ALM. Brand A/S

CSE:ALMB

Earnings Call Analysis

Firm Expects Strong Earnings & Dividend Payout

The company provided an estimated profit of DKK 1,203 million guided by their mid-range projections. They anticipate maintaining an 80% payout of these earnings to shareholders, which translates to a solvency ratio of 24% related to unpaid dividends. Additionally, there is an excess coverage of 14 percentage points above their solvency target of 170%. Looking forward, the firm aims to sustain a 4% indexation in the private segment next year.

Expectations for Premium Growth and Repricing

During the earnings call, executives discussed fluctuations in reported premiums, with private lines showing a trend towards satisfactory stabilization around 4-4.5%, despite some volatility, largely driven by the energy business. Looking ahead to the next year, the company anticipates indexation to drive wage growth around 4.5% and material prices to also show sensible figures. Overall, premium growth is expected to maintain current rates with a focus on staying around or slightly above indexation while preserving market shares. Executives stressed the importance of retaining the flexibility to forego top-line growth in commercial lines if suitable rates to match risks cannot be secured.

Underlying Claims Ratio and Motor Frequencies

The company reported a higher underlying loss ratio partly due to increased motor frequencies, accounting for approximately two-thirds of the rise. They do not anticipate a further worsening from the levels observed in the recent quarters. Profitability initiatives are underway with the aim to realize their effects by the end of the following year, with a focus on balancing repricing against claims prevention measures.

Earnings Estimate and Solvency

Based on the midpoint of the company's guidance and considering an 80% payout of earnings and tax implications, a theoretical surplus in solvency related to undistributed payouts is reflected in the numbers. The company's management indicated that they have an excess equity of over DKK 400 million, signaling a solid financial position.

Competitive Landscape and Pricing Strategy

The competition in personal lines is robust, with the top three players, including the company, benefiting from scale opportunities. In commercial lines, some opportunities to increase prices have arisen, especially as some competitors adjust their focus. The management anticipates maintaining around 4% indexation in private lines next year despite the mix of pricing adjustments required by competition. They expect this strategy to support premium growth in line with or slightly exceeding indexation, without significant changes in market shares.

One-Off Gains and Impact of Interest Rates

One-off gains of 1.5% were reported for the quarter, and while quarter-on-quarter fluctuations are expected, the long-term average is estimated to be around 2%. Despite higher interest rates, the company does not foresee a structural impact on one-off gains, as historical claims provisions are largely hedged in their match portfolio, insulating them from fluctuations in interest rates. This illustrates the company's prudent financial management in a changing economic environment.

Dialogue with Regulatory Authorities

In response to queries about the company's dialogue with the Danish FSA, particularly in light of the banking sector's more cautious stance on payouts, the executives clarified that they have had no such discussions. The insurance sector, they pointed out, operates under different conditions from the banking sector and is not necessarily subject to the same regulatory considerations when it comes to payout ratios, affirming their autonomy in this area.

Earnings Call Transcript 2023-Q3

[Operator]

Hello, everyone, and welcome to the Alm. Brand Interim Report for the third quarter of 2023. My name is Seth, and I will be the operator for your call today. [Operator Instructions]I will now hand the floor over to Rasmus Werner Nielsen to begin the call.

[Rasmus Nielsen, executive]

