that much lower runoff levels leads to a lower technical result. On Slide 6, for the last time, we show Alka synergies. Very pleased that we end up at DKK 333 million, which is 10% higher than our target of DKK 300 million, which is really positive. Synergies is, of course, very important and was a very important part of the rationale for the Alka transaction. And we are very happy to see that we've overperformed on all areas in the synergies. And also that gives good comfort in the RSA transaction and the synergies planned there. On Slide 7, we show the Q4 financial performance for Codan Norway and Trygg-Hansa. We're very pleased to see a strong reported growth of 5% in Trygg-Hansa. Actually, that has been adjusted because as you may remember, in Q4 2020, so not '21 but Q4 2020, there was an DKK 180 million debt write-off in Trygg-Hansa, and we've adjusted for that when calculated growth of 5%. Whereas in Codan Norway, we saw limited growth. If we dig further into Trygg-Hansa growth, there was a strong new business growth in personal lines and particularly in motor, where Trygg-Hansa has been underweight historically. And in the SME commercial lines, we see that retention is up, but also new business in motor is developing positively. If you look at the technical results, Trygg-Hansa for the quarter was DKK 508 million, with a combined ratio of 78.8%. And Codan Norway improved significantly to a technical result of DKK 44 million, with a combined ratio of 84.2% but, bear in mind, helped by the absence of larger claims. Overall, Trygg-Hansa and Codan Norway benefits from a robust investment result of DKK 218 million, with risky assets performing well in Q4, particularly rights, which is real estate. If we look at Slide 8, as you know, RSA Scandi has only been in our account for 7 months in '21. And we use this equity accounting methodology where we see a net profit being reported as a separate line in investment. And we will, of course, change this April 1, '22 expectedly after demerger, which means that in Q2 results, for the first time, we'll see full consolidation, and we will leave the equity accounting concept. Now 7 months is a little bit of a strange timing to report. So we thought it'd be helpful on the Slide 8 to show 12 months full year '21 results for Codan Norway and Trygg-Hansa. But bear in mind, we only owned it for 7 months. For the full year, Trygg-Hansa delivers just over DKK 2 billion of technical results, with a combined rate of 78.8. And bear in mind, that includes the single weather event in Gävle of DKK 149 million. And then Codan Norway delivered DKK 163 million technical result for the full year, with a combined ratio of 85.5, with a strong improvement to the year before. So all in all, close to DKK 2 billion technical result for the full 12 months for the new family members in Sweden and Norway, and I think off to a very good starting point. And that thing is a segue to synergies. Johan?

Thank you so much, Morten. And let's dive straight into synergies on Page 9. So for 2021, we report synergies of DKK 63 million, and these are, unsurprisingly to many of you on the call, mainly costs related in line with the experience from the Alka transaction. In general, there is a positive impact from natural attrition savings from not being part of the RSA Group and reduced marketing spend. We have, together with Trygg-Hansa and Codan Norway, been working hard on the synergy part so far as this is a very critical part of the rationale behind the RSA transaction. And we are pleased to emphasize that we feel very comfortable that we'll deliver the promised synergies according to the targets we have already laid out. With that, moving to Page 10 on shareholders' remuneration. Tryg is, as Morten said, paying DKK 1.07 dividend per share in Q4, DKK 4.28 for the full year. And a couple of months ago, at our Capital Market Day, we did publish a relatively precise guidance in terms of shareholders' returns for the next 3 years. We aim to pay between DKK 12 billion to DKK 14 billion in ordinary dividends between 2022 and 2024 and, adding to that, a buyback of approximately DKK 5 billion starting in first half 2022 following the FSA approval. We aim very clearly to remain a dividend stock, and the full consolidation of RSA figures, the synergies development and the booking of nearly all transaction and restructuring costs in 2022 will drive our earnings substantially higher and, therefore, boosting our dividend capacity in the next 3 years. So after 2021 and 2022 with some turbulence in the P&L, things are soon stabilizing, and our commitment to a strong dividend development is as firm as always. With that, we're turning to the next section on premiums and portfolio looking into Slide 12. So top line growth for Q4 was reported 2.6% and 5.1% adjusted for bonus premium rebates, driven by growth in all Private and Commercial segments. In the next slide, we will, in more details, describe the bonus and premium rebates. Private being the most profitable area, and therefore, we are very satisfied with the growth in this segment of reported 3.1% and 7.3% adjusted for bonus premium rebates. Commercial had a growth of 5.1%, which was a combination of organic growth in Denmark, and in Norway, it was driven by price increases for especially larger commercial customers. Corporate, on the other hand, showed a negative growth of 2.5% and was impacted by profitability initiatives across countries. In general, please bear in mind, growth is not the key in the Corporate business, what matters here is improvement in the profitability across all countries. Sweden showed a growth of 1.5%, impacted by price adjustments and good development for its bank distribution with Danske Bank. That brings us to the bonus and premium rebates on Page 13. Tryg's premium growth was significantly impacted by bonus and premium rebates in Q4 and, overall, for the full year 2021 due to strong profitability across partner agreements. Many of our partner agreements have a profit-sharing mechanism, and strong performance drives higher profit sharing, which accounting-wise is deducted in the premiums. As you know, Tryg has a strong focus on partner agreements as these are, in general, characterized by a high retention and, therefore, low expense ratio, making it possible for us to offer products at competitive prices. I will revert to that on the next slide. From 2023 and onwards, as part of the IFRS 17 implementation, the bonus and premium rebates will no longer impact the premiums, but be part of the claims, which, in our view, makes it much more sense and will make our premium growth more stable going forward. Turning to Page 14 on our partnership agreements. As mentioned, Tryg has a strong focus on profitable partner agreements, and we have many years of experience in this area, both in Denmark and in Norway, and we are satisfied with the many partner agreements we've worked with for many years. And due to our strong partner setup, we have also recently been able to attract new partners from competitors. As mentioned at our Capital Market Day in November, partner agreements are, in general, characterized by strong leads coming from the partners with effective hit rates, with attractive risk profiles, many products per customer, a high customer lifetime and, therefore, an associated low expense ratio. The Commercial metrics are, therefore, inherently different from those of our direct business, which allows us to have both different product features and different pricing for our partnership customers. But looking across our partnership agreements, we, of course, see different levels of performance, both in size and profitability as we do with our direct customer. But as a whole, and I think this is the important key here, the partner portfolio has a combined ratio around 85%, close to that of the rest of the Private portfolio. Turning to Page 15 on pricing. Adjusting prices in accordance with inflation is critical, and therefore, we monitor the development very closely, especially these days. In periods with higher inflation in the prices of materials, Tryg has been able to mitigate this through strong procurement agreements. We now begin to see some inflation impact, especially for house and building. And therefore, we will continue to adjust prices to mitigate this going forward. Turning to Page 16 on customer retention. Customer focus is extremely important, and customer view of Tryg is best monitored through the retention rate. For Private Denmark, we experienced in the past few quarters, as expected, a slight drop in the retention rate as a consequence of the drop in the Nordea portfolio. We are, however, satisfied that we have a net positive impact when looking at the Nordea and Danske Bank portfolios due to very strong sales to Danske Bank customers. And we are also satisfied that for this Q4, we are seeing the retention rate improving with 0.6 percentage points. In Norway, we are happy to continue to see a high level of retention even with the high growth for the past 2 years. And for Commercial, we saw an improved development for Denmark with 0.2 percentage points and an improvement from Norway, even in a period where we have been working very much with price adjustments. And with that, I will pass it over to you, Barbara.

