Topdanmark A/S

CSE:TOP

Earnings Call Transcript 2024-Q1

[Operator]

Good day, everyone, and welcome to Topdanmark First Quarter 2024 Earnings Call. Please note that this call is being recorded.

[Operator Instructions] I'd now like to hand over the call to Peter Hermann, Peter, please go ahead.

[Peter Hermann, executive]

Thank you, operator, and good morning, everybody, and thank you for joining us in this conference call. My name is Peter Hermann, and I'm the Group CEO of Topdanmark. And with me is, as usual, Group CFO, Lars Kufall Beck, and Head of Investor Relations, Robin Løfgren.

We are hosting this conference call because earlier today, we published our interim report for the first quarter of 2024. And I'm delighted to start by addressing our strong financial results in the first quarter before handing over to Lars for further comments on the results.

Can we have Slide 2, please? Overall, the quarter delivered a very strong return. Net profit amounted to DKK 377 million with an insurance service result of DKK 437 million and a combined ratio of 84.8% or 88.4% before runoffs. In fact, our insurance service result in this quarter of DKK 437 million was the best Q1 results since 2019, which then actually included very low weather-related claims and abnormally high runoff gains.

In addition to the very strong results this quarter was obtained despite weather-driven headwinds of almost DKK 100 million than forecasted. This is a testament to the robustness of our business model we think. Looking at the claims experienced this quarter, weather-related claims amounted to DKK 137 million and were thus well above the normalized level of DKK 90 million as a result of the harsh winter and storm experience in the first 2 months of the quarter, while March saw a much more benign weather conditions.

In addition, the weather also gave rise to 2,000 more claims within motor insurance, specifically single accidents and rear-end collisions and personal accident insurance, specifically slip and trip accidents. And as these claims are not captured by our weather-related claims definition, they caused a 1.8 percentage point deterioration of the underlying claims ratio thus explaining the vast majority of the 2.2 percentage points increase therein. It is important for me to underpin that these claims are of course, stochastic of nature and thus not a reflection of structurally higher claim level within motor or personal accident.

In addition to these effects, we also saw more fires in agricultural segment, while we saw fewer fires in the private segment. And underlying all this capacity, it is clear that our pricing initiative as well as our ongoing efficiency gains and program is yielding strong results supporting the satisfactory insurance service results. As a result, the mentioned negative weather-related effects were more than offset by tailwinds in multiple other lines.

Large-scale claims, for example, were benign in the quarter amounted to only DKK 5 million significantly below the normalized level of DKK 27.5 million. Runoff in the quarter was quite high at DKK 100 million, and that was also driven by extraordinary impacts related to the Storm Pia experienced in December 2023, and also a one-off gain from the estate after a former subsidiary of Topdanmark Forsikring.

And lastly, the expense ratio was quite low in the quarter, reflecting strong discipline and tight cost control throughout the group. And part of the improvement is driven by phasing. But based on the developments in Q1, we are comfortable to improve our expected full year cost level, which last we will later return to.

Insurance revenue growth was full 11.9% in the quarter, marking a significant step change of Topdanmark. Naturally, part of the growth is based on the acquisition of Oona Health but organic growth also grew substantially to 4.3% in the quarter, and growth was supported by higher indexation and our implemented price initiatives. And in addition, we also continue to see stronger new sales based on the improved competitive power as witnessed over some quarters now as well as an improved churn rate following our investments into retention both related to manpower, but more importantly, also to AI and machine learning to actually pinpoint the strongest and most profitable leads while significantly raising efficiency and effectiveness of our outbound calls. And finally, growth momentum in Oona Health in the quarter also remained good.

So I'm pleased to see the strong improvement in top line growth while simultaneously maintaining our focus on profitability. And based on development in portfolio premiums this far, I'm confident that we will also continue to see further improvements to the organic growth rate in the coming quarters.

Lars, will you take us through the rest of the Q1 results and the profit forecast, please?

