ALM. Brand A/S
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ALM. Brand A/S
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Welcome to the Alm. Brand Interim report First Quarter of 2021. [Operator Instructions] Today, I am pleased to present Rasmus Werner Nielsen. Speaker, please begin.
Good morning, and thank you for taking the time to join us on this call on Alm. Brand results for the first quarter of 2021. I'm here with our CFO, Andreas and Head of IR, Mikael. Let me begin by stating that I'm satisfied with the results we have announced today, both in terms of the earnings that we have made and the progress that we have achieved in the first 3 months of the year related to further improving the core of our business at building a company fit for the future. Please turn to Slide 2. As you well know, following the structural changes that we made to our business last year, our focus this year is to make the core of our business more efficient, i.e., streamlining the operational processes and to meet more customers. However, COVID-19 still increased our business. We knew this when we announced our full results back in February, it's no surprise here. The partial lockdown of society and the generally lower level of activity have provided both tailwind and headwind to our business. Claims has been lower on several key insurance products, which has benefited our technical results. The flip side on the coin has been that we have not been able to meet as many customers as we would have liked to, which has temporarily reduced the payments growth. Aside from this, we have achieved a positive result from our investment portfolio as financial markets has continued to perform well. Also, we have invested a huge amount of time and resources in building and implementing the digital solutions and internal processes to cater for the partnerships with both Sydbank and Volkswagen Semler Finans Danmark. We are making the progress that we have planned for and are reaching the milestones that we have defined in our rollout plans. Both partnerships are now live, and we expect them to contribute lead to our overall premium growth, both this year and the years to come. For the next quarters, our focus will be to make sure that we are able to execute and create excellence in our core functions. We will revisit the full value chain and identify what we can do better on claims handling, procurement, and customer servicing. All of this will lead to Alm. Brand delivering on the financial targets in 2022 as communicated to the stock market back in early 2020. Please turn to Slide 3. The group made a pretax profit of DKK 137 million in the first quarter of the year against DKK 41 million in the first quarter of 2020. The underlying numbers are pretty much in line with our internal forecast and including in our cost and investments in our partnerships to get up and running. These costs are under control. They develop in line with our expectations, and they are, of course, somewhat front-end loaded, and all the benefits will follow in the quarters to come. Further, again, this quarter, the result includes a positive earnings impact from the COVID-19, in line with our expectations. Looking into Q2 and beyond, we foresee that we are now getting back to a more normalized activity level with the only marginal effects from the COVID-19 on the claims experience level. Cold weather in the first quarter of the year has weather-related claims at a very low level. But contrary to this, we have seen a quarter with a high-frequency of major claims. And the combined effect of these 2 claims experiences has been somewhat to the high side. Runoffs has been close to 0. I will get back to that later. And investments result has been good and thus very different from what we saw a year ago. All in all, I think this has been a quarter where we have demonstrated that we are advancing steadily on all the factors that we can influence. And then there are a few factors that structure it regardless of what we do, this is the nature of an insurance company. We have paid out dividend for both the financial year 2020 and 2019 this year. Some of these amounts to DKK 7 per share, which come on top of the external dividend payment of DKK 8 per share back in January following the divestment of our bank. Following this, our solvency ratio remains high and is currently 360% in the group. And finally, after the positive development in Q1, we feel comfortable in increasing the full year guidance, which we increased with DKK 50 million. I'll get back to that on the end of my presentation. Now please turn to Slide 5. The nonlife business made a pretax profit of DKK 138 million in the first quarter of the year, which comprises a satisfactory technical result of DKK 109 million and a positive investment result of DKK 29 million. The technical result benefited from a good development in underlying business as well as a favorable development in weather-related claims. Also with COVID-19 pandemic and the subsequent lower activity in general had a direct positive impact on earnings of an estimated DKK 30 million just like we expected. However, on the negative side, we had a somewhat higher-than-expected frequency of major claims. And this happens from time to time and the runoff result was close to zero, as two claims related to workers' compensations wiped away an otherwise positive result. The positive observation, of course, being that runoffs are generally fine and the