Tryg A/S
CSE:TRYG
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Good morning, everybody. My name is Gianandrea Roberti. I'm Head of Investor Relations at Tryg. We published our Q2 results earlier on this morning. And I am here with me Morten Hubbe, our Group CEO; and Barbara Plucnar Jensen, Group CFO. Yes, with these few words, over to you, Mort.
Thank you, Gian, and warm welcome also from my side. We start on Slide 3 with the highlights of the second quarter. Be aware in this quarter, of course, that most of the numbers are so classic and only in a few selected investment lines. You can see data from RSA. We show on the left-hand side a pretax classic results of almost DKK 1.3 billion for the second quarter. And as planned, as previously communicated, we see an FX hedge with a negative impact of DKK 1.2 billion under investments in the quarter, and we see a consolidation of RSA Nordic only for 1 month's earnings and also under the investment line. Generally, we are very pleased to see a technical result, which is up almost 8% to DKK 1.144 billion, the result of a very good top line growth and improved underlying claims and the delivery of Alka synergies. If you look at the investments, again, the classic investment line is plus DKK 253 million, and this is then here we subtract the impact of the FX hedge and add the positive of 1 month of equity accounting, so 1 month of earnings from what we have acquired, including the 50% stake of Denmark. Then we announced a dividend not surprising of DKK 1.07 as guided for the quarter, resulting in a 175 solvency well in line with the previous communication of an expectation between 170 and 180. On Slide 4, we show the customer highlights. You may recall in Q1, we mentioned a new method for measuring customer satisfaction. We're very pleased to see that customer satisfaction improves further from 83% to 84%. And the advantage of the new method is that we can measure both individual touchpoints, for instance, buying insurance; and a full process from start to finish, for instance, claims handling. We do get significantly more responses with the new methodology. We get all touchpoints. And actually, there's quite a lot of variation. So for instance, beneath the 84%, we see that the single contact on the telephone in Private Denmark has a score of 94%, whereas a full process in Commercial Norway has a score of 74%. So this new methodology provides a ton of new data that would allow us to further improve customer satisfaction from a very high starting point. On Slide 5, we elaborate on the technical results. Very pleased that it increases almost 8% to DKK 1.144 billion in the quarter, of course, helped by higher premium and also the improved underlying claims. Really pleased to see that all business areas delivered a strong performance and particularly private and the commercial SME space. Corporate in Sweden continues to improve, but for us, it's really quite clear that the profitability initiatives in Corporate needs to continue. And on Slide 6, for the first time, we add information about the performance of the new acquired business, assuming only on Tryg in Sweden and Codan in Norway. Be aware that here we show both the half year numbers and the June month numbers. The June month numbers is, of course, what flows into the equity accounting under the investment line, together with half of Codan Denmark, together with investments. But actually, we thought we would add the half year figures because that actually gives a better flavor of the well-being of the businesses we've bought. So it will allow you to monitor the business performance better. And we're really pleased to see strong performance in the businesses we've bought in Sweden and Norway. Top line in Sweden and Norway growing around 3.3%. And then we see a very, very strong combined ratio in Trygg-Hansa Sweden of 76.4% for the 6-month numbers. And then a combined rate of Codan Norway of 88.2% for the half year. But bear in mind, of course, a smaller portfolio in Norway, which will be more volatile. But all in all, it means that the acquired businesses produced an insurance technical result of DKK 1.1 billion for the first 6 months. Again, remember that only June is ours, but it tells you the story of very, very strong businesses with very strong performance. And of course, there are 0 synergies included in those numbers for the first 6 months. On Slide 7, we give a brief update on COVID. Hopefully, we won't be doing that for much longer, but the total impact for the quarter is positive mainly due to lower level of travel claims. We also see a couple of other areas like break-ins that has had lower claims. Then we have seen also somewhat higher level of motor claims, both due to the growth in private business, but also we see, for instance, in Q2 that after a period where people have not repaired their windscreens and they've waited during COVID, we see an unusual jump upwards in, for instance, glass claims and motor in the quarter, but actually will then start to normalize, we believe, the rest of the year. On Slide 8, we elaborate on shareholders' return. As I mentioned, we're paying out DKK 1.07 per share in the quarter, as guided. And as guided, this will be the pattern for all quarters this year. And despite the transition year that 2021 is, and with the transaction costs and with the restructuring costs, FX hedges, et cetera, as communicated, we expect the technical results to roughly double by 2024. And we expect the dividends to follow roughly the same trajectory. And of course, we look forward to a significant increase in our dividends. And then following the announcement of the sale of Codan Denmark, we announced DKK 5 billion buyback and which will start next year in connection with the actual closing of that transaction. And it shows our strong commitment to returning capital and to improve the ROI of the deal further. On Slide 9, we show the current status of the Alka synergies. I'm very pleased to see continued strong delivery according to our plan. We see Q2 synergies of DKK 35 million, bringing the half year up to DKK 63 million, and bringing the total up to DKK 239 million of the DKK 300 million announced, and we're very confident that we'll deliver the full DKK 300 million by the year-end. And we have learned a lot and the methodology and the process and the responsible is proving very important also in the RSA process. And if we move on to Slide 11, we