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

Good morning, everybody. My name is Gianandrea Roberti. I'm Head of Financial Reporting Tryg. We published our Q3 figures earlier this morning, and I have here with me, Johan Brammer, our Group CEO; Allan Thaysen, our Group CFO; and Mikael Karrsten, our Group CTO, to present the numbers, with these few words, over to you, Johan.

Thanks a lot, Gian, and a very good morning from me as well. So earlier this morning, we published our Q3 results, and I'll begin by commenting on the financial highlights, as I always do. So revenue growth was 4.1% in DKK and 2.3% in local currencies. As we've experienced in the previous quarters, the growth was higher in the Private segment, close to the 4% mark while we did experience a slight top line fall in the Commercial segment. Our outlook for approximately 3% revenue growth for the full year of 2026 remains unchanged as does our ambition to show an improved revenue growth as we move into next year 2027. I'll get back to this later on in this presentation. The insurance services result of DKK 2.454 billion was driven by an excellent combined ratio of 76.8%. This performance stems from a strong performance across the board with also the large and weather claims experience being below normalized expectations. As for the underlying claims ratio, it improved by 60 bps in the quarter against 50 bps last quarter. The improvement was higher in the Private segment and slightly lower in the Commercial segment. As for the overall investment result, it was DKK 42 million. The free portfolio delivered a slightly negative mark-to-market return as increased interest rates weighed on the fixed income portfolio, where the [ match ] portfolio was very positive. In general, we are satisfied with the investment performance considering the volatility in the quarter and our chosen asset mix. Additionally, and as we already flagged in Q2, we've been selling properties further down, and we now report an exposure of DKK 1.9 billion against the DKK 3.3 billion when we announced our derisking strategy. And finally, we are reporting an operating EPS of DKK 2.96 and a return on own funds of 47%. The solvency ratio at the end of the quarter was a very robust 203% supportive of future capital repatriations. We are now turning to the next slide on customer satisfaction. And the customer satisfaction score was record high at 83 for the second quarter in a row and already now in line with our 2027 target. Amongst many things, we have developed an AI system called Nora that assist our claims handlers in the processing of complex documents. This allows them to quickly identify all relevant information and in [ turn ], provide a better and more swift customer service. And this drives customer satisfaction in the right direction. And in addition, I'd like to mention that [indiscernible] during the quarter also processed around 220,000 claims through STP, straight-through-processing, which reduces wait time for customers and improve the overall customer experience. So good news on the customer highlights. And with that, let's move to the next slide where I'll comment on the insurance result split between our 2 main segments, Private and Commercial. So the insurance services result in the Private segment was just shy of DKK 1.6 billion, driven by a combined ratio of 78.3%, good top line growth and improved underlying performance as well as higher runoff, which also helped the numbers. The insurance service result in the commercial segment was DKK 866 million, driven by a very strong combined ratio of 73.5%, a lower runoff result for the quarter weighs negatively, of course, but is offset by an improved underlying performance and also lower than normal weather and large claims. With that, I'm turning to the next slide, where I'll comment on the insurance service result by geography and the ISR work, as you see on the right-hand side. And as always, I'll repeat that the reported ISR and combined ratio can be impacted by different factors such as larger weather claims, run-off results and, of course, the overall level of interest rates. In Q3, we [ noted ] strong performance across the board. I'm particularly pleased to see the best reported combined ratio in the last 10 years in Norway and a Swedish performance that remains stellar while the Danish combined ratio remained solid, although impacted by lower runoff result and the flattish revenue development. The ISR work of Q3 versus last year. The chart you see on the right-hand side shows a lot of positives, in fact, only positives, which provides a lot of comfort going forward. The ISR is up 12% from Q3 last year to Q3 this year, 12%. I'm now turning to the next slide on the financial performance of our Norwegian business. We're reporting a combined ratio of [ 76.1% ] in Norway, the best reported figure for the last 10 years. And from the chart on the bottom left-hand side, the improvement is very visible also when you look at the 9 months figure. As a reminder, we put in place significant profitability initiatives in the last 2 years. We've discussed that at length, and these are paying off as expected. And also, it is important to remember that price increases continue to taper off and therefore, the pace of improvement will slow down going forward. Additionally, please note that we are now entering the most difficult part of the earnings season for the Norwegian [ P&C ] with autumn and especially the winter approaching. And hence, it's unlikely that the current performance will be similar to Q4 and even more so the Q1 with winter. In general, our Norwegian business has reached a very satisfactory profitability level, and our key focus now in management is to avoid some of the last swings seen in the past. And now turning to the revenue growth section. And on the first slide in this section, we show that revenue grew 4.1% in DKK and 2.3% in local currencies in Q3. With the growth at a satisfactory level of 3.7% in the Private segment. The Commercial segment developed negatively following the losses during the 1st of [ January ] renewal of selected corporate customers as well as a general retention pressure in that particular segment. We mentioned in the Q2 call that revenue growth would likely be lower in the second half of this year and have updated the outlook to revenue growth for 2026 of around 3% for the full year. Today's numbers are fully in line with that statement. And at the same time, we continue to expect a good and gradual revenue pickup entering next year 2027. We have a very strong focus currently on both on retention and on commercial go-to-market initiatives and many internal more operational indicators are pointing in the right direction. That makes us very optimistic for what is ahead of us. At the same time, it is, of course, important to remember that staying disciplined is key to continue to run a profitable and stable business. This should not be rushed and this will not be rushed. With that, let's turn to the next slide on customer retention. In general, the overall picture is actually improving. Retention is moving up in all 3 Private segments, which is reassuring and positive. We also see signs of stabilization and slight improvements in the commercial segment with an uptick in 2 out of 3 business units, which is very important. As mentioned previously, past experience tell us that it does take a little while for retention to stabilize and improve again after a prolonged period of price increases to offset inflation. And with this good news, over to you, Mikael.