[Lars Beck, executive]

I will, indeed, Peter. And thank you. Turning to the investment results. This was a very solid profit of DKK 159 million in the quarter, significantly ahead of expectations, and it was supported by positive contributions from equities, running yields and lower provisions due to changes in the non-hedged capitalization factor in workers' comp.

The matching portfolio contributed quite positively to the results, specifically favorable running yields spread performance on short- and medium-term fixed income securities and tightening of the DKK Euro-yield spread all played significant roles in driving the positive net investment outcome.

Outside the profit on insurance, other items in the quarter does include a one-off cost of DKK 15 million related to a contribution to the Danish Motor Insurers’ Bureau. Further special costs amounted to DKK 20 million, which was in line with expectations.

Let me also quickly comment on solvency. Our solvency cover grows to 210% from 193% at the end of 2023. The positive impact on own funds from retained earnings in the quarter was only partly offset by the systematic seasonally lower profit margin and increased intangibles. And the improved solvency cover materialized despite a headwind from higher solvency capital requirement in the quarter as the symmetrical adjustment to equity exposures rose materially.

Could we have Slide 3, please. Finally, let me also provide some remarks to the profit forecast model for 2024. On the top line, we have decided to keep the assumed organic insurance revenue growth unchanged at above 4.5%. With the development experienced this quarter, we consider this a quite prudent approach just as we would typically do after just one quarter. We first remain very confident in this assumption.

The assumed combined ratio is improved by 20 basis points to 81.8 to 84.8, including runoff. Again, we typically do not improve our expectation after just one quarter. And the improvement, albeit small, to be interpreted as a strong confidence in our underlying profitability. The improvement is a reflection of the strong expense ratio in Q1, which makes us comfortable to improve our assumed expense ratio for the full year to below 17.5, despite the phasing comment that Peter gave earlier.

And finally, the net profit forecast has been improved by DKK 100 million to now DKK 1.25 billion to DKK 1,525 million after tax and including runoff. Besides the lower combined ratio, the improvement is based on the investment return outperformance in Q1.

As we've stated in the Q1 report, we are in a good dialogue with Nordea on the final IT separation of our old Life company and the integration into the Nordea Group. But the IT process has proven to be more comprehensive, complex and time-consuming than anticipated. Furthermore, as we also described, Nordea Group has reserved the right to raise certain claims against us for potential losses under the SPA. Both the dialogue regarding the IT process and the matters relating to the SPA, may result as we write in us in current costs that could affect our results, but we have not included such potential costs in our updated profit forecast for 2024.

As written in the Q1 report, the dialogues are ongoing, so we cannot quantify the potential impact yet. But the minute we can, we will, of course, inform you. And hence, we'll not be able to comment further at this point in time.

Could we turn to Slide 4, please, and hand over to you, Peter.

[Peter Hermann, executive]

Yes. Thank you, Lars. But this also concludes our opening remarks. So now we are ready to answer your questions. Please keep your questions to 1 or 2 at a time. And if you have more questions, feel free to enter the queue again for a second round.

So operator, may we have the first question, please.

[Operator]

Our first question comes from Tryfonas Spyrou from Berenberg.

[Tryfonas Spyrou, analyst]

I just have 2 questions. So you spoke about the majority of the year-over-year deterioration in underlying loss ratio being due to higher weather claims frequency and I guess some more impact from Oona. So my question relates more on the pricing versus claims frequency in a place where they excluding this weather impact. I guess how is this tracking versus year-over-year expectations across both motor and house? And should we expect the impact of rate rises to continue to run throughout 2024 given your top line guidance implies that goal will accelerate from here. I was wondering if you can maybe comment on split versus price and volume contribution to the top line. So that was the first one.