negative impact can be isolated to a special and rare situation. In this case, the two claims on workers' compensation with a total cost in excess of DKK 20 million. Our investment strategy is a long-term strategy with respect to overall portfolio exposure. And consequently, we have profited from the continued positive development on the financial markets. Please turn to Slide 6. Premium income grew by 0.5% in the quarter, i.e., less than we have seen in the previous quarters, but only a bit lower than our budget for Q1. As expected, COVID-19 reduced our ability to reach out to customers, which affected the development in premium inflow. This has not only been the situation in Q1, but also back in Q4 2020, which has had a spillover effect on the realized numbers in the first quarter of 2021. Further, soft sales of new cars and generally fierce competition in the motor insurance space has also affected growth. Especially when we look at the numbers for private customers, the development has been subdued, and this is, of course, something that calls for action. But now we are looking into a reopening of the society and return to more meetings with our customers. On top of this, our partnerships with Sydbank and Volkswagen Semler Group are up and running, and I'm confident that this coupled with various price initiatives will get us back on budget. And just to be clear about this, our main focus is to make sure that we grow in a profitable way. So there will be some of the fierce price competition in the market and will be back away from. The claims ratio, excluding runoff gains, was 74.3% against 74.7% in the first quarter of last year. Including in this is a one-off positive effect from fuel claims in the quarter due to the COVID-19 situation and a positive effect from fewer weather-related claims. But, on the other hand, a negative effect from higher cost stemming from major claims. The expense ratio was 17.8%. This effects from the cost savings program continue to materialize, but are set off by start-up costs related to the partnerships. And all in all, this leads to a combined ratio, excluding runoff gains of 92.2% compared to 92.3% in the first quarter last year. The runoff result amounted to a gain of DKK 2 million, which corresponds to 0.1 percentage points against a gain of 1.9 percentage points in the first quarter of last year. As mentioned, we had two cases on workers' compensations that were somewhat higher compared to what we normally see, each of them being above DKK 10 million. Aside from those, the runoff result was pretty much in line with what we would expect. The combined ratio, including runoff gains, amounted to 92.1. Now please turn to Slide 8. For the weather-related case, we have seen a very favorable development in the first quarter. Despite cold weather and some snow, these claims amount only to DKK 7 million against DKK 54 million in the first quarter of last year. The major claims, however, more than doubled to DKK 170 million against DKK 31 million in the last year's quarter. Adding these two together, total claims amounted to DKK 124 million against them all moderate level of DKK 105 million in first quarter of last year. And now please turn to Slide 9. For the private segment, the claims ratio was down 1.9 percentage points in the first quarter against first quarter last year. In the quarter, we have seen restrictions and social distancing, having a direct impact on general activity and a number of accidents. And like especially in Q2 and Q4 last year, this can be seen in numbers. Runoff gains amounted to a decent 0.8%, but modest compared to the previous year. And lastly, the expense ratio ticked up but lower-than-expected as cost in Q1 includes funding, the start-up of the new partnerships. Please turn to Slide 10. For the commercial customers, the combined ratio increased to 97.6%, i.e. significantly higher than in the first quarter of 2020. The key driver here was a sharp increase in the major claims, which tripled to 14.4 percentage points. However, this was partly offset by a lower level of weather related claims. Through 2020, we have reviewed our portfolio of corporate customers and have found that some are paying too lower premium relative to the expected risk profile. Consequently, throughout 2021, we will adjust the price of several of these policies. And on a separate note, we now see an increase in cost inflation in relation to insurance claims as prices for both works and building materials are going up. The expense ratio amounted to a satisfactory 16.2%. This is in line with the our expectations. And now please to turn to the last business on Slide 12. Pretax profit for the first quarter of 2021 amounted to DKK 21 million against DKK 32 million in the first quarter of last year. The technical result amounted to DKK 27 million and reflects a continued satisfactory expense and risk result, which amounted to DKK 12 million. On the negative side, the investment result came in at a loss of DKK 6 million as interest rates under our bond portfolio increased. The bonus rate increased by 180 basis points to 17%, as higher interest rate had a positive effect on the life insurance provisions that exceeded the losses on the investment portfolio for the policyholders. Please turn to Slide 13. Premiums totaled 425 -- DKK 426 million in the quarter and were made up by DKK 246 million in regular premiums and DKK 180 million in single premiums. The development was flat for the quarter relative