Good morning, and thank you for joining. I'm Rasmus. And as usual, I have with me today our CFO, Andreas Madsen and our IR team with Mads Thinggaard and Mikael Bo Larsen. This morning we published our interim report for the third quarter and as usual, I will walk you through the operating highlights, and then Andreas will comment on the financials.Let us move to Slide 2. Overall, the claims were at a satisfactory level, but surely, we also had somewhat high weather-related claims due to an unusual wet quarter with heavy rainfalls and cloud bursts. On the positive side, large claims as well as minor claims in commercial lines improved as we continue to work with our customer portfolio and to make progress on prevention of accidents.Underlying claims in personal lines were high relative to last year as motor accidents continue to be at an elevated level. The synergies continued to tick in as planned with the run rate increasing steadily quarter-by-quarter. All in all, the positives outnumbered the negatives in the quarter. Thus, I'm pleased with the set of results that we published today. Based on this and despite relatively high weather-related claims expenses also in October, we reiterate our guidance, i.e., maintaining our positive view for the last couple of months and further towards 2025.And now I'll turn to Slide 3 with our financial highlights. The profit before special items amounted to DKK 395 million, i.e., significantly up relative to last year. The result is made up by the sum of an insurance results slightly higher than last year despite the high amount of weather-related claims, a positive investment result against a loss last year and other income and costs in line with last year. Special costs related to the integration of Codan and realization of synergies is somewhat higher than last year, reflecting the progress we are making in implementing the planned changes to our operations.And now let's continue on Slide 5. The insurance service result, amounted to DKK 367 million, i.e., slightly up against DKK 358 million we made last year, and combined ratio was 87.8% more or less in line with last year. The quarter was affected by a high level of weather-related claims, which more than tripled against last year. Again, this quarter, the result in personal lines was affected by continued high frequency of motor claims. As we believe this will somewhat be the level -- a new normal level, we are addressing this with various initiatives to restore profitability.Similar to what we saw in Q2, commercial lines continued in this quarter with more than 60% of the group's insurance service results, partly driven by pricing initiatives, but also positively affected by changes to our overall exposure. In this respect, I'm particularly pleased to see that the underlying claims ratio in commercial lines, including energy has improved alongside with fewer large claims, thus enabling us to absorb the quarterly fluctuation in claims that this kind of business brings us.Now please turn to Slide 6. Insurance revenue grew by 4.1% in the quarter, slightly higher in personal lines and slightly lower in commercial lines, included here in higher premiums in industry reflecting the timing of single construction projects. We continue to see a positive development across our business, partly driven by pricing initiatives. But also by influx of new customers, including a very positive contribution from our partnerships. In line with the expectations, the ordinary indexation of the premier level supplemented by selected premium increases have fully compensated for the inflation in claims repair costs this quarter.And moving on to Slide 7 and the claims ratio. The claims ratio was a satisfactory 71.1%, i.e., down 50 basis points relative to last year, driven by lower large claims, which balanced the higher level of weather-related claims and the changes in runoff gains and risk margin relative to last year. Thus, underlying claims ratio is also down 50 basis points to a very satisfactory level of 59.7%, and included here is a positive contribution of a still higher interest rate level compared to the same time last year and a small positive effect from the change in the threshold for large claims that was implemented in the beginning of the year.We then get to a like-for-like increase in the undiscounted underlying cat ratio of 70 basis points following both the effects from the high frequency of motor accidents and higher cost for reinsurance. However, I'm pleased to note that the headwind from inflation, which we have been discussing for some quarter is now fully compensated for by our pricing initiatives.And now please turn to Slide 8 and the Personal Lines. The combined ratio increased to 89.7%, i.e., up 6.8 percentage points. The unusual rainy weather alone accounted for 4.5 percentage points pure burn-off gains for 1.9 percentage points. And as already mentioned, on top of this, we continue with the higher frequency of motor claims.We are, of course, implementing various initiatives to mitigate this. But surely, it will be the usual backlog before profitability is fully restored. On the proxy side, we continue to see the expected improvement in the expense ratio this quarter, down 110 basis points relative to last year, which gets us to 18.7%.And then please turn to Slide 9 and the Commercial Lines. The combined ratio was a satisfactory 86.3%, i.e., an improvement of 5.2 percentage points against last year. Again, this quarter, we have maintained a favorable claims experience following initiatives to improve profitability. We have been spared high cost for large claims in this quarter, which more than offset the additional weather-related claims in Commercial Lines. The expense ratio was a satisfactory 15.1%, however, up 2 percentage points against last year, mainly due to higher fees on progress. Again, on a separate note, it should be highlighted that energy had another fine quarter with good profitability and a combined ratio of 82.5%.Last quarter, I also mentioned this, the tailwind from high interest rates that reduces the amount of long-tail provision to support the number this quarter. However, as we move into the next quarters, this effect will fade as the interest rate comparisons increases.And with these comments, I will now hand over to the word to Andreas, who will walk us through the synergies, the investments and our guidance.

