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Topdanmark A/S
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Good afternoon, everybody, and good morning to the U.S.A. Thank you for joining us at this conference call. My name is Peter Hermann. I'm the CEO of Topdanmark. And with me is our group CFO, Lars Thykier; and our newly appointed Head of Investor Relations, Robin Løfgren.We are hosting this conference call because earlier today, we published our Q1 report. I would like to start with a few opening remarks on our results. And despite the guidance update we made after Easter, the Q1 result actually outperformed consensus estimates on premium growth in non-life as well as on the result in life and the investment return. And compared to Q1 2020, the non-life technical result improved by DKK 108 million despite headwinds on discounting and risk margin.The improvement is driven by the absence of weather-related claims, there's fewer large-scale claims and also a positive impact from COVID-19 on, for instance, travel and motor. However, we're also starting to see these positive impacts leveling off towards the end of Q1 as society gradually starts to reopen here in Denmark. And we also continue to see negative effects from COVID-19 on, for instance, income protection and illness and accident and workers' compensation.Worth mentioning is also the good traction we are seeing in our partnership with Nordea. Since its exception at the start of 2020, we have welcomed more than 800 new customers every month via this partnership. And in 2020, we succeeded in building up a bigger portfolio with Nordea than we lost from the old Danske agreement. And here in Q1 2021, the inflow from Nordea balanced the outflow from the old Danske Bank agreement in terms of premiums for the first time. That's positive. And this provides us comfort that throughout '21, the Nordea agreement will fully compensate for the terminated Danske Bank agreement in terms of premium as well.As previously addressed, we have seen negative claims trend on house insurance towards the end of 2020. Our efforts to improve this continues. And we have also made good progress on risk-based price increases, on claims prevention and more selective underwriting. We continue to expect that these efforts will improve the combined ratio by between 0.5 percentage point to 0.7 percentage point in 2021, which will impact in 2022.In Q1 2021, specifically, the deterioration on house was driven by the severe frost we had in January and February, leading to high frequencies of freezing and bursting water pipes. It's also worth mentioning that we have seen positive run-off on house here in Q1. So even though we have not fully resolved the situation with house, at least it was not as bad as we feared during the fall of 2020.Looking at 2021. We have improved now the assumed combined ratio for the year from between 89 to 90 in the beginning of the year to now between 87 to 88, excluding run-off in quarter 2 to quarter 4. And this is, among other things, due to the absence of weather-related claims but also a run-off gain of DKK 53 million here in Q1 and also a higher interest rate level at the end of Q1 and going forward. We also see a slightly higher assumed premium growth for 2021.We have improved the assumed pretax result for the life division for '21 from earlier between DKK 100 million and DKK 150 million to now between DKK 200 million and DKK 300 million as a result of the higher investment return, including the mentioned property revaluation as well as our ongoing cost management initiatives, together with a higher level of investment fees based on a higher asset under management.And consequently, the post-tax profit forecast model for '21 has been improved from between DKK 1 billion and DKK 1.1 billion to now between DKK 1.45 billion and DKK 1.55 billion, excluding run-off in Q2 to Q4. And in addition to the already mentioned effects, this is also driven by the higher investment return we saw in non-life in Q1.And due to our results in Q1, the revaluation of our property portfolio and our more market-consistent use of profit margin for unit-linked contracts, our solvency cover is now 243 percentage points compared with 170 at the end of '20. This is based on a solvency cover of 317 within the life, up from 171 at the end of last year.The efficiency program, let me just briefly comment that our efforts to become more efficient, they are progressing according to plan, and the program is still expected to generate these annual gross efficiency gains of DKK 500 million in '25 and also with a net impact of DKK 20 million here in 2021.Then as a final remark, I would like to comment on our announcement from the 8th of April that our CFO, Lars Thykier, has decided to retire after 35 successful years at Topdanmark. And no later than the 1st of September, he will be replaced by Lars Kufall Beck, who comes from a position as CFO of Saxo Bank and holds a degree in actuarial mathematics.I would like to stress that the change of CFO does not change our way of looking at value creation at Topdanmark. We will continue to further develop our robust business model, which has made up Topdanmark one of the most value-creating insurance companies at the last couple of decades.But that actually concludes my opening remarks. So we are now ready to answer your questions. [Operator Instructions]So operator, may we have the first question, please?
