ALM. Brand A/S

CSE:ALMB

Earnings Call Transcript 2019-Q1

[Operator]

Welcome to the Alm. Brand Interim Report First Quarter of 2019. [Operator Instructions]I'll now hand the floor to our host, CEO, Søren Boe Mortensen. Please begin.

[Søren Boe Mortensen, CEO & Member of Management Board]

Good morning and welcome to the presentation of the result for Q1 for the Alm. Brand Group. If we look at the total result for the first quarter, we can see that the pretax profit came out with a DKK 225 million, that is clearly ahead what our expectation had been. If we look at the Non-life side, we came out with DKK 195 million in result, with combined ratio as strong as 84.4%. And the Life came also better out than expected with DKK 29 million in profit. And the banking came out with DKK 16 million, aligned with expectation, DKK 16 million in profit for the bank activities. With DKK 225 million in profit totaling [Audio Gap] of 19% before tax in return of the equity on annual basis. With the result for the first quarter, we had adjusted the guidance for the full year, up with DKK 75 million. Looking at the Non-life and the performance of the Non-Life, it's clearly that a few major claims had a very positive impact on the first quarter's result but generally, the underlying business had been strong in this quarter. The Life with a profit of DKK 29 million, better than expected as mentioned, and we can see that the very high growth that we had last year, we had maintained this premium level this year. And for the Banking the quarter had been on -- under the influence of very strong activity, increased numbers of customers and a very huge growth and new loans coming in. If we look at the strategic goals for 2022 for the group, that is obviously that the goal about the return on equity with the 19% reach in first quarter, we are about the target currently at least. So quite well there. And if you look at the total growth including the acquisition of the Saxo, then we are pretty close to the 4% in the growth of the total portfolio. The Net Promotion Score had improved now to 59, we had a new method to do this -- to calculate this but nevertheless, we think that 59 is more realistic compared with the method we are using and is quite close to the target that we have. The employee satisfaction level is now 79 with a target of 80 in a few years. We also think that we can achieve that. And then we had to fight more on the numbers of group customers, where we still are in the start of the 40,000 of this, and we had to reach the 60,000 in the next 3 years. We had a lot of activities running, and we can see that the cross selling improving a lot in this quarter, so we still have a trust that we can achieve the 60,000 in 2022. Going to the Non-life insurance and the profit here. DKK 195 million in the first quarter compared with last year at same level, both in total and also on the insurance part of the result. If we look at the components under technical result are, as mentioned before, under heavy influence of the major claims, which had been very good but also strong performance generally. The investment return come out with minus DKK 10 Million. In the quarter, where the investment market generally had been very good, the bonds had performed very well, the equities had performed quite well, but we have this new revised method for calculation of the VA premium and that had a cost of DKK 25 million one-off in the start of the quarter. We had announced that in the annual account for 2018 but there's still DKK 25 million which are hitting the first quarter. Additional to that then we can see that the new way of calculating the VA premium are not following the market in the stressed conditions. What I'm saying here is that the last 2 weeks of March was not very good as we could see that the VA premium was developing different from the market conditions and that give a spread and a deficit of the investment return. If we look at the combined ratio, the combined ratio came out with 84.4%. If we look compared with last year, it was a 83.4%, so 1% up and with the lower interest rate environment that we have currently then the interest rate had an influence on the combined ratio of 1%. So in fixed interest term then the claims ratio and the combined ratio are at the same level as last year. Then we can see that the runoff gains of old reserves are lower than last year. It's 2.9% this quarter and compared with the 2017, it's much lower. That's a strength that we have, and we have announced that several times that this will be this development you can expect from our side that we are coming closer and closer to a method where we are catching the realistic runoff level but 2.9% in runoff in this quarter. Looking at the underlying combined ratio 82.4%. Pretty close to last year's level and better than 2017, so a strong quarter on the underlying combined ratio, that's a car, that's the tax, which are running quite well but generally a good performing portfolio shows this figure. If we're going to the major claims then the Q1 had been unusual. 2.4% in major claims in one quarter, that's the lowest that we have seen for many, many years. And you can compare it with last year's half, the level of 2018 and a quarter of 2017 level. The normalized level is 7% to 8%, so the 2.4% is really low. But on the other hand then we have weather-related claims, which again this quarter are lower than expected, which are 3% to 4%, with the 2.2% we are lower but compared with the first quarter in '16, '17 and '18, we are much higher. And the reason for that is that we have a smaller storm, but nevertheless, a storm in start of January and then in mid-March, we had a lot of [ cap burst ] around specially in Jutland which had hidden this account. All in all the 2.2%. But still better than the expectations level.If we look at the growth in the premium, the premium had gone up with 1.6%, that is a lower than the expectation that we had in the start of the year. We still think that for the full year, we will meet our expectation but the competitive -- the competition in the market had been rather tough, especially on the private line, where we have a growth of 0.7%. But on the commercial, we are up with 2.5%. We think that a lot of activities we had currently running will help on this, so we will expect that the growth will be a little bit higher in the coming quarters of 2019. If we look at the private lines and the combined ratio for the private lines. A strong combined ratio all in all, 87.8%, again the same components are helping the result, the weather-related claims, low; the major claims, very low; and the runoff gains has been quite high. In fact for the private lines and had an influence. So all in all, quite a good result for the private lines in Q1. If you look at the commercial that had been even better. 