[Andreas Madsen, executive]

Thank you, Rasmus. Please turn to Slide 11. We continue to move forward on our various synergy initiatives according to our plans. In this quarter, we have realized DKK 68 million on top of the DKK 57 million in Q1 and the DKK 62 million in Q2, thus gradually improving the amount quarter-by-quarter.Last quarter, we made a comment about us having an increasing visibility on the timing of the synergies, and now we are seeing the effects just as projected, thus we can reconfirm that we expect synergies this year to amount to a total of DKK 260 million based on gains coming from faster than originally expected fraud detection as well as optimization of claims processes. This means that the expected run rate going into next year is DKK 340 million to DKK 350 million, thus providing us with a solid starting point towards the DKK 450 million of synergies we will harvest next year.And now I move to Slide 12 and the investment results. Investment result was a profit of DKK 56 million, driven by a positive return from bonds and illiquid credit. The result comprises a positive return from both the free portfolio and the hedge portfolio. At this time, we have decided to specify the interest rate expenses linked to the Tier 2 capital. This amounts to DKK 19 million in the quarter, which is somewhat higher than last year, reflecting a sharp increase in the 3-month CIBOR rate. But surely, we also get a number of positive effects from higher interest rates.And now finally, please turn to Slide 14 for the outlook for 2023. With less than 2 months to go, we maintain our guidance for the year, meaning an insurance service results, excluding runoffs for the last quarter of the year of DKK 1.35 billion to DKK 1.45 billion. The cost ratio is expected to be in the range of 18% to 18.5% and combined ratio is expected to be 87.5% to 88.5%.We also reiterate our guidance for an investment result of around DKK 300 million. And for other activities, we guide a deficit of around DKK 125 million. Consequently, group profit, excluding special costs is expected to be DKK 1.525 billion to DKK 1.625 billion before tax. In addition, we guide for special costs in the range DKK 300 million to DKK 350 million for the integration of Codan and the realization of synergies. And lastly, depreciation on intangible assets is expected to affect the income statement by around DKK 360 million.And now with this, I conclude my presentation and hand over the word to our moderator. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Asbjorn Mork from Danske Bank.

[Asbjørn Mørk, analyst]

I have 4 questions. I'll take them one at a time. If I may start on the premium side, obviously been fluctuating quite a bit throughout the year. And I fully understand the IFRS 17 changes that you made last year, but still it's 5% in Q1, 2% in Q2, 4% in Q3. And if I look at your different business lines, it seems like private has stabilized around 4%, 4.5%, while your commercial seems to jump from 3% to 0% to 4%. So maybe a little bit of guidance on your side in terms of what should we expect for Q4 on the premium side. And going into next year, what do you actually see in terms of repricing and other measures that we should be aware of on the premium side?

[Rasmus Nielsen, executive]

Yes Asbjorn and yes I'll try to walk us through that. I agree that we have seen some volatility in the reported premiums for the group. As you mentioned, I think what we see in private is more a question of a trend where we now see, let's say, a sensible stabilization that's still what we consider satisfactory levels of well above 4%.And then for especially commercial, that's what's been contributing to the volatility as such, we saw a sharp decline last quarter. And now we see, on the other hand, a pick up again to what we could say is more within the normal range, what we would -- what we consider in the quarter. And again, this has most to do with the energy business. Energy has a somewhat volatile earnings pattern.And that has to do with the fact that the amount of premium we earn come -- can be sharply impacted by the timing of projects either maturing or entering into earnings and under construction phases, particularly. So what we would expect in a normal quarter is something like the run rate we see now for the full commercial area. And I think the best thing we can do is probably to help you guide a bit as much as we can in advance with the part of the energy that we can more or less determine as we go ahead.But going into next year, we would -- we expect still some, let's say, overall sensible levels coming from indexation. Probably we would expect wages to be around 4.5% or the like. A lot of our lines would be driven somewhat by that. And we also have still, at least in terms of indexation, we still see sensible figures for material prices also going into next year.So overall, we expect to maintain what we see in this quarter, which is roughly us delivering at maybe around or slightly above what is the indexation and keeping our market shares. But maybe I would also mention now that we are on the topic that we need and maintain the flexibility to walk away from top line, especially in commercial, if we are not able to get the rates we need to match the risks in the specific lines.

