Topdanmark A/S
CSE:TOP
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
286.8
380.2
|
| Price Target |
|
We'll email you a reminder when the closing price reaches DKK.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Topdanmark A/S
You don't have any saved screeners yet
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, and I'm the group CEO of Topdanmark. And with me is our new group CFO, Lars Kufall Beck; and Head of Investor Relations, Robin Løfgren. We are hosting this conference call because earlier today, we published our report for the first 9 months of 2021. And I would like to start with a few opening remarks on our results. The DKK 356 million post-tax Q3 result outperformed consensus estimates on result in life, while both premium growth, the technical result from non-life as well as the investment return in non-life was in line with the consensus. We delivered a combined ratio of 85.7% and a growth in non-life of 4.4% in the quarter. Compared to the first 9 months of 2020, the non-life technical result improved by DKK 245 million despite headwinds on rain and frost and large-scale claims. The improvement is driven by improving underlying trends within, for instance, health insurance, a slighter higher run-off gain and the absence of weather-related claims in the first half of the year, although Q3 actually saw a meaningful impact from the large number of cloud bursts during the summer. As you know, we have stopped reporting on the financial impact of the COVID-19 situation. In general, loss frequencies continue to appear normalized, except for travel, which increased substantially from Q2 to Q3, but still remains somewhat below on normalized level. Worth mentioning is also the good traction we are seeing in our partnership with Nordea. The partnership continues to deliver strong results, with our referral rate twice the size of the old Danske Bank agreement. And in the first 9 months of 2021, the Nordea agreement has led to almost 50,000 referrals and has, thus, more than compensated for the outflow from the old Danske Bank agreement in terms of premiums. We still expect this trend to continue throughout '21. As previously addressed, we have seen a negative claims trend on house insurance towards the end of 2020. Our efforts to improve this continues, and we have made good progress on risk-based price increases, procurement initiatives, claims prevention and more selective underwriting. As a result, the claims trend in house insurance has improved by around 5 percentage points in the first 9 months of 2021 compared to the same period last year. As we continue to expect our efforts to improve the group combined ratio by 0.5 to 0.7 percentage points in 2021 with full impact in 2022. In our life company, we had a strong Q3 results of DKK 130 million, which, besides including income from asset management for the first time, also saw higher investment return driven by property reevaluation -- revaluation. Looking at 2021, we have now narrowed the assumed combined ratio for 2021 from before between 85 to 86, to now between 85 and 85.5, excluding run-off in Q4. This is, among other things, due to the run-off gain of DKK 46 million in Q3 as well as the improving trends mainly within house insurance. We have also narrowed the assumed premium growth for 2021 to now between 4% to 4.5% for the year. The underlying business momentum remains solid, but we also saw predictions for unexpired risk within illness and accident in Q3 due to rising inflation that is taking some out of the premiums. We have also improved the assumed pretax result for the life division for 2021 from earlier between DKK 320 million to DKK 370 million to now between DKK 400 million to DKK 425 million due to the higher investment return in Q3. In conclusion, the post-tax profit forecast model for '21 has been improved from between DKK 1.65 billion and DKK 1.75 billion to now between DKK 1.75 billion and DKK 1.8 billion, excluding potential run-off in Q4. Our solvency cover now stands at 243%, slightly lower than in Q2. The quarterly result was more than offset by an increase in solvency requirement as the impact from the solvency stress scenario on profit margin increased. The DKK 850 million Tier 2 loan, which was already deducted from the solvency cover last quarter, was redeemed during Q3, and our capacity to potentially issue new Tier 2 debt remains intact. Then finally, let me briefly comment on our assumptions for the next year. We assume premium growth of 4% to 5.5% and a combined ratio between 86 : 89, excluding run-off. This is based on the assumptions of continued good traction on our partnership with Nordea, automatic premium indexation corresponding to a premium effect of 1.8%, continued positive effects from our pricing initiative on house insurance and no material COVID-19 impact. In addition, we have based our assumptions on the normal levels for weather-related and large-scale claims as well as an expense ratio of 15:16. And we also expect to continue the strong delivery on our efficiency program into next year. A detailed profit forecast model for 2022 will be published in connection with the annual report for 2021. This concludes the opening remarks. 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.
Two questions from my side. If I may start with the outlook and just basically a follow-up on what you just talked about in detail. If I sort of look at the combined ratio ex run-off midrange of 87.5, that's around 50 basis point deterioration from where you're going to land this year. And then if I look at your building blocks for the next year with the improvements we're seeing already, I guess you should actually leaving aside, I mean, including the large claims and, I guess, weather claims, which will be a little bit of a headwind, COVID-19 as well. At least on my numbers, it looks like you should have a tailwind next year. So what is it you're seeing giving you a headwind that is more than offsetting the impacts from the COVID-19 and the illness maybe a little bit -- you can touch a little bit on that.