80.9%, very low, in fact for the Q1, but we also have to be aware of that the major claim here normally had a higher influence than on the private lines and the major claim CR had been really low, impact of the only 2.5% was very low in the commercial lines. On the other hand, runoff gains for the commercial line has been very low, 1.2%, which is much lower than we may normally had seen for many years. So a little bit better and a little bit worse, but all in all, quite a strong performance on the commercial lines for Q1. Then I will leave the Non-life business and go into the Life Insurance Business. Also here, pretax profit, which had outperformed our expectation helped by one of the portfolios without bonus, which have given a gain of a DKK 4 million and we are calling it a one-off gain effect but it's a part of the portfolio running, but nevertheless, DKK 4 million in gain there. The bonus rate in this quarter had been down with 2.4% to 16%, still high level of bonus rate, 16.2% but the movement of 2.4% is quite high. The first reason for that is that the, as mentioned before, the new VA premium had a huge influence. We had announced that, that will count around 1% of the bonus rate for the start of the 1st of January, that is one part of the explanation of the movement. The other part of the explanation is that again, the unbalanced situation between the investment side and the liability side in end of March, which had a negative impact. And the third impact is that with this very, very low interest rate level that we had on the end of March then we had to improve the provisions for the guarantee for the policyholders, so that had also had an impact on the bonus rate. Nevertheless, we are still giving the policyholders 3.5%, and we think the bonus rate is still compared with the industry generally, on a very high, or the highest level, presumably.If we look at the premium growth and the Life company then we are up with 4% compared with last year, the regular premium are up with 4% but excluding the Gruppeliv premium, which are going a little bit up and down quarter-to-quarter. Then the regular premium excluding this is 7.7%, which is quite aligned with our target for this portfolio and the same level as we saw last year. For single premium, nearly unchanged compared with last year up with 4%, but we also had to be aware of last year, we have a growth rate of nearly 70% in Q1 last year. So we maintained a very high level that we saw last year, that is single premium paid in, a lot of it coming from transfer from other companies in connection to commercial transfer of the pension schemes. If you look at the payments for pension purposes in the market schemes, which are in the bank environment then you also here see a high growth up to 80% up compared with last year, the main reason for that is that we now have Saxo Bank within the figures in 2019, which we didn't have in 2018, but nevertheless, the total payment now of DKK 400 million and the total payment for pension purposes total in the group more than DKK 1 billion. The total saving from pensions purposes following the insurance environment are up to more than DKK 15 billion and the savings in the bank environment are DKK 7 billion, so we are now up to DKK 22 billion in totally pensions liabilities, so to say so. Quite a remarkable development compared with a few years ago. If you look at the earnings for the Life and Insurance Business then the expense result are quite at the same level as we normally see. The risk result are a little bit worse than we have seen from the latest years but nevertheless, the risk result are going up and down. The portfolio is still very small compared with this event, so still a decent result on the risk part. And if you look at the interest result, which are the 20 bps risk allowance was nearly unchanged. And then we have the gain on the portfolio without bonus with a DKK 4 million and then we, in this quarter, had a little bit plus on the return on equities related -- the investment related to the equities. Leaving the Life and Pension Company and then going to the bank, if you are looking at the bottom of the presentation and looking at the income split then you can see that the net interest fee the fee income are going up from 65% to 88%, but you had to be aware of -- in the 2018 was -- this was without Saxo and in this year is including Saxo. And if you look at Q2 and Q3 in 2018 than the 88% in this quarter, a little bit lower than we had seen in the start of 2018. The reason for that is the portfolio had increased a little, so that had a positive impact on this figure. On the other hand, the interest margin in the market are still under pressure and that had a negative impact of the net interest fee and income. If you look at the trading income that had really improved compared with last year. Through 2018, the trading income was on the low end, absolutely the low end. The market condition was not quite as expected. The start of 2019 had been quite normal on the -- better than the budget and absolutely back on track compared with what we have seen in the years before 2018, so that's quite good. And you -- if you look at the leasing income is nearly unchanged compared with last year, despite that the private leasing is still an area, which we had to fight with. On the other hand, the commercial