[Operator Instructions] Our first question comes from the line of Asbjørn Mørk of Danske Bank.
I'll stick to my 2 questions. One, relating to life insurance, a new profit model of DKK 250 million to DKK 300 million for this year. If I take the midrange and I sort of deduct what you've already made in Q1, I get around DKK 28 million per quarter going forward. I was just wondering really, with the bonus rate improvements that you see in Q1, the very strong solvency position and the premium growth, not really this quarter but at least what we have seen in the past, why DKK 28 million is sort of the level we should expect going forward? It looks a bit conservative to me. So any comments there would be appreciated.
This is -- the interval is now between DKK 250 million and DKK 300 million. That's true that we have made a good value here in the first quarter. We still see -- maybe it's a little conservative. But if you look forward, we are seeing also a little -- given, say, a fall in the premiums coming in, we can see that we have a good momentum on the asset under management because -- due to good results.So we expect that the cost result will actually be positive this year, which is good, which is also included in the estimate. But yes, I don't know if you have any further reasons for the [indiscernible] tax base for the...
I think that I give estimates as much as that we are not extremely aggressive on this.
Absolutely conservative, yes.
All right. If I may just follow on that, which you also mentioned, Peter, that the regular premiums. So down 1% but, let's say, flat Q1 versus Q1 last year. It was kind of the same in Q4. So you're going growing sort of ex growth here. Is that something we should expect to continue?
I think that there's 2 main reasons for the fall in this quarter. You can say that one thing is that we have made price increases that we actually did the 1st of September last year and also here the 1st of January. That's one thing we can see a bigger churn. And also that you could see that if we compare with last year, the Q1 was not hurt sales-wise by the corona effect. It has also been hurting our sales effort here.And actually, last year, we also mentioned we have the price increases. We also didn't have the best, you can say, investment return for our customers last year, resulting in that we didn't have that much sale on CVR level late last year. And normally, you need to do a selling -- a sale on CVR level and then afterwards, come the sales from the CPR level transfers of deposits and so on.So I would say that we'll probably see that it will be a negative, you can say, growth this year, yes. But it will -- I think it will be normalized this year. And that's also why we are saying that the regular premiums will not be -- have a large drop this year, as we've said, between 0 and 5.So I expect it to be, let's say, leveled out this year. And then hopefully, we'll move forward with -- maybe back to a plus growth.
To the benefit of our international listeners, we should mention that CVR is the business number and CPR is a personal number.
Yes. Sorry for that. We need a customer on company level before we can do sales on our individual presence. And that's also some of the effect we didn't see here in Q1. We haven't had that much sale in 2020 also affecting the sale in start 2021.
All right. Very clear. Then a question on your capital and solvency. The 243 on the group level, of course, very strong, the 317 for life. I was just wondering with -- given the rate movement as being a big driver of this and I guess the changes also that you announced 6th of April, how should we look at this? How do you see yourself the quality of your capital position at these levels? Should we expect you to have sort of a higher level than you've had in the past? Because it seems to be quite volatile also with interest rate movements.And of course -- the reason I'm asking is, of course, the last debate we had in the autumn about your heavy investments in IT and digital or intangible access going forward, how that would impact your solvency. So should we consider the 243 in the same kind of quality as it was before?
Yes. In the first place, the change in interest rates, the move upwards that we received, that has, of course, decreased the value of our guarantees and thereby the loss absorption capacity of the life portfolio.On the other hand, we are more or less hedged towards changes in the interest rate level, which means that we have, again, more or less losses on our bond portfolio of the same size as we have had gains on our liability side.We have had an expectation of increased interest rates, and that means that the equilibrium health has been skewed somewhat. We have made money from the increase in interest rate. And on top of this, we have had a very good run on equities and on CLOs. And that means, again, that also [indiscernible] has increased substantially.On the other hand, when you're talking same quality, the quality of an increased profit margin is not the same as an increase in equity. The profit margin, that is the discounted value of the contracts that we have with the customers, weighed with the life of the contracts and the churn that we expect for different types of customers. But if the customers leave, then we have been wrong about our assumptions on the contracts, and this solvency core will disappear.