Thanks, Johan, and good morning from me as well. We are pleased to report an improvement in the group underlying claims ratio of 60 basis points, up 10 basis points from the Q2 level. The improvement is mainly driven by the private business, which improves 80 basis points. As mentioned multiple times before, the underlying loss ratio is expected to be stable to slightly improving during this strategy period, and Q3 is a firm confirmation of that. It's also important to repeat that going into 2027, as Johan mentioned, we are likely to see a revenue improvement, and this will likely slightly dampen the level of improvement in the underlying. This is a natural consequence of the business dynamics and our way to achieve a balanced earnings growth. Turning to Slide 14, where I, as usual, will comment on the more volatile items, large and weather losses as well as discounting and runoff. Q3 was a positive quarter, both in terms of large and weather claims. Large claims were DKK 169 million and weather claims DKK 83 million, both below the quarterly guidance. In the slide, we are showing both the quarterly and the year-to-date numbers as well as the historical development. We recognize that at times, these figures attract a lot of interest. But as you can see, the annual development has been both better and worse than our guidance in the past. And in 2026, we are so far in line with the total guidance for weather and large, but with large losses performing worse than planned and weather better. The discount rate has increased somewhat, primarily as a function of the overall higher level of interest rates, while the runoff result at 2.4% is in line with our broad 2% runoff guidance. And with this, I hand it over to you, Gian.

Thanks, Mikael. We are now moving into the investment section. Total invested assets were DKK 58.5 billion at the end of the quarter. with the free portfolio being slightly below DKK 14 billion and the match portfolio being around DKK 44 billion. The asset mix is largely unchanged, leaving aside to DKK 150 million lower properties exposure already mentioned from Johan. This money have been reinvested in covered bonds. The asset mix remains very conservative in line with the strategy launch in November 2024 at the CMD. In the following slide, we show the specification of the investment results in the quarter. In general, we are pleased about the numbers considering our chosen asset mix and especially the interest rate volatility seen in the quarter. The fixed income book in the free portfolio was hit by increasing interest rates while properties experienced a positive return. The match portfolio benefit from a good interest on the premium provision and narrowing Danish and Norwegian covered bond spreads. Other financial was also better than normal helping the overall results. And with this, over to you, Allan.