part of the leasing portfolio is performing quite well. Then we have the investment portfolio earnings, which are negative. The problem here as we have seen also in 2018 is still, that we have a huge excess of cash in the bank environment, DKK 5 billion to DKK 6 billion, and we had to pay for it or invest it in bonds with negative interest rate, so that gives a negative result and the result of minus DKK 7 million for this quarter is in fact better than expected. Going up to the profit for the bank totally, as mentioned, the total profit for the bank was DKK 16 million, the core earnings was DKK 11 million better than last year but still had to be improved. You can see that the investment side had minus DKK 7 million, as mentioned before and then we had the depreciation of the customer relationship of the minus DKK 8 million. And then at least then we have the write-downs, which give a plus the reversal of write-downs of DKK 20 million. The DKK 20 million, you had to be aware of, out of the DKK 20 million, DKK 5 million to DKK 6 million are related to interest paid by customers, which are on the bad end of the quality list and of the rest of the reversal of write-downs DKK 14 million then the half are cash paid and the other half is adjustment of write-downs. So improved bottom line but nevertheless still a lot of work to do to improve the core earnings. If you look at the development of the business in the banking environment then we can see that the loan book had improved from 4.9% to 5.1% but if you are going to split that up, you can see that on the private lines we improved with less than DKK 100 million on the private lines and a little bit negative on the commercial line. So nearly unchanged but on the positive part of the unchanged environment -- on the downside but Q1 2019, the numbers of new full customers coming in were going up with 4%, the numbers of full customers were going up with 4% compared with the start of the year, which are extremely high. The loans coming in this for -- first quarter are doubled of what we have seen in average through 2018. So really at new level of acquisitions to the bank. Additional to that, more than 50% of the new loans coming in, are coming from customers which are customers in the Non-life business or/and in the Life business. So very positive impact on the movement among the customers and of the which -- of very positive result of all our efforts to integrate the lines of the business and integrate the customer to the whole group instead of 1 or 2 part of the groups. Additional to that then you can see that the mortgage loans are going up with DKK 400 million, quite a remarkable development also. Part of the explanation is, of course, that a lot of the customers had transferred their bank loans to mortgage loans, that's one of a part reason but we also had the high growth of customers, which have impact -- positive impact here. But the trend in the market generally, also here in this book that the customers are repaying their loan faster or/and are transferred to mortgage loan. All in all, balance portfolio -- loan portfolio of more than DKK 21 billion at the end of the Q1. Then leaving the bank and going to the Group. Looking at the capital model. We had excess of capital in the start of 2019 of DKK 80 million and of the end of Q1 2019, we had excess of DKK 161 million in capital. The profit counts for DKK 176 million after tax positive impact. And then we had risk margin, MREL-facility and so on, which have other positive impact on the excess of capital, but we have changed the capital target with DKK 195 million this quarter. But you had to be aware of this change. First out of the DKK 195 million, DKK 42 million are coming from Life and Pension company. And the reason for that is the provision had gone up and then that are forcing up, also the capital target. On the other hand the risk margin, the profit margin had improved in the Life company. So the net impact from the Life company are less than DKK 10 million of the excess of capital. Next, had to be aware of the rest DKK 160 million are related to the bank mainly. Out of the DKK 160 million, DKK 50 million are coming from the MREL, the new capital demand starting of 1st of January of the 0.5% count equal to DKK 50 million. But this DKK 50 million are balanced with the MREL-facility which are in the presentation also. So this DKK 50 million are also balanced. So the net impact from capital change in the capital target are around DKK 110 million coming from the bank and that is mainly coming from a very high market, which gets exposure at the end of Q1. The market condition at that time was unusual and disposition are also unusual. So we will expect in the coming quarters to show a lower exposure on this, and therefore, also a lower capital demand for this part of the group. But all in all, after the Q1, DKK 161 million excess of capital. The full year guidance up with DKK 75 million as mentioned earlier, the Non-life came out -- we've expect to came out with -- come out with DKK 550 million, that is up great with DKK 75 million, a combined ratio 89% to 90% and still a growth level 2% to 3%. The Life company up with DKK 10 million up to DKK 90 million, still a growth of the running premium of 7% to 8%. And the banking still expected to have a profit after depreciation of customers of DKK 50 million to DKK 60 million and then to DKK 70 million in bottom line and still a growth in the retail lending portfolio. So all in all after Q1, the Non-life business very well performing, helped by major claims but nevertheless strong underlying business. The Life company again showed strong result, return on equity equal to 18%. Bonus rate effected by all the turbulence on the market but nevertheless, it's still strong. The banking with new levels of new customer coming in, new levels and new loans coming in, so still a lot of work to do about the earnings but the trend are quite good. And the pre-tax profit for the full year of the DKK 575 million to DKK 675 million. That was my presentation and now it's time for question, please.