Yes. First of all, we can say that if we look at -- we have some headwinds -- or tailwinds this year also from COVID-19, for example. That is taking away at least last year -- next year. And then you can say, yes, we will have, as we mentioned, the large-scale claims and the weather-related claims. But again, if we look at the next year, we can also see that, for example, that for now, we're also looking at not an improvement within illness and accidents. We already saw inflation going up also on salaries. That is increasing. You can say the benefits that we have to pay out on illness and accident. So that will -- so we look into a deterioration on illness and accident for next year, but that's also included in the numbers for next year.
But I guess house insurance, the efficiency gains and the premium growth you're getting from it, that should give you some -- I mean, the premium growth on a combined ratio, but the other should give you some tailwind. But I guess is it fair to say that there might be a little bit of conservatism in the midrange?
You could say, yes. But the other thing is that we have also introduced, you can say, a higher range now, when we look 5 quarters ahead. And we will, as I described, also come to you after the annual results with a more detailed forecast. But you can say that if we are going to the bad end of the range, then we should see unexpected things. If we should achieve the best end of the range, we should, in some way, overachieve on some of our ambitions. So it's just to say that it is an interval. But yes, we have some good things going on with the pricing efforts and also some of the things and the more momentum we have in some of the other product lines. But I think it's fair to say that, yes, it could be a little conservative in the midrange.
Exactly. Using the midpoint would be a little bit conservative. That's a fair statement.
All right. That's good to hear that nothing has changed on that part. Let me then ask on life and the capital basically also for the group. But the outlook for life next year, you seem to be indicating that -- you indicated in Q2 report that we should take around DKK 200 million plus asset management, but then you had lowered the risk profile giving us, I guess, something like 2 70 something as a range for next year, which is also, I guess, what your consensus is about. But there seems to be a lot of solid momentum there. Is there any structural changes in the way you see it for the midterm profit outlook for life? And the capital requirement like, of course, going up this quarter. Is that a sustainable level? Will it grow further? Or are you going to do mitigating actions there on the capital requirement for life, and hence, the capital requirement for the group?
I say, first of all, if you look at the profit for next year and also in life, this year has been dominated by a very good investment resource. And especially, you can say that the deck revaluation of our profit portfolio that happened in Q1. So that it's a little out of the normal. But if you look at them, we have transferred the asset management within the life business. So if we take that into consideration, we would normally say that with the new investment profile, having DKK 30 million, you can say lower, as some assumed, gain on investments or on the investment equity, then it's -- it could be around plus [ 2, 250 ] that will be in a normalized level the life company. So that's still the case. And if I look at the capital situation, it's true that the model for profit margin has, of course, released a lot of capital. We still have a very good, you can say, solvency level of 328 in the life company after this quarter. So there's still, you can say, a lot of room for additional -- we have spare capital at least in the life that could be streamed up to the model. And maybe Lars later speak, but that is another case. Then I will say that, yes, if you look at the solvency cover -- the solvency requirement now, it is probably at the level that we also expect going forward, of course, depending on the investment fluctuations, because if we get higher interest rates, maybe it could be even lower. But if you get a crash on the equities, then it could get higher again. So it's more volatile than life. But I think that the -- around DKK 1.5 billion at the moment is a level that we expect. And then going forward in time, we would expect it to decrease because that the with profit portfolio, but also, you can say, more and more run-off. So going forward, it will decrease, but it will be in the next coming, you can say, a period, it will be in that level.
But wouldn't the growth in the life business over the next couple of years also fundamentally boost the, you can say, the structural or normalized profit of the life business?
Yes, you can say that if we get a lot of growth, you can say, yes, then especially asset under management, then you can say the return could be improved. That's true. But you can also say -- but actually, it would not influence that much on the solvency requirement actually because all of the new business we get is actually on [indiscernible], and that's only operational risks coming in there. So it's not having that effect.
I was more talking about the DKK 2 50 million that you mentioned as a profit point -- profit investment.
But it's -- sort of experience as the result has been volatile, but it's especially been volatile together with the asset under management because if we get higher asset under management, that is the key to get even more profit in the life company. So yes, if we have a bigger growth, but then you will also have, you can say, higher sales costs and so on. But it's true that will increase the profitability.
Next question comes from the line of Jakob Brink of Nordea.
