ALM. Brand A/S
CSE:ALMB
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ALM. Brand A/S
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Welcome to the Alm. Brand Interim Report Third Quarter of 2021. [Operator Instructions] Today, I am pleased to present Rasmus Werner Nielsen, CEO. Please go ahead with your meeting.
Good morning, and thank you for taking time to join us on our call on the Alm. Brand's results for the third quarter of 2021. I'm here with Andreas Madsen, our CFO; and Mikael Bo Larsen, our Chief of Investor Relations. Alm. Brand had a strong quarter. And today, we have posted a set of results that demonstrates that the underlying non-life business continues to improve as we successfully implement changes and strengthen our business across the full value chain. This quarter reflects both that we have maintained a strong focus on the day-to-day business and that we have successfully completed some of the important steps that prepare us for the acquisition of Codan. This quarter, these steps include the obtaining of the rating of our company and, subsequently, an issuance of Tier 2 capital notes at a very attractive level. And in addition hereto, we sold our life business so that we, going forward, can focus only on non-life. The main theme for us today is, however, the result of the quarter, and I'm happy to first walk you through the numbers, after which, I will take your questions. Please turn to Slide 2. In the third quarter, we have added further through the positive development in our underlying business, and we have made a meaningful 200 basis points improvement in the underlying combined ratio. Also, the top line is getting in better shape with an improvement in growth, driven by a strong development in commercial. The point to be made here is that although we would like to accelerate premiums growth, especially in private, our main focus is on profitability. And in some cases, this means that we will walk away from new business. The ongoing operational initiatives that have been implemented are step-by-step adding to the efficiency of our business. And eventually, this is reflected in the key numbers like the claims ratio. Our focus will remain on both growth and cost initiatives as we strive for improving profitability further. Three months ago, I mentioned that we have launched a full catalog of actions to prepare ourselves for the acquisition of Codan next year. We are making steady progress on this and will be ready on day 1 when we get the keys. At the end of the quarter, our team also completed the sale of our life business. Although always a little sad to say goodbye to a lot of good colleagues, then in my mind, this was the best solution for all parties. And looking ahead, this will allow Alm. Brand to focus 100% on our non-life business and build a strong position in our market. We are confident in our future and strongly believe that the significant investments we make to further develop Alm. Brand will benefit both customers and shareholders. Please turn to Slide 3. The group today posted a satisfactory result for the first quarter of the year, leading to a 9-month pretax profit of DKK 590 million, excluding special costs relating to the Codan transaction, against a pretax profit of DKK 506 million in the first 9 months of last year, i.e., up 17% year-on-year. Pretax profit for the quarter amounted to a healthy DKK 174 million against DKK 218 million in the third quarter last year. The key takeaways here are that the underlying profitability and cost development continues to be satisfying, but this was offset by weather-related claims being somewhat higher compared to last year and investment income somewhat lower. The result on other activities is a small minus of DKK 3 million. Headquarter costs remained more or less flat, but are offset by a positive contribution from the remaining mortgage fees and debt collection portfolios. All in all, this has been another quarter where we have demonstrated that we are advancing steadily on all the factors that we can control. Back in early October, we increased our full year guidance after the sale of our life business. So far, this has been a good year with a very, very favorable development across our non-life operations. Three times this year, we have upgraded our guidance on this, reflecting a strong development in the underlying business. We keep our guidance from October unchanged. And as usual, I will get back to this at the end of my presentation. And now please turn to Slide 4. Codan processed its 9 months numbers yesterday. And again, this time, we have included a single slide on this. Top line measured by gross earned, premiums grew by 1.3% to DKK 4.1 billion, and Codan managed to reduce the combined ratio, excluding run-offs, by a solid 8.1 percentage points to 90.7%. It is a very healthy development and has led to a meaningful improvement of the technical result from DKK 366 million to DKK 576 million. Excluding the run-offs result, the improvement is even more pronounced with increase from DKK 31 million to DKK 328 million, reflecting a positive development in both Private and Commercial, with latter partly due to Codan having reduced the exposure towards large claims. Thus, large claims ratio is down 5.1% year-on-year. And now turn to Slide 5 for an update on how we are progressing on the Codan transaction. Our team has done a splendid job. I know in the last month we have successfully obtained a credit rating from Fitch on both the group and on the operating entity. This has been a process that has acquired a [indiscernible] and I think we have achieved good results on this. Based on this, we have completed a lease issuance of Tier 2 capital notes. We saw very strong interest among Nordic institution credit investors, and we are pleased with both the size and the terms that we obtained. The issuance of capital notes is part of the financing solutions that we presented back in June when we announced the purchase of Codan. So just ticking off 1 more box on the to-do list. Back in June, we also announced that we were investigating various alternatives for our life business. We have carefully considered what would be the best option for Alm. Brand and concluded that the divestment scenario would be the preferred route to go, thus allowing the group to focus 100% on Non-life Insurance. In parallel, we have, of course, spent a vast amount of time and resources to prepare for the rights issued. Everything is progressing according to our plan, and we expect to launch this soon. And finally, the talks with the FSA and competition authorities are in progress as they should be, and we are confident in expecting the closing of the deal to be in first half of next year. Back to our operational performance on Slide 7. The non-life