[Asbjørn Mørk, analyst]

So basically, just to make sure I understood you correctly for next year. So basically, you would expect your premiums to grow in line with indexation plus a little bit of repricing in addition to that? Or should we also have some sort of churn in that number, so the net number would be 4.5-ish?

[Rasmus Nielsen, executive]

Probably around indexation is what I would say, not any sort of extra I'd say around indexation, -- that would be the overall level.

[Asbjørn Mørk, analyst]

Okay. Fair enough. On your underlying claims ratio in private, if you look at the Excel sheet, it's 2.8% higher year-over-year. I understand that the real figure is somewhat lower than that, around 2.3%, if I understood correctly. But you seem to -- you mentioned motor frequencies is one big driver. How big a driver is that of 2.3? And what do you actually see maybe not for Q4, because I guess you still have some headwinds there. But going into next year, would you expect that pattern to turn around and maybe be neutral to slight positive? Or what kind of repricing measures versus claims prevention measures should we expect on the private line going into next year?

[Rasmus Nielsen, executive]

Yes. I also answer that. We -- in rough sort of in rough numbers, we would -- I would say that roughly 2/3 of the increase we see in underlying loss ratios and we adjust to the true levels is driven by higher motor frequencies. And that is the main issue we are having now within both personal lines and for the Group in terms of our overall underlying loss ratio.So we -- quite naturally, we don't see any effects from the initiatives we are starting out to materialize in this quarter. But especially as we move into next year, we will start seeing the effects from the initiatives we put into place and we hope to be, let's say, at least very close to fully there when we get to the end of next year with the overall profitability initiatives we are putting into play now.

[Asbjørn Mørk, analyst]

And is that taking into consideration also future motor frequency deterioration? Or is it just based on the numbers that we've seen or you've seen today?

[Rasmus Nielsen, executive]

I don't have any reason to -- we don't see any reason to expect this to worsen from the point we are seeing now. We see that we are on a different level, which has materialized, especially starting in Q2 and now also in Q3, we see we do have a higher level. We don't expect that to further sort of worsen.

[Asbjørn Mørk, analyst]

Okay. Fair enough. If I remain on the group side, the 70 basis points of deterioration in the underlying undiscounted claims ratio year-over-year. If I understand, you have 100 basis points of headwinds from reinsurance repricing, or price hikes going into this year. So, I guess I have two questions. One being, what do you expect in terms of reinsurance price hikes going into next year? I guess you haven't tapped into your reinsurance program, so you should be better than most of your peers on that measure? And then how much of the repricing to mitigate reinsurance now we are 11 months into this year? How much do you actually expect to get through in terms of repricing towards claims? How much of the 100 basis points should we expect you to mitigate over -- and I guess there's a very little impact so far from this?

[Rasmus Nielsen, executive]

Yes. Maybe first starting with the general sentiment around reinsurance going into next year. As you correctly mentioned, we are in a favorable position, compared to many peers that we have actually no impact for our programs with claims relating to this year. But what we see around us is that especially property per risk programs is a pressure for that line for that type proven specifically driven by a number of our peers also in the Nordics, having seen very severe claims this year.That being said, that is the only line. And keep in mind, this is early days. So, there are no guarantees there. But in an overall sense, we expect to -- with the current information we have now to be more or less flat on everything except probably per risk, where we do see a price pressure, at least at this point in time. So in overall sense, we would expect and again, no guarantees, but because of our favorable position among other things.We are expecting something to be more or less flatish on overall reinsurance expenses going into next year. So -- and then we have the headwind from the program coming into this year. Most of that expense needs to be passed to commercial and commercial clients for industrial clients and also agriculture to name some of the segments driving some of the reinsurance costs. Not a lot of that is actually to be borne by the personal lines area.So given the timing of our commercial lines, most of the business actually is repriced either now going into this quarter or -- in January 1. That's where most of the large commercial is repriced. So it will be based on expectations now, which is -- we're early in that phase. But I'm -- let's say, I'm still optimistic around getting most of the 1% from -- back from price increases, passing that on to clients.