Oona, it looks like it makes about 6.9% of our group premiums, and it looks like it has contributed sort of 0.5% or 50 bps to the group loss ratio deterioration. I guess it's kind of hard to estimate from the outside, is it fair to assume that Oona is running with a sort of 7 to 8-point sort of high underlying loss ratio that TOP stand-alone, so sort of in the mid of 7 to 8. So just to kind of help us understand how the business is running.

[Lars Beck, executive]

Yes, I can start with Oona, probably. Oona is contributing positively and expected to our overall organic growth -- top line organic growth as expected and as previously communicated. When it comes to the claims ratio of Oona, we are still having the same forecast as we did at the end -- at the beginning of the year, sorry, where we said that Oona would be neutral on a group level for the full year. The nature of the insurance that Oona -- the health insurance business that Oona drives is in a way such that combined ratios for Q1 and Q2, are the worst of the year and combined ratios for Q3 and Q4 are the best of the year. Simply by the fact that the holiday season is in Q2 and the Christmas season in Q4 had a positive impact on the underlying claims ratio in the health insurance business. So nothing unexpected from our side in terms of the performance.

You could theoretically, with the accounting standards at hand, you could choose to face the earned premiums from Oona, not in a linear way as we do currently but basically according to the claims ratio. However, we have decided not to do so because in the order of transparency, we want to keep it as simple as possible. And once we've been through a full year of 4 quarters with this, then we also have the seasonality in Oona fully reflected in our underlying development. And hence, going forward, it should not be an issue when doing comparables.

[Peter Hermann, executive]

So all and all you can say, yes, this quarter, they are not, you can say, they are a little worse in combined ratio compared with, you could say, the other [indiscernible] business. But going forward, we still expect them to contribute positively on the year.

Then the first question was more about pricing, as I understood, and also the growth. It's true that we have put forward price increases on different products due to inflation, weather and other things that's, of course, affecting also positively to the growth. We are still doing it. Remember that our portfolio, there's a lot of customers having renewal date on the first of January, meaning that most of the price increases put forward this year has been done according to renewal dates. But there will still be also things coming later this year for other renewal dates, but also that we are putting forward some price increasing on motor, for example.

So if you look at the growth, we can still say that the growth is mainly indexation on price increases, but it's also this time being helped by better retention and also better sales. And also, if you can look at now, it's a growth in private is organically, a little more than 6%, and it's 2.2% in the SME sector. That's, of course, also due to the nature of Oona being taken into the private segment here. But we also expect actually growth on the agriculture and commercial segment to pick up. And remember, our commercial and agriculture segment is -- has actually quite a lot of private characteristics into it. It's a smaller commercial customers, agriculture customers, a lot of them. I hope that answer the questions.

[Lars Beck, executive]

And in terms of claims frequency that you also asked about, Tryfonas, there's been no surprises in Q1 with the one exception, of course, being the additional claims that was weather-driven that we saw in motor and in personal accident. When we strip out that, we are quite confident and comfortable with the assumptions we made when we entered the year. And that, of course, is also what is leading us to improve our combined ratio forecast for the year.

[Operator]

Next question comes from Vinit Malhotra from Mediobanca.

[Vinit Malhotra, analyst]

So I just wanted to follow-up -- just one quick one on Oona and then one on SME. On Oona, I mean, I've just heard your answer, very convincing, thank you. I'm just curious that the -- I think additional to this seasonality, there was one discussion on mental health claims. And I'm just wondering, is it a fair conclusion that Oona had actually turned out better than what you were thinking of -- worrying about getting that line? So that's my first question.

Second question is just on the topic of commercial lines, SME, it seems that when there were fewer fires in private, there was a bit more in SME and obviously, that could be stochastic. But I'm just curious that when you look at the ex runoff, combined ratio, it looks quite a bit worse year-on-year. If you could provide any commentary there that would be helpful to -- on SME claims trend.