I would actually continue there as Asbjørn left on the life guidance and also the sales and admin results. We have moved DKK 25 million, I guess, in this quarter from the parent company down to sales and admin. And still, we're only booking DKK 8 million, which is pretty much on par with last year. So could you give us the sort of the sub parts of that DKK 8 million to what is going on beneath that? And why can we not see the growth of the fact that you have allocated DKK 25 million more? And then on the life guidance, it's not many quarters ago that the old life, that normal life insurance profit was 220 to 230. And since then, you have added DKK 100 million, and you produced risk a little, but how do you get to 2 50? That's a major reduction.
Yes. On the cost result within life, that is, you can say, it's still depending on the development we do. So it will fluctuate from quarter-to-quarter. So that's at least one of the explanations for the reason why this DKK 8 million here is still on the year. It's DKK 19 million. So it's a big improvement, what we have seen historically because we now have, you can say, a good -- that's a good size of the asset under management in the life company. But you can say we still have, you can say, some development efforts within our system that will fluctuate from quarter-to-quarter. So that's one of the explanations for that. Yes, it's true. I can't remember -- maybe you are right about the 220 to 230. But I think that when we said about the asset management company between -- it has been between 80 or 90 to 100, that has been fluctuating a little as well. So to take the life company now, it is around DKK 30 million we have taken off in expected gain on equities and investments. So if you take the -- around 200 and plus almost 100 and minus 30, it will be around to 250, 270 or something. But you can say -- and that's still the case. But we're also looking into, you can say, investments within our -- the systems and the platform. So that's the reason why a normalized result would be around 250. But let's see when we reach the yearly accounts, then we will come up with a little more detailed forecast for the life company.
But that's also new because last time, you said that was back in July that you had reached a steady state on the investment level in life -- in the life companies. Now you're saying that life investment should be higher.
I would say we have always -- we've not said it stabilized. I would say that it has not been stable. So we say that we are still investing in the life company. But it's true that we have, you can say, the depreciation, of course. That is more stable now because we have -- but we still have some additional investments to do in order to also have even newer products on. We have a totally new platform working, but we also need some investments in new products and so on. So that's the reason why it fluctuates a little. So it's not that stable yet. It's not like, you can say, a running level on the quarter-to-quarter. So that's the reason why this is structuring a level. We still expect it to be positive going forward. We also expect it to increase with the cost result.
Okay. Fair enough. I'm not quite sure I get the math, but okay. On the illness and accident and the rising inflation, the DKK 40 million, is it correctly understood that, that's a one-off time that you take this quarter on the premiums, and everything else equal, you would have had DKK 40 million higher premiums this quarter, which you wouldn't have done that? And then in Q4, we should not expect the same negative impact, everything else equal, is that correct?
That's correct. But you can say that it is depending if we experience that the inflation increases even more, then you could get, you can say, a new effect, right? But it's true that it's -- that when we look into the forecast for the combined ratio level of illness and accidents next year, then it's true then that has meant that we have taken DKK 40 million out of the premium here in Q3.
Our next question comes from the line of Derald Goh at Citigroup.
Just a couple of questions for me. First one is just around inflation and within property specifically. So I'm just keen to hear if the rates that you're pushing through is enough given the inflationary pressure that the market is seeing because, I think you had flagged like -- you're pushing through rates about 9% since the start of the year, and you're still expecting -- you're still pushing about 9% today, whereas obviously, it seems to so materially the costs have gone up quite a bit. So I'm just keen to hear if actually you're doing any more adjustments on that book there. And secondly, just on the non-life growth for next year, 4% to 5.5%, which is quite positive. Could you maybe quick that down a little in terms of the sources of it maybe by 2 business segments and also by premiums -- sorry, by prices and volume, please?