elaborate on the composition of the top line growth. Total growth is 4.7% in Q2, and that is 7.1% before bonus and premium rebates. Very pleased to see that our highest growth comes from the business areas with the highest profitability. We see that private, as the most profitable area, has a growth of 5% after bonus and premium rebates and 8.6% before bonus and premium rebates. You can see that the difference between the 2 numbers are -- is higher than usual. We see some spillover impact of bonus and premium rebates that actually belong to Q1, that actually impacts Q2 negatively. We're trying to avoid this, but with the fast closing of the quarter, not all partner contracts have been finalized when we do the closing of the quarter. So it's probably not possible to fully avoid spillover from quarter-to-quarter. And when the results are very strong, of course, there is a strong sharing of that with the partners as well. And then we're quite pleased to see that sales and the market is starting to normalize. We have seen a period where, particularly in Denmark, the sale of new cars with the car dealers has been lower than normal. Actually 40% of our inbound calls is new cars needing an insurance, and that has been subdued due to corona, but now normalizing. And then, of course, the purchase of travel insurance has been subdued. But from May to June, the sale of travel insurance is actually up 43%, pointing to a world that is gradually normalizing. In Commercial, we see a growth of 8.1%, really positive, also an area with strong profitability. In Denmark, this is largely organic growth. In Norway, it is largely price increases. And then you see a roughly flat growth in Corporate. Growth is not a target in Corporate, stronger earnings is. So we're working hard with high price increases and that is then offset by churn of the business resulting in a flat development. Sweden, growth of 2.4%, which is primarily price increases. On Slide 12, we show the development in average prices and clearly staying up to date with price changes to match inflation is extremely important. Barbara will elaborate further on that. This is a very, very high area of focus. And in recent years, we've managed to improve and professionalize our methodology. So I would say that, today, we are above average in the insurance industry. Clearly, Alka has helped us in that process with methodology and data. And we can see that particularly to Trygg-Hansa and Sweden can further help us improve this area. In general, our price increases are following a healthy pattern. But bear in mind, in Q2 last year, there was a price drop in house insurance prices for a large partner in Norway, still impacting the Q2 numbers this year. And then on Slide 13, we show the positive trend in retention levels. We've seen some quarters where private lines had a slight drop in Denmark because of the churn of Nordea customers. The retention in Denmark is improving in Q2, and we're seeing that the churn of Nordea customers is more than offset by the new Danske customers, but of course, they don't count in the retention numbers. We're pleased that in Private Norway, we have a continued increase in retention. And also on commercial retention, we see stability in Norway and an improvement of 0.2 percentage points in Denmark. So over to you, Barbara.
Thank you very much, Morten. If you turn to Slide 15, you can see the development in the underlying claims ratio. For Group, this improved by 80 basis points in the quarter, while it was unchanged from Private. Please note that the underlying claims ratio doesn't include the impact from COVID-19 claims. Price adjustments and the claims excellence program, including claims synergies related to Alka, are the main drivers behind the improvement. Also bear in mind that the growth in Private has a positive impact on Group figures, even with a flat development in the underlying claims ratio for Private as Private is the most profitable area in Tryg. The high growth in the Private business had, as expected, a modest negative impact on the underlying claims ratio as new customers, in general, have a frequency approximately 3% higher than the portfolio in general. We're very satisfied that the initiatives in our corporate areas and Commercial Norway supports the improved underlying claims ratio development for the group of 0.8, which is similar to the previous quarter. On Slide 16, we address a key topic at the moment that Morten also just mentioned, namely claims inflation. As mentioned before, Tryg benefits from having worked with procurement for many years. Our procurement agreements as well as our diligent work with our specialists key areas of the claims handling team makes it possible for Tryg not to be hit by claims inflation in the same way as many of our competitors. As you can see on the top right corner of this slide, we have a very strong internal focus on coordinating and collaborating across the whole value chain around our claims in order to help us understand the drivers of the claims development and prepare price adjustments when needed. Please turn to Slide 17. Life in the Nordics is still impacted by COVID-19, albeit significantly less than what we have seen in previous quarters. In Q2 '21, the total impact from COVID-19 was DKK 32 million, primarily related to property and travel insurance. Lower motor frequencies also had a positive impact, although to a less degree than what we have seen in previous quarters. On Slide 18, we take a look at large claims, weather claims and runoff. The level of large claims was DKK 105 million in the second quarter, which was higher compared to the same quarter last year, but was still lower than a normalized level that we expect around DKK 140 million. Weather claims were slightly higher in the second quarter compared to second quarter of '20, with DKK 57 million in this year compared to DKK 49 million last year, and closer to normal levels as Q2 in general is the quarter with the lowest level of weather claims. The discounting impact in the second quarter was somewhat higher than the same period prior year due to increased interest rate levels. And finally, the runoff result was somewhat higher with 4% in the second quarter this year compared to 3.6% in the second quarter last year, very much in line with the communication of runoff between 3% to 5% for the year. On Slide 19, we take a look at the expense ratio. In Q2, this was 14.1%, slightly lower