business made a pretax profit of DKK 177 million in the third quarter of the year, which comprises a satisfactory technical result of DKK 170 million and a positive investment result of DKK 7 million. Again, the technical results benefited from a good development in the underlying business and also the run-offs result contributed positively with DKK 33 million corresponding to 2.5 percentage points and thus, slightly higher than we would normally expect. However, working a little bit against us this time was higher expenses due to weather-related claims relative to last year that have exceptionally nice weather and, therefore, close to no weather-related claims. Our investment strategy is a conservative long-term strategy with respect to overall portfolio exposure. But again, we have managed to generate a small purchase net result. Please turn to Slide 8. Premium income grew by 2.5% in the quarter, i.e., this is a more positive development compared to what we've seen in previous quarters. Again, growth has been very positive in the Commercial segment, and we are seeing premiums climb by more than 6% as a result of both influx of new customers and adjustments on prices within especially workers’ compensation.In the private segment, we now see signs of improvement as earned premiums ticked up a little compared to the second quarter of this year, but year-on-year numbers are still trailing behind. My impression is still that competition, especially the motor insurance space is fierce. But after having adjusted our prices, pricing somewhat increased the amount of campaign, I think that we are gradually getting it right. And not forgetting, our main focus continues to be on profitability rather than growth. And now I turn to Slide 9. The underlying combined ratio, excluding the COVID-19 was 76.7, representing a strong improvement of 200 basis points year-on-year. We are still seeing a little positive effect due to the COVID-19 impact on claims in general, but nothing like last year. The combined ratio for the quarter was 88.7 (sic) [ 87.7 ], as you see on the graph on the right side of the page. With underlying combined ratio satisfactory, then the increasing combined ratio can be attributed to partly higher expenses on the weather-related claims and partly on changes in risk margin, whereas large claim came in almost at unchanged level compared to last year. And now please turn to Slide 10 and the weather in Q3. Although not like anything we have witnessed in many other countries this year, we had, had a rainy and windy late summer, which has resulted in an increased amount of costs for the weather-related claims tripling year-on-year and amounting to DKK 49 million against close to nothing last year. But in total, still not anything out of the ordinary. Likewise, major claims have been in the high end of the normally expected range and amounted to DKK 123 million, partly due to 1 incident that will cost us net DKK 30 million. Adding weather-related and large claims together, this gives a total of DKK 172 million against DKK 139 million last year, i.e., leaving pretax net profit with additional DKK 33 million compared to the third quarter last year. And now please turn to Slide 11. For the Private segment, the claims ratio, excluding run-offs gain, was down 1.3 percentage points in the quarter against third quarter last year. However, fewer run-off gains this time compared to last year resulted in the claims ratio being 62.9 against 61 last year. Again, the reopening of society and subsequent increase in activity and accidents explains the development. This quarter, cost has remained at a relatively high level, partly reflecting the continued investment in our partnerships but in all fairness, also as a result of premiums growth not having reached the target that we have defined at [indiscernible] We do, however, believe that we are now on a more positive path with earned premiums increasing slightly versus last quarter. Run-off gains amounted to a decent 1.2%, but modest compared to the previous year. Please turn to Slide 12. For the commercial customers, the combined ratio was 92.1, i.e., a little higher than in the third quarter last year. Claims ratio has been moving somewhat up and down over the last quarters. And what we see in this quarter is more or less represents a median lever. Again, the underlying development is positive, whereas weather-related is up against last year. We continued to implement various earnings enhanced initiatives, including price adjustments on several individual policies, where we have found that some customers have been paying too low a premium relative to the expected risk profile. And the tight control on cost development also helps. Thus, the expense ratio amounted to a satisfactory level of 14.2, slightly down against same quarter last year. And then please turn to Slide 14 for the outlook for 2021. The development in the last quarter has been in line with what we expected back in August when we had already seen the late summer weather. And we are confident that we now have full visibility on our business for the remaining months of the year. Based on this, we reiterate our guidance for the non-life business, i.e., a pretax result of DKK 800 million and included a continuation of the positive underlying development. We also keep other activities at an unchanged guidance, i.e., a negative result of DKK 175 million. And here, included both the normal headquarter costs and a total of DKK 90 million relating to the Codan transaction as previously guided. In early October, we announced the sale of our life business, and it has a number of implications on our total guidance. First of all, the sale means that the life result is no longer part of continuing activities. Thus, we moved the DKK 100 million from continuing and instead add them to the guidance for discontinuing activities. On top of this, we added an expected profit from health and accident insurance of DKK 20 million before tax, which was previously included in the profit for the Non-life Insurance. Secondly, the sale in itself gives us a gain of close to DKK 545 million after recognition of costs directly related to the transaction. Adding the DKK 100 million, the DKK 20 million and the DKK 545 million together gives us a total number of between DKK 650 million and DKK 675 million. Finally, the sale of life business is expected to incur restructuring costs of DKK 60 million, which we have labeled special costs in our guidance. Adding it all together, we get to a consolidated pretax guidance between DKK 1.2 billion and DKK 1.25 billion. In total, our guidance reflects a business with all major parts moving as we would like them to. And with this, I conclude my presentation and hand over the word to our moderator. Thank you.