[Operator]

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

[Asbjørn Nicholas Mørk, Analyst]

From my side, a couple of questions. First, if we go to the VA component in this quarter, could you just touch a little bit upon, what have you actually applied? Maybe I missed it in the presentation, what have you actually applied here at Q1 versus your expectation at the annual report of the 10 to 13 basis points reduction?

[Søren Boe Mortensen, CEO & Member of Management Board]

The point for the VA was that we had expectation at the end of the 2018 and that had been calculated at the time of the impact of 1st of January and that, of course, are included. And that was DKK 25 million in the Non-life business and that was up DKK 100 million in the bonus reserves in -- and about 1% in the bonus reserve in the Life. Then the point is that the VA had really developed through Q1 and being very low and lower than expected, obviously. But in theory then we also had adjusted our investment part and so to balance this new VA premium. The point was, at the end of March or mid of March. Then despite that we had balanced the investment and the new VA on the liability side then despite that then the development in the market from mid of March to end March. Then the asset and the liability was not following each other. The main reason for that is, as I see it, is that when you are coming to bonds exceeding the DKK 100 million level, then the valuation of the market had a strength not to give full value for the interest development in the price. But the VA adjustment are making the full impact from the interest rate adjustments to the liability. So it had a negative impact on this balance at the end of the quarter as a result of this fast interest decrease and as a result of the very low interest level. So in rough terms, you can say that the VA adjustment are not fair compared with the market, it's not, that's assuring but that are not equal to the market development. That's the impact. On the other hand, that's the play we had to play from this point.