than the comparable period last year. We want to invest in our business, and by a continuous focus on finding more efficient distribution channels, we can, to a large degree, finance these IT investments. In the second quarter, a slightly higher number of employees is driven by, among other things, the higher business volume and also resources needed to deliver development in IT and digitalization. Please turn to Slide 21. As usual, you can see the split of Tryg stand-alone investment assets where we are reporting total invested assets of approximately DKK 44.6 billion, split between a free portfolio of DKK 12.6 billion and a match portfolio of around DKK 32 billion. For more details on the investment income in itself, I want you to turn to Slide 22. Here, you can see more details on the Tryg's stand-alone investment results. In the second quarter, financial markets developed positively, and Tryg reported good returns from equities, properties and corporate bonds. The overall return on the free portfolio was 2.5%, and the match portfolio was also slightly positive, while other financial income and expenses included slightly higher interest expenses and some quarterly periodization. The chosen asset allocation has not changed much for a while. As Morten mentioned earlier, it is important to note that in this quarter, the investment result was impacted by the negative charge of approximately DKK 1.2 billion related to the currency hedge put in place to hedge the proceeds for the RSA acquisition and also a positive amount of DKK 181 million from the 1-month result of RSA Scandinavia since we closed the deal on the 1st of June. Adding these 3 items, overall, the P&L reported investment income, therefore, lands at a negative DKK 757 million, but bear in mind, it's very much driven by the one-off items. I will also use the opportunity to remind you that until demerger, the earnings from RSA Scandinavia will be included in our investment income as it is taken in as equity accounting. After demerger, the results will be fully consolidated into our ordinary reporting. Please turn to Slide 23 on solvency. The solvency ratio, as reported, was a record high 899 at the end of Q1, but obviously, a more meaningful 180 when we adjust for the rights issue. At the end of Q2, we are reporting 175, right in the middle of our previous guidance for end Q2 of between 170 to 180. We now expect a full year '21 solvency ratio at approximately 180, slightly higher than what we previously guided. Both own funds and the SCR are now included in -- now include the RSA Scandinavia assets. The main movements in the own funds are shown in this chart, and it's fairly clear that, as expected, the inclusion of the RSA assets is the main drag on the owned funds of approximately DKK 28 billion. Furthermore, own funds are impacted by the increased eligible debt and the quarterly results and dividends. The SCR is also impacted by the inclusion of Codan SCR, which is close to DKK 4.8 billion, meaning that the SCR, for the entire group, is now equal to approximately DKK 9.9 billion. Finally, it is important to remember that Tryg's solvency ratio mostly remains a function of profits and dividends, and hence, the underlying development should be stable. On Slide 24, we're showing the additional Tier 1 and Tier 2 capacity after the inclusion of the new assets. Please remember that Group SCR will decrease by approximately DKK 1 billion once Codan Denmark is out of the picture, meaning that the Tier 2 capacity will be approximately DKK 500 million lower compared to what is shown here.On Slide 25, we are showing the main components of our SCR and the main components of the market risk in the SCR. It should not be a surprise that equities, due to the high capital charge and spread risk due to a high proportion of covered bonds in our asset mix, shows the highest market risk charge. On Slide 26, you see the historical development of the solvency ratio. And per end Q2, the solvency ratio is, as mentioned, 175. For the year-end '21, we expect this to be around 180. And in a year where we have closed a very large transaction with many movements, we believe this to be a comfortable level. On Slide 27, we show the solvency sensitivities as usual, which are broadly unchanged compared to what you have seen before. The only change this time is that the figures are pro forma, including the new assets, and hence, the new starting point is, of course, the reported solvency ratio of 175%. The highest sensitivity remains unchanged to be spread risk as covered bonds are, by far, the largest asset class. This concludes my part of the presentation, and I will hand back to Morten for our latest outlook.
Thank you, Barbara. And rounding off Slide 28, we show the outlook, where Monday, this week, 5th of July, we increased our guidance for the technical result for the year. So from previously guidance of DKK 3.3 billion to DKK 3.7 billion to a new guidance of DKK 3.5 billion to DKK 3.8 billion. So very pleased with that. And today, we update our investment guidance for the full year from previously DKK 350 million to DKK 500 million to now DKK 450 million to DKK 550 million. And also a negative adjustment to guidance, other income and cost actually related to the acquisition from minus DKK 150 million to DKK 200 million to now minus DKK 200 million to DKK 300 million. And you will also notice a few modest adjustments to the overall cost of RSA, but leaving the total unchanged at DKK 4.4 billion. And then hopefully, you've all seen the Capital Markets Day date and an announcement of that for the 16th of November this year, clearly hoping that we will all meet in person. That is the plan. And then finally, on Page 29, we finish with our favorite quote from John D. Roger, "Really pleased that we have an outlook for a very strong technical result by 2024 and a dividend trajectory, which will follow that path." I'm also very pleased that when we look at what we have acquired Trygg-Hansa, Sweden and Codan Norway, stand-alone, they made 1 point -- more than DKK 1.1 billion of technical results for the first 6 months of this year before any synergies. And while only June is ours, then clearly, that gives us yet another set of data showing very strong quality in the businesses we have acquired. We look forward to the integration, and we look forward to adding the synergies between now and 2024. I think with that, we'll turn it over to your questions.