[Operator Instructions] Our first question comes from the line of Asbjørn Mørk from Danske Bank.
A couple of questions from my side. First, relating to Codan and the slide on the process. So you're expecting approval in Q4. Do you have any dialogue with the antitrust? And have you any feedback -- received any feedback when it comes to whether this needs to go to a second round or whether there's any remedies that you will need to offer, anything like that? Or is it just a slam dunk that you expect?
Thank you. Yes, we are having a dialogue continuing with both the FSA and the competition authorities, I would say everything is as expected and in progress. And we do not expect at the moment to get into a second round.
And remedies, do you need to offer anything on that?
No.
Okay. That's clear. Then on the Codan business, of course, I acknowledge that you might not have full insight. But when you look at the numbers from Codan Denmark, they seem to be doing very well, both on a reported basis, but also adjusted for run-offs seems to be doing quite a lot better than the DKK 500 million that you have for the 2025 scenarios. So what are your thoughts? And what kind of knowledge do you have on Codan at this stage when it comes to what you have in your business plan for 2025?
Asbjørn, Andreas here. Obviously, we can't go too much into detail with the current development in Codan. But the short version of this is that I think we're seeing basically at least the first continued signs of the story. We also came out with -- when we acquired Codan, which is that we have seen Codan pruning the business, repricing certain parts of commercial lines, especially tech lines. And they are working -- have been working with that strategy for some years. And the signs of that are beginning to show in the numbers, and the large losses are coming down. So I think that is -- and actually, I would say it is a bit better than we were hoping for at this point.
All right. Then if I may turn to your own business. If you look at the underlying combined ratio improvement this quarter, 200 basis points, of course, less than what you delivered in Q2, but still very strong. What are you expecting? And how do you see the trends that you're describing in the report, the repricing, the procurement work on your own business? What should we expect -- leaving aside the Codan business for a second, what should we expect for the next couple of years for your underlying combined ratio? Do you have any sort of view on that with the current developments?
Asbjørn, it's hard to sort of be very specific right now in terms of guidance of the coming years in underlying development. But I think, again, we're happy to see that we've had now, in total, 3 quarters where we have a nice improvement of -- now in total, around 150 basis points or 9 months considered. And I'm certain that we will -- we're expecting to be able to deliver continued improvement. It will be able to deliver as much improvement as we've done the 2 previous quarters, that would probably be too much to hope for going forward in the long term, but we are expecting to see the continued effects of the way we were working with the business, the pricing. And also I mentioned the claims handling, we've been working continuously with and we're seeing the effects of that also in our payouts. So...
Okay. And then on the Private side, one thing, you mentioned that the sales partnerships, et cetera, that, that is improving in Q3, but your premiums are still under quite a lot of pressure on the Private side. Have you been too aggressive on repricing historically, and that is driving increased churn? Or could you give us a little bit more flavor, I guess, with the reopened society in Q3? I would have at least hoped for some further improvements there.