[Asbjørn Nicholas Mørk, Analyst]

But still the outcome, the actual outcome from the adjustment was I guess adverse, true to your expectations at the annual report.

[Søren Boe Mortensen, CEO & Member of Management Board]

Yes. The adjustment for the principal of change of [ first, they are general, ] are fully equal to our expectation. The point was that the development through the quarter had been unbalanced because the new VA calculation are not right for the market in fact. So that's a problem. So we have -- I think it's not fair to look at the new and the old VA at the end of the quarter because we have adjusted the investment part during the quarter to the new VA. So just looking at the impact from the new and the old VA that of course, have a huge impact on, if you calculate that at the end of March, that gives more than DKK 60 million in the Non-life business but it's partly balanced by the investment part.

[Asbjørn Nicholas Mørk, Analyst]

Just to be straight -- I mean so there's no spillover into Q2 from sort of the methodology changes, right?

[Søren Boe Mortensen, CEO & Member of Management Board]

No. There isn't -- on this -- on the other hand when the market are changing and it had interest gone a little bit up, the more bonds are coming below the DKK 100 million then the VA more balanced with the development in the market and that will have a positive impact.

[Asbjørn Nicholas Mørk, Analyst]

All right. Fair enough. On your Non-life, on your premiums, the 1.6% growth and the quite low growth in private as you also touched upon, are you losing market shares? And if that's the case, to who? And then you mentioned some initiatives that are -- make you quite comfortable for the next couple of quarter. Could you just maybe give us some examples on what kind of initiatives you mean?

[Søren Boe Mortensen, CEO & Member of Management Board]

Yes. I think what we are seeing here, if we count the numbers of policies, we are unchanged. We're not losing market share but we have nearly the unchanged position. But that is also low end compared with what we normally had seen for some years. And what we are seeing in the market that -- is that the competition is quite tough out there on the premium side. And what we are -- we are reacting, of course, of what we are seeing, trying to push the market better, to be more competitive of certain hits of the market. So we think that we can improve this position a little. I think if you compare with the market development generally, you also had to be aware of -- in part of the market there are price increases and that also impact on the total market. So when you are looking at market share on premium -- calculated on premium level then price adjustment also have impact. And I think we have said it before, we have some adjustments in our portfolios in -- during 2019. On part of small segments of the portfolio where the performance are not good enough. So we will make adjustments in part of the portfolios up wide in the premium -- upwards in the premium, which helps the development. On the other hands, on the daily competition out there then we also will try to be a little bit better, more competitive in the environment out there.

[Asbjørn Nicholas Mørk, Analyst]

But the initiatives, you mentioned, that is mainly, it sounds, the repricing measures that you did in the second half of 18 that will have an impact in -- from here and onwards. Is that correctly understood?

[Søren Boe Mortensen, CEO & Member of Management Board]

The repricing will have impact on the on the growth rate clearly, but we are also ahead in the institute to improve the selling power out there, and we can already, in Q1, see that we have improved compared with Q3 and Q4 in 2018. So there are some time lag there. So we will expect that the selling results, the performance of the selling in Q1 had been better than we have seen in Q3, Q4 and therefore, we will expect that we also will have a better position in the rest of the year.

[Asbjørn Nicholas Mørk, Analyst]

Okay. Then if I turn to the bank, basically a couple of questions. But first on the top line, it seems to be somewhat under pressure in Q1. So is that margin pressure? Or is there -- is it because you have a growth that is very back-end loaded in the quarter that will benefit Q2 and onwards? Or how should we look in that? And then if I look at the other lines in the bank for instance, your own portfolio, still, of course, quite negative in Q1. You mentioned in the presentation that it's because of declining rates but I mean the loan portfolio has been quite negative for quite a while and you also mentioned the liquidity as an issue. So what should we expect from the loan portfolio looking ahead? I guess it will be quite negative for next many quarters to come.