Thanks, Gian, and good morning from me as well. We're now moving into the solvency and expenses section. The first slide shows the development of the solvency position as per end of the quarter. In this slide, we are highlighting a robust solvency ratio of 203%, which is up from 196% at the end of last quarter. Furthermore, we are highlighting a very strong operating capital generation before dividend of 25% for the quarter. Own funds are, as always, primarily impacted by the movement in operating earnings and the dividend payment. The SCR in the quarter includes a very modest uptick with an increase from the revenue growth, which is offset by the reduced properties exposure. Turning to the next slide, we show the historical development of the solvency ratio. We are pleased to report a very robust solvency ratio of 203% in a quarter characterized by very solid earnings and a modest increase in the solvency capital requirement. As mentioned, multiple times, we expect our solvency ratio to gravitate towards a less conservative level long term. As promised, we will review our solvency position at year-end and at that time, consider extraordinary capital repatriation, if found appropriate. Currently, many things are pointing in the right direction and with a robust solvency position of 203%, it is hard to stay pessimistic. As always, remember that we prefer a gradual approach, benefiting our shareholders with balanced actions. We are now turning to the solvency sensitivities. Sensitivities are virtually unchanged since last quarter, which should not be a surprise as the asset mix itself is largely unchanged when leaving aside the DKK 250 million properties reduction in the quarter. The biggest sensitivity remains towards covered bond spreads movements as this is our chosen asset class and represents the vast majority of our investments. The low solvency sensitivities are a key feature of Tryg's investment case. We remain focused on running a profitable and stable insurance business, while we are arguably taking the lowest asset risk in the sector. Now please turn to the next slide for details on the expense ratio development in the quarter. We are reporting an expense ratio of 13.3% and which is at the same level as last quarter and fully in line with our 2027 guidance for the expense ratio to be stable to slightly improving. Investments in additional commercial activities are funded internally by improvements in our operational efficiency. And with this, I will hand it over to you, Johan.

Thanks a lot, Allan. And we are now shifting gears as we enter the final part of this presentation focused on strategy and the financial targets. As a reminder for everyone, we aim to grow the insurance services result by DKK 1 billion during this strategy period from 2024 to 2027. And as you know, the strategy is based on these 3 pillars: scale and simplicity that should add DKK 500 million, technical excellence that should add DKK 300 million and customer and commercial excellence that should add DKK 200 million. A number of strategic initiatives are continuously being implemented, and we remain confident and pleased with the progress being made on the strategy implementation. As for the scale pillar, we continue to strike more Nordic agreements, leveraging our procurement scale. As for technical excellence, we continue to scale more advanced risk modeling across the group. And as for customer and commercial excellence, I'd like to highlight 2 new partnerships focused primarily but not only on the motor segment. It's the Mercedes partnership in Sweden and the XPENG partnership in Norway. And allow me to elaborate on these in the next slide. These 2 partnerships are both very important for us in our pursuit of balanced organic growth. One needs to always remember that motor is very often the key entry product for customers. And from the motor product, it is possible to cross and upsell to other product categories. In Sweden, in particular, Trygg-Hansa a strategy to grow its fair share of the motor segment in order to diversify the very strong foothold within PA. This new partnership with Mercedes is therefore, perfectly aligned with the strategy. And with Mercedes as one of the top brands in Sweden, this partnership demonstrates that we are truly getting commercial traction. At the same time, we're also very pleased to have signed a new agreement with XPENG in Norway, an increasingly popular brand in Norway, the country with the highest penetration of EVs in the world. This partnership is building on a well-established market presence and will help us maintain a good revenue momentum in the face of lower price increases ahead of us looking at more muted inflation outlooks. And I'll now be moving on to the next slide on sales and retention. As communicated at Q2, we expect an approximate 3% revenue growth in 2026 as repricing measures are tapering off following lower claims inflation. We do expect to gradually move from a more price-driven growth to a more balanced approach. However, as you all know, organic growth in a healthy manner takes a bit more time to kick in due to the nature of the insurance business. Therefore, we have brought with us this slide a slightly updated version from the Analyst Days, which summarizes why we are optimistic on the revenue outlook entering 2027. It illustrates the sales index year-to-date versus last year for each of our 6 business units, while also with the little arrow indicating how retention is trending. And total sales for the group year-to-date versus last year is on average up by 12%. And the sales index for 5 out of 6 business units are pointing strongly in the right direction. These positive data points are supported with retention trends that are stable or improving for all business units. This is very important as we aim to achieve a higher and more balanced revenue growth in 2027 when price increases are likely to continue to taper off. With that, let's turn to the next slide, recapping our well-known financial and strategic targets towards 2027. I'll just briefly repeat that we target an ISR between DKK 8 billion to DKK 8.4 billion, driven by a combined ratio around 81% and a ROOF between 35% and 40%. As always, our [ targets ] are assuming unchanged interest rates and currency levels as at the CMD in 2024 and assuming normalized weather and large claims. All targets are, of course, completely unchanged, and we work relentlessly to deliver on these. And we now enter the final slide with the [ Rockefeller world ], reiterating our commitment to be a healthy dividend stock underpinned by strong and stable earnings and a healthy solvency position. And with this, I think we are ready for questions.

[Operator Instructions] The first question is from the line of Martin Birk from SEB.