[Asbjørn Mørk, analyst]

But doesn't that also mean this is commercial clients that you have already seen quite a big impact of those 100 basis points by now?

[Rasmus Nielsen, executive]

Yes. We have a full impact of the 100 basis points in the numbers today, but we have not resolve -- the effect of us repricing that, because most -- especially the large commercial clients are either turning October 1 or January 1. So what I'm saying, it's a bit early to conclude on that part of the exercise. Does that make sense?

[Asbjørn Mørk, analyst]

Okay. Yes, yes. So basically, the 100 basis points is a net number and close to the growth number as well, I guess?

[Rasmus Nielsen, executive]

Yes, yes. Right now, it is.

[Asbjørn Mørk, analyst]

Okay. Fair enough. And just on the repricing going into next year, if I look at the 100 basis points for this year, considering what you just said in terms of property being the only area where you saw something, what would that 100 basis point be in terms of repricing your expected impact for '24 all else equal?

[Rasmus Nielsen, executive]

Well, I would expect just -- if we look, compared to what we have in the numbers in 2023, I would expect to be -- there will be 0 additional effect meaning a flatish reinsurance premium going into next year. So not -- so we will not see a further deterioration coming from higher reinsurance prices.I will, on the other hand, expect to get most of the 100 basis points. We already now have a headwind, and we will get that back with the pricing initiatives we are doing. But it's hard to -- I mean, we're still early in the phase is too soon to conclude on exact numbers.

[Asbjørn Mørk, analyst]

Of course. Okay. Final question from my side. If I look at your guidance for this year, we had DKK 44 million of runoff gains in Q3. So all those equal, of course that, should have helped you in your guidance. On the other hand, we had DKK 60 million or so of higher weather claims a little bit lower large games. So largely, that would offset each other, or offset the runoff gains explain why we didn't get a guidance upgrade. But then if I look at your communication relating to weather claims in October, if I understand you correctly, it's around 2% extra claims on the weather side in Q4 quarter-to-date, which is DKK 60 million. So I guess you could have lowered your guidance today by around DKK 60 million and you don't. So what is delivering better on the underlying that, is mitigating this impact of -- since you don't lower your guidance or is it just that large claims have been favorable in October.

[Mads Thinggaard, executive]

Asbjorn, Mads here. And I think you are right deriving your deductions that since we are not rolling the guidance we can intrinsically conclude that something else has been better. And I think we are not really putting any specific comments on that part from that normally, its large claims are they volatile component there that means from quarter-to-quarter.And then of course, we have also -- I mean, we have probably also been holding a bit back on our guidance in general also considering the normal fluctuations in the energy segment. So it may also be that there -- we have also been a bit conservative ahead of the Q3 numbers. So I guess there's a mix there of different components that explains why we are actually able to maintain our guidance here at Q3.

[Operator]

Our next question is from Jakob Brink at Nordea.

[Jakob Brink, analyst]

And I will do my questions one at a time as well. Just coming back to the initial question from Asbjorn on indexation and premiums. Could you just remind me when is it -- what index is it you're using for your house insurance, I guess, is this still the construction index, but is it right now or is it later in the year or what ratio should we look at so what is the indexation in house insurance?

[Andreas Madsen, executive]

In housing insurance, but only for the many Alm. Brand to be specifically up, because – it's only for -- the older Alm. Brand. In housing insurance, we have an index consisting of the material price index. And it's a bit different between commercial and private lines when that index fixes. But as I recall and we can get back with specifics, if I recall wrong, but I think they fix, so to say, either in Q2 or Q3 this year. So ahead of the renewal, let's say. And given the information, and I think Mads maybe can get back with more specifics, but we're still expecting sort of, yes, a sensible tailwind for those lines specifically. But keep in mind, it's only for [ Alm. Brand ]. Do you have something?

