Topdanmark A/S

CSE:TOP

Earnings Call Transcript 2019-Q4

[Lars Thykier, CFO & Member of the Executive Board]

Welcome to the presentation of Topdanmark's results for 2019. Profit for 2019 was DKK 1.547 billion, up from DKK 1.331 billion in 2018 and better than between DKK 1.3 billion and DKK 1.4 billion, which was assumed for 2019 in the Q3 report. The combined ratio was 83.7 compared to 83.6 in the same period last year. Premiums increased by 2.9% in non-life and by 9.8% in life. For 2019, the assumed combined ratio continues to be around 90, excluding runoff. The profit in the forecast model for 2020 is between DKK 950 million and DKK 1.050 billion, excluding runoff. Finally, the Board of Directors will recommend to the AGM a dividend of DKK 1.530 billion. This corresponds to a payout ratio of 98.9, a dividend per share of DKK 17 and a dividend yield of 5.4%. These are the main points of my presentation. Pretax earnings increased by DKK 285 million to DKK 1.987 billion. The typical non-life profit increased by DKK 35 million to DKK 1.534 billion. The increase is impacted by higher one-off and compared to 2018 by an improved claims trend in the SME and agriculture business. On the other hand, the result from illness and accident deteriorated by DKK 87 million. Furthermore, the yield curve used for discounting the reserves was lower compared to 2018, thus having a negative effect of DKK 90 million. The investment return in non-life increased by DKK 145 million to DKK 66 million. Investment return was, accounting-wise, impacted negatively by DKK 175 million owing to a lower volatility adjustment component, primarily as a consequence of a change in the method for calculation in Q1. Profit in life insurance increased by DKK 99 million to DKK 327 million due to a higher investment return and an improved risk result. The claims trend was 67.6 compared to 67.5 in 2018. Adjusted for run-off profits, weather-related claims, large-scale claims and other positions, including change of risk margin, the claims trend deteriorated by 0.9 percentage points to 71.1. The adjusted claims trend was mainly impacted by a negative trend in illness and accident and by the yield curve used for discounting the reserves being lower compared to 2018. Furthermore, the claims trend in the private segment was negatively impacted by many smaller water claims on houses due to a record-high level of rain. On the other hand, the adjusted claims trend was impacted by an improved claims trend on the SME segment. Claims increased by 2.9% in non-life. The premium growth was split between 1.1% increase in the private segment and a 5.0% increase in the SME segment. The premium growth in the private segment was negatively impacted by the termination of the distribution agreement with Danske Bank at the end of Q2, having a negative impact of 0.5 percentage point. We continue to assume a premium growth for 2020 at the same level as in 2019. As stated, the combined ratio was 83.7, including runoff in 2019, compared to 83.6 in 2018. For 2020, we continue to assume a combined ratio from around 90, excluding runoff, as stated in the Q3 report. Since the announcement of the Q3 report, the discounting has increased, representing a 0.7% improvement in the combined ratio for 2020. On the other hand, cost on investing in Topdanmark's digital transformation will be somewhat higher than previously assumed. Furthermore, the expected claims trend in illness and accident has deteriorated. The expected additional cost on the digital investments and the deterioration of the claims trend in illness and accident are expected to more or less even out the positive discounting effect of 0.7 percentage point. Consequently, the assumed combined ratio for 2020 remains unchanged at around 90, excluding runoff. Profit in life insurance increased by DKK 99 million to DKK 327 million due to a higher investment return and an improved result on insurance risk. For 2020, the assumed profit in life insurance is between DKK 140 million and DKK 170 million primarily influenced by lower assumed investment result. The life company has had a compound growth rate of 20.2% since 2012, growing the market share from 4% to around 10%. In 2019, premiums increased by 9.8%, split between a 14.7% growth in regular premiums and a 7.9% growth in single premiums. For 2020, we assume a growth in regular premiums of around 0%. Excluding life and adjusted for revaluation on return on non-life insurance provisions, investment return for the Topdanmark Group was DKK 179 million. This includes the result of Topdanmark's asset management company of DKK 116 million. Investment return was affected by the change in the method for calculating the VA component and market-based reduction in the VA component, which had a negative effect of DKK 175 million. The changes in the VA component is solely an accounting issue and has no impact on the cash flow in Topdanmark. Based on a number of assumptions described in the Q4 report, the assumed post-tax profit for 2020 is between DKK 950 million and DKK 1.050 billion excluding runoff, representing earnings per share of DKK 11.5. For 2019, the Board of Directors will recommend to the AGM a dividend payment of DKK 1.530 billion. The recommended dividend represents a payout ratio of 98.9 and a dividend yield of 5.4%. Thank you for taking the time to watch this presentation of Topdanmark's Q4 report. If you want to learn more about Topdanmark, you are welcome to contact me. Following the announcement of the Q4 results, we will host a number of investor meetings. Today, we'll be hosting a conference call at 3:30 CET. You will find more information on our roadshow schedule in the events calendar on our website. Thank you and goodbye.