[Operator Instructions] The first question comes from the line of Jakob Brink from Nordea.
First question on solvency and the capital gain related to the sale of Codan Denmark. Could you maybe start telling us how should we look at this, i.e., the capital gain compared to the sales price, please? So what is it booked at in your accounts?
Yes. I think, as a starting point, the sale of Codan doesn't change any of our numbers at this point in time that will all be impacting the numbers once the deal is closed, Jakob. And at that point, we will give you further details in terms of exactly how it will impact. But for now, it doesn't change, you can say, the numbers that we're looking at.
I understand that, but you did disclose the DKK 5 billion expected share buyback next year after the sale has happened. So I'm just trying to reconcile that. So if we take consensus have a DKK 4 billion ordinary dividend for next year and roughly DKK 4 billion net profit, if you adjust for amortization of intangibles, so that evens out. So still 180% solvency at the end of next year. Then a DKK 1 billion reduction in SCR that adds 20 percentage points around DKK 2 billion. So I'm just wondering how you get to the last DKK 3 billion? I would have thought it was somewhat more?
I think what you should remember, Jakob, is that we are seeing approximately DKK 5 billion for the share because obviously, when you do a trade and a transaction like what we have done with Codan, there is a number of outstanding items relating to opening balances, et cetera, et cetera. And we don't have, you can say, the full visibility on that. And that's why we are guiding approximately DKK 5 billion, but that will be confirmed when we are a little further in the process. So I'm sorry, I won't be able to give you more specific guidance. I think your logic is right. Those are the drivers that will be impacting the solvency. But I think it's also fair to say that there are still a number of outstanding items that we don't have visibility on, that we will give you more details on when we come closer to these items.
I guess you can say, Jakob, that is a completely fair question. It's also quite unusual to announce such a large buyback 10 months or whatever the number is in advance. And separating the legal entities in the Nordics is one thing that has not been finalized yet. There are also changes in accounting principles from their regime to our regime. And of course, we have plans and visibility for all of that, but there are details and moving parts that will change some of the numbers before we get to the final outcome. And that's why we've chosen to give an estimate, and we will give you more information when we get closer.
That's fair enough. And just 1 follow-up, though. So would -- if I ask this way, would you prefer -- now I assume that you would still have 180% solvency ratio, but would you maybe prefer slightly higher and then postpone some of the payout for the 2 following years in the forecast period? Or is it simply a matter of all those details?
I like your question, Jakob. I think we are very committed to returning capital to our investors. But as you also understand, there is a lot of complexity still involved in this. So I think you should revert to, you can say, our position of the history and the track record we have of returning capital to our shareholders.
I think generally, Jakob, you should get the takeaway that it is caution and a lot of moving parts rather than a desire to sit on capital.
Of course. Then the next question is a bit more on the detail, but just looking at consensus estimates for investment income when things get normalized by '23 and '24, it's around DKK 400 million. But I would have thought that, let's say, that you have a DKK 9 billion SCR when Codan Denmark has been divested, a solvency ratio of around 10%, that's owned funds of around DKK 16 billion times the normal investment return of around 1.5%. At least that's what people used to have times the own funds of free portfolio. That gives only around DKK 250 million. Is there something that has changed that would mean that we should not use total owned funds as a proxy for the free portfolio? Or is there something else I'm missing?
No. You should still look at the old principles applying. I think what I would say about the investment result is, obviously, we don't get, you can say, our hands on the investment assets until the time of demerger. And you can say we need to adjust a little bit on the investment profile of the assets that we take over, and that will obviously be something that we try to do as fast possible, but it will take some time to make sure that the portfolio we take over, which is, in total, around DKK 24 billion, of which DKK 6 billion is the free portfolio that needs to be adjusted for. So again, the principles totally agree to that, more details to come a little later, Jakob.
Okay. And my last question is on other income and expenses in Tryg stand-alone. If I calculate backwards from the table you gave us on 1 of the first pages, it was DKK 113 million negative this quarter. I know it's not a big deviation, but it's usually around DKK 70 million, DKK 80 million. Is there any reason for this pickup? And should it be that new level going forward? Or is it still the DKK 70 million, DKK 80 million per quarter in Tryg stand-alone?
Tryg stand-alone, you should see the ordinary level. If you remember in Q2, we repaid an existing loan and raise new capital and so forth. So you had some other things flowing through that you wouldn't see in an ordinary quarter. So I would look back at the ordinary levels in future quarters.
It's not a new level. We will revert to the old level.
The next question comes from the line of Asbjørn Mørk from Danske Bank.