Let me start with the house thing. This year, we have, as you know, increased prices with an average about 9%. I would say that is, as we have seen at least, more than in line with the inflation this year, more than the inflation seen this year. It's true that we have seen materials in, for example, timber and steel and so on, have increased quite dramatically. But remember also, when we do claims -- when we do the claims, it's -- the ratio is around 15% in materials and 85% of salaries, when it's the other way around when you build in your house. So you can say that -- so inflation on material is not hurting as much as just the 100%, so which is only 15% of it. And you can say, the 9% we have seen at least together with the procurement efforts we have done, has been more than inflation this year. And we are looking into next year. We are still continuing traction but also doing the price increasing. We still have a number of customers to be warned about price increases. We will not guarantee it will be in the level of 9%, depending a little on the competitive situation as well. But I think for now, we have at least seen also -- with the price increases we have done on illness and accident also, you can say, we have done on salary insurances. Then I think that actually we have priced, you can say, at least in line with inflation, as we have experienced in the September and also now together with the procurement deals. But it will depend a little on inflation going forward. We have stated in the report, if we see over the longer term kind of phasing between 2% to 4%, but that, of course, is the truth with modifications because it's very dependent on the product line. But we will follow this. And we have also stated that we'll be pricing at least in line with inflation to keep up profitability. But I think it's important to say that we have other measures to doing this as well, the procurement and also our own, you can say, efficiency within the processes. But we'll still expect to do some price efforts also going forward, at least seen from now with the claims inflation. And then you asked about the growth, was it between the 4% to the 5.5%? I don't have it split up in product line, you can say. But one thing in the indexation, we have 2.5% indexation next year for a lot of the policies, and that's around 70% of the portfolio that gets around 1.8. Then we have workers' compensation, but we will not tell you the index we'll use because that is a competitive thing, at least for now, but it seems like in a decent level. And then, of course, we have our pricing efforts that we'll still continue also in house, but also on some of the other things we're doing. And then we have, of course, new customers as well. And also then the Nordea partnership is actually giving a good thing into -- a good deal into the growth as well. But I think actually, going forward, we still see a good traction on our agriculture and commercial division. They still have a good traction. Again, we are taking customers here on that. So we have a good relation between what we are giving away, what we are getting from other competitors. But they also see that actually that the growth in life also next year will be better, than we have seen this year because this year has also been -- it has been a little influenced by some triples, some portfolios from private to the SME division here. And we also had a little churn, you can say, on the housing product and so on. But I think actually, going forward, I think also think that private will also have a higher growth than we've seen this year, at least. And I think that the growth will more or less continue, maybe not as high as we've seen it this year because it also been influenced by this switch of portfolios. But I don't have more details yet on -- for -- at least for now on the different segments. I hope that's okay.
Yes. Maybe a quick follow-up, if that's fine. Just on the illness and accident in terms of the combined ratio at the 9-month stage, what are the improvements that you've seen so far? And are you confident in the your 0.5% benefit to the full year combined ratio?
I would say that we have not seen an improvement in the combined ratio of illness and accident in the first 9 months, actually. It's going the other way. Actually, we saw a bettering of the combined ratio in -- starting the year and then also Q1 and Q2. But this inflation has meant that the combined ratio is now also giving both a run-off loss, that's affecting the combined ratio and we're also seeing this about the unexpired risk that we have to put aside, but taking out of the premiums, the DKK 40 million that Jakob also mentioned. So we have not seen an improvement on the, you can say, the combined ratio on the illness and accident. actually it's deteriorating our combined ratio on the year with at least 2.5%. So it's just to say that if we deduct that, it will be an even better combined ratio for the non-life part.
Our next question comes from the line of Per Grønborg of SEB.
Two questions from my side. Let's start off with the illness and accident. You stated earlier that you we slightly expect deceleration of the profit level next year. Does this imply that you have no ambition of adjusting further on prices despite the quite strong pressure that is coming from the FSA to cope with this chronicle loss-making product?
And to answer that question, I can say that we have been in front of our competitors doing this. This has meant churn higher than what we have seen historically, at least. That's also the reason why we have minus 9% in growth this year. I would say that, yes, we have seen a deterioration due to this inflation. And that could, of course, lead that over time, but we have to raise prices even more. But as you correctly mentioned, the FSA is also saying that we should make more balance in this product. So yes, going forward, we will do price increases, but I think it's important that we also have a competitive situation here, and we have been front runner. And we also like to see that some of the competitors moving as well. And then that will hopefully give us some room as well to do some price increases again. But -- so yes, we're looking into it, but I think it's important to say that we're also looking at the overall profitability also together with the investment income and so on. So if we are just raising prices even more, the growth will just be even more negative, and then we will not earn that much on the -- as the management side. So it's a balance. But going forward, we will increase prices, but we need to work with the time as well.
It sounds like this is -- the next round of price increases more is a '23 effect than it's a '22 effect. Is that fair to say? And of course, I'd clearly you gave a credit that you are losing significantly less on your illness and accident compared to some of the bigger players are able to burn up money.
Yes. And that's true, and that's the reason why we are looking into it. I would not say that we couldn't do price increases next year, but it's true that they will not have full effect because we're not doing it for the 1st of January.
Then you have a Slide 13 on prior year gains. What message is it more specific that you're trying to send with Slide 13?
The run-off level?
Yes.
Okay. I think that has been there for the last couple of times. I think actually, it's not a new one here. Just to say, I think we've been challenged sometimes about the run-off level. And we thought it was important. Actually, I think it was 3 quarters ago or something that we mentioned that we have seen historically, this steady fall in risk premium and motor liability, and that has generated a lot of run-off profits. And the reason why we stated this, was that we saw that somewhat expected still run-off levels between 4% to 5%. And the message was just that we don't see that going forward. We don't know about the run-off level, but you can say the more systematic run-off gains we have had, we can see that now, for example, motor third-party liability has, you can say, stabilized, meaning that we'll not -- we cannot see that we'll get the same levels of run-off. But of course, you can say we will still work with the [indiscernible] technology and so on. That could, of course, still be run-off gains to be taken, but it was actually just to state that it would not be in the same level that we have seen historically where it was between, what, [ about 3.5% ], 4%, 5%. But it's been there for the last 3 times. So it's not a new statement.