[Peter Hermann, executive]

First of all, you can say, if I could start with Oona, it's true that we also described last year that mental health was a problem not only for Oona, but actually for the Danish health insurance companies. They have also started doing price increases on that product, meaning that they have a little higher churn than they normally have, but still it's in a very, very fine level actually. So that will, of course, you can say, improve the combined ratio on that specific number here. So we are not -- we don't think it's different.

Actually, when looking into Q1, they still have a good growth and also the combined ratio is actually, probably expected with the remark Lars gave, that combined ratio in a Q1 and the health insurance company would be a little worse than the rest of the year. Q2 also a little bad, but 3 and 4. So actually, it's according to what we experienced, they are also having at least close to double-digit growth in that business. So that's the one thing.

In SME, I think it's important to differ between the commercial part of SME and also the agricultural part. Because if you look at the SME on commercial, then actually the level of fires, for example, has been more or less in line with expectations, but we have experienced more fires within agriculture. And actually, you could, of course, think would -- is that actually logic when you have, say, a lot of wet weather. But actually, we have seen in a lot of years when it's harsh winter weather, we actually see more fires in the agricultural segment. And I cannot explain it fully, but there's something to do with the way they heat their buildings and so on.

So we actually see more fires and that is what has happened in Q1. So that's true that if you look at the combined ratio in the SME, it's not as good as it should be due to, you can say, quite a lot of fires. It has not been large-scale claims because they are quite low. But a lot of, you can say, smaller fires, but it will go directly to our bottom line without you can say, contribution from reinsurance on that part as well. But commercial fires has actually been quite okay.

[Lars Beck, executive]

And finally, I think it's important to note that Q1 last year in the SME segment was an exceptionally strong quarter. So the comparables is against an exceptional strong quarter.

[Peter Hermann, executive]

Yes. And then remember, a lot of weather claims is also coming to the agriculture and the commercial segment.

[Operator]

Our next question comes from Jan Gjerland from ABG.

[Jan Gjerland, analyst]

[indiscernible].

[Peter Hermann, executive]

I'm sorry, Jan [indiscernible] it seems like you're line is quite bad.

[Jan Gjerland, analyst]

Is it better now?

[Peter Hermann, executive]

It's much better. Can you repeat?

[Jan Gjerland, analyst]

Yes, the runoff gains in this estate, the life book or whatever you have, is that sort of a larger one-off that we should not think you should be repeated because you have more obvious leaves? Or how should we think about that?

[Lars Beck, executive]

Yes. The runoff is a former estate. It's not related to the life company. Actually, it's a former state, and it is a one-off impact. As you can see on our combined, it is -- sorry, on our runoff this quarter, it is quite a lot higher than what it has been over the last quarters. And as Peter said, we have 2 positive impacts: one from the Storm Pia in December and one from this estate. If you strip out that, the runoff in the quarter is, I would say, at a normalized level compared to what we have seen in previous quarters.

[Jan Gjerland, analyst]

Okay. Just as the [indiscernible] commercial and the runoff was part of the Pia reversal. What kind of properties in -- or stuff in the commercial is more linked to Pia than on the private side? Should we expect more in the private side for Pia next quarter? Or is that just another event?

[Lars Beck, executive]

No Pia has been rebased now, so to say, so the Pia is now in our books with the updated expectancy. Generally speaking, when we have weather events, in particular storms, our portfolio is quite [indiscernible] towards the agricultural segment. So in general, when we have storm events, in particular, in the geographical area where we saw Pia as well, it will impact our agriculture business. And hence, that's also why the vast majority of the runoff gain on Pia hits the SME segment and mainly the agriculture business, actually.

[Jan Gjerland, analyst]

Okay. My second question is back to the Oona Health then and how we should treat it going forward? Because as we understood you took it on, it was sort of to improve your combined ratio and improve your net profit. So when should we think you have done price increases that is enough to pick up the claims frequency and the increased average claims in this business? Is it during 2024 that you are aligned? Or is it first in 2025 and onwards, we should think about this contributing positively to your combined ratio?