Johan, just a question to the last slide that you have about sales index in your various countries and also across business segments. You indicate 92 in Denmark. And I guess that is no surprise, but you also indicate an increasing retention ratio. When you report 92 in sales index, you have an upwards retention ratio. Could you please help me explain? Is that a sign of severe price pressure in that segment? Or how should we interpret that?

Thanks a lot, Martin, and thanks for that question on that page, having both the sales index and retention trends. And I think you need to see these 2 numbers in isolation. So the retention trend is as a result of the fact that we are working diligently with the customer experience in the commercial segment in Denmark but it's also a result of the fact that inflation is tapering off and the need for repricing is also tapering off similarly. So I think we are expecting to see retention broadly speaking, across all business units, bounce back to where they were gradually and as for the sales index, I think that is actually a matter of our strategic retransitioning from a period of double-digit inflation and a lot of focus on margin protection. We are now reactivating our organic growth engines and in all fairness, you could argue that our business, our Commercial business in Sweden and Norway is just a little bit ahead in this transition going from margin protection to organic growth. I'm confident that the Danish Commercial Lines business will also get there. They're slightly behind the 2 other segments. And to be honest, I think this is one of the benefits of being a hedge book. We are well exposed into 3 markets with 6 business units and we are allowing ourselves to deliver the strongest quarter ever, even with the Commercial lines, Denmark slightly behind the transition. So I think actually, it's a positive.

The next question is from the line of Vash Gosalia from Goldman Sachs.

I have 2 questions. One, again, just on the sales index. So when I look at those numbers versus what you presented in the Analyst Day presentation, it appears that the numbers for Norway Private and Commercial and Sweden Commercial have actually worsened from Jan to April versus Jan to September. So just could you give us a little bit more color as to what's going on? Do you see -- are you not as confident as you were, let's say, beginning of the year versus now? And what's happening to the competition there? And second question, it's a little bit more around the comment. Again, you had made earlier in the year that you are reasonably, and quite, confident that you would beat the then consensus top line growth estimate of 3.7%. But now obviously, the recent comment has been like you are confident that you will accelerate. So can we still take that comment of 3.7% as the benchmark and then sort of model our numbers against that?

Thanks a lot. 2 very relevant questions. As for the sales indexes across the 6 business units, you're asking me whether I'm still confident in what I'm seeing, and I am more confident than I was when we had the Analyst Day, that you will see some of them going up, some of them going down. There's a lot of seasonality and a lot of stochastic things going in. I'm very confident with the commercial traction we are seeing, both in all the commercial go-to-market activities that we have launched, but also on the partnerships. And bear in mind that in these numbers, a lot of the partnerships that we have announced are not really playing in yet. The Mercedes deal in Sweden is just coming into play 1st of Jan next year. So there's a lot of boosters coming on top of this. So I'm very confident of our commercial momentum. Especially because it's underpinned by retention improving. And as to your other point, I have by no means, try to weaken my point at Q2 saying I'll beat the consensus at that time of 3.7%. I'll stand firmly on that.

the next question is from the line of Youdish Chicooree from Autonomous Research.

I've got 2 questions, please. The first one is on interest rates. I mean there's been a very sharp increase in the past 3 months. And I think so and discounting benefit doesn't fully reflect that benefit. So I was wondering if you could tell us what the benefit is going to be like in 4Q? And also what is the impact on your investment results as well on an ongoing basis. That's the first question. The second one is, again, if I could come back on the sales index. Well, firstly, I don't quite understand how to calculate this because the numbers look quite rosy for a lot of the segments. And I was wondering if you could explain exactly how this is calculated. And why not just show gross [ written ] premiums, for example, because that should be a fairly good indicator of future earned revenues.

Thank you. And good morning, Youdish. For your first question around interest rates and the impact on discounting this quarter and going forward, please remember that discount effects are based on a combination of interest rates and claims mix, of course, but the 2.8% that we are printing this quarter, I mean, goes for the interest [ scripts ] as we see them right now. So that was the first one on discounting. On investment results, yes, please remember that we are heavily into covered bonds and based on that. And also, we have a free and the match portfolio. Of course, the match portfolio that is as by nature, a hedge and making sure that increasing or decreasing interest will not impact our liabilities and so goes for the match portfolio. The free portfolio is a very short [ durated ] covered bonds duration of 2 years. So the impact will be very minor, even though rates are increasing or decreasing.

And as for your other question regarding the sales index, why we are showing this. I mean this is based on the volumes we are selling in each of our 6 business units. And the reason why we're showing you this that this is a leading indicator of what will actually happen on the gross written premiums. So there's a little bit of a lag from you actually conducted sales until customers migrate their policies into Tryg's books until we earn the premiums. So we're essentially trying to give you comfort a little bit further out in the funnel that we usually report in just because we know that the top line growth is very important to all of us. And this is a way of, for us, show why we are comfortable with the growth outlook for next year.