to the first quarter of last year, well below our medium-term target, but partly explainable by the special situation around COVID-19.All this is in line with our expectations. And we forecast growth to pick up nicely in the quarters to come. For 2021, we have announced a customer rate of 3% for new customers. The FSA has announced a regulatory change to the minimum technical rate of interest rate to minus 0.5% with effect from July 1, 2021. And we will have a setup in place so that we also, in the future, can cater for customers that prefer our value proposition.And then please turn to Slide 15 for the outlook for 2021. Based on the development that we have had in the first quarter, that is a very few weather-related claims as well as the positive investment return, we increased our full year guidance by DKK 50 million. This means that we now guide for a full year pretax result in the range of DKK 650 million to DKK 700 million, which is the sum of an expected pretax profit in non-life of DKK 625 million, in pension of DKK 100 million and net group cost of DKK 50 million.As also stated back in February, our guidance assumes that the direct positive effect from corona -- from COVID-19 on claims frequency expected to be lower. We have had tailwind in the first quarter but moving into the rest of the year, we believe things will normalize. Secondly, for both major claims and weather-related claims, we budget for something close to a normal in the rest of the year, i.e., around 3% for weather-related and 7% for major claims. And thirdly, we expect only a modest investment result in the remainder of the year. Lastly, as usual, we do not include runoff results in our guidance. Just to be clear, we still guide for topline growth in non-life of more than 3% and a growth in regular premiums in life of 3% to 4%. Both will be challenging, and we will, at the same time, keep firm focus on profitability. Further, the cost rate in non-life is expected to pick up a little compared to last year to between 17% and 17.5%. And regardless of this combined ratio is now expected to be around 89%, thus reflecting the increase in our earnings guidance. We are comfortable about the development and see no changes to the financial targets for 2022, with cost of around 16% and combined ratio in a normalized world with no COVID-19 around 19%. In total, our guidance reflects a business with all major parts moving as we would like them, too.With this, I conclude my presentation and hand over the word to our moderator. Thank you.
[Operator Instructions] Our first question is from Per Grønborg of SEB.
Yes. Thank you. I will start what might be a bit nitty-gritty area. The VA adjustment up 23 basis points in the quarter, you stated that the Danish market have not seen the same spread widening. What's your investment benefit isolated from the 23 basis point? And where have they been lost again this quarter?
Per, this is Andreas speaking. We have -- round the numbers, we have, I would say, a net positive from the net portfolio in the level around plus DKK 15 million and with the VA adjustment we've seen, that is in line with what we would expect because we have the ambition to basically match the liabilities in a way that the amount of credit and mortgage bonds are matched compared to the underlying risk on the liabilities. And so that's very much in line what we would have expected.
You are saying that the impact of 23 basis points from the VA, if I understood you correctly, that was DKK 15 million only. Is that correct?
Yes. That's ballpark on the net portfolio. And then we also have an on-risk portfolio where there are -- it's really consists of short mortgage bonds. And in the quarter we've seen with both widening of spreads and an increase in interest rate, we obviously have a loss on that part of our portfolio. So you could say no -- sorry, those 2 effects would basically match in levels. And then we have a positive from the equities increase...
Yes. That, of course, can be seen that you are disclosing. Let me rephrase the question again, 23 basis point increase in the discounting curve, everything else being equal. How big would your gain be from that? Forget about the asset side, only the liability side.
The liability side would be about DKK 40 million.
DKK 40 million only?
Yes.
Is there a significantly smaller amount than what you have communicated previously?
No. I know that's in line what we've communicated previously. We have an interest rate risk of under liabilities in the level DKK 2 million per basis points.
My second question is on the growth in P&C. You had 0.4% growth in the first quarter. You still guide to more than a 3% growth for the full year. This must imply that I assume Q2, you more or less know the numbers by now as those premiums have been written, and you need to earn them first. Are you seeing very quick pickup in the second quarter? Does this imply that we should see second half growth approaching 5%?
Rasmus here. We guided in February, we knew that Q1 would be changing, and it's actually also in our internal numbers. We are a bit below, as you are saying, also a bit below our own expectations. But now with the opening and that we have our people out on the roads and discussing with the customers again. We are -- we see -- we are passive towards the 3% for the full year. And also with the Semler coming in now, we have Sydbank working very good. So we are still in a positive sentiment around the for the full year.
