ALM. Brand A/S
CSE:ALMB
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ALM. Brand A/S
Earnings Call Analysis
Q1-2024 Analysis
ALM. Brand A/S
The company began 2024 on a strong footing, reporting an insurance revenue exceeding DKK 3 billion, marking a growth of nearly 6% compared to a 3% growth in the previous quarter. Personal Lines particularly stood out, exhibiting an impressive growth rate of almost 9%, largely due to effective market share capture and strategic pricing adjustments.
The technical result reached DKK 295 million in Q1, a notable increase from DKK 205 million a year prior. This performance included a solid contribution from the Commercial Lines segment, which improved its insurance service results significantly, moving from DKK 95 million last year to DKK 218 million this quarter.
Despite the overall positive results, Personal Lines faced some difficulties, with insurance service results declining from DKK 111 million last year to DKK 77 million this year. This drop was primarily attributed to increased weather-related claims and reduced run-off gains, even as underlying improvements were noted.
The claims ratio saw an encouraging 170 basis point year-on-year decrease, driven by a significant drop in large claims. The underlying claims ratio improved by 300 basis points, largely due to enhancements in the Commercial segment and better handling of claims within Personal Lines.
The company highlights the successful leverage of synergies, which contributed to a 1 percentage point improvement in the underlying loss ratio. Synergies accounted for DKK 98 million in Q1, up from DKK 75 million in the previous quarter. The company anticipates that these synergies will contribute approximately EUR 450 million over the full year.
The investment income was recorded at DKK 167 million as favorable market conditions aided returns on listed shares. Looking ahead, the company expects an insurance service result—excluding one-off items—for the remaining quarters of DKK 1.4 billion to DKK 1.6 billion. The combined ratio is expected to remain between 87% to 89%, with the cost ratio forecasted in the range of 17% to 17.5%. Notably, the investment result is now guided to DKK 350 million, up from DKK 250 million.
While synergies have positively impacted the cost ratio, the company acknowledges challenges ahead, particularly due to fluctuations in claims and the competitive pricing environment. The combined ratio in Personal Lines increased to 94.4%, reflecting higher weather-related claims. In contrast, the Commercial Lines combined ratio improved to 86.6%, a notable drop from the previous year.
The management remains cautiously optimistic regarding the full year, expecting continued growth in insurance revenue across customer segments and an ongoing focus on profitability through improved underwriting practices and cost management initiatives. Moreover, a refocus on the Energy division is expected to yield improved results as the company aims for a combined ratio of 83% by next year.
The company's strong capital position is reflected in a solvency ratio of 193%, comfortably above the target of 170%. This robust capital buffer allows for potential buyback considerations later in the year, contingent on maintaining stable operational performance.
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Good morning, everyone, and welcome to the Alm. Brand Q1 2024 Earnings Call. [Operator Instructions]
And with that, I'll hand over to Rasmus Werner Nielsen, CEO. Please go ahead.
Thank you. Good morning, and welcome. I am Rasmus Werner Nielsen. And as usual, I have with me today, our CFO, Andreas Madsen; and our Head of IR, Mads Thinggaard. This morning, we published our interim report for the first quarter. And as usual, I will walk you through the operating highlights, and then Andreas will comment on the financials.
Overall, I'm quite pleased with our results for Q1, where we delivered a solid improvement in our insurance services results despite higher weather-related claims with an underlying improvement kicking in as a result of harvested synergies and repricing initiatives.
Please turn to Slide 2 and some of the headlines for our business in the first month of the year. As mentioned before, I'm pleased with the overall financial performance in a satisfactory Q1 where we continue to build on the improvements we made in Commercial Lines during '23, while turning the Personal Lines profitability around with the price increases to better increases in motor frequency.
Overall, we improved underlying claims by 1 percentage point due to the profitability initiatives. Our growth is standing out in the quarter and especially to see a bright spot on our growth in Personal Lines of almost 9%. Year-on-year, we do take quite a bit of market share in Personal Lines with our strong bank partnerships as a driver.