Okay. Just a follow-up questions. First one on the interest rate point. So I thought the discounting was actually based on average rate -- the change in average rates during the quarter as the first to change period end, period [ end ]? That's the first follow-up. Secondly, you're saying that the sales index leading indicator for [ GWP ], then you're printing like mid-teens increases across a lot of -- or across most of your segments here. So those are -- when you talk volumes, you mean [indiscernible] -- so you're talking like policy [indiscernible]?

Maybe I can just answer the last one. We're talking volumes in local currencies. That's how we measure the sales index. And this is -- and the reason why we're showing you this is that some of these sales hasn't really converted into real policies and premiums as of yet. This is a leading indicator. And as for the discounting question.

Yes. Well, back to -- again, remember, this is a combination of the interest rates and the claims mix. We use month-end interest rate curves in the way that we discount our reserves. So again, back to the fact, the 2.8% right now, that is actually mirroring the [ interest scripts ] that we see.

The next question is from [ Mr. Sunday ] from Danske.

It's [ Amantran ]. Congratulations with the [indiscernible] in Norway. I have 2 questions, if I may. Could you provide some insights in the 2.3% lower currency growth, how much would be [indiscernible] and how much you invest business volumes? And the second question is on also is that you can sign up to? Do you expect that to be combined ratio that [indiscernible]?

Maybe I can take the first question. I had a little bit difficult hearing the question. But as I understood, you were asking into the 2% growth and how is decomposed, right? So I think if you just start very strategically on that question, we are in a transition now for having that growth composition being much more organic and balanced. So normally, we strive to have 1/3 of the growth coming from price, 1/3 of it coming from cross and upsell and 1/3 of it coming from inflow of new customers. If you look back in the last few years with high margin protection, price has been the predominant driver of the growth. The reason why we're seeing growth coming down is because price is taking up less part of the growth composition due to inflation tapering off. And as we move forward, and I think the sales index slide should give you comfort around that, we will see a higher level of cross and upsell and a higher inflow of new customers. So this is a transition that is happening when you decompose the 2.3%, we're seeing 3.7% in private, which is at an acceptable level. And as you see for the commercial part, it's 0.7% drop, this is where we haven't quite completed the transition. So I think what we're seeing is a natural projection and a natural transition in the growth profile over the next quarters to come, you will see us changing this balance. And as for your other question, which was regarding...

Could you repeat the other question?

Also, [ you've ] been making, would you expect that to be combined ratio [indiscernible]?

Okay. So I think the question was on the partnership deals that we're making with Mercedes and XPENG. So I think, first of all, Motor is a capital-light product, which means that the combined ratios are slightly higher than if you combine it to the average of the portfolio. Second of all, for especially Swedish motor deals, they are divided into the collateral demo waiver and the rest of the motor book. And the first part you get a start with [ first of first ] and the second part, you sort of upsell gradually. So there is a bit of a timing effect in that. But it's both very sound business, but it has a small timing effect on the combined ratio impact.

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

Congrats again. I do have 2 questions, but I'll ask one now and then come back later at this time. My main question is the underlying loss ratio. So congratulations on the success here. I'm just curious that for your long -- medium-term , I don't know if the exact word, but the outlook has always been a little bit more cautious, let's say, on this metric. Is there another reason? Or is it just conservatism? And you want to be positioning in a steady way for this very important metric and which you're achieving very strong success already. So I'm just curious as to what your thoughts are on that -- my second question on commercial, but I promise I come back, so I'll come back later.

Perfect. But I'll go into the question on the underlying loss ratio. And I think as you alluded to, I mean, we have communicated before, and I'll sort of start off in that sort of boring part with saying that we have communicated that the underlying loss ratio should be stable to slightly improving. Mean having said that, I think there are 2 other important data points that you should take with you as well. I mean, first, we are improving this quarter by 60 basis points, as we said. But we do expect the growth to pick up in next year and onwards from here. And that has an impact, slight dampening impact. But that's all to do with -- that we want to have a balanced earnings growth. So that's the only reason for having an impact on the underlying. And I think then last and finally, when we look at the inflation and our pricing, we are pricing at or slightly ahead of the expected inflation going forward. So I think that also gives you a data point of sort of what to expect going forward.

The next question is from the line of Daniel Wilson-Omordia from Morgan Stanley.