[Lars Beck, executive]

If I just -- before Peter can comment on the future, then just to recap what we said. What we said when we launched it was that the Danish business in Oona is what we were looking at, and that was what was looking better than average for Topdanmark. And as we also said and reconfirmed when we did our update -- our forecast for 2024, was that the Danish business of Oona actually did look better than the average for Topdanmark at that point in time. However, the Swedish business is still on the books and that is a business that is in growth mode, so to speak. And hence, that runs at a combined ratio that is higher than the average for the Topdanmark Group. But if you put the 2 together, then in the forecast for 2024, they were actually pretty much in line with the average for the group.

[Jan Gjerland, analyst]

Okay. Is it due to the acquisition costs you have in Sweden, which is sort of deteriorating the combined ratio? Or is it because there is higher claims?

[Lars Beck, executive]

It's not because of the claims. Actually, claims ratio looks good in Sweden. It is the acquisition cost and of course, the overhead and admin you have when you're growing the book implies that you have a higher combined ratio.

[Operator]

Next question comes from Faizan Lakhani from HSBC.

[Faizan Lakhani, analyst]

The first 3 questions sort of interlinked. I know you can't say too much about the Nordea raises concerns on the IT separation. But if you could maybe specify within the SPA, what the maximum financial cap on your liability for anything is and what the hurdle rate for Nordea would be to make a claim?

And sort of interlinked to that question, if you were to sustain a penalty, what would the implications potentially be for your ability to continue to be at the 100% payout ratio? I can see above the 190%, you have about DKK 300 million margin, but then you have intangibles that posed a headwind, plus there'll be some sort of SCR growth as well as you grow that business. That's sort of the first 2 questions sort of intermixed.

The second one is coming back to the Solvency II. The profit margin did fall in Q1 and you highlight seasonality, but it didn't fall as much as it has in the past. Is that a case that your profit margin is just at a structurally higher level? Or should we expect profit margins to stay stable year-on-year?

[Lars Beck, executive]

Yes. I take the first part of the max cap in the SPA, that is not something that we have disclosed and not something that we intend to disclose either. I think the speculations about what would happen to pay out capabilities if we were to get a penalty, I think, is premature at this point in time. As said, we have included this information in the Q1 report in consideration of the provisions in IAS 37 and we have not published it as a separate company announcement as inside information. And I think that's as far as we can and will go at this call.

[Peter Hermann, executive]

And regarding Solvency, when we talk about Solvency, you talked about the profit margin, that's a seasonal effect. The way profit margins calculated is when you're standing in the late of the year looking into next year, you have what you could call one years of premium going forward. So that will mean that the profit margin is higher, then you get one quarter into the year than you have only 9 months, so to speak, of premiums. And that way, it will -- the profit margin will be lower through the year until they will go up again in late of the year when you go into a new year. So that's the mechanics of that. So it doesn't say anything about, you can say, change of modeling or do you see profitability at all, it actually only says something about seasonality.

[Faizan Lakhani, analyst]

So would it be a fair assumption to say that profit margins have stayed relatively stable year-on-year by Q4?

[Lars Beck, executive]

Yes, except, I mean, of course, the technical model behind the profit margin does take into account improved profitability churn rate, et cetera, et cetera, et cetera. So with the exception of the natural portfolio developments and underlying profitability development, the profit margin and the development should stay fairly stable year-on-year.

[Operator]

Comes from Amina Ashraf from Danske Bank.

[Amina Ashraf, analyst]

Actually, my question was about Topdanmark Liv. And I think you were pretty clear that you've already announced all you can. So I'm going to shift my question to inflation swap. What is that we should expect in 2024 with inflation swaps. Could you give us a bit of flavor about that?