[Mads Thinggaard, executive]

Yes. I mean we have [indiscernible] 42 as I think the -- one we have been looking at the whole time. And we have -- I mean what I have here is a Q2 number that we weighted at around 5.5%. I would expect that to come down for Q3. And as Andreas said, I mean we have I think a bit of discretion in when we actually do the indexation but some time in Q3, I think is the normal time.

[Jakob Brink, analyst]

And just to make sure I understood correctly from previous questions. So based your answer that we should expect premiums to follow indexation. So you're not planning on doing anything in addition to indexation?

[Rasmus Nielsen, executive]

No, I think we are -- in that statement, we are also trying to sort of factor in the comment I had around the need to be -- to have the flexibility to walk away from business that is not profitable enough. So for now -- in the overall sense, we are happy to keep the market share, so to say, growing with indexation. And we also need -- in some segments, we would expect to walk away from certain customers and lines in the coming renewal. So that's also included in that.

[Jakob Brink, analyst]

Okay. And you're right in the text somewhere that the impact on the underlying group ratio was 40 basis points related to this technical change, so definition change a bit in Q1 between -- of large claims. Could you split that out on the retail or personal lines and the commercial lines if you have those numbers?

[Andreas Madsen, executive]

Yes. It's entirely affecting our commercial lines. So it's around 0.8% for commercial lines and then 0.4% for the group, as we mentioned on Slide 7.

[Jakob Brink, analyst]

Fair enough. And then on the Energy segment, so 3 quarters in a row now with very strong combined ratios. I think I asked you last time Andreas, but could you give us some kind of actuarial level of if we adjust for repricing risk reduction and lock and unlock, could you maybe give us what sort of the actual run rate and rate at the current time?

[Andreas Madsen, executive]

Yes. I mean it is hard to answer very firmly, because there are uncertainties also in that -- sort of in that estimate. But we are very happy just to restate that, that we now have 3 sound quarters of underwriting in that segment. We consider still the underwriting results we've done to be better than what we would consider the structural level.I would say something that we are probably around a combined 90 would be my very rough estimate for the structural level of the energy business. And so, maybe following up also on that, we are, as I mentioned, happy that we have seen some good quarters now. We are obviously mainly focused, as we have been all along on delivering further on the plan, and securing that the structural levels improve even further.But also, we are now, as we see a number of quarters come into the bank, so to say, with sound numbers. We are at least getting closer to the timing of, let's say, an overall strategic review. That would also definitely depend on us being having a more firm grip of exactly what we consider the structural level of the book.

[Jakob Brink, analyst]

Okay. Fair enough. And my last question is on the solvency, please. Just remind me what is the guided or be the not yet incurred special cost impact on the solvency ratio?

[Andreas Madsen, executive]

Yes. So it's just below 10%. I think it's -- let me see, it's 8% if you factor in the -- remaining integration budget, you get to 8% of solvency requirement.

[Jakob Brink, analyst]

Okay. So DKK 208 million would have been the number roughly and the dividend deduction you make, can you just remind me how you calculate that one?

[Andreas Madsen, executive]

Yes. I mean, if we said that we -- following our minimum payout policy of 80%. If you look at the guidance we are now reiterating, we get to -- with the 80% number. We get to -- we have a profit -- a full earnings estimate of DKK 1,203 million. If we take the midpoint of our guidance. If you then factor in us paying out 80% of earnings and tax on top of that, you get to, let's say, that we have in our numbers now 24% of solvency relating to payouts we have not yet made. Does that make sense, Jakob?

[Jakob Brink, analyst]

Yes, I get that. Okay. So 80%, but I guess you take only 3 quarters of the expected profit as to only in Q3 or do you take the whole 80% times the guidance?

[Andreas Madsen, executive]

That's for the profits -- yes from Q1 to Q3, yes.