[Søren Boe Mortensen, CEO & Member of Management Board]

I think looking at the investment result and the tertiary performance, I have mentioned before that the excess of cash that we have in the bank with the current interest rate level and the 0.65% in the National Bank then we are upon will, a minus of DKK 20 million a year, on the investment side. That's starting point so. And additional to that then when the -- with a very low interest rate that we have seen, of course, that give for a pressure here. Looking at the net income, it's obviously, DKK 88 million lower than expected. We have -- seeing that the loan portfolio had improved a little but looking at the private loans that had improved DKK 40 million or something like. So not much in Q1. The challenge here is that doubled up our inflow which are quite high. The net impact is only DKK 40 million, the reason for that is that a lot of our customers are repaying their loans or mostly I think are going to convert -- transfer to mortgage loans. And that -- presumably a part of the reason for the huge growth that we have in mortgage loans also in Q1. So unfortunately, the outlook here is that we are improving the portfolio a little but we are not making a jump up in Q2 as a result of this because the portfolio have not developed very much, despite that the inflow had been doubled compared with the 2018 quarter-for-quarter. But -- on the other hand, we think that having more than 22,000 full customers now had doubled the inflow of the -- in the portfolio then I think the transfer to mortgage loans will have an end in this portfolio. So on a certain level out there, the loan portfolio also had to improve in the size. And therefore also have that positive impact on the interest rates. But obviously that -- on the short run, the impact are limited.

[Asbjørn Nicholas Mørk, Analyst]

But then if you look at your guidance for the bank for the full year, what is sort of your loan loss provision expectation for the full year, given that the guidance that you gave for the pretax?

[Søren Boe Mortensen, CEO & Member of Management Board]

When we're making the guidance we still think as -- that we have -- we are bound with the interest income coming from the bad customers, to say that with the level of 5 to 6 in quarters. So this first DKK 20 million, we are bound with, but for the rest of the portfolio, we are not calculating with that in the outlook.

[Asbjørn Nicholas Mørk, Analyst]

Okay so basically when we -- the DKK 20 million that you have in loan loss reversals in Q1, that's a pretty positive surprise versus your guidance set at full year, correct?

[Søren Boe Mortensen, CEO & Member of Management Board]

But then on the other hand, you can say that the starting loaning portfolio for the full year and the performance in the first quarter and the interest margin in the first quarter are a little bit lower. So it had meet some of the challenges that we had in the first quarter. This reversal of write-downs. We have -- on the fee income we had challenges in the first quarter, it's obviously to look at that. And the other part is that the cost level are also to the high end as result of mainly IT costs in the first quarter, which have been higher than expected.

[Asbjørn Nicholas Mørk, Analyst]

Okay. Fair enough. On your capital model, final question basically, how should we look at the, first of all, on the risk and profit margin in Life? Is there more to come here? Looking ahead, I mean are you well preserved to -- is that a hidden buffer? And then on MREL, should we expect that looking ahead, the next couple of years, when MREL is implemented that you'll have the 0 net impact because of the facility that you have in the holding company?