You could maybe also say going forward that as long as we are -- that with profit portfolio will be a runoff portfolio, meaning that going forward in time, our life book will be more unit-linked with only operational risk. So if you look at from a solvency perspective and look at the range we needed, I would say that our profile of business will be less volatile going forward for the future years because it would be more safe profitability in the unit-linked portfolio, meaning that you could say that the -- that what we're aiming at in the solvency ratio shouldn't at least be higher than we had at the -- for now due to the nature of -- more with product portfolio at the moment.
But I guess -- I mean one question I'm trying to ask is if I look at the 243, and I guess you've been doing your sort of best estimate on profit margins, and then you can argue what you did before, maybe you were too conservative.But anyway, you previously stated that going to 150, 160 in solvency on a group level, you would have no issue doing that. So I guess if you still see the 243 as the same kind of underlying quality as it was before, then we shouldn't worry about the capital for some time.
I don't think you should worry about the capital. But in my view, we have to distinguish between the quality of the different capital elements we have. I will prefer a higher solvency coverage if I have a lot of loan, Tier 2 loans and Tier 1 hybrid capital. And if I have a high profit margin, then if I have very low margin, of course, we have had a kind of equalization reserve in the very low assessment of the profit margin.
Our next question comes from the line of Jakob Brink at Nordea.
Just coming back to Asbjørn's question, please, on capital. So can I just ask why did you change the model for the profit margin in life?
I could mention different reasons, but one could be that I saw the assessment that some of the analysts made about the value in life. And then the -- that was flabbergasting me. And I thought that I had...
And we looked at our competitors and saw what kind of level they use on profit margin. And so that's going to say, yes, we were a little too conservative. And we haven't actually pushed it now with a new way of doing things.
But I guess, of course, it's annoying if analysts write something wrong. But you could also argue that maybe if you -- if I understood you correctly, from Asbjørn's -- the answer to Asbjørn's question, then you don't think the quality of that model changes that big. And so what -- I guess you don't change the model just to tell the market that a few analysts have done a wrong calculation on the value of the life business or -- I guess there must be something more important.
Of course. You're right, Jakob. The -- we made up this profit margin the way we do it back -- way back in '12 or '13 or something, when we saw what was going on with Solvency II. And our consideration at that point in time was that if we show an aggressive profit margin, then maybe our customers will think that we are going to [ crumble ]. So we make this very low to make kind of marketing of the life company.But looking at what our competitors do, I mean [indiscernible] has a profit margin of 4.5% of their provisions. We have now around 2%. We are trying to establish a profit margin that is more in line with what the market is.
Okay. And so I guess my -- yes. So if we go back to Q3, the profit, even the long-term profitability target, as far as I recall, was downgraded for life business. Then it was upgraded in Q4. Now it's upgraded again, of course, due to investments. But also in Q4, you actually upgraded the underlying profitability due to the asset mix toward more equities, I believe. And now you're reducing the SCR by DKK 0.5 billion. So I'm just wondering what is it exactly that is going on in life? It looks like in Q3, it was really not good, and now it actually seems quite good.
It has improved. As I mentioned before, the increase in loss absorption capacity due to the investment income we have had in Q1, that really makes a difference for the solvency cover. Removing DKK 500 million from the SCR, that is a very substantial improvement.
But I guess you know that in Q3 as well.
We knew that it was possible, but we didn't know that we will make this money in Q4 and Q1 as we have done.
I would say that the development of the life has also been a little more turbulent in 2020. If you go back in time and see that we have the most steady hand on this, that was due to the fact that, also, as we have talked about, the implementation of the whole new system, where we actually went live with a big bang, so to speak, that we transferred all the policy from the old system to the new system. We have spent more money on actually dealing with the system to make it as good as it should do.We still have some investments to do this year, but we can also see that that's all the cost initiatives we do and also that we still succeed. Getting higher, you can say, assets under management also make profitability better.So yes, we are still on our way to the things we have said before, but -- that we say that it could be up to 200 going forward as the year -- you can say, a normalized result in the life care business.
This year is probably going to be big because we have had this huge effect on investments in Q1.
Our next question comes from the line of Will Hardcastle at UBS.