Synergies are kicking in just as we planned. And currently, we see good momentum for claims synergies. Overall, synergies drove our underlying loss ratio 1 percentage point down on Q1 '24 year-on-year, while helping the cost ratio a bit as well. We keep a strong cost focus these days to safeguard the synergies are not even by general increases in costs.
And now I'll turn to Slide 3 with our financial highlights. Insurance revenue grew above DKK 3 billion in the quarter with a very satisfactory growth in the quarter driven by Personal Lines, as mentioned before. The technical result was DKK 295 million compared to DKK 205 million last year. We view this as a good start to the year also considering higher weather-related claims and costs still being front end loaded in Q1 to some extent.
Investment income in Q1 was a satisfactory profit of DKK 167 million. This relates to the portfolio as well as the interest hedging of our technical provisions. And now let us continue on Slide 5. As said, the group made a technical result of DKK 295 million in the quarter. The insurance service results from Commercial Lines was EUR 218 million against DKK 95 million last year, DKK 94 million as underlying claim improvements continued to kick in and large claims dropped significantly.
Our Energy business had a new strong quarter as well and are now counting 5 strong quarters in a row. In Personal Lines, we had a drop in the insurance service results to DKK 77 million from DKK 111 million last year despite underlying improvements. This was primarily due to higher weather-related claims and lower run-off gains.
And now please turn to Slide 6. Insurance revenue grew by almost 6% in the quarter compared to 3% last quarter and we are very pleased with the growth acceleration. In Personal Lines, we are clearly taking market share on top of indexation and the price increases we do. We do consider an almost 9% growth in Personal Lines, a quite bright spot in our report. In Commercial Lines, we are seeing an accessible premium growth of 3%.
Now moving on to Slide 7 and the claims ratio. In Q1, claims ratio was down 170 basis points year-on-year in the quarter with higher weather-related claims, but also much lower large claims than in Q1 last year. Runoff gains this year was lower as well. The underlying claims ratio improved by 300 basis points year-on-year driven by commercial lines, but also with underlying claim improvements in Personal Lines.
Moving to an undiscounted basis adjusted for a write-back of a sector bankruptcy helping 110 basis points in Q1. This year, we see a 190 basis point improvement in underlying claims year-on-year.
And now please turn to Slide 8. Despite a significant drop in the cost ratio in personal lines in Q1 as well as a drop in underlying claims, the combined ratio in Personal Lines increased to 94.4% due to higher weather-related claims and lower runoff gains this year. Increases in motor frequency is playing into the development in the segment as well, while we are handling this with price increases.
Please turn to Slide 9 and the commercial line. We continue to see strong underlying improvements in our Commercial segment related to better underwriting, changed exposure and profitability initiatives. At the same time, large claims took a huge drop in Q1 helping an improvement in combined ratio to 86.6% from 94.1% last year.
We had a flattish development in our cost/ratio this quarter, not that different from our plans. And with these comments, I will now hand over the word to Andreas, who will walk through the synergies, investments and guidance.
Thank you, Rasmus. Please turn now to Slide 11 for an update on synergies. We had a nice jump up in harvested synergies in Q1 '24 of DKK 98 million from DKK 75 million in Q4 '23. This implies a DKK 41 million uptick in synergies year-on-year, improving our underlying claims ratio with 1 percentage point and our cost ratios were 0.2 percentage points year-on-year.
The synergy uptick is currently concentrated on -- around the claims side. We remain confident that the synergies for the full year to add the EUR 450 million that we have previously stated.
And now I turn to Slide 12 and our investment results. We made a net investment result of DKK 167 million, with the largest part coming from our free portfolio. Financial markets were, in general, positive in Q1, also leaving us with a nice return on our listed shares. We maintained a conservative approach regarding our investments. And now finally, please turn to Slide 14 for the outlook for '24. Our guidance for the year is an insurance service result, excluding one-offs for the remaining quarters of DKK 1.4 billion to DKK 1.6 billion, including expected synergies total of DKK 450 million.