[Søren Boe Mortensen, CEO & Member of Management Board]

First, the risk and profit margin in Life company are clearly connected to the ability to earn money on the portfolio and that had been improved when we are making -- in this low environment at the end of March. Then we improved the provisions for this portfolio because of the currency and the low interest rate level. When we are doing that then the risk for not having profit on this portfolio are improving, and therefore the risk and profit margin are improving. So these 2 things are connected, so that does not take yourself [ stable ] but that is connection between the liability and the provision. So at the end of March, we had to improve the capital target as a result of the provision going up. Luckily wise, then you had the balance, so the profit margin are following up at the same time. So the balance in the portfolio are still there. So no, you cannot just use it. It's strongly connected to the development of the liability and the possibility of earnings in this portfolio. Expectation is not that we can relief capital from the Life company as a result of this. And the impact for the first quarter was less than DKK 10 million in the relief of capital. Going to the to the bank and the MREL, then as we wrote in the annual account, we had a facility of DKK 200 million to MREL from -- in the first time, or our first round. So the demand for MREL in the up to DKK 200 million are covered now, fully covered now. And therefore, we also had taking this MREL DKK 50 million into the account now. We have not used the facility up to this point, but the facility are given. So therefore we are making it into the calculation and the next MREL increase the demand from -- for the MREL in the autumn, will also be covered by this facility. So neutral impact on the capital side from the MREL. But of course you had to pay a little in interest for the facility.

[Asbjørn Nicholas Mørk, Analyst]

Yes. But that means that when you actually use the facility, it won't have an impact on the DKK 161 million excess capital.

[Søren Boe Mortensen, CEO & Member of Management Board]

That's correct.

[Operator]

Our next question comes from the line of Per Grønborg of SEB.

[Per Grønborg, Research Analyst]

Yes. A few questions left after this pretty long exercise first of all, the bank and the investment portfolio, you stated that the minus DKK 7 million this quarter was better than budget. This indicates that the run rate should be more or less DKK 30 million to DKK 40 million in loss per annum.

[Søren Boe Mortensen, CEO & Member of Management Board]

Once again, Per. I didn't catch your question.

[Per Grønborg, Research Analyst]

You said that the minus DKK 7 million on the investment portfolio in Q1 that was in line with the budget. That indicate that the run rate is more negative than the minus DKK 20 million.

[Søren Boe Mortensen, CEO & Member of Management Board]

Yes. Okay. DKK 5 million or DKK 7 million, yes. But it's around the DKK 7 million level. So close I'm not -- so it's around the DKK 7 million, it's DKK 20 million a year. And the DKK 7 million, yes, you're quite right. And then there's [ 28 ] but level, same.

[Per Grønborg, Research Analyst]

But the guidance is minus DKK 20 million for a normal year.

[Søren Boe Mortensen, CEO & Member of Management Board]

It obviously, with the current interest environment, minus DKK 20 million is going a little bit up. If it continue on this level, that we have and the end of March and start here in April, that's up -- that's obviously.

[Per Grønborg, Research Analyst]

When I look at your P&L, the costs DKK 151 million in the first quarter, no special items. Where should we look at full year cost, will you be able to get that below DKK 600 million?

[Søren Boe Mortensen, CEO & Member of Management Board]

If you look at the cost level, then -- in fact, we had expected that the cost level of the bank have been a little bit lower than we have seen in Q1. Originally, when we'd started we will expect to have it down with DKK 7 million more than you have seen here in Q1. We had challenges on the IT costs specially, which had been rather expensive and mainly out of our control in fact, which saves bank better. And additional to that then we also have a lot of the compliance efforts, which also have higher costs than expected. So we are in the first quarter DKK 7 million, around DKK 7 million over our expectation of the cost in the bank. Of course, we will try to improve that in the coming quarters, can we come down to the expected, originally expected level? I could have my doubt because of I'd see area -- the compliance area, not easy to make reduction at and it's not easy to make reduction around in all the lines. We are trying but nevertheless. So we think, yes, we hopefully be below the DKK 600 million. That was a long answer for a short question.

[Per Grønborg, Research Analyst]

Yes. Okay. The final question to the VA adjustment in the P&C business, it sounded like the 10 to 13 basis points that was the curve adjustment you saw at the beginning of the year, but if you had done it on the 1st of -- or the end of March, instead, then the adjustment would have been significantly bigger. Is that correctly understood?