Will Hardcastle, UBS. Just coming back, a similar question. Just trying to work out on the 40 point solvency bid today. Effectively -- and this is a bit about the quality and the debate around it. But effectively, it's a lot of better with cash sort of around DKK 1.5 billion.I guess if you're -- assuming we're comfortable with this level before, how should investors think about this number? Given your volatility experience, do you think -- if you deem it the right strategy to be, this is fully distributable?And then the second question, how should we think about the line adversely impacted from COVID that was mentioned? Obviously, we've got frequency benefits on some, but it sounds like that was unwinding a bit as lockdowns came to an end. I guess as you walk down frequency benefits on line, is there a risk that these lines are causing a little bit of that work if you could persist for longer?
I don't know if we have any questions here. Just -- the sound is very, very bad, but we will try to answer and see if -- but, yes, it's hard to hear you. The lines are not good. But I still think that, yes, we have now a solvency ratio or a solvency level that is 243. That's of course, better.Yes, as Lars mentioned, profit margin is maybe not as strong as DKK 1 on equity. But still, that -- we also see going forward also that our business will be more robust actually due to the fact that with profit portfolio will go down.So this is still -- we are pretty well capitalized. So yes, of course, that will make it, you can say, even more secure that we will probably be able to do this 100% payouts in dividends if our Board decides to do that. Also with the discussion we've had previously about the level of depreciations we are doing in terms of the investments on new systems. So seen from our perspective, it just makes this even more clear that we will be able to do dividend payouts of 100% if the Board decided that going forward. Hopefully, that answered the first question. Otherwise, repeat.And your second question is about COVID-19. We see, yes, that we still have some positive elements here in Q1. We also see that things are leveling off both looking at -- for example, on personal accident, looking at motor. Actually, there's been more claims on motor in March than there has been in March '19 and '20. The same goes for personal accidents.We also see some of the effects that we have mentioned to you before that we've said would be backloaded. The negative side actually may be more health claims and also maybe a little more people actually claiming for a lot of disability and a lot of, yes, disability coverage. We can see that, and also with the unemployment rate may be going a little up.So we also see some negative things. But we have said, we still think that -- what we said at the beginning of the year, we estimated an effect of 0.9 on the combined ratio compared to a year without COVID-19. And we still stick to that also after the development in Q1.
May I just add, when we're talking about the profit margin issue that you should -- I think the right way to look at this is, is that we have adjusted the profit margin to normal, which means that we have had a solvency ratio that has been artificially low before. And now, it is not artificially low anymore.
Okay. I'll try -- that's really clear. But effectively, what that means is we shouldn't view the 40-point beat essentially as fully distributable because the base level is no longer artificially low. Is that how we should think about it?
I will still say, taking -- not taking the Board into account, that the -- if you're talking about the 243 in Topdanmark, that is a very, very high number even with the contribution from the profit margin. And as Peter said before, this means that we should remove any doubt that we will be able to have a payout ratio of at least 100 for the next many years.
Our next question comes from the line of Per Grønborg of SEB.
My first question, if I look at the numbers you came with today and compare that to your guidance update, which were pretty specific on Q1 from 6th of April, can you tell us why these differences -- or what's the driver of these differences that has occurred in both profit and in solvency? What it was that wasn't, that is, in the numbers today that wasn't there last time?My second question. Your sales and admin result in life is actually turning positive marginally this quarter. Is this an outlying number we are looking at? Or how should we look at your sales and admin result in life? That was my 2 questions.
Yes. I agree that -- and understand if you're a little disappointed about the precision in our message on the 6th of April. But we had the problem that -- which was decided during Easter that we wanted to increase the value -- or to change the value of the properties and to change the way we assess the [indiscernible] and to change the profit margin.And we think that this was 3 big issues that we could not get past without warning the investor community. And that means that we did that without knowing exact what kind of yield curve would we have. And we did not know what would happen to the assets that are not liquidated.So we have to make guess on some of these things. And we prefer to be somewhat conservative instead of really, we don't -- we would be very unhappy if we had promised more than we could actually give.And then since especially CLOs needed to end some of the private equity hedge funds -- or, let's say, needed to be written up more than we'd expected them to. That hits our bottom line in Topdanmark, and it hits the bottom line in non-life. But most of all, it hits the customers' earnings in life. And with this increase in customer's earnings in life, the SCR in life became substantially lower than we expected it to be. And that is what has driven the major part of this.Talking about the sales and admin in life, it is positive now. There is a lag to this, though. You'll see that the income in Topdanmark asset management company is a little on the low side. And that is because the fees that life charges for delivering portfolio, which is the asset management company, has increased. So we have expected this lower, not very much but lower income from the asset management company. And I expect, and I'm very happy to say this because it is years before I've said it before, we will have a positive income in -- on sales and admin in life from now, not exactly -- not necessarily every quarter but in general.