The expectation is based on continued growth in the group's insurance revenue across the various customer segments, supported by the annual indexation of the premium level and individual premium adjustments. The cost ratio is expected to be in the range of 17% to 17.5% and the combined ratio, excluding the runoff result for the remainder of the year is expected to be 87 to 89.
We now guide for an investment result of around DKK 350 million compared to DKK 250 million previously. For other activities, we still guide a deficit of around DKK 125 million. As such, group profit, excluding special costs, is now expected to be DKK 1.63 billion to DKK 1.83 billion before tax. This is an upgrade of DKK 100 million due to the strong investment result in the first quarter of this year.
In addition, we guide for special costs in the range of DKK 200 million to DKK 250 million for the integration of Codan and realization of synergies.
And lastly, depreciation on intangible assets is expected to affect the income statement by approximately DKK 360 million. And with this, I conclude our presentation and hand over the word to our moderator. Thank you.
[Operator Instructions] Our first question comes from Asbjørn Mørk from Danske Bank.
Congratulations on the solid Q1 report. A couple of questions from me. First, if I may, on the sort of underlying trends in the private business. Is the 70 basis points improvement versus Q1 '23? And if I look back at Q1 '23, we had quite a lot of weather spillover claims hitting your underlying claims ratio in that quarter. So I was just wondering if you could sort of separate the hot and the cold water a bit here, what would you see sort of as a true underlying improvement in the private division in Q1. Are we sort of past -- returned the corner when it comes to sort of looking at more sustainable improvement to your underlying claims ratio for the Private segment?
Thank you, Danske. This is Andreas. I'll try to give some more flavor to Personal Lines underlying ratios. Overall, you remember correctly that we had some effects spillover into the underlying Q1. So in 2023, we had a pick up to these weather-related effects. I think it takes to say that at least we have seen some of the same tendencies in this quarter of '24, having both a lot of precipitation, but also the snowstorm and wintery and slippery roads.
So there is some effect also in this quarter. And on the other side, we also see auto frequency picking up further for us as it has been for the sector in general in the quarter of this year. So I think we're actually quite satisfied that we do see an improvement of the 70 basis points, given those back. And we're also very observant that even though we see the effects now, and that's why we actually see the improvement of the quite significant price increases we are putting through. We still are observing that we might need to do further as we progress through the year. But for now, we're happy with where we are.
All right. That's clear. Now that you mentioned motor frequencies. One of your competitors was out earlier this -- in Q1 and saying that they saw 10% motor frequencies in Denmark, of which 68% were weather. Those have changed sort of risk mix, which caused some sort of underlying improvement or increase as well. But then you said that the true underlying like-for-like was more like 1% on motor frequencies. You mentioned it as well now and also in the report, but do you sort of recognize that 1% true underlying motor frequency, hence, sort of under control if we adjust for weather and change the customer coverage, et cetera.
Maybe attacking it from a bit of a different angle, I would say that we're not seeing in full a 10% uptick in frequency compared to last year. We're probably just above half of that in terms of overall frequency. So I think we're not fully there, but somewhere between, let's say, at least north of 0.5 percentage points in the underlying would come from this tick up in auto frequency this quarter.
Okay. Fair enough. That's fair. And then if I may on your Energy division. So now that you mentioned yourself 5 solid quarters in a row. First, if I look at the 70.4 combined ratio for Q1. Could you sort of -- where do you see sort of the underlying trends with [indiscernible] movements, the underlying combined ratio for the segment in Q1 relative to the 83 target for next year, that would be helpful. And then if you can give us a little bit of an update on where you are in the process of the strategic decisions you want to make at some point on whether you should have this asset or not?
Okay. I think I can start with the first one and Rasmus will handle the second part of the question. But a few comments on the results we have for Energy. We have another strong quarter in Q1. We see that being driven by both lower life case frequency and also an underlying improvement somewhere in the lines of what we're seeing in general in commercial. So we're seeing both effects come through this quarter. We also had some prior year gains. So something like around just above 10 percentage points in combined terms is prior year.