Sometime's went big into this presentation and find things that might have been there for a long while. Can I just ask a clarifying question? You referred to Topdanmark's rate of return. Can you share with us what your rate of return is -- required rate of return is?
Rate of return.
Meaning that we are still even -- yes, it was fair to say that if we get a lower run-off, we will have to improve our profitability. But no, I cannot give you where we are now aiming for a combined ratio, excluding run-off between 86 to 89 for the next year, but that was what we have said. But as we also mentioned with the efficiency program when we talked about that, we are looking into improving our profitability going forward towards 2025. But I will not give you a number here because we are only, you can say, pointing for the next year. Sorry.
I hope that we could get your required rate of return, and we have something to compare to our own numbers.
Our next question comes from the line of Mads Thinggaard of ABG Sundal Collier.
I think number one is around your inflation outlook or you're addressing a 2% to 4% overall inflation level looking ahead. What are you actually building into your combined ratio guidance for 2022?
You can say -- and that is what we are building in because we are seeing that -- if you look into the different product lines, and that's -- you can also say that's what I said before. It's the truth of modifications, right? Because at the moment, inflation, for example, within motor is a little higher and also within building is a little higher, but we have also done price increases on motor, and we've also done price increases on building and house. So -- but just as I said, going forward, this is what we built in. But -- so if we -- that is what we're taking into consideration. But we have actually made into the guidance with 86 to 89. We have actually also put in some additional efforts on the next year for inflation. So -- but it's -- and that's actually more than the 2% to 4%, but we have actually put aside a little more for the next year. But the 2% to 4% was more like going forward in time -- in a longer time frame. But we have put aside a little more next year because we have seen that -- we still think that inflation will hit us at least in the beginning of the year. And then we think it will level more out also in terms of logistics and so on coming -- going forward. And we also already see now that in some of our building materials, we can already see that they are actually going down in price at the moment.
Okay. So just to be sure, I mean, in some areas, you have more than 4%...
Yes, 2% to 4% is you can say, but what we think in average for the headline going forward. And next year, we have build a little more into the -- between the 86 to 89 back, put a little more into it.
Okay. More than 4%, more than the midpoint.
A little more than the midpoint.
More than the midpoint. Okay. And I was also -- I mean in relation to inflation, I was wondering a bit about the automatic indexation. Is that -- I mean could you remind us what your indexation is this year?
This year, I think it was around 2%, 2.3% or something. And then again, it was 70% of the portfolio. So it was 70% of [indiscernible] of 2.3%, almost the same. That's a little high next year.
But shouldn't it go up next year?
It is 2.5% next year in the index.
Okay. So only a slight index increase is what you factor in?
And you can say the reason for that is that the index is -- I think it's -- the time -- when it's put into force, it only counts on the year. So if inflation will stay at the same level as now, I would expect that the indexation in 2023 will be higher. So it's not timing when you decide this index. It's not us deciding it. It's an index to use, but I think it's the timing of it. So that's the reason why we will expect it to be higher, but that will, if things stay the way we see now, then it will be higher in 2023.
Okay. Great. And then I will try to do just a little sneaky question. I think it was raised before but in a different way. When you guided about the 4% to 4.5% premium growth next year, how much is from new clients and sold products? And how much is from price increases in that guidance?
I cannot give you -- I will not maybe -- I cannot give you a full answer, but it's -- the indexation and price increases will be a good deal of it. And then you can say -- then you have a little tailwind again from the -- what we have taken out of the premium now due to unexplained risk as part of it. And then we have put in some, you can say, some good momentum on sales on, for example, Nordea and also on agriculture and the -- but the main part of it is also indexation and price increases. I can't give you detailed answer on that.
Next question comes from the line of Will Hardcastle at UBS.
Quick question from me, hopefully, just on the solvency. Just trying to understand what exactly has changed on the stress scenario from the profit margin deterioration. Is it the assumptions? And perhaps any color on here of what the major moves have been and how we should think about the risk of that going forward as well?
I think it's a good question. It is actually the model we use for the stressing of the profit margin, that we have worked with and maybe you can say better stress, not that we're working to get as high as possible, but it's not to say that we have improved the model. So I would say that going forward, this is the level we think that the product margin should be stressed, unless something else happens in the stress scenarios. That's the market risk and the churn risk is the most important things for the stress in the profit margin. That's the cyclical efforts as well as how much equity is going up and so on. But this is the level. But it's due to the fact that now it's a better level of stress that we use now.