That's clearly a new positive segment. Just one question related to your first part. It looks like your hedge portfolio for mortgage government bond minus revaluation of your liabilities, at this time, yielded a quite positive return. Normally, you're telling that if there is mild volatility, this will mean a negative returns on the managed portfolio. Can you give some insight into how we should look at this?
That was another point that came as some surprise to us. Of course, we knew that the balance was positive at that point in time. But it became more positive than we expected in spite of the volatility adjustment was -- it did increase by 23 basis points, but the Nykredit index increased by 26, 27 basis points. So we should have had a loss on our asset portfolio, which was bigger than the change in volatility adjustment. And on top of this, the bigger interest rate increased on Danish swaps than we had on euro swaps. Again, that would lead to a bigger loss on the asset side than the gain on the liability side. Nonetheless, we have had a pretty good gain on the hedge portfolio. And that is due to the positioning that has been taken during the quarter.
Our next question comes from the line of Mads Thinggaard of ABG Sundal Collier.
Mads here with 2 questions. And the first one is going back to the life company and, of course, the new low capital requirement, DKK 1.5 billion. And I can kind of hear you're pointing to DKK 200 million in -- perhaps in structural pretax profit. And then you probably need some kind of lower coverage of the capital requirement. Could you kind of elaborate a bit on how you see ROE from -- for the life company at this point and give some of the moving parts there? Yes, that's the first question.
You can say that looking at the life solvency, it's -- one thing is the revaluation of property portfolio that has both been, you can say, a plus from the shareholders' equity. They have owned some of it. And then you can say that with profit portfolio has also owned a number of -- actually, a big part of the properties.So that means also that you can say the level of loss absorption capacity in the interest rate growth has gone up because the collection bonus has gone up, and then also the individual bonuses has gone up due to the increasing interest rate. So that's part of why you can say that, that has a big effect on solvency, [ speaking ] from a life perspective.In terms of return on equity, yes, now we have a lower -- we can say -- we still have the same capital in the life company. But of course, yes, you could maybe do with less, meaning that then you could work with the return on equity going forward, but I don't have a number. Do you have the number?
No. I think it's not very relevant for us since the capital we have in the life company, that is actually the capital we need in a non-life company. So we just use the safe we have in the life company to keep the group's money.
Sure. Sure, sure. But if you look at the necessary capital, what you consider necessary compared to DKK 150 million after-tax and perhaps some other elements as well, I mean where would you say your structural ROE outlook is for the life company?
DKK 2.5 billion or something like that. That's the minimum.
I mean for a quarter or...
DKK 2 billion to DKK 2.5 billion in own funds as a minimum.
Okay. And then DKK 150 million net on that?
I didn't say that. I don't -- I think that DKK 150 million, that is probably not where we are looking at in the future.
Okay. But are you -- I mean are you happy with the life row? Or is it something you're looking into to kind of -- to perhaps divest the life company? Or are you pleased? Are you looking for more improvements? Or what kind of angle are you having here?
We have been working very hard on the life company for many years now. And I think we have been very successful. We have seen a very strong growth. And we are now seeing the profitability increase as well.So I'm pretty happy with the life company. But as all listed companies are, we are on sale -- we're for sale every day on the stock exchange, and so are the parts of our companies, of course.
Okay. Okay. And then just a small question on -- and that's on travel insurance. You had some headwinds here, you mentioned in Q1 coming through on the premiums. I think it's a 60 basis points drag, you mentioned, from lapsing travel insurance. And I also saw you extended some of your coverage here recently. Do you expect those 60 basis points to rebound soon?
I think that -- of course, when it's possible to travel again, we'll see people traveling again. Then we can have an assumption that there's a huge demand that everybody wants to travel right away. Or we can have a more cautious view on this to think that maybe a lot of people have thought some more conditions and stuff like this and they want to stay at home. But in the longer run, no doubt that people will need travel insurance again.