Thank you very much, Johan. For the details on claims and expenses, please turn to Slide 18. For Q4, Tryg reported an improvement in the underlying claims ratio of 80 basis points for the group, while the Private segment was flat. This is in line with the previous quarters in 2021. The improvement in group underlying claims ratio was primarily driven by profitability initiatives in the Commercial and, in particular, the Corporate segment. And we saw a higher reported claims ratio for Commercial compared to same period previous year due to a higher level of large claims in this segment. As previously mentioned, the strong growth in the Private segment is impacting the underlying claims ratio as new business is not as profitable as what you could call old business. The claims ratio for the new business is approximately 3% higher than the claims ratio for existing business, primarily because the new customers tend to make more frequent claims under their insurance policies during the first couple of years. For the group, we expect the improving trend to continue in 2022. Please turn to Slide 19. The 2 charts show the large and weather claims experienced in the quarter. The large claims were higher than normal, while weather claims were below a normal Q4. At the bottom, you can see the development in the discount rate of Tryg's liabilities and the runoff result. The discounting rate of our liabilities move upwards to 0.7% compared to 0.2% last year following a general increase in the market-based interest rates. With respect to the runoff, the result was 3.8% for Q4 and 4% for the full year 2021, both somewhat lower than last year. On Slide 20, you can see that the expense ratio continues to be stable. The expense ratio for the fourth quarter was 14%, in line with the same period last year. In general, we believe that an expense ratio around 14% is strong and a very important competitive advantage. The effort goes into continuously to identify improvement related to a more efficient distribution, which, to a large degree, finance the IT investments. During Q4, we saw a slightly higher number of employees, primarily driven by the higher business volume, investments in IT and digitalization and continued expansion for the credit and surety business. In the following section, we'll take you through our investments, our capital and our new targets. So please turn to Slide 22. In this slide, we show the split of our invested assets, which currently add up to approximately DKK 43 billion. The match portfolio is backing our insurance reserves and is around DKK 30 billion, while the free portfolio, the capital of the company, is approximately DKK 13 billion. The asset mix of the free portfolio is broadly unchanged, so not much new to report here. Please also note that the investment assets described here are for Tryg classic or Tryg standalone. The investment assets related to RSA do not go into our portfolio yet. However, this will be the case at the time of demerger. On Slide 23, you can see more details on the stand-alone investment results. For Q4, Tryg reported a stand-alone investment result of DKK 373 million, driven by a very robust return on the free portfolio, primarily benefiting from strong equity markets as well as good returns on property assets. The match portfolio also produced a small positive result, primarily driven by a tighter spread between the discounting curve in euros and the assets invested in Danish kroner. In general, Q4 was really strong, and we would like to highlight that a total investment result of DKK 373 million in the quarter is approximately the double of what we expect in a normal year. And it is really important not to extrapolate expectations on this particular quarter. On Slide 24, we take a look at the solvency position. Tryg is reporting a year-end solvency ratio of 188, up from 179 at the end of Q3. The upwards move is driven by a strong organical -- organic capital generation, with net profits almost doubling the dividend and a more or less flat SCR. Looking at the SCR, you will see 2 diverging moves. Tryg standalone SCR is driven up by a higher market risk following a strong capital markets trend in Q4. And at the same time, Codan's SCR is down due to some technicalities in Codan's model. At our recent CMD, we guided a solvency ratio in the range between 195 and 205 at the end of the half year '22. The higher-than-previously-expected SCR for Tryg and the lower Codan SCR at the end of Q4 does not impact this guidance. We maintain the 195 to 205 guidance, which already includes the intended DKK 5 billion share buyback, and we see it as a strong starting point for the new group to drive further shareholder return. On Slide 25, you can see the current Tier 1 and Tier 2 capacity. There is not much new on this slide. The Tier 1 capacity is linked to the overall level of the core equity Tier 1, which is ultimately driven by profits and dividends. As mentioned in the last bullet on the slide, it is important to remember that the year-end SCR of DKK 9.9 billion will be approximately DKK 1 billion lower when we close the sale of Codan Denmark. Hence, you should consider the current Tier 2 capacity to be extraordinary. Tryg has no plans to issue further debt. Slide 26 shows the updated, as per end of Q4, buildup of our solvency capital requirements split into different categories. Please remember that we only use our internal model for the insurance risk or else is on this standard formula. Additionally, we are showing the split of the market risk charge between the different asset classes. Like shown before, equities continue to attract the highest capital charge. In Slide 27, we show the historical development of our solvency ratio. It's quite clear that adjusting for transaction events, like the acquisition of Alka and recently RSA Scandinavia, the development of the solvency ratio is very stable. In a normal year, our own funds primarily moved due to the development of net profits and dividends, while the solvency capital requirement moves very little, driven by the growth of the business. As mentioned on Slide 24, we end the year at a solvency ratio of 188 and repeat the guidance for the first half of '22 in the range between 195 and 205, including the impact of the share buybacks. An updated snapshot of the solvency ratio sensitivities can be found on Page 28. And you will notice that there's not a lot of changes on this slide. The sensitivities to the solvency ratio are broadly unchanged. And as covered bonds are our largest asset class, by far, it's not a surprise that the biggest sensitivity relates to this particular spread risk. 2021 was an eventful year, and we expect '22 to also be quite exciting. On Page 29, we have summarized a few important reminders about what to expect. The starting point is getting to demerger of Trygg-Hansa in Sweden and Codan in Norway from Codan in Denmark, after which we will be able to fully consolidate the results of Trygg-Hansa and Codan Norway into the Tryg numbers. This is expected, as Morten mentioned before, to be the case from 1st of April '22. You should also note that we have booked slightly less transaction and integration costs in '22 compared to what we originally anticipated. The difference will flow into '22, where we expect to book the vast majority of the remaining part. The remaining part is approximately DKK 1.3 billion, and we'll come back with more precise comments on this topic during 2022. And regarding our new financial targets for '24, we published these at our CMD in London in November. Morten, can you remind us what we're targeting?