Okay. And so it wasn't driven necessarily from market moves, and that's [ about ] you're thinking. It's just a -- you've decided to amend and make it more robust. Is that correct?
Yes. That's correct. It's not to do with the market effects. It's a model thing and making more robust, for sure.
Our next question comes from the line of [ Stefan ] at Berenberg.
This is [ Stefan ]. Can you please explain what will be the risk on [ water front ] I guess in the illness and accident book in the medium term, if wage inflation proceeds longer, both when it comes to the asset and liability side? I guess what will be the net impact on that? And the second question is on obviously solvency. How do you think about excess capital return this year?
I'm sorry, can you repeat the first question? I didn't get that. Sorry.
Yes. I guess if you can just explain a bit more what would be the risk in the medium term on the sort of longer tail books business, if you have inflation consisting above your expectations, I guess, both on the asset side and the revenue side, what will be the net impact on that?
Yes. You can say that's true that the inflation is not that nice, you can say, at least for -- in the beginning for the longer-tail business as worker compensation actually illness and accident. We also have -- what we're doing is that we are -- we're also using inflation swaps to trying to hedge this, but it's -- in Denmark, we don't -- it's not an efficient market, and it's an expensive market for doing inflation swaps. So -- but actually, if you look at the result this quarter, then inflation has gone up, but actually our inflation swap has actually performed quite well, meaning that we actually have positive run-off due to this. So of course, you can say claims -- claims will go up as inflation go up. But actually, you can say the hedging has actually performed even better this quarter within workers' compensation. So -- but we, of course, keep track on this, but we're looking into the hedging strategy. And of course, we're also looking to the pricing, of course. That's also the reason why I cannot say something about the indexation on the worker's compensation, for example. So that's one thing. The other thing, and if you look at the hedging within illness and accidents, we are doing it a little differently. We're also using inflation swaps there. They have not performed as good, meaning that we have a run-off loss there, on illness and accidents. But there's another truth to it is that some of the hedging of the illness and accident is also done by properties and index bonds. And as you know, the property has performed quite well, but they -- the result of that will end up in the investment results, where the inflation swaps will end up in the risk results. So it's a little unequal. So when we look at the illness and accident from a risk perspective, then we have a loss on -- because the swaps is not getting enough. But together with the properties actually is getting quite a fine, as you can say, hedging, but that's ending up in the investment results. So yes, there's a risk going forward with the inflation, if that keeps up. And then the tool is either to use more hedging, but that's -- we're looking into that because the market, as I said, is not that good for investment return in Denmark, and the other thing is, of course, pricing. But we are very well aware of that also, as you can see, that has affected this month's result. But the hedging on the illness and accident, actually look that you can find the good result on that, you can find that other places in the accounts. Hope that answers at least on the question.
And I think you had -- you have a question on solvency as well. Sorry.
Yes, performance of 243 in 9 months, obviously, how do you think about sort of returning [ this value ] to shareholders? I know you've got also a lot of Tier 2 capacity as well. So you can maybe frame how do you think about the 2, that will be great.
Yes. We've seen from a management point of view that we think we are well -- we are overcapitalized. We have a very fine solvency position. And as we also stated, yes, we have a possibility to take out more Tier 2 after we redeemed the DKK 850 million. So that's, of course, something we'll look into to optimize our capital. So our aim is, of course, to be -- to have a situation where we can put money back to the -- to our investors. But that a decision that, of course, will be taken by the Board. And I probably think that be taken in, together with the AGM, next March, I think it is. But we're working to -- we have worked this year to optimize our capital situation. I think that worked pretty well, the reason for the 243. And yes, we will also look into additional Tier 2 loans. So we will be having even better [indiscernible] situation. So we will have to return with that, but we see some good positives this year.
The next question comes from the line of Martin at Carnegie.
First question goes on your 2022 guidance. What is the net effect assumed in the efficiency program in -- for your guidance for next year? That will be my first question. Then the second question would be a little bit more specific on your excess capital position, I mean, addressing the, of course, the Tier 2 capacity, but also that your profit margin is still well below peers. Should we expect there is more to do on that front? Or this is sort of it for now?
Yes. In the guidance, we have not displayed exactly how much we have put into the 86 to 89. What we see, you can say, a larger positive net impact than we have had this year. And what we are saying this year is that the net effect is around DKK 70 million increased from the DKK 20 million, that we said at the beginning of the year because we saw that the effects were coming in faster. And next year, we have included higher amounts, but not specified yet. We will do a more thorough follow-up after the year or so. We will have a more follow-up on the efficiency program. So that's how I can answer that question.
But just before we move to the solvency, I guess the old mass was pretty clear about the concave nature in your efficiency program.