I think it's a mix of many things, Asbjørn. I think, historically, we have had the tradition of increasing prices on all customers in one go. This is -- this, we are turning away from, and we do it in a little bit more modern way, with a little bit more individual pricing or segments or even, you can say, different areas in the Private part. So we are trying to modernize the way we are setting prices. And it has had an impact of doing it like that. What we're doing now is that we're looking into this a little bit more modernized way of doing things, and we have all the good initiatives with our partnerships. And we are also focusing on getting the prices right. Whether we will participate in the fierce price competition we see at the moment, we will definitely not go all the way down that path and then increase prices after the customers come in. We don't think -- that is not the way Alm. Brand wants to work. So we will go for the long relationship with our customers and then work in that direction.
But could you maybe elaborate a bit on how has your written premiums on the private side? How have they developed in Q3? And what are you seeing from Sydbank and from Semler and [ felt ] and the other sort of partnerships?
Our written premiums is flat, maybe a little bit up. We have seen a very good inflow of leads from Sydbank. I would say almost as we expected, which is very good in a new relationship. We have had more than 16,000 leads coming in the first 9 months. We're also starting now delivering leads digitally the other way from us to Sydbank. So all in all, the relationship with Sydbank is good. We are also now a part for the Sydbank customer who have insurance policy with the Alm. Brand can now see all their policies in the bank app, which is a new thing which has come in very positive for these customers. So all in all, things are moving, I would say, as expected with Sydbank. And then we have, on the other side, the relation -- the strategic partnership with Semler where everything is in place. We have the right solution, and it's working. We are having customers coming in. But Semler as such is a bit under pressure with getting new cards up, which has an effect on us because it's new customers. So we are a bit behind what we expected from the Semler group, but things are coming up, and we expect to be in full pace by the end of this year.
So what would you expect for Q4? I guess you should already by now, the written premiums have a pretty good view into next quarter or this quarter that we're in now. So what should we expect?
In Private, you should expect a flat, maybe a small increase.
[Operator Instructions] Our next question comes from the line of Per Grønborg from SEB.
Just a couple of questions from my side. On your guidance and the gain from the sale of the life business, I assume the gain is tax-free. The cost in -- related to the sales, are they tax-deductible? Or will there be no tax deductibility on those ones?
Yes, Per, Andreas here. I would expect that most of the costs, which are, in this project, more classic restructuring costs, would be tax-deductible.
Okay. Good. That was my first question. My second question, returning to one of the topics addressed by Asbjørn. The competition authorities, you're still in Phase 1. I assume you have not handled in the final application. Is that correct?
Yes.
When do you expect to have answered the question and be able to hand in the final application? Any estimates?
I cannot -- I actually don't know. But we are having continuing dialogues with the authorities in the different areas. So I expect it will happen quite soon.
Is that during November, is your expectation?
That is the expectation at the moment, yes.
Our next question comes from the line of Martin from Carnegie.
Maybe just coming back to the question on premium growth, in particular, the private premium growth, where apparently, it sounds like now that Sydbank is up and running and you're well satisfied with it, premiums are still under an immense pressure. Maybe that pressure is increasing despite having Sydbank in here. So your underlying premiums, if you exclude Sydbank, if you exclude Semler and all the other partnerships, how do they develop?
Yes, you're right, Martin. We are under a bit of pressure in the Private lines. We also see a fierce competition. So what -- as we discussed last time, I think, it was, we're discussing if we should go down the steps, really lowering our prices in order to get growth -- or rather go for the long relationships with the customers. That is what we discussed each day. I think we have our price, our tools, our intentions, our -- all the other things are in place. It's a matter of what way we want to go in the competition we see at the moment, especially in the motor insurance part.
But what do we need here to hit the head of the needle (sic) [ nail ]? Because I think, first, it was a matter of your distribution channel. And in a COVID-19 world, that was challenged. Now it's competition. I mean are we missing something here? Are we missing a structural problem here?
No, I think we have said the last many quarters, we see fierce competition, especially in motor insurance. We also have said that maybe we have been a bit -- hit a bit harder than others in the Private side due to our model. The model is under -- changing. We are now having an outbound team instead of our [indiscernible]. And they are up and running there between 25 and 30 people, who are dealing with the leads, contacting customers either by phone or by other interfaces, iPads and all that. So we are changing our distribution channel. Denmark is opening. So things are getting back to a more normalized level for us, but in a new setting, which are continuing to change. So I cannot really use that issues much more. But what we see is this competition, and we can lower in prices in order to get the growth, but we are really hesitant in doing so.
Okay. So if we come back to your premium guidance for next year, 4% to 5%, where does that lead us?
It leads us to the fact that we still expect 4% to 5% next year because all the partnerships should be up and running at that time by Alm. Brand.
We currently have no further questions at this stage. I'll hand back to the speakers for any final remarks.
Yes. Thank you for joining this, and thank you for your questions. See you later.