[Jakob Brink, analyst]

Okay. And then I guess --

[Mads Thinggaard, executive]

Jakob, we had a discussion on this last quarter, where I think we stated that we probably had some DKK 200 million to DKK 300 million in excess equity as we stood by Q2. So if you do the math on those numbers, and I just gave you, I mean, we are a bit north of DKK 400 million today.

[Jakob Brink, analyst]

Yes. So I guess if you at DKK 208 million and you have already subtracted the dividend. So I guess the difference would be DKK 170 million to DKK 208 million?

[Mads Thinggaard, executive]

Yes, correct.

[Jakob Brink, analyst]

Okay. And should we expect to --

[Mads Thinggaard, executive]

I mean you have -- we have DKK 265 million then you deduct DKK 8 million for integration costs, not yet incurred [indiscernible] I mean, for what we kind of owe our shareholders with 80% minimum payout. And then we have to have 170% as our target. So we have 14 percentage points in excess coverage.

[Jakob Brink, analyst]

And that's what you plan to pay out now or is that over the period?

[Andreas Madsen, executive]

That's just a simulation of what the theoretical surplus is right now. We have no plans in -- for this point in time of paying out that would be a decision we make when we decide on the payout for this earnings year.

[Operator]

Our next question comes from Jan Erik at ABG.

[Jan Gjerland, analyst]

I have a couple of ones. The first one is on the competition. Could you shed some light to how you feel the competition is in the different line of business you work into maybe as for the energy, which is sort of international. But if you take the Danish one on the commercial side on the private line side versus your price hike, so to speak. Could you give us some more insight?

[Andreas Madsen, executive]

Yes, we can do that. If we start with the private part the personal lines, somehow competition is this. We all competing on prices and keeping the customers. But that being said, I think the three top players are really benefiting from having scale opportunities. And that's also why it was so important for us to get Codan last year. So there are definitely competition out there, especially in the personal lines.Moving then further into the commercial lines, if you take the small commercial SMB, somewhat also competition there. Some of the players are moving a bit down in the sectors in the sizes of the sectors. And historically, Alm. Brand has been very good in the very small parts of the commercial lines. And then you had the more upper line, which is managed by brokers.I would say we see if you take the very top and [indiscernible] somewhat moving out of these areas, meaning that it gives us some opportunities to increase the prices, which we have seen, and that is now coming into our figures. And then you have the real top notch players. And there, I think the competition is more towards the foreign insurance companies and not so much domestic in that part.

[Jan Gjerland, analyst]

Okay. How we see there -- is sort of the 2/3 or 1/3 mutual or the 20%, which sort of having a different kind of ownership structure. How do you feel those are competing towards your private lines today?

[Andreas Madsen, executive]

I think they are there. Somewhat we are happy they are there, but they will definitely -- I said, I think I said it before, we will definitely have trouble going forward. We start working really on prevention. All the digitalization scale is definitely coming in and then we have the whole say, regulatory area coming into side as well. I think they will have -- there will be a challenge.They're also challenged when we have these storms and rains and all that to further extent coming in. And just as a small notice, we haven't seen any accounts this half year, which we saw in the past. So let's see how it works for them. But as such, and then there's maybe one more comment that is, I think partnerships in the future that the partners, they -- we see that they -- the bigger ones.We are somewhat more attractive as we have more scale in working with digitalization, working with systems. When you have one partner, you can definitely have more partners, and they can work together and you can benefit from that as well. So it will be interesting moving on how they will manage.

[Jan Gjerland, analyst]

Okay. Just finally on the volume side then, it sounds from your sort of wording that there seems to be a quite steep competition on the personal private lines. So should we not expect you, to win the volume there, but more maybe wind volumes [indiscernible] side. But you were also sort of repricing quite sharply in some segments. And you said you expect some churn from that portfolio. So how should we think about the volume effect on your price hikes going into 2024 versus what you have seen so far in 2023 and your repricing efforts or indexations? Should we then expect the premiums to be above the inflation or should we expect on churn and volume and pricing to be sort of a little bit less than the inflation?