But I think as I've mentioned before, I think that should not be truly, let's say, discredited because that also shows that we are prudent in our reserving also going into last year. So we had a solid full year. So -- but all in all, we see it -- we still see it, I mean, fairly below the structural level, so to say, we're probably confident now that we are somewhere around the combined 90, maybe even a bit below there. But we're not saying this is the new normal yet. We're confident that as we progress through the year, we would expect to gain further confidence and we are still firmly confident with the [ 83 ] we have as our target.
Yes. And in terms of the strategic review you asked about, we are still working on it. And -- but you should not expect any decisions announced before end of H1 before the summer holiday.
Okay. That's very clear. The final question from my side, if I may, on the solvency and capital distribution, you bring 193 as a solvency ratio in Q1. If I adjust for the remaining restructuring costs, I get to a number around 188. So you're still quite above your 170 target and we're quite early in the year, so you're going to make quite a lot of profits going forward. So I was just wondering, could you give us a little bit more flavor on capital distribution and your plans throughout 2024. Should we expect additional buybacks sort of to be announced during the year? And to what extent would that be depending on a potential, let's say, sale of energy or other measures. So I mean, should we expect an ongoing addition to the buyback? Or should we expect some sort of major news before we will get more unless before the annual report for '24.
Okay. Andreas here, let me try to answer that. We -- I agree with your statement that we have a very solid solvency position now, we have a firm, let's say, firm cancel buffer to where we need to be also in regards to our 170% long-term target. I still -- we believe that this is still too early in the year to be talking about buybacks. But I mean, at least we've gained some confidence and likelihood that as we progress, I think that could come into play somewhere towards the end of the year. And in that statement, I'm talking about, let's say, the business as usual scenario that we would normally have throughout a normal year. If there was to be any other, let's say, significant impact to our capital, we would have to evaluate what is -- what would make most sense in those specific situations. I think that's to -- I think that's too difficult to answer in general for that.
[Operator Instructions] Our next question today comes from Martin Birk from SEB.
Just to start off with perhaps a small question, reporting an expense ratio of 19.1. And given that I know you guide for 17.5 to 17. But assuming that you need to land at 16 next year, I would also expect it to come in sort of the low 17 range for this year. And then just is 19.1, isn't that tad high for Q1, given where you want to be by year-end? That would be my first question.
Martin, Andreas here. Let me try to add some clarity on that. As we talked -- we commented very briefly during my statement earlier. Actually, if you look at the synergies we had in the numbers for administrative costs, they are quite low compared to the delta we're putting into Q1 this year. So that's one factor, just to state that, that's around 0.2% in cost ratio terms coming from actual administrative cost synergies on there. And you should also remember that we are quite cost heavy in Q1. And so we're actually coming down just below 1 percentage point from Q1. So I think that's also created by the things we did in the end of the year to maintain the right traction in costs going forward towards our target growth for this year and next year. So I think the short answer is this is very much in line with where we expect and need to be given our current year guidance.
Okay. I guess I just hope that I'm well aware of the [ political ] dynamics in Q -- perhaps this hopes that you have been a little lower. But anyways, then on to a strategic question, I guess, I think we've talked a lot about your foundations role in Alm. Brand. And just before Easter, they sent out a new purpose. And it seems like they're only willing to support you guys with 25% of the dividends that we received from you guys. Isn't that a disappointment? And doesn't that leaves any form of customer dividends way out in the distant future?
I can answer that, Martin. You're right, the foundation came out with their product takes about their holdings in us. And -- but I would instead focus on the opportunities. I think we have a good opportunity here and we can get support. We never had from before from the foundation. And basically, of course, it's up to the foundation to choose how they will support us is let up to us. So we are very happy with the help we can get now. The thing here is that we should definitely find out exactly how and what to do with the help they are providing.