We are aiming at actually getting some of the 60 basis points, as you were mentioning, back again. And also what we've just announced during the weekend, that we are, you can say, even better coverage. It is not our -- we always say to our customers, they recommend they follow the foreign minister's rules and procedures. But it's our job to make the best coverage in our products. And this is also a way to get some more business here.So yes, we expect to get some of it back, but let's see. It also, as Lars is saying, depends a little on when people are going to travel.
Our next question comes from the line of Martin Gregers Birk of Carnegie.
Just coming back to the life position one more time. Assuming that sales in asset is going to be positive going forward on a full year basis, what kind of P2P contributions in the life company should we think about, let's say, next year?
I think that probably DKK 200 million may be a reasonable bid.
This is also depending a little on the situation. As you know, it's a little more volatile in terms of asset under management. And so the reason why it's also gone from negative to positive is we have even better growth than the life company. Even though the premium has not been that fantastic, we also had a big grow on assets under management, and that also gives better cost result and also together with the cost initiatives we do, using the old system and so on.So that will -- of course, we will try to do that even better going forward due to the efficiency gains we can take. But when we, you can say, get our systems to work exactly how we want it to do, it's progressing, but we still have some things to invest in. And then it's also dependent on the assets under management. But obviously, I'll say 200 and -- next year could be a good guess or good estimate, maybe.
But Martin, you have to realize that a part of the income in the life company, that is income that is due to financial exposures taken on the shareholders' behalf. It means we have an exposure which is heavy on solvency in life. But where all income goes through to shareholders. We could choose to move some of this exposure to non-life or home company for that sake. And that would mean that the expected income will be lower in life, and this would be the solvency or the SCR.
So we have to look at the risk return, which is pretty stable. And now you can say with the new bonus potentials being better due to both the interest and the property revaluation, then you can even say the success or the chance of getting our risk return going forward is now just big. That's one thing. And then the cost and administration result, as Lars already mentioned, is turning positive at the moment. And then we have a little risk, which is balanced at around 0. And then, of course, you have the -- you can say, the things from a little on the asset management, which gives a plus, a little less now because we have moved more into life. And then the rest is, you can say, how we are trying to balance result on illness and accidents given, say, getting into our P&C business. But it is going the right way in terms of actually creating more value in the life company.
Okay. Just a final question for the sake of it, on house insurance, where you have been struggling for quite some quarters. And you're also addressing house insurance in this presentation, but you're still booking positive run-off gains in that segment. Could you please elaborate on that?
Yes. Maybe we can talk about what we do on house insurance, Peter, but I'll just mention that we did actually have a DKK 29 million positive run-off in Q1 on house. And that is obviously due to our costs last year, where we had been scared a little about the development we had in house. And we have been very conservative in the provisioning we have made, and that has resulted in substantial run-offs in Q1.
What you can say, perhaps we have told it before, but yes, we have a lot of, you can say, initiatives to get the profitability even better on the house. We have used price increases as one element. But that's to say that -- that has also meant that even though we do -- didn't -- we don't have the same, you can say, amount of selling on the house product now as a broader level, but the premium on the portfolio has actually gone up.So -- and even though it's not big price increases, on average, this has been around 8.9%. But of course, someone has lower and some are small. But I think it's more important now to say that we're also working, have a lot of initiatives on actually our acceptance criteria and also the claims handling. We have done new setup for the way we look at claims assessors and using more -- some of the new systems actually to be even better when we do the procurement deals. We have also made new procurement deals.So we still stick with the improvement about 0.5 percentage point to 0.7 percentage point on the combined ratio this year. But -- so yes, it's moving the right way. It hasn't been solved, as I said in the beginning, but at least it wasn't as bad as we saw in the fall 2020, which is why we have this DKK 29 million in the positive run-off this quarter. And if we are doing it right, there could maybe be some more run-off there, but let's see.
Okay. Just a follow-up on that. As of Q1, what is the combined ratio on your housing segment in isolation?
Very high.
Too high still, but I think it's important to say that I think it's -- we, of course, focus on this because we also said to you that this has to be done better than we have done before. So we're doing that. But I think it's important to say that we're also looking at our customer level perspective because we can also see that the derivative business, we don't get when we maybe don't get a house customer. Then you lose the content or then maybe travel, if there's any such thing, [ the 2 cars ] and accident and so on. So -- but it's still too high on house, but it will not be the product where we'll have the lowest combined.