From my side as well. First question basically on the underlying claims ratio improvement, the 80 basis points in Q2. I'm fully aware, of course, that the Alka synergies are somewhat higher this year than the previous years. But at the same time, Private has been unchanged. So maybe a little bit of wording on, first of all, on the private side. Should we expect an actual deterioration here going forward considering the claims inflation environment that we have at the moment and that kicking in? I know you say that you have the situation roughly under control. But I guess all things equal, there is a headwind to some extent. And then, of course, if not, if you're actually able to improve Private going forward, I guess we should look at the 80 basis points as the new 50 basis points that you used to guide or any comments around that would be highly valuable?
Thank you, Asbjørn. You're right that Private has been unchanged. And we still believe that the areas where we will want to improve underlying the most, it's actually Corporate and, to some extent, Commercial, particularly Commercial Norway. And we see largely that when we can deliver fairly high top line growth in Private, with very attractive combined ratios, then the value creation of that for shareholders is a very high. On your question on whether we expect underlying for Private to deteriorate going forward because of inflation, I think that's a very relevant question. The short answer is, no, we don't expect that. I think we will even see some periods where we have a positive underlying in Private, not changing the pattern that we believe Commercial and Corporate should be the main drivers of improvement, but there will be some periods with improvement in Private as well. Can you then just add that on top of the level of Commercial and Corporate? Not necessarily because whichever way we turn it, Commercial and Corporate is always a little bit more volatile than Private. So no, Private will not deteriorate. Yes, Private will have a slight positive in periods, but watch out that you can just add that on top.
But is it fair to assume that if Private goes from basically flat to, let's say, 20, 30 basis points improvement over time, admittedly, yes, Corporate and Commercial will not improve as much as they do right now, but what wouldn't the net effect then be largely neutral, hence, your 80 basis points should be rather sustainable going forward?
Well, I don't think we have a plan that the current level should deteriorate. So I think your line of thinking that there is stability and that makes sense. And then over time, the composition will vary, and honestly, the number will not be fixed per quarter either. But the logic that over time we'll continue to do this underlying improvement, makes sense. That is our logic as well. And then, of course, we're working hard to make sure that we stay at or ahead of the inflation curve, but that is the outlook we have, and that is what we're doing.
In that context, Barbara mentioned that the claims ratio is around 3 percentage points higher for new customers. I guess your churn is just below 10%. So is it fair to assume that the new customer inflow has around 30 basis points negative impact at the moment, and hence, your underlying is -- on the existing customer basis is 30 basis points better than what we see here?
I think if you look at the new customers and the 3%, that's basically what we look at in the first couple of years in the customer's journey with us or the customer lifetime value. So again, if you look at the growth we have experienced, it sort of comes in various steps where you have a gradual inflow of new customer portfolios. If you think, for instance, that the Norwegian customer base, that has been impacted by we took over NITO, which has given us a very strong inflow, then after some time, you have seen an increase in customers and business from the car channel Enter. Last year, we also saw inflow by a number of customers that were previously with the 2 companies that had their licenses withdrawn. So you see a gradual inflow. So it's not that you see an inflow day 1, and then after a certain time, you can say now that's over, and that has a certain impact on the remaining part. Bear in mind that just this year, we have had an inflow of almost 7,000 customers in the Norwegian Private business. So it is something where, obviously, you have to see it in a slightly longer perspective than just on a fixed time with the impact that you highlight there.
I think basically, your calculation logic is right, Asbjørn. And then bear in mind that you can calculate the difference in the normal inflow outflow if there's a net-net growth of 0 customers. That I think was your 30 basis point calculation. And of course, what you should add to that is if the growth is higher, so there's a net-net growth, which would then change your calculation slightly. And I guess both this year and the year before, we have seen a net-net growth in Private, both in Denmark and in Norway. So right logic, but I think you will need to add a little bit for the net-net growth.
All right. Fair enough. On Slide 16, you have this very detailed slide on claims inflation and how you monitor it. Could you give us a little bit more flavor on you saying all things equal how has it, on a group level -- how has the inflation environment that we are in at the moment, how is that impacting your total claims ratio, all things equal, if you don't change pricing? So what kind of basis point effect are we talking about?
A very good question and very relevant given what we see right now. I would more look at what are the areas that are specifically impacted by the claims inflation we see right now. That is very much in the property area, which accounts for about 18% of our claims business. And there, you should also look at what is the claims inflation when it comes to the raw material, and what is the claims inflation when it comes to the craftsman. So there are various dynamics underneath. So I think in general, it is a question of where do we see the claims coming in, and how does that then feed through. But given the structure we have, which is very much the message in our presentation today, we are not as impacted by a certain spike in 1 month or in a half year like you would see other companies be because, first of all, we have longer tenors on the agreements that we have with our suppliers and the craftsman that we work with. And then also, you can say, if you look at the duration of our insurances, then you would also see that it is relatively short tailed. So by adjusting prices, we will be able to take into account the potential inflation that is impacting certain areas.