As we have said before, the help will still be too small to have a proper discount in the policies. We -- there's not enough room for that anyway. So we will kind of other ways to attract and keep our customers for the benefit of the shareholders and the foundation [indiscernible]. So we definitely have a way to go. And then there are other 25% from what they call philanthropy, which somewhat need to be linked in to their members, which is our customers as well. So I see that a bit more than 25% and then I think the important thing is also that they are -- the remaining 50% is in order for them to consolidate should we need the money on a rough day or if other opportunities will come our way.
But can you please help me -- enlighten me on why they want to become a financial holding company and why they need to consolidate their so-called economics when they could choose to stay below the 50% and they could probably support you with something like DKK 650 million to DKK 700 million a year. And now it looks like it's going to be more than -- now it looks like it's going to be in the DKK 200 million range.
Martin, I cannot really comment on the. It's up to the foundation to answer that.
Hasn't there been any dialogue between you and the foundation on its purpose?
As I said, they are providing now their own policies, their own business, which is not linked into -- directly into our business as it's been somewhat in the past. It's new [indiscernible] also for the foundation.
We now have a follow-up question from Asbjørn Mørk from Danske Bank.
I just had a follow-up on the energy business. So basically, if I look at your -- the actual combined ratio, new print in Q1 with 70.4. And I guess the fact that you've been on quite low combined ratios also during 2023. And you say that you're maybe on an underlying close to 90, which obviously should improve to 83 in next year. I'm just basically -- my question is, could we sort of expect you to actually print in combined ratio next year? Because it seems like you are running on a reported basis, quite a lot below which, I guess, you're also saying is due to some runoff gains from your conservative serving, et cetera. But is it fair to assume that your actual combined ratio next year will be quite a lot below 83, if you're able to sort of structurally improve the business to 83?
Asbjørn, I can answer that. No, I mean, we -- what I was trying to explain is that -- I think -- and I think this is a general comment. Maybe let me add that, that we should remember, even though we are very happy and satisfied that we now have 5 sound quarters. But that being said, it is still a business where you can have large claims and they can fluctuate in which -- when they -- the timing of these claims. We look at things where we try to filter that out. We have reviews as we go through the year to look to what our forward-looking loss ratio expectations are. And those are aligned with the statements I made that we see this business for now running at somewhere, let's say, just below 90 in a structural sense. And -- but we also expect that, that will improve to the 83. But you shouldn't for now calculate anything below that.
And Asbjørn, if I may add, I mean, if you look at -- I mean, at our -- our improvement in the underlying loss we got last year, we had an improvement of around 10 percentage points per quarter year-over-year running through the year. And as Andreas said before, it's now down to a 5% year-over-year improvement. So we are -- I mean we are seeing perhaps a bit of less strong improvement now than we did last year. And so the -- and then with large claims having another normal level, I mean we would expect the combined ratio to trigger a bit up in the remaining quarters.
But I guess, if we go back to your capital markets update 1.5 years ago, you talked a lot about the line risk and how you would sort of change the strategy towards the Energy segment. I guess if you deliver on the 83 with a better risk management, I guess it would be fair to assume that the actual combined ratio in a normal year. And then I fully understand that there could be outlier years and we see this over the cycle, but I guess it would be fair to assume that the reported combined ratio could come in somewhat below the 83, if you're structurally at 83 underlying?
I mean, I think I don't know if I understand you correctly asked that, Asbjorn, but the 83 is an expectation. That's the base expectation over a longer cycle for the business in -- as the so-called structural level. Then we can both come in above that or below that. But I think, yes, there's nothing in what we're seeing for now that should change anything from the targets that we made in the Capital Markets Day originally. So we just -- we're happy with the results, but we also just -- we just encouraged to still keep in mind that we will have some quarters with less good underwriting results. They will come. And on an average, we're not currently trading at our long-term average.
Our next question comes from [ Gilardi Garland ] from ABD.
When it comes to premium growth, could you shed some light into what you expect for this year when it comes to both the indexation and especially any price hikes above our sort of indexation and what you see from both the different kind of lines that you have, any differences in [indiscernible] and different brands. That would help us a lot.