Yes, of course. Because of -- on Slide 30, we repeat all of our targets as given at the CMD and for 2024. I'll not go through all of them, and I'll just repeat our extremely important and ambitious technical result target of DKK 7 billion to DKK 7.4 billion by 2024. And then our target to pay out DKK 17 billion to DKK 19 billion to be sent back to our shareholders, split between ordinary dividends and the expected and announced buybacks. So that will be an important and, I think, interesting journey. And of course, we finish off with our favorite quote on Slide 31 from John D. Rockefeller, who I hope will be pleased with our planned increase in dividends and payouts going forward. I think with that, we'll turn to your questions.

[Operator Instructions] And our first question comes from the line of Asbjørn Mørk of Danske Bank.

A couple of questions from my side, first on the premium rebates and the Private portfolio that you have. A couple of questions really. But I mean, considering the growth you've had the last couple of years from partnerships, it seems like we have sort of reached the maximum and how profitable these agreements can be without you having to sort of reimburse your client base. And I can see you're expecting underlying claims ratio improvements in Private going into 2022. So just wondering, is this -- on a net basis, is this as good as it gets for a relatively big part of your Private portfolio? Or how will this actually develop in 2022, if you do actually show improvements in those areas of your business? That was the first question.

Maybe I can start by commenting on that, Asbjørn. I don't think we'll ever reach a point where we believe that it is as good as it gets. Our view is that we continuously work to improve the underlying claims ratio for all of our portfolios, including Private. And then, of course, depending on the growth, that can have an impact due to the new customer profile, as Barbara expects. So no, we will not stop working on improving the underlying claims in Private. We'll have a continued focus on improving that. Of course, the delta on the premium rebates is a little bit larger than we thought, and perhaps, the split between the quarters could have been better because the Q1 -- or Q4 impact in Denmark is a little bit on the high side, but it has also been slightly unusual. For instance, some of the partner agreements has a higher component of travel. So when travel is lower because of COVID, with that 60% lower travel claims, that hits particularly partner -- particular partner agreements more than other lines. So there are various nuances as to why the premium rebate is higher for Q4. Ideally, we would have split it better, but we'll continue to improve underlying claims, and some of that will be shared with partners.

So I mean, if I look at the Slide 13, you do emphasize quite a lot on the difference between the growth as reported and the underlying growth excluding this. But isn't so that if we -- if you didn't have this, we would have higher premiums, but then we'd have a worse combined ratio. So I guess the net profit impact would be the same, right? So if we look at the adjusting for IFRS 17, I guess, you would just get higher premiums, but with the deteriorated combined ratio.

So you're right that with IFRS 17, it will no longer be deducted from the premiums. It will be shown on the claims. It will not result in a worse combined ratio. It would result in the same combined ratio as today. But you're right that the expense, if you will, of that profit sharing will be shown on the claims. So it won't actually change the bottom line. It won't change the technical result, but it will give less of -- it will improve the visibility of the actual growth traction because today, the model means that when there's stronger bottom line, it deteriorates the top line growth, which is quite counterintuitive. But you're completely right. It won't change the technical result.

But isn't so with the partnerships, quite a lot of them that you have right now, I guess, if your profitability improves further, you will just have to pass that to your -- back to the clients. Will you be able to retain some of it?