I still think that the effects will come. When we're saying the 500 gross efficiency gains was -- yielded towards 2025, we still think that it will be, as you say, concave, but it will be a higher amount of that coming in the first years and a small degree in the last years. So we still think that this is going up. But now we're talking about net effects, but we don't see that we will use -- we said at the beginning of the year that we will spend around DKK 100 million as an extra investment in the efficiency program. We haven't used to that. So the net effect of DKK 70 million is both due to our using less investment, but actually now also getting more out of the money. And we don't expect to use that much on investment next year. That's also why we think that the cost ratio also will go down next year. And you can say the effects will also go up. So it will be that, as we said before, concave, but we haven't said exactly how much will come next year, but we'll follow up more detail with the yearly results.
So if you take that answer and then look at the 86, which is the best possible outcome and your early explanation for -- that you basically had to be lucky to get to the 86, why is the -- given that there should be such a large concave, given you don't have to reuse DKK 200 million this year, why shouldn't the 86 be sort of a very reasonable scenario?
We are saying 86, 89 because we think it's a -- it could be a scenario, but it's just saying that some of the ambitions we have, we have to do very good also to achieve the 86 [ under such ] or overachieve on some parts. So we're not saying that we cannot reach the 86. And then on solvency, the profit margin in life, I don't think it's that different. The profit margin we use in life is around 2.5% now of the provisions. I think that is in line with some of our competitors. We know that there's one competitor using an even higher amount, but I think it's in line with the most competitors. So that's what we see when we look at it. And you can say in terms of solvency, we have said that our solvency between 170:190 would be a fine level of solvency ratio. And by using a lot of, you can say, profit margin, then you can say that we should be maybe in the higher end of the range. So -- but that's from our point of view from management. But it's the Board that will decide. But this does -- also from our side, that's a point of view, there's room for dispersing some excess capital here, which is also a policy to access the unnecessary capital.
But would it be reasonable to think that you guys were willing to go below 190 already at -- or in connection with the upcoming Annual General Meeting in this...?
I don't know whether the Board would think that this should be paid out in once or it should be paid out in a sequel, but at least I think that the Board will look at least -- look into what to do with the excess capital and also when we will continue working on optimizing the capital situation, as I mentioned before, with the Tier 2 and so on. But whether it will be 190 or below 190, I cannot give you a firm answer on that. That would be at the Board position.
Our next question comes from the line of Phil Ross at Mediobanca.
Lars, it's a question on the underlying claims trend, please. You reported, I think, 4.6 point improvement year-on-year in Q3 or, I guess, 5.4 depending on which number we take, if you look at claims trend for run-off large and weather -- obviously, both of those are good numbers. But in Q1 and Q2, the improvement year-on-year were a bit more muted. I think at 9-month stage, you're either 2 points or 3 points ahead on underlying claims and the claims trend, excluding other bits. So just thinking about the run rate going forward, sort of should we be looking at a 4- to 5-point increase for the quarter year-on-year? Or should we be more thinking about the 9 months, which is more of a 2- to 3-point year-on-year increase?
I think that the 2 -- the 9 months is probably a better bet here because, you can say, if we compare the Q3 last year -- if you remember, Q3 last year was terrible. That was when we also had -- there was a lot of headwinds against us there. And also, you can say, especially the house product really did not perform in the Q3 last year. So when you look at the Q3, there's a lot of things that is -- that's the biggest, biggest destination. So I think that it will be more wise to look at the Q3 -- Q1 to Q3, if you look at the improvements.
And our next question comes from the line of Faizan Lakhani from HSBC.
I just have a couple more. In the life business, can we expect any sort of one-off costs sort of fixing any of the IT systems? Are there anything that remaining on that front? And the second question on solvency. [indiscernible] say that you have a standard model for the life products. Is there an opportunity to maybe use an internal model? And could that be used another way of optimizing more capital there?
The first question on life -- was the question that could there come additional one-off costs on that? Was that the question, sorry?
Yes, that's correct.
That's not the assumption for now. It's just to say that what we're also saying it's a little volatile because there will be some -- we have some still mix and deliveries and some IT development on the system, but it's not that we expect bigger one-offs at the moment. So that's a note to that. Looking at the solvency in -- looking at an internal model within life, that we have looked into that. But I think that if you look at the size of the life company, even though we have a pretty fair share of the market, I think we're a little small to do an internal model. So it could, of course, be a way to improve the solvency even more, but we have looked into it at one stage, and we didn't -- at that stage, we didn't see that it was worth the cost of doing it because we didn't see that it could improve that much just from the expectation at least and also what the experience we got from working from other companies. But of course, going forward, also depending on the size of the company, then we could maybe look into that. But it's not that we have made the plan for that.