[Lars Beck, executive]

Well, inflation swaps are priced are simply priced by market pricing, which we obtained on a monthly basis. I think even from you guys actually -- from your colleagues. So I think it's important to note that the valuation of the inflation swaps is, of course, based on current inflation expectations. So they only change in value when the expectations change. And at least for this call, I haven't prepared a wizard forecast update on inflation expectations. We stick to what we see in the market and what we are told by you and your colleagues that is seen and expected in the market.

[Peter Hermann, executive]

And remember, it's a hedge against you can say the movement on the provision side of the workers' compensation, for example. So it will also go you can say we have a -- there's a plus and minus depending on what the development will be in terms of the provisions and the assets and the liabilities.

[Operator]

Next question comes from Martin Birk from SEB.

[Martin Birk, analyst]

Just first question is coming back to your initial remarks, Peter, on organic growth picking up over the course of 2024. Can you please elaborate on that?

[Peter Hermann, executive]

Yes. This is -- just saying that we had a good start to the year. You can say, as I mentioned just earlier about this price increases coming forward, and we also have some working with the prices over the -- over this year. And then you can see also just looking from the development of the portfolio. Remember, we have also told you when you have a -- at one stage, we actually had a foreign portfolio and that actually hits with the tail, so to speak. Now we can see that we are building our portfolio, that's a growth bolting portfolio for a while now in both private and commercial. And that means that you can say, that you also get a headwind -- sorry, tailwind from that afterwards.

So what you can see from, for example, the SME segment is that they have now a lower growth, but at least when we look at the development in the portfolio, it seems like that the growth could actually pick up a little on, for example, that segment.

[Lars Beck, executive]

And then once again, it's important, Martin, to just make sure to look at the comparables. Q1 last year was the quarter of the year where we have the strongest organic growth disregarding Oona impact. I believe we reported 2.5% organic growth in Q1 last year, where the year ended just north of 2%, excluding Oona. So of course, also there's a comparable here that plays a little bit into it.

[Martin Birk, analyst]

I'm well aware of that, but quantifying it a little bit more. I mean you report what 4.3% organic growth in Q1. What should we look at?

[Lars Beck, executive]

It's clear that when we have a full year guidance of more than 4.5%, and we experienced 4.3% in Q1. And then at the same time, as Peter said, remains very confident in ourselves -- myself, sorry, we remain very confident in keeping our revenue growth unchanged at above 4.5%. And that is because we do move into a, we believe, quite strong performance in the quarters to come.

[Martin Birk, analyst]

Okay. It's just that this is just an open end of guidance and the fact that you use quite a lot of objectives on that guidance. I'm sort of curious to see how high it could actually go?

[Peter Hermann, executive]

I understand.

[Lars Beck, executive]

Unfortunately, you have to wait until the Q2 release, I guess, [indiscernible].

[Martin Birk, analyst]

All right. Fair enough. And then just a final question from my side. I guess, over the course of Q1, there has been some chatter in Danish media regarding ATP wanting to monopolize workers comp. Have you heard anything new in that regard?

[Peter Hermann, executive]

No. You can say that the only thing we know is that there is not a lot of people supporting it at least as we can hear both from within ATP, but also from the Board. And then just if you hear -- our comments is that if you look at the system we have now, then actually, you can say the individual company has some kind of, you can say, motivation to work with having even better security in the workspace environment because they can then get a lower price. If it were to be done the way it was proposed from ATP, and then suddenly it would be some kind of payment from a toll sector, meaning that there's no, you can say, there's nothing to gain by doing it differently than your competitors in the sector. That's one thing.

The other thing is that we are actually providing a lot of help to the individual customers getting back on work. You could argue would that be done in another system. So I can find a lot of, you can say, different arguments for why the system is actually quite well. And that has been stated both by us, but also by our brand organization, our colleagues in the business. And we haven't actually heard more after that -- yes, that suggestion came forward other than there was not a lot of people supporting it. That is the notice we get.

[Operator]

Question comes from Faizan Lakhani from HSBC.