Well, it -- there is a -- there's a variety of models of sharing. Some of the sharing is a proportional sharing, so that means that a lot of improvement would be kept by us. Some of it would flow to the partner. Some profit sharing agreements are packed to a particular combined ratio. Then there is more of the impact that you mentioned. In some partnership agreements, we choose to turn around and use the higher-than-expected profit to invest in new products or new digital solution, which drives new growth and new results. So there's a variety on that, Asbjørn. So it's not as simple as you put it. And there's a number of the partnership agreements where stronger profitability would lead to stronger technical result for us as well. And then, of course, the volume that goes into it will improve our technical result as well. So it is a little bit of a mixed bag because the sharing methodology has -- there's a great variety of that.

Okay. Fair enough. Then if I may go to Slide #7 on your newly acquired assets. I'm struggling a bit to read whether I think this is -- is this good data or maybe slightly disappointing data. But if I look at the growth in the Swedish business, of course, very strong reported 5.7% if we adjust both for the one-offs. But then I guess you also have some FX tailwinds that leaves the growth at 3.5%-ish in the period, which, I guess, is okay. But then the combined ratio deteriorated 3 percentage points in Trygg-Hansa year-over-year, and you do write that there's COVID-19 and there's runoff. Could you just elaborate a bit on the underlying claims ratio trends for Trygg-Hansa if you do have that data available at this time? And I guess the same for the Norwegian business growing premiums by 19%, but with what I calculate as 8% FX tailwinds, of course, still good growth, but the 50 percentage points combined ratio improvement, I guess, that you're also saying large claims had an impact. But how do you see the underlying development if we adjust for this -- on that business as well?

Yes. I think for the Norwegian business, you point to some of the biggest areas of impact. So the lack of large claims has been driving a substantial part of the development this year. The underlying is slightly improved, but it's not a massive development there in 2021. For Trygg-Hansa, bear in mind that obviously, there was also the large weather claim back in Q3. And as you point out there, there was higher runoffs for 2020. That sort of supported the very strong result in Q4, and obviously, they also benefited for -- from COVID in 2020 compared to '21. So it's a mix of different things, where I would say, Trygg-Hansa probably looked a little bit too strong in 2020, whereas Codan Norway probably is a little bit on the strong side in '21.

I think it's fair to say, Asbjørn, that many competitors, including RSA, has chosen historically to take the COVID impact more or less straight into the P&L, which, of course, was flat at 2020, and then it's a negative year-on-year comparison into the later part, particularly of '21. And as you know, in Tryg, we've chosen to be slightly more on the conservative side and be slightly less keen to take every single impact into the P&L. But there is that difference when you compare '20 to '21.

But I guess the conclusion is -- it varies quite a bit on how -- if the underlying combined ratio is slightly improving or if it's deteriorating somewhere between 0% and 3%, I fully acknowledge what you're saying and also fully acknowledge that you might not have the full insights into COVID-19, et cetera. But do you have any feel on whether the underlying claims ratio in Trygg-Hansa is actually stable to improving?

We're seeing more and more underlying data. We have direct access to everything from 1st of April, but we're seeing more and more underlying data on each of the product lines. And the overall assessment is that it is extremely stable and the control is extremely strong. So I think when we look at the totality, the 2 acquired entities in Sweden and Norway makes almost DKK 2.2 billion for the full year in technical results. And I think we see that as extremely strong and something that we can then further improve with the synergies planned. And then also, bear in mind that actually, when we look at particularly the quarterly numbers, historically, RSA didn't even report quarterly numbers. So I would probably wait a little bit into '22 before I try to find detailed nuances in the differences on quarterly numbers from the acquired entities. And also, it will be after 1st of April, where we have full data access to everything.

Okay. Fair enough. My final question, if I may, on Alka, you reported DKK 333 million of total synergies, and I believe they were DKK 279 million at Q3. So you realized an additional DKK 54 million in Q4. Was just wondering, what drove this? It sounds like a pretty big number for a single quarter. And why should we -- why should this stop 1st of January this year? Should there be further improvements in Alka going forward on opportunities?

Yes. I think what you should take from Morten's comment that this is the last quarter of Alka synergies, is just stating the fact that we will not report specifically on this going forward. Bear in mind, we put out 3-year targets back in 2018, and those are the ones we have been following up on. And obviously, it is also becoming more and more difficult to sort of split out Alka specific synergies to what is going on in the rest of Private. So you can say it's the last quarter that we will report specifically. But obviously, like with the rest of the business, we will continue to work on improving and strengthening the business going forward. If...

And I guess it's fair to say, and you can comment on the synergy for the quarter. But it's fair to say, Asbjørn, that whether you look at the underlying profitability development in Alka or you look at the synergies development in Alka, they both tell a very strong story. And of course, that story doesn't end 1st of January '22. And we are very pleased that, that performance flows into the continued improved performance going forward for the total Private business of Tryg.

And then if you look at Slide 6, Asbjørn, you can see where the DKK 54 million stems from. So DKK 29 million is by using the procurement agreements we have when sorting the claims for Alka customers. DKK 12 million stems from cost benefits related to staff functions, and then the remaining DKK 13 million are revenue synergies that comes from cross-selling to Alka customers when we also use the Tryg agent model on the customers of Alka.

Yes. I was just wondering, 3 years after you acquired the company that you're still able to realize quite that many synergies on a quarterly basis. So that was more -- but it sounds like that there's more to come going into 2022. So that was basically [indiscernible].