So we should not expect it would be that far from the full year growth when we look at Q2? Or will you also be clearly behind in Q2 as you seem to believe that you would be after Q1?
The growth will pick up in Q2, but it will not outline the expected growth on 3% that we did not have for Q1...
Is it realistic that you will be anywhere close to 3% for Q2? I mean, you will have a significant -- you'll be significantly behind going into the second half?
Yes, it is a realistic.
That's realistic. Okay. Interesting. Then maybe a bit nitty-gritty Question. If I look at the movements in the interest groups in Life, can you explain what has happened, the high interest group is down quite materially, also the 0.5% to 1.5% interest group is quite -- down quite materially this quarter. It looks like you have had a quite significant outflow of high guarantee business.
Yes. My immediate answer to that would be that we haven't seen a large upflow, I would say, it would be explained by -- is it the asset under management you're referring to? Or...
That's the only number you gave us, so that's what we need to refer to.
I would say it's the interest rate increase and the adverse impact, as I said, on the asset side, you see the. It doesn't represent an outflow from the underlying customers.
So the Group 3 is down from DKK 1.9 billion to DKK 1.4 billion. That's solely driven by losses on the bond portfolio.
Mainly, yes.
Our next question is from Asbjørn Mørk of Danske Bank.
One question relating to your guidance for the full year and the DKK 50 million upgrade, if I understood you correct, Rasmus, you said, you had DKK 30 million of COVID-19 benefits, which were lastly as expected. But I also assume you recall at the Q4 numbers, I believe you said you hadn't included COVID-19 in your guidance. So just a bit of clarity on whether the DKK 50 million upgrade is that impacted by the DKK 30 million of COVID-19? Or is that not included in that guidance upgrade?
It's not included in that guidance nupgrade. The guidance upgarde is primarily due to the weather-related clamins and the financial markets.
Okay. So when you say DKK 30 million as expected, that was not referring to the guidance, but just what you had in your internal...
Yes. That was included in our guidance for the full year, yes, at that time. Sorry. Sorry, I missed -- can you rephrase the question? I missed it?
Yes, sure. The initial guidance of DKK 575 million for Non-life for this year. Did that include DKK 30 million of COVID-19 benefits for Q1? Or is that something that was not included at that time in the guidance?
It was included at that time.
Okay. All right. Okay. I think you said something differently at Q4. But anyway, okay. So it was included in the DKK 575 million. Got it.
Yes.
Is it possible because when I look at the 3% impact or the DKK 30 million -- sorry, is it possible to split that between private and corporate?
Well, we could say that most of it is in private. We don't have the exact split today.
Most is in private. Okay, fair enough. And then a final question from my side. A little bit back to Per's question on the growth, which, I guess, needs to be quite intense in Q2, Q3, and Q4. But you also said Rasmus that you would back away from areas where competition is tough, which I guess is in some of the private areas, if I understood you correctly, also in the presentation. So what are the areas where you think competition is less intense and where you expect to outgrow more than in those more competitive intense areas?
I think the intense area is definitely in the auto insurance part. We see very high price or low price competition at the moment. And of course, we need to have profitable growth. So some of the things we will see may back up some. We have in the accident part, I think we have a possibility to increase prices. We have very good business there. And still coming in. It's a good product we have. So there are ups and downs, and there are definitely segments to work with also in the private side.
But isn't also exactly one of those areas where you expect to grow with the new distribution agreements?
Yes. The auto, you are right. The auto industries there. And and with these new partnerships, we have good prices. But here, the price is something more than -- the product is something more than just the prices also in the service. And it's combined into this ecosystem of servicing. So I would say price is one thing, but it's maybe a second priority or even a third priority for the customers because there are so many other benefits of having the insurance product, combined with the services that Semler Group is providing. So we don't expect that to be -- of course, there will be some competition on that product as well. But there are many other things we can play on providing that product. And when we have these new customers into our house, we are allowed to contact them with all the other products we have. So this is really a partnership we expect a lot from.
All right. Then on Life on your growth, which, of course, is quite low in Q1, but you're right in the report that you expect that to pick up in Q2 with the deals that you've already made in Q1. So I mean, I was just wondering, how certain are you about the growth potential here given the guaranteed products? And as you also alluded to the FSA new guaranteed -- maximum guaranteed rate or whatever you want to call it, in these negative rate environments. Is there a risk that you might be too optimistic about the growth opportunities, maybe not for Q2,, but midterm?