Okay. And so assuming that average price increases are 9%, how many years would it take you guys to reach 100 in combined ratio?
We are working with -- as Peter mentioned, we're working on different dimension on this. Price increases is one. But the quality of underwriting and the claims handling are other places. And not to forget mentioning the -- what is called buying of stuff that we are working a lot with means that we are looking into probably a few years before we see a combined ratio that we will find attractive. But we are not talking about the case.
And we have a follow-up question from Asbjørn Mørk of Danske Bank.
Just 2 follow-up questions from my side. One, relating to your growth from Nordea. You said the inflow matches the outflow of Danske Bank. And I was just wondering, we seem to be getting quite positive signals from your peer as well on this, so what kind of data points do you have on this? How many insurance products are you selling to new customers and the inflow customers relative to the number of policies owned by -- or the average number of policy owned by the outflow customers?
I can give you an answer. Maybe it doesn't quite answer the full question. But I would say that if we look at -- I was told the other day, I think it was Tryg saying themselves that they have got 35,000 new customers, I think, on Nordics, and that is within 21 months. That is around 1,700 or whatever per month. And we have got around almost -- a little more than 27,000. And the 15 months that we have been addressing and having Nordea as a partner, that's actually a little more than 1,800 a month.So at the moment, we also see in terms of policies that we are attracting more only in Denmark. So that's a good thing. And as I said, that the portfolio we built up last year was actually bigger within the year that we lost with the whole Danske. And now we're also seeing this quarter that in terms of premiums, that actually we have neutralized that -- well, actually a little positive with this but neutralized.So at the moment, we stick to that, that we will -- that we'll be net over the year in terms of premium. If we can do it the way we do now, then, hopefully, we can also be a level plus, but that is incorporated in our prognosis for the year with 4.6%. The 4.6% is, of course, also a hurt level, as we already mentioned, from the travel insurance.
4.6% in the quarter.
Yes, 4.6%. And then on the year, we say between 3% and 4% -- sorry, 3% and 4%. That's, of course, incorporated with the -- also travel insurances but also mink. For example, we had a loss on -- all the mink farmers are gone. We actually were the biggest insurance provider for those people, sadly.So that's -- so we will stick with the 3% to 4%, but it has been lifted because we have seen a little less churn than we expected and also a good momentum. Did that answer the question, Asbjørn, or not?
Yes. Well, I'll turn my luck to ask -- it's kind of partially answered, I would say. But my point is really, I guess you must be selling more insurance products per customer to these inflow customers, I guess, when you have the dialogue with them than the old portfolio of clients had on average. I guess that will make sense.
Yes. Actually, you could say that we have actually seen that a number of products actually is almost the same result as we saw also with the old portfolio. But we can actually see that the average premium has actually been a little higher than we estimated when we went into the deal.So yes, that's a good traction. So -- but it's not that we see a lot more products. It's that it's on the same level as we have seen in all bank insurance partnerships, but the average premium has actually been a little higher.
All right. Fair enough. Then the final question from my side on your life business. I believe you said that the valuation that analysts put on it, you were kind of flabbergasted about that. I was just wondering, with the DKK 200 million pretax profit outlook that I guess you're more or less saying now we should expect for '22 and onwards, what would be, in your view, a fair value of the assets, considering that all your assets are for sale each day, as you say?
I'll leave that for the bright people in the analyst community to decide.
Our next question comes from the line of Jonathan Denham at Morgan Stanley.
Just a quick point of clarification. Did you say that the solid group solvency position allows you to continue a payout ratio of 100% or to have a payout ratio of at least 100% in the following years?
This is, of course, for the Board to decide. But we have just discussed with also you before that are we then able to give a dividend of up to 100 or 100 over the next coming years due to our investment and depreciation of systems. And this was just to say that at least we can say also with the level we have now, we feel secure that we will be able to pay out dividends with also 100% going forward.But of course, it's a matter for the Board to decide whether they want to pay the 100 or go above the 100. The only rule we have is that we should pay at least a 70% out. And then we have always said that we will always pay out, you can say, all unnecessary capital in some way. So that will still be the case, but we have to address the issue to the Board. But...
And yes, as you said, it's one for the Board. But do you have a good insight into a preference for paying out any excess capital as a one-off or over time?