But I think, Asbjørn, that 3 years is a natural time horizon for peak of synergies in an acquisition. But I think in any well-run company would target that you can continue to improve the acquired business also after the 3 years. And of course, we intend to do that. So that is exactly our focus.

Is that part of your 2024 target?

Our next question goes to the line of Will Hardcastle at UBS.

Okay. Great. Two questions, if I may. First one is you're experiencing this 2-pronged underlying margin development. Here, you've got the Private flat, the group improving, implying major Commercial and Corporate improvement. I think your Private underlying growth has been about 7%. It certainly was in Q4. It might be something slightly different for the full year, I guess. But what level of premium growth should we expect the Private lines to help contribute to the margin improvement below that 7% perhaps? Second one is we've had the high net earnings that's boosted the Solvency II ratio. I know you touched on a couple of SCR adjustments there as well. But I'm surprised you haven't suggested that you could now exceed that 195% to 205% at the half year. Is it fair to say you've moved up to the upper end even within that? Or was this perhaps just a timing benefit?

Yes. Well, let me start with the guidance on the half year solvency. As you point out, some of it is a timing impact, and some of the things that you saw for Q4 will move the other way when we start looking at the opening balance and all the other moving parts that you will see, in particular, in the second quarter of the year. So this does not change the range, and we don't point to a specific part of the range because there are still quite a few moving parts in the coming quarters.

I think on your question on the link between growth and underlying claims for Private lines, we look at Private lines, in total, for the full year, the growth was 8.3% before bonus and premium rebates, which is quite high. And I think with such a high growth, we are sort of just juggling on the balance of a flat underlying development. So typically, the growth would need to be slightly lower than that to have a positive development in the underlying claims in Private. But what we're working on every day is to secure a balance where we both have a rather large growth in Private and we improved the underlying claims at the same time. And of course, what you can take away is that without this higher-than-usual growth, underlying claims is developing really well in Private lines. But of course, we're ambitious people, so we want to achieve both. So we want to achieve the high growth, and we want to achieve the improved underlying claims as well. And that is exactly what we're working on. So let's see if we're not able to strike both, but of course, 8.3% growth is a high number.

That's great. I guess the return on capital is highly attractive. And is there a trade-off here that the marginal return on capital makes it actually better to grow top line at this point and keep margin? Or is it still a fairly balanced trade-off between margin and growth?

Well, I think, as Barbara explained, I think if you look at a very macro level, I think we're really pleased to see that of the total growth, it is predominantly driven by Private and SME, where returns on capital is extremely strong. And then we actually see negative contribution from Corporate lines, where return on capital is not as it should be. It is improving, but of course, it's not as high as it should be. And then as Barbara mentioned, typically, this 3 percentage points higher claims ratio for new customers typically last for a couple of years. And that's why we see that those customers within sort of fairly few years starts to contribute to the higher earnings again. So I think if you look at the lifetime capital return logic of that, that is extremely strong. So we have zero doubt that, that creates a lot of shareholder value, but of course, it does impact the underlying claims short term.

And if I may add to that, obviously, I would be a little bit worried if we saw the growth rates that we experienced in Private and Commercial in the Corporate segment for exactly the reasons that Morten pointed out.

Our next question comes from the line of Jakob Brink at Nordea.

Just coming back to the questions on underlying, and so I can say, if I may. Barbara, I think you said that, in Trygg-Hansa, 2020 was a bit too strong, while Codan Norway has been a bit too strong in 2021. Is it possible to maybe give a bit more detail also regarding the Gävle weather-related claims in Q3? Should we adjust for the whole of that? Or has the weather claims in Q1, Q2, Q4 been better than normal in 2021, just to get a sense of the sort of run rate of weather and large claims and runoff gains in Trygg-Hansa, please?

Of course. And I fully appreciate your question, Jakob. To start with, what I said was that the combined ratio was somewhat stronger than what you would anticipate in Trygg-Hansa in '20 compared to '21. As we said, we don't have all the full details on the underlying claims ratio, but what we can see is, as was also said before, a stable to slightly improving trend through '21. And when it comes to the guidance on large weather claims, et cetera, et cetera, we are reviewing that, and we'll have far more details after the demerger where, first of all, we can also align what they qualify as being large and weather claims because there are some nuances in the way that we categorize it between Tryg and RSA. Hence, we will give you more guidance on that when we have the details. It's just too early days now because we don't have the granularity of the details that we would like to in order to give you any meaningful guidance.

And also, Jakob, we are, of course, on 2022, including Trygg-Hansa and Codan Norway in our reinsurance program. So it's not only recalibrating expectation on large claims and weather claims and using the same definition to make it apples and apples. And it's actually also making sure that we see it in the same reinsurance light, which has created good synergies that's positive, but it does mean that there is some data modeling going on. And you will have that in advance of having to report Q2 '22, which will be the full consolidated deck. So we'll make sure we will give you ample data on that beforehand. But that modeling is going on, and there are definition differences. So I don't think we should jump into the nuances of that now, unfortunately.

It's fine. But then just one small extra detail. So the synergies that you have already realized in Trygg-Hansa, the DKK 63 million, how is that booked? Is that booked in Tryg standalone? Or is that part of the profit in Trygg-Hansa for the second half of the year?

That is all -- all those synergies realized DKK 63 million in 2021 are being booked within the Trygg-Hansa perimeter. So it doesn't fall in group.

So it's in the Trygg-Hansa you said, sorry?

It's in the Trygg-Hansa figures.

Okay. So actually, the 78.6% combined ratio is also boosted by that DKK 60 million.