I would say we actually had quite a good growth in Q1, but we also had that last year in Q1. So we are satisfied. We have a very good beginning, and we see the 3% in deposit [ interest rate ] is very attractive to a lot of customers. So funds are moving in our direction. So I expect us to be able to deliver on 3% to 4% by the end of the year, yes.
Our next question is from Martin Gregers Birk of Carnegie.
Just coming back to where Asbjørn [indiscernible] to your Q4 transcript, I guess the the COVID-19 effect in Q1 was not supposed to be 30%, it was supposed to be somewhere around DKK 15 million. So what happened to that? And what kind of COVID-19 effects have you included in your guidance for the 3 remaining quarters? And then on your guidance, I guess, if you sort of do the other calculation, it signals that the coming 3 quarters are going to be fairly strong. But how should we think about that and what sort of -- what are the building blocks to reach your P&C guidance in here?
I hope you're right that the coming quarters we'll be very strong. No, we guided around DKK 50 million in COVID-19 effect for 2021. DKK 30 million of them is due to Q1, and it's actually also what we have seen in the figures. And DKK 10 million to DKK 20 million is in Q2. And of course, there is yet to see what will happen. But at least I can say, from what we have seen in draft version for April, of course, there are still some COVID-19 effects floating into the numbers. And then we hope that the opening of the society will mobilize these levels.
So but wasn't the DKK 50 million was only supposed to be in Q1. And then I guess there was some saying -- I don't know if I talked to you or where I heard it, there was some saying around that that COVID-19 ends at Easter, and that's why we only guide for COVID-19 effect in Q1 of DKK 50 million.
I think we guided, at least I hope, it was said that we were DKK 30 million for Q1, and for Q2. I must say, I cannot remember how specific we were, but at least it was [indiscernible] for the year.
Okay. Okay. And then on to the remaining 3 quarters?
Yes. We expect -- and we also see a more normalized level in the claims frequencies. Things are starting to be more normalized. And as we saw last year, when moving from September into October, very quickly, will pick up into a normalized level on claims frequency. So that actually also expect here at the end of May moving into June when the society is reopening. So we still have -- I think what we have guided these DKK 10 million to DKK 20 million will not be far from reality in Q2. And then it's difficult, of course, to say, but I would expect them to be more normalized rest of the year.
[Operator Instructions] We have another question from Per Grønborg of SEB.
I guess just a follow-up. You address yourself inflation and construction costs. Talking to people work within the construction sector, it seems like material costs are skyrocketing, if you say, even aim to get materials at the moment. What have you put into your guidance regarding claims inflation in the remaining part of this year?
You're.You're right Per. We are looking into, at least see the first signs of costs on claims to increase, it could be both on rates -- hourly rates or it could be for building materials. But it's still -- I think it's too early to say what we expect will be. And we have actually not put anything into our guidance yet. But it's just to raise the flag that there are something we need to follow very closely. Also with what you're saying that it is difficult to get building materials and things like that. But for the moment being, we have not put anything into our guidance.
We have another question from Martin Gregers Birk of Canaegrie.
Just coming back, and I guess this was actually also a follow-up to Per's question. On the deterioration that you see in your underlying combined ratio this quarter. I guess some of it can be linked to, namely a pickup in materials, waste inflation within construction, et cetera. But I guess also a part of it is going to be linked to the investments that you guys make in your partnerships. Is that something that we should expect that would go away from the next quarter? Or how should we sort of think about this deterioration in your underlying combined ratio?
I think the cost side will normalize in Q2. We have had this small effect exactly as expected in Q1. But now we are live with both Sydbank and Semler. These start-up costs will not come back in Q2. In terms of the building materials and all that, we still need to see what is happening. There can be still a pick up in Q2 and even Q3, maybe even in Q4, if the whole building market in Denmark heats further up. But it is a little bit -- we are looking to this very carefully to see how things will affect us. But on the cost side, we are fully in control.
There are no further questions at this time. So I'll hand back over to our speakers.
Yes. Thank you very much for listening in and taking time to our results. We talk about -- we'll talk with you later. Thank you. Bye.