Yes, I'll try to answer that. We had a very sound top line growth in Q1, as mentioned, very much driven by Personal Lines. I think 1 factor we should just mention is that -- we did have 1 more day in the quarter than we did in the quarter in '23. That actually means 1 percentage points you should expect to take out if this was, let's say, our current momentum.
And so I still think Q1 is probably above where we see it structurally for the full year. But somewhere along those lines, I think we would expect to see. And that would still be also just to clarify that, that will be probably also primarily driven by personal lines and with a more moderate growth in commercial. And again, as we've said sometimes with commercial and in general, we don't guide on the top line growth, and that is also because we do with the business we run, we will -- we can see large single exposures exit or enter for that matter in the commercial lines business, and that can drive quite a bit of premium changes for us. So we -- that's just to have that in mind also.
Okay. When it comes to the expectation that you alluded to on the Energy business, it seems like you're well ahead of expectations. Is this so that it's been more benign or that's what we filed this quarter? Could you just shed some light into what really happened and what was the driver behind sort of this quarter improvement or this quarter combined ratio?
I think that in general, with the volatility inherent to the business, to some extent, I think it's hard to comment on the exact dynamics around single quarters. But if I was to comment on the general improvement we have seen in the last now 5 quarters, at least a significant part of that is a structural drive from somewhere where we started probably around the combined 100 when we took over this business and have now brought it down to, let's say, just below combined 90 or around combined 90. And that has been driven by a continuous focus on a better segmentation, better smaller line sizes, more diverse portfolio and also being vigilant on not writing new business at prices that we don't find profitable. So it's been a prudent improved strategy so far, and that's the effect that we're seeing on average and -- and then that being said, you can see that's the reason volatility is driving what the nature of the single quarters.
So it's more about pruning you rather than you underwriting rather than the back book as such, if I understood it correctly.
Could you repeat the last part?
No, it's more about pruning rather than the back book. So you sort of the new business you've written then is at or better than what you have on your back book is what you're really having to [indiscernible].
As we move along, some projects exit and some projects enter and we're simply seeing a better mix as we go along.
Are you left keen to take on this project development and then more keen to do -- [indiscernible] as they are running. Is that the change of appetite? Or how should we think about it?
No. It's Rasmus here. No, I think our appetite is still high. Of course, we are spending quite a lot of time on evaluating also on churn management, which risk projects should we enter into. And that is -- a fact of that is that all projects seems now to be bigger. And that means this line sizes we are taking are also becoming bigger. And that means I think the view from, of course, the department, but also the underwriters, but also for us as management we sit together more frequently in evaluating where should we enter and should we not enter into.
Okay. Just finally, if I may. The solvency situation, the solvency need for the energy business. Have you ever given us any update on that? Or is that a hidden calculation for us?
I think I've been forced with my arm behind my back a couple of times. And I've said something aligned that I think one statement is that the energy business is treated as in the standard models. So that's one factor, which also means that with the current regime, it's not too high in [ FCR ]. I think something along the lines of between 35% to 45% of premiums is a rough estimate.
We now have a further follow-up question from Asbjørn Mørk.
Just a very brief one on your runoff gains. So quite low here in Q1. I saw what you wrote in the report about the building-related claims. But they have been quite volatile the last couple of quarters you run off. So I just wanted to do a little bit of flavor on what level we should expect going forward.
Yes, I can answer that. Yes, I think -- well, we had 4% 1 quarter. And now, yes, unfortunately we didn't -- we had a more flat development this time around. This is in no way something we see as structural. We still have the same long-term expectation on average around 2 percentage points. But on a quarterly basis, these -- it will fluctuate a bit, and that's also why we don't guide for it in the current year.
We have no further questions in the queue at this time. So I'll now hand back over to Rasmus Werner Nielsen for any closing remarks.
Yes. Thank you for listening in, and thank you for the good questions. Have a nice day.
That concludes today's call. You may now disconnect your lines.