[Søren Boe Mortensen, CEO & Member of Management Board]

That's right. The calculation of DKK 25 million on 1st of January, that's 13, around the 13 basis point change and there's clearly -- if we had to make the same calculation of end of March, solely on the VA, that will had been around the 30 around or nearly 30 and that headcount given the amount of DKK 63 million as I remember. If I had made that calculations at that time. My point is that the DKK 63 million are not a fair statement of the impact from the VA because of 1st of January, I have, of course, adjusted my investment side to the new VA premium and therefore, a part of the DKK 63 million impact are saving from the investment side or balance with the investment through the Q1. And then we have the turbulence in the end of Q1, which shows that the new VA premium are not equal to the market, are not aligned with the market and in fact, I had to recalculate it but that will be difficult, I think. But that was the right way and so on this issue. I think all had been suffered with, in the end Q1.

[Per Grønborg, Research Analyst]

What I'm more interested in it's a knock-on effect on the P&L, I assume this will push up your claims ratio a bit? But in Denmark, I can guess they don't have a business that is hugely different from yours. They told that this would increase their base ratio by 0.3. Is that possible the same level we should expect in your books?

[Søren Boe Mortensen, CEO & Member of Management Board]

When we looking at the impact from interest rate change compared with last year or year ago then the total impact from interest rate changes, which are the market and the VA. The impact on that is 1%. So the VA, assuming at that level as you mentioned from Denmark, could seem right.

[Per Grønborg, Research Analyst]

Your new cost for your insurance liability that was down to 0 this quarter. Is that a new one that we should expect on that one? I assume you had some money back on that lines there.

[Søren Boe Mortensen, CEO & Member of Management Board]

On the...

[Per Grønborg, Research Analyst]

On the unwinding of the insurance reserves -- interest on insurance reserves I think you call it. It's the second last line in your investment income note.

[Søren Boe Mortensen, CEO & Member of Management Board]

I'm not catching your question, your sound was disappearing a little from here. Please again, Per.

[Per Grønborg, Research Analyst]

The unwinding of your discount reserves, the second last line in your investment note on Page 11. I guess that one should benefit from the lower VA adjustment. You have a sale in the first quarter, is that the likely run rate going forward? Meaning, you will have no cost for unwinding your reserves going forward.

[Søren Boe Mortensen, CEO & Member of Management Board]

Oh that, that note, I haven't in my mind. So I had to give you an answer on that later, I think.

[Per Grønborg, Research Analyst]

Okay. We can take that later, Søren.

[Operator]

And we have one further question in queue, that's from the line of Ida Gjosund of Carnegie.

[Ida Melvold Gjosund, Research Analyst]

Yes. I just have one question left. So going back to Non-life insurance, so we haven't seen an improvement in your underlying claims ratio compared to last year, despite price hikes. So is this because the price initiatives you have started did not have its full effect yet? Or is it because the claims inflation is a bit higher than you initially thought?

[Søren Boe Mortensen, CEO & Member of Management Board]

You are asking on the Non-life side?

[Ida Melvold Gjosund, Research Analyst]

The Non-life side on the underlying claims ratio.

[Søren Boe Mortensen, CEO & Member of Management Board]

It's nearly unchanged compared with last year. You had to be aware of the change in interest rate had an impact here also. So that is essential. So despite that it seems to be nearly unchanged on the interest rate had an impact, a negative impact, lower interest rate compared with last year. And then the adjustments of the premium levels are starting in Q1, so the impact from these premium adjustments are getting through the earned premium through 2019 but the impact in Q1 is very limited. A few millions in fact. So these adjustments will have a positive impact through 2019 but in Q1 the impact are very limited, so therefore, you see underlying nearly at the same level.

[Operator]

And that was our final question. So I'll hand back to our speakers for the closing comments.

[Søren Boe Mortensen, CEO & Member of Management Board]

Then I will say, thank you for your questions. Thank you for your attention. Have a good day.