But it's fair to say also that we've left behind completely the logic of working with an overall inflation assumption. So now it is an extremely detailed bottom-up build, not only by country and by line of business, but by components within that line of business whether that is a fixed compensation or it is salary compensation and inflation or it's material inflation, et cetera, et cetera. So it is becoming a very, very large hierarchy of data with a lot of variation from product to product.
All right. Fair enough. So it seems like the risk, at the moment, seems isolated to 3%, 4% of your total claims. Is that the ballpark?
Yes, I think that's the fair conclusion.
Yes. That's the right summary, Asbjørn.
All right. Fair enough. And then on the Trygg-Hansa and the Codan slide that you have, just really 1 question on Norway. I guess when I look at Sweden, there's a lot of reasons why the combined ratio is slightly higher versus the first half of last year. And I don't know how many details you have at the moment on the Norwegian business, but the improvement there. Can you give us a little bit of flavor there? Is this sort of the run rate we should expect from Codan Norway ahead? Is that DKK 100 million in technical profits? Or how should we look at that?
Well, I think if you look at the historical data, and obviously, we don't have full access to that data yet, so you will hopefully understand that we don't have the insight or level of detail to that data yet. But what is quite clear when you look at the historical data is that Trygg-Hansa Sweden has been very stable with a very, very healthy combined ratio. When you look at Codan Denmark, the combined ratio has been significantly higher in longer periods around 100 and even slightly above 100%, particularly with a very high cost ratio. So when we see the improved -- or the delta between last year and this year for Codan Norway, 1 driver is that there were more larger claims in the same period last year and a more normalized level of large claims this year. The second is that we are now in a period where, for several years, they've worked with price increases, which are starting sort of pull down the run rate. So I would say that what they saw last year is clearly above what is the future run rate. I would hesitate to say that what we see now is a new run rate. We're quite confident that when we get the synergies through and we get the cost ratio level down, we will approach an even stronger run rate than this. But stand-alone, I think that the stability is not really there and that the combined ratio we see in the first half in Codan Norway is a little bit too flattering to just be assumed as a new run rate. So watch out a little bit even though the numbers are small.
All right. Very clear. My final question on Slide #12 on the insurance pricing in Norway, I'm just a bit surprised to see the house insurance pricing, again, flat looking into the, I guess, potential claims inflation we have already talked about. So shouldn't we expect that to trend upwards? I know there's competition, but still? And of course, looking into the motor insurance, where you see quite significant repricing in Norway. So obviously, you are getting some repricing through on the private side there is supposed. Any comments on the house insurance?
Yes. So the short answer is yes. We do expect that to trend upwards. And the only reason why house in Norway is not trending upwards is this one rather large adjustment actually a year ago in house prices for 1 very, very large partner, the largest one we have. And then the earned premium impact of that adjustment for that single partner is what keeps the total flat in house Norway. So First of all, I believe that subsequently, that partner's pricing on house will go upwards again. And we are seeing in all of the other areas of our portfolio in house Norway prices are going up. So it is really a large isolated impact in the portfolio where all of the other customers are seeing increases, and this partner will see increases as well. So your expectation for the future is correct.
All right. I thought that was already in the base figures by now. But okay.
No, it takes 12 months, we're in it. So it has a quite long impact.
The next question comes from the line of Per Grønborg from SEB.
Just a single question from me. Great that we get some numbers on the acquired business. Can you elaborate a bit on the development in Sweden, like you were able to do in Norway? Thinking about the underlying numbers one-off last [indiscernible] course.
Yes, we can do that. So I think it's positive to see, if you start on the top line, that growth is 3.3%. I think if we look at the past 5 years, the average has been closer to 2%. So 3.3% is closer to being the market growth. So I think that's one important area, and we see that both in the Private and in the Commercial SME space. Then we've seen a number of good months in the first half. But we also saw a period with private lines in Sweden where weather claims were significantly higher than planned. So actually, if you take the individual months and actually also the impact on the full year, we can see the underlying being very positive both in Private lines and in Commercial SME in Sweden. And then we could see a negative -- a clear negative on weather impact, particularly in private lines in Trygg-Hansa Sweden. So it's a little bit of combination of very strong underlying and then quite negative on weather. And then I think fairly stable on large claims in general, so mainly weather playing a role.
So weather has been pretty bad in the first half in year and Sweden this year?
In some areas, yes.
Yes. There's...
Around Stockholm to be specific, they have had some, what do you call a rainfalls and cloudbursts. Yes.
Rainfalls and cloudbursts.
Yes. I believe that was in the late spring.
It was late Spring. Okay.
And of course, Per, this is the summary for the 6 months and therefore, not spit into the quarters as normal, right. So that's why we're summarizing also the spring.
What about the prior year gain in Sweden? Any impact from those? Or are they at unchanged level? They were not last year. That has nothing to do with Sweden, forget about that comment. Any changes to prior year gains in Sweden?
No. I think, Per, in all fairness, we have had the access to the business for 1 month. And next quarter, we will have significantly more insights because there, we have had the business in full. But I think we'll leave it at those more generic comments and as Morten is saying, focusing on the half year and just giving us a very good comfort that what we expected in terms of the business and the business result is actually what we see overall. And then I think it's positive to see that also after being interacting with our new colleagues in Sweden and Norway, we can see that there is a whole lot of areas that we will be working on together going forward.