Yes, it is slightly boosted by that. And I think we need to take it into the bigger picture where we are comparing a year of 2020 with '21 with a lot more runoff in 2020 and a lot more COVID impact in 2020. So it is a mixed bag of pluses and minuses, but the synergies are captured in the 2021 figures.

Okay. And then just a small detail also on figures. It's one of them are pretax. The other one is after-tax, but you have -- was it DKK 568 million, with the after-tax result of Trygg-Hansa, Codan Norway, Codan Denmark in the results in the quarter. And then you also told us the -- was it slightly less -- DKK 60 million less was with the technical profit in Trygg-Hansa and Codan Norway. Could you -- the residual -- could you give us the split between how much is investment income in Trygg-Hansa, Codan Norway and how much is Codan Denmark?

I can't give you the split between the 3 countries on the investment results. I can give you the total investment result that goes into our numbers, which is DKK 218 million for the fourth quarter of 2021. But unfortunately, I can't give you the split related to the 3 different countries.

Okay. Fair enough. Last question, the DKK 5 billion buyback in connection with Q3, I believe it was, you said that there was a lot of moving parts back and forth. And if they came out on a negative side, you could pay to the DKK 5 billion buyback. But if some of them then turned out more positive, I guess you could pay out more than DKK 5 billion. Have you come any closer to knowing if DKK 5 billion is the number? Or is that could potentially be more?

Yes. I think it's a very good assumption that the DKK 5 billion is what we planned for. As we also state, we are quite mindful of having a good outset on our solvency ratio going forward. And bear in mind, when we launched the share buyback, we will have the immediate impact of the full size of the share buyback. So not only taking into account, you can say, the opening balance and how that looks, and we also are quite focused on making sure that we have a good outset for, you can say, the journey that we're on in the combined company going forward.

Our next question comes from the line of Martin Birk of Carnegie.

A couple of questions from my side. First one, maybe coming back to Asbjørn's question on synergies. So recent quarter's trend has been an 80 bps improvement in underlying claims ratio, assuming that Alka synergies will continue to be realized in the coming years. Should we add those 80 basis points to the synergies from RSA going forward? Or how should we think about underlying claims ratio development? That would be my first question.

I think as a starting point, synergies going forward that we will report on a quarterly basis will be related to RSA. We have based, you can say, the whole business case when doing the acquisition on the business that we have acquired, the potential to combine that with the remaining Tryg business. So therefore, the synergies that we will report will be specifically related to the RSA assets. When looking at Alka, I think, as we said before, they now sort of move into the ordinary way that we run our business, continuously looking at improvements and efficiencies. So that will go into, you can say, the overall improvements that you will see for the Private segment going forward. So you will not have the specific insights on the Alka, and it will not go into the RSA numbers. But as Morten said, obviously, that is part of the overall financial targets for the group running into '24.

I guess it's also implicit in your question, Martin. We will continue to chase the underlying claims ratio improvement in Tryg classic. Of course, we will, and as you see at the moment, we are improving that net-net, mainly in Commercial and Corporate, and we'll continue to do that. And then, of course, we'll see an improvement in Trygg-Hansa. And then we'll see a negative as we start to grow the business more. So we'll see both impacts. But what is driving the improvement of underlying today is, of course, Tryg classic, and we'll continue to drive that also as we start to implement the synergies of what we have acquired.

Okay. Very clear. Then maybe moving on to the Codan Denmark sale, Alm. Brand got their competition approval pushed to Phase 2. As far as I recall, when you were in Phase 2 with Alka [ Bank ], then it took 185 days to solve, which pushed your time line quite a bit. If this time line is also pushed equally as much, are you guys able to commence the share buyback in H1?

I think that's a good question. It's -- we are following the news as closely as you are. And I think, first of all, we are not part of and tribute to the dialogue with the DCCA around this. That being said, we are not surprised that this approval is going into Phase 2, where they have 90 days to approve the transaction. We're not surprised. It is a transaction of a certain size. That being said, I would be hesitant to compare it to the approval process we went through with the Alka transaction. All situations are different. This is quite a different scenario, I would say. And you're right in saying that potentially, this could be delayed. It could possibly delay the closing of the deal. It could possibly delay the buyback slightly. That being said, I think I would lean on a [indiscernible] communication to the market, saying they still expect the transaction to close in the spring, which should allow us time to close the deal and initiate the buyback as we expected. But you're right, these things are and can be a little bit unpredictable. I must say, though, we find a lot of comfort in the fact that [indiscernible] has undertaken what we call a hell or high water clause, meaning they are required to undertake any remedies required to make the transaction go through. So as for the content, we are quite comfortable. Could the timing be a little bit delayed? Possibly. We don't expect so, but it could be.

But I think the [indiscernible] it's the most important that we fundamentally know that this will go through. And then we work enough with processes like this to see that whether timing is 1 or 2 months more or less, you just have to live with that. But fundamentally, it doesn't change the fundamentals of what you're doing, and that's the most important.

Okay. Maybe just a quick follow-up on that. The first one being, so basically, what you're saying is that you need the money in your account before you commence the share buyback. And then second, let's assume the complete unlikely event that competition authorities, they say no to this, what is happening then?

Let's just take the second part of your question first. The event that they say no is an unlikely-not-going-to-happen event. So what will happen most likely in this situation is that the authorities will come back and explain what concerns they have and what remedies could possibly repair these concerns. That is the scenario that we're looking into. The scenario where there's a blank no is not a scenario on our slate at all whatsoever. And as for the first point about the proceeds, Barbara, maybe you'll comment on that.

Yes. Obviously, the 2 events are linked. So we would very much like to see the closing of the sale before we can launch the share buyback.