[Andreas Madsen, executive]

So I think we address -- picked up a little bit about this. We will definitely try and we do expect to keep around 4% indexation in the private side next year. And that's, of course, a mix of many things, but especially indexation will lead us to that going forward. And then there will be some parts that needs some pricing and other parts, we need maybe to go down in pricing due to competition. But on an overall level, we will definitely expect the indexation moving into next year.

[Jan Gjerland, analyst]

And do you expect we have any volume?

[Andreas Madsen, executive]

No, the volume will be done with the, you can say, with the indexation. And I think in terms of market shares and all that, it will be maybe a little bit up, but nothing major.

[Operator]

Our next question is from Martin Birk at SEB.

[Martin Birk, analyst]

Three questions from my side. Actually, the first one is -- Andreas did not really get your comments on motor in the beginning to exports Asbjorn's questions. Could you please repeat that?

[Andreas Madsen, executive]

Yes, sure. I think as I recall Asbjorn's questions, he was asking how much of the deterioration in underlying loss ratios in personal lines was due to the motor effect. And I answered that around 2/3 of the 2.5 percentage points is related to the motor frequency issue.

[Martin Birk, analyst]

Okay. All right. Very clear. And then just sort of a couple of broad questions here. The first one, one-off gains at 1.5% in the quarter. How should we view one-off gains going forward given the high interest environment?

[Andreas Madsen, executive]

Yes. I think, as we've mentioned before, and that's also why we don't have it in our guidance for either the year or the individual quarters, we will expect to see some fluctuation around the normal level. But on average, we're still in a longer run -- a longer-term viewpoint, we still expect an average of a runoff gain of around 2.5%.But I don't see any structural elements in the fact that in one quarter have -- or did I -- sorry, I think I've been corrected there. I meant 2%. I don't know why I said 2% runoff gains, sorry which has been our estimate all along for what a long run benefit will be. And I don't see any structural effects from the fact that we now have 1.5% instead of 2% -- there are no major stories in that, but just normal fluctuations, as you would see from quarter-to-quarter.

[Martin Birk, analyst]

Okay. And I totally get your point on the quarter-on-quarter fluctuations, but interest rates going from 0% to 4%, shouldn't that also mean lower one-off gains in theory?

[Andreas Madsen, executive]

No, I wouldn't say that, because I think now we might get it into a bit of a theoretical and a bit somewhat technical discussion. But the effect we have from combined ratios increasing is a current year, in fact, when interest rates are higher. That's due to the fact that new business and new premium reservations are done at higher discounting.The effect you get from what do you call that in English, our historical claims provisions which are prior year to a very large degree, those are hedged one-to-one in our investments in the match portfolio. So you don't see an effect from higher interest rates in the runoff results in the insurance service results.

[Martin Birk, analyst]

Okay. All right. Very clear. And then finally, and now we have been attending roadshows for all of the Danish banks, and they have collectively said that that payouts are going to be lower than we expect. They all cite a very high stance, Danish [ FSA ]. When I look at your reported payout ratio, I'm well aware that there are restructuring costs in there as well as a high level of intangible amortization. Your reported payout ratio is said to be well above 100%. Has that dialogue -- does that dialogue have any spillover to your dialogue with FSA regarding your payout ratio?

[Andreas Madsen, executive]

No, Martin, I would say we have not had any dialogue with Danish FSA I say around that. And I wouldn't actually expect that the insurance business would have a dialogue like that as the banks may have at the moment, its two different kinds of business. But I could just say we haven't had that dialogue.

[Martin Birk, analyst]

Okay. I understand. I just speaking maybe today -- if they have one idea in one sector, they also might have some spillover in another sector but that isn't the case.

[Operator]

[Operator Instructions] We have no further questions on the call. So, I will hand back to the Alm. Brand team to conclude.

[Rasmus Nielsen, executive]

Thank you for listening in and thank you for all your questions. Have a nice day.

[Operator]

This concludes today's conference call. Thank you very much joining. And you may now disconnect.