But generally, Per, we haven't seen big moving parts on prior year's gains or losses. I think the main volatile part we've seen are these weather claims in the spring around Stockholm.
Okay. That explains why the numbers are trending in the wrong direction, which do not be that concerned about that. Just 1 final question, amortization of client intangibles, it looks like you won't start amortizing that before you consolidate the RSA business line by line. Is that correctly understood?
Correct. Remember that right now, we have them as -- we're taking them in via equity accounting. They are an associated investment and not until demerger where we have a full consolidation line by line.
Next question comes from the line of Will Hardcastle from UBS.
Just following up on the claim inflation questions. I guess, could you provide us with few more tangible examples perhaps of how you've achieved this significantly lower average claims cost in Motor. And how much of that advantage do you think is sustainable? And perhaps a follow-on to that is, do you think some of the smaller players perhaps are finding this a bigger challenge and that's making you increasingly competitive? Is that a fair comment?
Yes. I think that's absolutely a fair comment. I think we have been prioritizing this with our procurement team and our claims team for a number of years now. So we have built strong competencies in the area. It is something that require that you are well equipped also with technical experts in certain areas, both in order to challenge and make sure that you negotiate the right terms and deals with the supply chain. But I think what we have demonstrated in the last couple of years, and exactly like you see in the example with the claims cost for Motor, then it is something where we believe that we are in a good position. I definitely believe that it is something that all our peers are also looking very much into because it is something where, in particular, in select areas, like property that we have talked about today, it does have an impact, and it does impact competition in terms of the results and so forth. But we will focus on, you can say, ensuring that our business is as strong as possible and as much as possible in control in the area.
Because we've noticed that even some of our larger competitors have been trying and have been stealing a few of our staff in this area. So I believe that's probably because they are good, and our methodology is better than the industry. I think, longer term, we'll see that the top sort of 3, 4 players will become professional at this. And then exactly, as you put it, the smaller players will struggle. And that is part of, I think, the scale advantage that will allow the bigger players to perform in this area and make it more challenging to be competitive as a small player.
The next question comes from the line of Martin Gregers Birk from Carnegie.
Two questions from my side. The first 1 on Norway, where I believe you book a technical result of DKK 388 million. I guess that's the highest technical results I have -- I can I can remember at least. What's happening there? And then coming back to your claims cost inflation slides, when we talk about price hikes, can you put any elasticities on how much are you actually able to raise prices without seeing any notable churn?
Well, if we take the first question first, Martin, I think that, we've seen -- I think if you put up -- if you look at the data series in a longer time horizon, clearly, there is a bigger difference between the summer quarters in Norway and the winter courses in Norway, and we've seen Denmark. And if you look at the total combined ratio for Norway as a country in Q2, we're seeing a combined ratio of just around DKK 79 million. So clearly, very strong quarter. For Norway, it should be a strong quarter given that it's Q2, but we're also seeing the fact that Commercial Norway is starting to contribute more. We're seeing that Corporate Norway is starting to contribute more, and we see less volatility on large claims. So it's a combination of underlying improvement in the summer quarter and then less large claims in the quarter. So hopefully, we'll be seeing more quarters that are good in Norway going forward, but probably still more volatility, particularly between the seasonal quarters. I think on the pricing and elasticity, it's a little bit easier to see the elasticity question in a private and SME context, where you largely see that as long as you're not above 5% of price differences, the reaction is very, very limited. When you move to Corporate, it does, to a large extent, also depend on what the rest of the market does. And I think what we're seeing at the moment is, to a larger and larger extent, that competitors, particularly in Norway, are increasing prices as well. we've see in Denmark a little bit more of a mixed picture in terms of competitors pricing, but also there, we're starting to see a tendency of competitors increasing prices. So we've seen -- we've seen examples of price increases of more than 25%, 30% of Corporate where the customers stay. But we've also seen price increases of 7%, 8%, where the customer leaves. So I wouldn't say that there's a sort of statistically clear pattern of elasticity on pricing in Corporate. And that's probably why we need to continue standing firm that we do the price increases necessary, and we accept whatever consequence we'll see on the top line. But of course, it is helpful that competitors are following suit, particularly in Norway and starting to see the same in Denmark.
The next question comes from the line of Youdish Chicooree from Autonomous.
I've got 3 questions, please. The first one, sorry to go back again on this, it's on claims inflation. You have -- clearly, you have procurement agreements that protect you again is spiking claim inflation. But considering these agreements will come up for renewal, is there a risk of a large adjustment in the coming year? And should you not be adjusting your prices today? So that's my first question. The second 1 is on claims frequency and coronavirus-related restrictions. I was just wondering, have you seen a material change in frequency trends as some of the restrictions have been eased? And what are your expectations going forward? And then finally, a question on the Swedish business, your own Swedish business. I mean the results seems -- I mean, they were down quite significantly year-on-year, and part of that seems driven by runoff. So could you just give us some color on what's driving this, please?