Okay. But what would happen in that extreme outlier scenario?

Sorry, in which scenario?

In the extreme outlier scenario that competition authorities, they so no.

Just to be very clear, and I think [indiscernible] has been very clear about this also in their perspectives around the rights issues that they've undertaken an obligation to whatever it requires, selling of any parts of the new business or existing business in order to meet any concerns from DCCA. That means that having accepted all remedies, there's no real risk that this will not go through. All remedies have been accepted under this hell or high water clause. That's why we feel very comfortable with this situation. So it's fast. It's not a matter of subject matter. It's a matter of timing and process.

I think also if you compare it, Martin, to the Alka process, yes, there was a delay. Yes, that's knowing. Yes, there were some remedies. [ Were ] those remedies offer magnitude to fundamentally change the case? Not really. So -- and I would personally see this transaction as a less important transaction from a competition point of view. So I think most likely, this is more a potential timing discussion than a real risk of any kind.

Just maybe taking one step back from the question. Just maybe taking one step back from the question. I think we shouldn't read too much into the fact that they're going from Phase 1 to Phase 2. This is very expected for a transaction of this magnitude, having to do whatever market research the authorities need to do to accept or even express whatever concerns they might have. This is as expected. It's not a surprise. So I would recommend not reading too much into the fact that it's going into a Phase 2.

And our next question comes from the line of Tryfonas Spyrou of Berenberg. Tryfonas, if you have your [indiscernible] unmute that?

Sorry about that. I have one question just on the discount rate. Going forward, should we expect a tailwind from higher rates, given the higher discount rate for reserves, particularly on the long-term lines in Denmark and Sweden? If you can, perhaps, remind us the sensitivity of that to earnings. And I was thinking presumably this is now much higher given the larger motor group you have in Sweden, given you have Trygg-Hansa now.

Yes. I think when looking at the impact of rates, just bear in mind our match strategy where you can say you match the obligations we have on the insurance liabilities with the investments we have on the investment portfolio. So in that connection, you can say those should basically hedge the movements in the underlying rates and, thereby, the discount rates.

So I guess you should -- so the question is, do you ask about the short-term impact or the longer-term impact because the short-term impact is, of course, exactly, as Barbara explained, they net each other out. So there is no short-term impact. So I guess, traditionally, insurance companies have a negative when rates go up because then they have a negative on bonds. We don't have that. We have a neutral on day 1. So that's extremely important. And then, of course, going forward, the higher discount rates depending on where on the curve the rates change. But net-net, the higher discount rate or higher rates will result in higher discount rates, which will result in positive on future combined ratios going forward because, of course, the combined ratio will drop with that higher discounting. I think you can find the report on our web page, which explains the sensitivity. But there is a sort of broad, broad signaling, which is if you have 100 basis points increase in rates, then the discounting reduces combined ratio by roughly 100 basis points as well. But it does depend on where you are on the curve. So it is not that simple in reality, but that gives you an indication.

But we could see -- eventually, you're going to have a larger Swedish motor book, which had sort of a long tail to that. So we should eventually see some higher, better reserve releases, I guess, in the longer term from high rates coming from the book.

So of course, it would be. If rates go up in the longer end of the yield curve, it's traditionally workers' comp in Denmark together with, for instance, liability and motor liability. And then in Sweden, of course, MTPL is even longer. And of course, children's insurance is long duration as well. So those would be some of the lines that would have the highest benefit typically from higher rates going into future higher discount rates. So a neutral day 1 as opposed to most insurance companies, which is negative day 1, and then a future positive depending on where on the yield curve rates increase.

And if I may just add a final point, we highlight the sensitivities in our material today, but those would apply to the current investment portfolio, which does not include, you can say, the investments related to the new business. And that will obviously also be updated post the demerger, where we will bring on board not only the liabilities on the insurance side, but obviously also match the investment portfolio. So those 2 go hand-in-hand.

Our next question comes from the line of Jan Gjerland of ABG.

I have some couple of questions as well. First one is on the motor competition in -- it looks like there could be a strong motor competition in Sweden, where your Trygg-Hansa operation is. Could you explain how that has worked for you during 2021 versus 2020?

So I guess the motor business in Sweden is slightly different to Denmark and Norway in the sense that you have the used car market, which is quite similar to Denmark and Norway. And then you have the [indiscernible] guarantee in Sweden, where you typically buy the new car with a period of insurance. And that is typically not decided car by car, but rather brand by brand. And that methodology is different in Sweden than Denmark and Norway. If you look at this [indiscernible] guarantee or insuring new cars by brand in Sweden, typically, that's a market where Moderna, our old Swedish business, has not been present and where Trygg-Hansa, the acquired business has not been present either. We've seen that Trygg-Hansa has done some more activity in that space and landed particularly one larger agreement. So I think we'll see over time that as Trygg-Hansa does not have a monopoly on children's insurance, neither does anyone else have a monopoly on insuring new cars in Sweden. And I don't think that will fundamentally change the market dynamics or competition. And I think it will be a very gradual slow movement. But bear in mind that the majority of cars are used cars, and that is the biggest part of the market, and that hasn't really changed.

Okay. On the large claims side, could you elaborate a little bit why and how these large claims have happened inside the Commercial and Corporate? Is this sort of a one-off event? Is this customers you have dismissed? Or how should we treat them? Is it because of tougher weather? Or is it -- why has that happened, so to speak?

I would say, if you look at the large claims in total for the year, we're actually at a lower level than you would ordinarily expect for our business. So you cannot expect a year with 0 large and weather claims. And what we have seen, in particular, in Q4 has mostly been in the Commercial space, and it has been very much ordinary course of business. So it is not something extraordinary. And I would say, even though we have seen more in Q4 than we expected, then it is not at any extraordinary high levels.