[Faizan Lakhani, analyst]

The first one is on Slide 9, could you disaggregate the other bucket and to understand if you could split out how much the sort of true underlying improvement has been over the course of Q1?

And second, again, related to that, I know you mentioned that you're putting through quite strong rate increases at 1/1 renewals. But when I look at the chart of motor pricing year-on-year, it's only up modestly. I know that's an average rather than written basis, but one, could you elaborate what the written rate is on motor insurance? And B, given the fact that your average hasn't moved that much, frequency is up, severity of probably at least 3% to 5%, are we implicitly saying that the earned margin of motor deteriorated on motor at Q1?

[Lars Beck, executive]

If I take the last one first, then the earned margin on motor deteriorate, yes, but that was, of course, because of the increased frequency from the weather-driven claims. If we look at the underlying frequency of motor, as said, that looked very much in line with our expectations. It's also important to note that the type of weather-related or weather-driven, sorry, claims that we see in motor is typically more expensive than the average claim you see in motor. So for instance, these collision -- rear-collision damages are typically more expensive than a normal parking damage would be. So the weather impacts both the frequency but also the average claim size in Motor.

In terms of the increases you see, yes, it's comforting for us that we now see on the slide in our investor presentation, as you eluded to, that we now see average pricing for motor going up. As with anything else, as you rightfully say, this is so far primarily new sales and increases on the existing portfolio just starting to kick in. So we would expect this charge to continue its upward drift. But of course, this being a portfolio business, there is, of course, a lag before from when we implement until you see the full earned effect in the chart.

[Peter Hermann, executive]

I think it's fair to say that the combined ratios on the motor portfolio you could say, some years ago, were better actually than we see at the moment due to COVID-19, other things. And then as you're mentioning, we can see that also due to technology in development, also mix of cars between electric cars, hybrid cars and so on, spare parts getting more expensive, workers salaries getting more expensive. But we have seen, you can say, an uptick in inflation, at least on motor. We have also been honest about that earlier. And that also was the reason why we are starting to do impose price increasing on that product as well. But remember that we're also looking for full customers, and also, you can say, where is the customers most aware and most sensitive to price increases. So we're doing this looking at a full customer view and enforcing price increases on different products, but we're also doing on motor as we also already mentioned in Q1.

[Lars Beck, executive]

And the Slide 9 comment in terms of the other category. Well, it's a minor amount and it pluses and minuses as we say, there are some positives in terms of fewer fires in the private segment, more fires in agriculture goes the other way and then the seasonality in Oona. So we're not specifying it further, but I believe that when you look at it, it is in the overall scheme of things, a very small impact that it has on our underlying.

[Faizan Lakhani, analyst]

And sorry, just to come back quickly on the first comment you made that frequency is in line with your expectation. I may have missed it, what are your expectations for motor in Q1?

[Lars Beck, executive]

We do not disclose a frequency expectations by line of business, not in aggregate actually.

[Operator]

Question comes from Vinit Malhotra from Mediobanca.

[Vinit Malhotra, analyst]

Just I think that the comment you made about how the use of -- I mean, you had investment into retention, improved churn rate use of AI. I'm just curious, are all these things part of that 4.5% organic growth? Or do you think there's potentially some upside? And also, would this AI also be leading into better claims management? Is that part of the plan? Just a little bit thought of -- I mean, I use the word AI but it could be all these investment technology you're making. So just any comment on that would be helpful.

[Peter Hermann, executive]

I think it's important to state that, of course, we are trying to be efficient every day. And this was just an example. When we actually work retention, for example, and also leads for sales, then we have -- now we're getting even better, you can say, with the use of technology to actually predict where do we have the best efficiency calling, the right customers are actually using our manpower, but also when we put out digital sales and so on for the right customers with the right timing and so on. So that is just we can see improving efficiency, meaning that you can say at least that we can have the same sale for the say -- for less people, so to speak. So that could -- that's one argument for also of us getting a little bit of cost savings, for example.

