Topdanmark A/S

CSE:TOP

Earnings Call Transcript 2020-Q1

[Steffen Heegaard, Group Communications & IR Director]

Welcome to the presentation of Topdanmark's results for Q1 2020. Topdanmark has a robust business model, with a high degree of diversification between the business activities and very low liquidity risk and a solid capital base, with a solvency cover of 205 at the end of Q1 2020. Despite this, the Q1 result was impacted by COVID-19 situation. Profit for Q1 was a loss of DKK 193 million compared with a DKK 439 million profit in Q1 last year. The combined ratio was 89.8 compared with 80.1 in Q1 last year. And the underlying claims trend deteriorated by 0.4 percentage points to 69. Premiums increased 2.4% in non-life and 10.5% in life. For the full year 2020, the assumed combined ratio is unchanged at about 90, excluding any run-off in the last 3 quarters of the year. The profit forecast for 2020 has been reduced from between DKK 950 million and DKK 1.050 billion to between DKK 450 million and DKK 650 million, excluding run-off in the remainder of the year. Due to the COVID-19 situation, the profit forecast is subject to a great deal of uncertainty as Topdanmark's business is influenced by actions taken by third-parties like the Danish government. These are the main points in my presentation. Pretax earnings decreased DKK 806 million to a loss of DKK 242 million in Q1. The technical non-life profit decreased DKK 221 million to DKK 244 million. The decrease was primarily due to a lower run-off profits, a higher level of weather-related claims and large-scale claims and COVID-19-related claims, primarily travel insurance. The investment return decreased DKK 425 million to a loss of DKK 445 million. The investment return was impacted by the negative equity markets and markets for CLOs. Furthermore, the turmoil in the Danish mortgage market resulted in substantial spread widening during Q1, impacting the portfolio of Danish mortgage bonds used for hedging the provisions. The profits in life insurance decreased DKK 160 million to a loss of DKK 49 million in Q1 due to the investment return decreasing by DKK 71 million. The claims trend deteriorated by 9.5 percentage points to 72.5 in Q1 this year. The underlying claims trend, which is the claims trend adjusted for run-off profits, weather-related claims, large-scale claims, discounting, COVID-19-related claims, et cetera, deteriorated 0.3 percentage points to 69. This is due to a higher level of claims on burst water pipes and fire claims in the private segment. Opposite, the claims trend improved in the SME segment. Premiums increased 2.4% in non-life. The premium growth was split between a 1.5% increase in the private segment and a 3.6% increase in the SME segment. Topdanmark continues to see a net inflow of customers in the Topdanmark brand. The new distribution agreement with Nordea has been off to a very good start, but have had an insignificant impact on premiums in Q1. The impact will increase during 2020 and from 2021, it is expected to compensate fully for the termination with the agreement with Danske Bank. As stated, the combined ratio was 89.8 in Q1, up from 80.1 in Q1 2019. Despite a negative assumed impact of between 0.5 and 1 percentage point due to COVID-19 claims, the assumed combined ratio for 2020 continues to be about 90, excluding run-off in the remaining 3 quarters of the year. Profit in life insurance decreased DKK 160 million to a loss of DKK 49 million in Q1. The lower result was primarily due to a decrease in investment return of DKK 71 million, but also due to a lower sales and admin result as well as a lower result on insurance risk. For 2020, the assumed profit on life insurance has been reduced from between DKK 140 million and DKK 170 million to between DKK 0 and DKK 50 million, primarily due to the lower investment result in Q1. The life company holds a good competitive position. This was reflected in a 10.5% increase in premiums, split between 13.5% growth in single premiums and a 3.6% increase in regular premiums. We continue to assume a growth in regular premiums of about 0% in 2020. The investment return for the Topdanmark Group was a loss of DKK 432 million. This includes the result of Topdanmark's asset management company of DKK 21 million. The investment return was impacted by losses on equities of DKK 223 million and loss on the portfolio of CLOs of DKK 94 million and a loss on Danish government bonds, hedging the provisions of DKK 144 million. Based on a number of assumptions described in the Q1 report, the assumed post-tax profit for 2020 has been reduced from between DKK 950 million and DKK 1.050 billion to between DKK 450 million and DKK 650 million, excluding run-off in the last 3 quarters of the year, representing earnings per share of DKK 6.3. On March 23, we stated that as a consequence of COVID-19 and the lower assumed result for 2020, only DKK 8.5 per share of the previously announced dividend of DKK 17 per share was paid out as dividend at the AGM at the 2nd of April. When the situation is back to normal, the Board of Directors has the option of distributing up to the remaining DKK 8.5 per share as extraordinary dividend. If so, this should be the case either later in 2020 or at the Ordinary General Assembly in 2021. Thank you for taking the time to watch this presentation of Topdanmark's Q1 report. If you want to learn more about Topdanmark, you are more than welcome to contact me. Following the announcement of the Q1 results, we will hold a number of online investor meetings. Today, we'll be hosting a conference call at half past 3 CET. And the dial-in information is available on our website. You'll find more information on our road show schedule in the events calendar on our website. Thank you, and goodbye.