We know that the Board, they don't mind to have a payout ratio of about -- of above 100%. We have seen this before, but we have no idea about the preferences concerning the extra solvency capital we have now. So...
And our next question comes from the line of Alexander Evans at Crédit Suisse.
Firstly, just on the non-life and the underlying claims ratio there. I think you just mentioned on the call that some of the deterioration in the housing was in that frost sort of breakout. So I'm just wondering, the deterioration that you've seen year-on-year, sort of what's driving that? And how long should we expect these pricing measures to sort of earn through for us to see that?And secondly, on illness and accident. It looks like you've got some reserve strengthening in the quarter there. Maybe if you could just give us some details there and what you think the outlook is there?
On house, it's true that the deterioration is mainly due also to this frost in water pipes, as we said, but we are working on fixing the problem, you can say. And we still expect that we will reach some sort of initiatives. We'll get between this 0.5, 0.7 over the year and bettering of the combined ratio. But -- so yes, I don't know if that answered the questions. Otherwise, repeat the first question...
Maybe I could add that we see an improvement in the average claim on house. We are seeing some problems with the frequency during Q1...
Especially on...
Then I would like to -- just to make sure you get this, that the frost has not only hit the private lines. IT has hit agriculture and SMEs as well. So the 1.2, that is on the total portfolio.
Okay. If I can just follow up, I mean if you include the 80 bps discounting in 1Q '20, that's 110 bps sort of deterioration. But you're saying there's 70 bps on housing year-on-year in the quarter.
Yes. The 1.2 is -- that's due to frost, you can say, both on private and on commercial and agriculture. And the 0.7 worsening is on probability in-house insurance on private. That's on the first quarter here. That's mentioned in the investor report. But the illness and accident, you asked about -- did you ask about the run-off that was a little negative?
Yes.
Yes. You can say that this quarter, we've also seen that inflation has gone up. And when we look at the inflation, then the payout -- the payments from illness and accident will be there, indexed by inflation. So that will mean -- and we have an inflation trying to hedge that but not perfectly. And that has this quarter giving, you can say, a negative result on run-off.
That is due to the way we make the hedging. If we should make a neutral hedging on inflation changes, then we would need to have inflation swaps for the following cash flow. But the major part of the inflation hedge is done by the way of investing in indexing bonds and in property. And -- but this comes on a different line in the accounts. So you see a lot of gains on property, where some of this gain is actually a hedge of the increase in inflation in illness and accident.
Currently, we have one further question in the queue. That's from the line of Steven Haywood at HSBC.
Actually, it was related to the previous question. I was just trying to understand the underlying claims trend. And again, going to 70.1% for the first quarter this year from -- is it going from 69.8%? Or is it going from 69.0% that you had in your 1Q '20 report last year? I think I'm just getting confused around the discounting part of the claims trend.
Okay. There are 2 points I'd like to make. The first is that the point really [ didn't ] change, that is a pretty small number. We are talking DKK 7.5 million out of the portfolio of DKK 2.5 billion -- or premium income of DKK 2.5 billion in the quarter. This is more or less noise.If we look at the difference between the statement we made in last year and the statement we make now on the discounting, that is because last year we were looking at the difference between '19 and '20. And that means that the interest rate changes we have between '19 and '20 had an impact on claims ratio in '20. But the difference between '19 and '20 has no impact on the difference between '20 and '21. So what we compare is the claims ratio in '20 and the claims ratio in '21. And it is only this difference that is relevant to this comparison.
I can maybe add, you can say, when you look at the underlying cash trend, I totally agree with Lars that, that is noise, that it's only 0.3. But actually, if you look at -- I think that maybe it's a little better that because when we look at Q1 last year, we looked at house a little maybe too optimistic because, actually, during the year 2020, we had these negative run-offs on house products during the year, meaning that actually, the claims level in the first quarter of 2020 was probably a little higher than we showed. So if you look at that, I would say that the underlying claims trend has actually improved.
[Operator Instructions] Okay. There seems to be no questions coming through at this time. So I'll hand back to our speakers for the closing comments.
Yes, but that will be short. Thank you for taking the time to attend our conference here. And as you know, you're always welcome to call us if you have any further questions, and then we'll be happy to answer them. Have a good day. Bye.