Turning to the claims part. Yes, we are also using AI in that sense in order to predict where we're seeing, for example, storms hitting the most or when water will come down, where would it be the worst and so on. So there, of course, going forward, we will improve this. And I think it's part of the efficiency program because we have already said that we will deliver also more this year and also going forward. And we also increased the level of gross efficiency gains that we expect from our efficiency program. And that is also user technology for claims, for example, pricing and so on, besides fraud and cost and procurement. So yes, that is definitely part of improving our, you could say, profitability over time, and that's part of the efficiency program.

[Operator]

Question comes from Jan Gjerland from ABG.

[Jan Gjerland, analyst]

When it comes to the sales, which you alluded to, it seems like on Page 15 in your presentation that you have had some efficiency gains on new sales on the digital or online versus what you say for 2023 a little bit later, where you assume that this is only around 3%. I think it was Page 20. So has it been a step change for digital sales or online sales during the first quarter of 2024? Or is it so that the 17% is started online and sort of the 3% you ended online is sort of more where we should think about this digital solution going? Or is it sort of a step change during this quarter?

[Peter Hermann, executive]

No, it's more to the your -- you're actually saying -- telling the question -- sorry, the answering the question yourself. Because you can say, if you look at the pure online sales, how much of our sales came through without us being not at all involved. Then it's the 3% that is you can say also from -- I think from last year or I can remember how the assets in '23, you can say, so when we're looking at the sales that has been initiated online, that has actually, for a while, been higher than 3%. I think it's important that we can see, for example, in Q1, we can see actually the digital sales almost double-up as we have seen in Q1, you can say, in '23.

So you cannot compare the 3% with the 17% because that is the pure online and some things are being initiated and where we have to call customer, contact and then we are not calling it pure online. So that's the difference, but it is picking up actually with the level of digital sales due to our efforts also doing digitalization, but also you can say actually being proposing our products to the right customers and the right way on digital. So it is picking up, but not in a manner, so it's suddenly a 17% of our total sales, but it will increase.

[Jan Gjerland, analyst]

Okay. The second question is then on the cost side. It was probably where you sort of managed to improve -- to be impressed in the most, 1.5 percentage points better than that I think though. So it means that what did you really do on the cost side this quarter, which is sort of difference or that you actually change your guidance going forward. As I think you wrote it's not only the periodization of the cost, but also something you have done to also improve your cost ratio and underlying levels. So how -- is it just because you have higher premium growth? Or is it because you have actually done something to your cost base, which -- and what have you done then?

[Lars Beck, executive]

We are of course being held by the high growth. Sorry that's absolutely true. But generally speaking, what we have been doing is continuing our tight cost control holding back on investments until we got firm ground on where we were. We could clearly see the weather in January and February. And at that point in time, of course, naturally hold back as much as we could on the on the cost side to make sure that we can deliver on our overall commitment and promises. And that's also why part of it is only part of the gain we see in Q1 is going through the books and hence, the upgrade we did for the full year is minor, I would say, in the sense that we say from around 17.5 to now below 17.5. And therefore, we are also implicitly saying that you will not see all the improvement from Q1 flowing through the full year.

[Jan Gjerland, analyst]

And the Oona sales cost, and they are coming through the cost line isn't it? So that we should expect to the Swedish cost -- acquisition cost to come through the cost line, not the anywhere else?

[Peter Hermann, executive]

Yes. The Oona cost was also part of the cost line, yes.

[Operator]

We don't have any pending questions. I'd now like to hand back over to the management for their final remarks.

[Peter Hermann, executive]

Yes. Thank you, and thank you for all of you for taking the time to attend our conference. As you know, you're always welcome to reach out to Robin, if you have any further questions. We wish you all a pleasant rest of the day. See you. Bye.

[Operator]

Thank you for attending today's call. We all have -- we hope we all have a wonderful day. Stay safe.