Okay. And finally, on the discount rate on annuity. How much of the interest rate increase in Sweden helped your runoff gains develop positively in 2021 for Trygg-Hansa?

To be honest, we don't have that visibility at this point in time. Again, bear in mind that we don't have the full visibility on all the line items at this point in time because we are still, you can say, a little bit in the distance from having all the details. So we won't be able to give you the precise details on this as of yet.

So I guess if each of the countries in Scandinavia of RSA had been legal entities, then most likely, we would have had old data from July '21. But as Denmark -- sorry, Sweden, Norway have been underneath Denmark from a legal entity point of view, then really only the full separation happens expectedly 1st of April '22. And that is why all reporting of data goes through Denmark through the old legal entity structure. And that will be changed after 1st of April, where we have the demerger expected and we have full access to all data and we have the full country split. So sorry for that being the reply to several questions, but that's just a structure of -- or the results of having to split the legal entities or split into legal entities by demerger.

I understand. And then tell me on the premium rebate, you touched upon how it works. Could you tell us how many of your contracts is so-called proposal and how much is pegged to the combined ratio and, finally, maybe how many have a performance-related split between them, if this is possible to say anything about?

I don't think we've ever published that. I don't think we will publish that either. But what I can say is that the number of partnership agreements, which is pegged to a particular combined ratio, it's fairly limited. So I think I would give that overall signal.

We have time for one further question from the queue. That's Per Grønborg of SEB.

A couple of questions from my side. First, back to the -- with rebates. You stated it doesn't impact your technical result. Is it fair that to say that the unprecise accrual of this dividend impacts your technical result by approximately DKK 100 million negative in Q4 versus the first 3 quarters?

I'm not sure I understood the question, Per.

Yes. Could you please repeat?

If you -- Barbara, did you understand?

No. I was also asking if you could please repeat.

Okay. You have premium cost of approximately DKK 400 million in the fourth quarter versus an average run rate of DKK 300 million. This is something that is charged somewhere in your profit. Is it fair to say that if you had accrued your rebates correctly, then this would have been in the same amount each of -- or roughly the same amount each of the 4 quarters, and therefore, your technical result in that case would have been DKK 100 million better in the fourth quarter and, of course, similar worse in the first 3 quarters?

Okay. Now I get it. Yes, your logic absolutely applies. The one thing that I would say, though, is that what you should remember is also the question around periodization, where also you can see that in a year like 2020 where you had COVID impact that runs into '21 and so forth, that might also impact the overall number. But as a starting point, your logic in terms of accruals that should even it out over the course of the year applies.

But does this accrual as a part of that actually also included in the prior year's result? If some of these accruals actually should have been booked as adjust already in 2020, then I would guess this would have had to -- that this is included in your prior year result. Is that correct?

I think you're right, but there are adjustments, which go back in time and which then actually are related to claims years that are older. But I think in the current reporting regime where you can only subtract it to current year's premium, we will get all of it in whatever instance where you realize it, where we probably have to get back to pay under IFRS 17, whether you're able to go back and posted in the right underwriting years as it might relate to a claims year, which is not a current claims year. Now it becomes a little bit on the technical side, but I think there is an element of that because sometimes it is not only the current underwriting year's claims. It is also prior year's claims development. So I think all in all, for me, at least, going to report this on the claims makes a lot more sense. It doesn't change the technical result impact. But it shows in a better way that this is a cost and audit top line.

Any thoughts about improving your accrual during the year? What is...

I think, Per, we would very much like for that accrual to be much more smooth. But -- and we're working on that as well. I think sometimes the decision on whether to use it for developing new products or whether to use it to develop new digital solutions or whether to pay it out to the partner as a part of profits, sometimes, it's not easy to predict what is the result of that debate. So I think we'll probably never get to an accrual model, which is fully even, but we would like it to be more even than what we saw in Q4 for Private Denmark particularly.

Okay. That gives some color on what the chance is. My final question, if I look at the Commercial Q4, it looks reasonably soft both on headline and the underlying. The only thing you are writing in your comments is that it's due to a higher level of large claims and substantial level -- lower level of prior year gains. To me, it seems like both your costs are unusually high and that your claims are also running at a somewhat higher speed than we have seen previously. Is that just the ups and downs of single quarters? Or how should -- what should we read into this?

Yes. I think in particular, when it comes to the cost for Commercial, bear in mind, as we mentioned, right now, we are growing the surety and credit business through Europe. So that accounts for a few more headcounts. And then obviously, as the volume of the business is also growing, that also accounts for an increased number of FTEs. So right now, you can say it's question of adjusting to the business movements that you see, and I wouldn't put anything in particular in terms of assessing this to be the trend going forward.

What we do see, of course, is that the growth in number of customers in Commercial, both in Denmark and in Norway, is predominantly the really small Commercial customers, and seldomly, the medium to larger claims in Commercial comes from those customers. So if anything, we're diversifying further downwards also within the Commercial space as we're doing in Corporate as well. And I think really it's only in the recent couple of years that we've had this focus to grow the 0 to 5, 0 to 10 employees space in Commercial in Denmark and Norway. We're very pleased to see that happening because honestly, the returns are higher and the large claims frequency is lower.

Gianandrea again, and we just want to thank you all for all your questions. As usual, Peter and I in Investor Relations will remain at your disposal if you had more during the day and looking forward to speak to you in the next few days. Thanks.

Thank you.

Thank you.

Thank you very much.