Just to allude a little bit more on the IT side in life. I mean the project on changing the core system has been finalized, and we are now depreciating the cost we have on our balance sheet. And what we have done so far is that additional enhancement is being done after it has been taken into use have been expensed. So clearly, it's a choice of what you do with further enhancements, whether you expense them or whether you capitalize and also depreciate those. But the choice made so far has been to expense it on an ongoing basis.
And we have one further question in the queue so far. That's from the line of Jakob Brink of Nordea.
One last question here. I think last quarter, it was mentioned that due to the strong solvency ratio, you could move forward the non-life investments into IT. Is that still the case? And if so, how much have you put into the expense ratio guidance next year prior to amortizations? And secondly, shouldn't -- if you move forward the investment, should be then also realize the synergies of the efficiency gains sooner than 2025?
We are accelerating the development of our new IT system within non-life. That is done, and that's also why we said that the depreciation level will be to put forward, that it will be the highest probably already in 2023. And so where we said it was from 2026 just before, I think, we said that. So -- but it will be the highest amount at least from the planning now in 2023. So that's maybe the answer to the first question. And the second question, can you repeat that?
No, I was just wondering if you have, since you gave this guidance of the DKK 500 million by 2025. You have told us that you will be moving forward the investments. I was just wondering if that would mean that the efficiency gains would also be moved forward.
But actually, I would say that no because the efficiency gains that we have communicated to the market has actually nothing to do with the gains we will hopefully achieve when getting a new system. So the efficiency gains is actually the things we're doing also in order to finance the building up new system. So actually, the efficiency gains from the new system has not been built and has not been put into any of the gross efficiency gains for the DKK 500 million yet. So that will be a new communication to the market when we're ready for that. So it's a no.
[Operator Instructions] And we've had one further question come through, that's from the line of Youdish Chicooree of Autonomous Research.
I've got just one question left, actually, and it's again on the topic of inflation. Just want to make sure I understand correctly your position. Basically, you're saying in motor and property, you feel well positioned to handle rising inflation, thanks to your fixed price procurement agreements. And longer term, you are pricing at least with expected claims inflation. However, the situation is quite different in illness and accident and workers' compensation where you think you're possibly more exposed to further increases. Is that correctly understood?
Yes. It's true that -- it's not only the procurement. We have actually also done price increase on motor and on the housing and building. So -- and yes, that's true there has been a high inflation there, and we have actually priced above that. So -- but assume that we have on illness and accident, we have seen that this inflation here has meant deterioration of the combined ratio. So that has deteriorated the combined ratio. And of course, that's an issue going forward. So -- but as I said before, it's a matter also of a little competitive situation because the illness and accident is not a stand-alone product. If it were that, of course, we just price it. But you can say, sometimes it's the entrant product to be able to get a pension scheme where we earn the money also on the investment income. So if you just price to get it to 100 in a combined ratio, then we'll be out of the market and we will not earn anything. So if it were that simple, we would, of course, do it, but we have to do this in a way that we can still be competitive to actually get the full pension scheme and also have, you can say, the result in life, as you have seen this year, is quite high and also due to higher asset under management and so on. But it's sure that at the moment, the inflation has -- we haven't priced illness and accident to get down to 100 and also including the new inflation. Then we need definitely to have even higher prices on illness and accident to be able to get to 100 in the combined ratio. And that's, of course, the aim going forward also seen from the FSA, the regulator's point of view, but it will take some time.
Right. So it doesn't sound like you're hopeful for your competitors to be feeling, [ to pay ] to an extent where they are more rational in how they're pricing illness and accident. That's on your near term expectation.
I won't comment about the competitors. I would just say that we haven't seen at least until now that -- we have at least been the front runners in price increases, but I think that it will come also due to the FSA making new rules for this. But I also know that some of the competitors have some longer duration pension schemes with price guarantees for many years. So what will they do with them? So I expect that prices will still be low at least in some part of the market for some time because due to these price guarantees that's been giving from some of the competitors to some of the customers. So -- but yes, I cannot talk for them. I would just comment that, of course, we will try to do a balance as we have actually had than most years within our own company, but it's hard on a competitive point of view. But still, if you look at the overall profitability of our life company, then still together with the deficit on illness and accident, it's still -- we still actually have profitability within life company. But we'll try to do it even better going forward. But yes, we have to respect the conversation as well.
[Operator Instructions] Okay. There's in no further questions on the line at this time. So I'll hand back to our speakers for the closing comments.
Yes. That's -- well then only be thank you for taking the time to attend this conference. And as you know, you're always welcome to reach out to Robin if you have any further questions. I wish you all the pleasant rest of the day. So see you next time. Bye.