Yes. I think if we start with the claims inflation, Youdish, I think when it comes to the tenors of the agreement, I think it's important to understand that this is not just something that benefits us. It actually also benefits the suppliers that we are working with. Because by having a counterpart like us when it comes to the claims handling, it also means that they have a more stable inflow of work activity and so forth, which is stabilizing their own businesses. So it is not something where you should see this only has a benefit for us in terms of better pricing so we should see an increase, but it is actually also benefiting the counterparts that we are working with in the various areas. And hence, because you have that mutual , you can say, interest in having those agreements in place, it is also something where we don't foresee that there will be a sudden large spike related to the agreement when also renegotiating them.
So I guess it's fair to say, Youdish, that don't expect sudden spikes, but we do ourselves expect that some of them will have increases, and we have built those assumptions into the price increases we are doing and have been doing for a while. So I think we completely agree with your logic, but we don't expect big spikes.
Got it.
When it comes to the frequencies, I would say, related to COVID, what we have seen in the last quarter is very much building on the trends that we saw in the second quarter, where you start seeing, you can say, an increase in areas like health and dental insurance and so forth. But also where we have a catch-up related to glass repairs in the Motor segment, which is increasing the number of frequencies there in this particular quarter, but we see that as a backlog that we are addressing right now. Overall, we see that you can say the car claims, outside the glass repairs as mentioned, they would typically follow the increased volume that we have in the area. Where we have seen an increase as well and whether that is COVID-related or not is within pets. I think everyone in the Nordics has been an interest in getting cats and dogs. So first of all, we have seen an increased number of policies. But it's also an area where we see a slight increase or actually quite an interesting increase in the level of claims on pets. But so far, it is still a very small part of our business. In general, I think you should expect, which you can also see on the COVID-19 impact that we are getting back to more normalized levels what we assess to be the COVID impact in the quarter is around DKK 32 million now. And I would expect that to gradually decrease further going forward unless we see certain new third waves or whatever might happen over the course of the summer. Last question was around Sweden?
Yes.
And the runoffs. I think, again, that is something where some of the areas where you have the runoff is related to the Motor area, where you have seen a slightly different development, which has supported the business in this particular quarter. I think, when looking ahead, yes, I wouldn't sort of guide that this is a new level as such.
The final question comes from Mads Thinggaard from ABG.
I just have 2 small questions left. And the first 1 is on the bonus and premium discounts. Of course, I realize it's not a negative thing that it's growing from DKK 150 million last year to DKK 279 million in Q2 this year. But could you help a bit with what you expect for the remaining part of the year here? Will it come down in Q3 and Q4? Or what should we expect here?
I think, as such, we don't guide on the bonus premiums. I think, again, you should look at where does it impact. Probably the majority is related to the Private business. And again, we have seen a very strong performance somewhat also helped in the first quarter by COVID-19, somewhat less in the second quarter, which is supporting the performance there. And how that will look in the coming quarter depends on, you can say whether we will see any major impact again. But the -- yes.
I think the current run rate is a little bit higher than usual and the spillover is a little bit higher than usual, but it is generally a reflection of strong performance in Private, as you put it, Barbara. So in periods where we delivered strong performance in Private, we will see an elevated level of premium discounts, but the current level is a little bit high. I think we'll have a little bit higher level also in the next couple of quarters. So -- but again, reflecting a positive underlying trend. Personally, I think it's a bit confusing that, accounting-wise, you need to subtract a -- what is, in a sense, sharing some of the profits comes up as a deduction in top line is a challenging principle. And that's why we try to give data on both before and after so you can monitor what is the actual growth that the machine is delivering and then what is after subtraction of what is essentially profit sharing.
Yes. Yes. And thanks for giving that information. And then just a more high-level question now I think Birk was asking about, I mean, perhaps bit conservative buyback guidance for -- or indication for next year. Do you have any thoughts about normal buybacks? I mean I know you love your Rockefeller quote. But I mean, could you -- are you entirely against having a part of your normal distribution as buybacks? Or how do you see that?
I think, clearly, our view is that a high level of returning capital to shareholders is extremely important for us. And we see that, that is extremely important for our shareholders and for the value creation and for the discipline of how we run the business. I think for -- as such, for us, it's not very important, whether it is dividends or buybacks, but we get a clear signal from most of our shareholders that the dividend is preferred. And that's why we use dividend as the typical route, and we expect to continue to do that. If, over time, investor sentiment changes, and the preference for the split between dividends and buyback changes, then we will listen to our shareholders and be perfectly willing to change that. But as of now, the signals we're getting from our shareholders is a very clear preference for dividends.
We have no further questions, so I will pass back for any closing comments.
Yes. This is Gianandrea, again. I will just thank you all for all the very good questions. And as usual, Peter and I remain around if you have more, and we will wish you all a great summer at this point. Thank you.
Thank you.
Thank you.
Thank you for attending. You may now disconnect your lines.