Tryg A/S
CSE:TRYG
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Tryg A/S
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Good morning, everybody. My name is Gianandrea Roberti. I'm Head of Investor Relations of Tryg. We published our Q2 results earlier today, and I have here with me Morten Hubbe, Group CEO; Barbara Plucnar Jensen, Group CFO; and Johan Kirstein Brammer, Group CEO. With these few words, over to you, Morten.
Thank you, Gian, and good morning to all of you. Very pleased to publish for the first time a full set of consolidated figures for Codan Norway and Trygg-Hansa Sweden in this quarter. You see that we reported a strong technical result of DKK 1.9 billion. It is actually up 21% compared to pro forma numbers of DKK 1,567 million. And bear in mind that what we reported in Q2 last year was DKK 1.144 billion technical result. But we thought it made little sense to compare to that number this year around, so we created a set of technical pro forma figures, basically showing the numbers for Q2 '21, if we have been consolidating the full business also last year.
So by comparison, we are up 21% compared to the pro forma numbers last year, which is really, really strong. If we look at the main positive drivers, it's, of course, a strong top line growth, improved operating performance, the RSA synergies starting to kick in, and a higher interest rate level, which will increase, of course, both the technical result through discounting the liabilities and the technical interest. We reported a combined ratio of 79.7 in Q2. We've seen underlying claims improvement of 80 basis points for the group, while we see also a modest deterioration of 0.2 in the Private segment.
Main drivers behind that being good organic growth, but also we see a clear spike in travel claims after COVID, which impacts the underlying development in Private. Investment result of minus DKK 878 million in Q2. Of course, we've seen one of the most challenging quarters for financial markets in recent history. All equity indices are sharply down, credit spreads have widened, interest rates have moved suddenly up and virtually all asset classes provide negative returns. Now important to bear in mind that Tryg marks all asset classes to market, which is different to most European insurance peers, which means that the market noise is reflected fully in our P&L.
We reported solvency of 195, which is, of course, at the lower end of our range announced at the CMD, but very satisfactory despite unusual volatility in financial markets. We paid dividend for the quarter of DKK 1.56, or some 45% higher year-on-year, which, of course, clearly indicates a strong dividend journey ahead of us.
If we turn to Slide 4, we show customer highlights. And in Q2, we continue to see improved customer satisfaction. This goal is quite high, so we need to work harder and harder to improve it further, but we scored 85 compared to 84 in Q2 last year. We see lots of underlying movements, significant uplift in the customer satisfaction in Claims Denmark. We have improved our processes and our service levels and timing, in particular, the building claims in Denmark, improving the customer satisfaction. We've also worked with different initiatives to make the claims more understanding, calling customers, explaining better.
For instance, when we reject a claim explaining with human words why that is the case, which improves also the customer satisfaction. Also very positive to see a strong development in customer set in Commercial Norway, where more speedy processes towards the customers is one of the drivers.
If we turn to Slide 5, we show a split of the group technical result. As I mentioned, in total, DKK 1.9 billion, the highest technical result in quarter ever by Tryg, up 21% compared to the pro forma number of DKK 1.567 billion. We see growth in integral driven by all 3 main business segments.
And as I mentioned, driven both by the strong top line development, improved underlying claims for the group, the RSA synergies that Johan will comment on later, and the higher interest rates, reducing claims through higher discounting.
Now bear in mind that we are now organized only in 3 business segments: Private lines, Commercial lines and Corporate lines. And those are the 3 divisions that we will show going forward. If you want to monitor to Trygg-Hansa results in isolation, I think the best proxy you could look at is actually the country gap that you can see in the notes, where Trygg-Hansa would be some 80% of the top line in the Swedish numbers.
I think with that, I'll turn it over to you, Johan.
Thanks a lot, Morten, and I will start by turning to Page 6, where we are double clicking on the synergies as per Q2. So in 2021, we delivered synergies in total of DKK 63 million, slightly above the defined target of DKK 60 million. In Q2 2022, we realized synergies from the RSA acquisition of DKK 92 million, bringing the accumulated synergies year-to-date for 2022 to DKK 142 million. In this initial part of the synergy delivery track, we are seeing primarily cost synergies. For Q2, these were approximately 2/3 of the total. We therefore remain confident of the DKK 900 million synergy target set out for 2024 as well as with the targets of DKK 350 million in 2022 and DKK 650 million in 2023.
And if we turn to Page 7, we're looking into shareholders' remuneration. Tryg is paying a Q2 dividend per share of DKK 1.56, bringing the first half dividend per share to DKK 3.11. The Q2 dividend per share is up 45% compared to Q2 2021. We're naturally happy to see the progress on the dividend path following the sharp increase in insurance earnings from the RSA acquisition. We remain a dividend stock, and we are very focused on achieving the DKK 17 billion to DKK 19 billion capital return, targeted between 2022 and 2024, as communicated on our Capital Market Day in November. This will, as communicated, be conducted through a mixture of ordinary dividends and buybacks.
And with that, I will turn to the next section on premiums and portfolio and Page 9. Top line growth was reported 6.8% compared to the pro forma numbers and 6% adjusted for bonus premium rebates, driven by growth in Private and Commercial segments. Corporate did have a reported growth, but that was only due to technical issues primarily related to the reclassification between Commercial and Corporate. Private is the most profitable area, and therefore, we are very satisfied with the growth in this segment of reported 6.8%, supported by healthy growth in all 3 countries.
Commercial had a growth of 6.5%, which was a combination of organic growth in Denmark, with a particularly strong growth in the small Commercial segment in line with our communication at the CMD in November. And in Norway, the growth for Commercial was driven by price increases for especially larger Commercial customers, whereas in Sweden, we also saw a healthy growth for the Commercial business.
Corporate showed a positive growth of 7.6% and was impacted by profitability initiatives in all countries. However, please note that the number is also somewhat inflated, because some of the transfer business from Codan Norway was placed in Commercial Norway and subsequently reclassified into Corporate Norway. Excluding this transfer, the total growth for Corporate was slightly negative.
Turning to Page 10, on pricing. Adjusting prices in accordance with inflation is very important, especially in times like these. In periods with high inflation in the price of materials, Tryg has been able to mitigate this through strong procurement agreements and adjustment of prices. In Q2, this year, we continue to see some inflation impact, especially for house and building, but also for motor and therefore, we continue to adjust prices accordingly.
Turning to Page 11 on customer retention. Customer focus is extremely important and customers' view of Tryg is best monitored through the retention rates. In this particular quarter, we are very pleased to see continued strong retention rates for all business areas. For Private Denmark, we are very pleased to see a strong development in the retention rate of 90.7%. We are satisfied that we continue to have a net positive impact when looking at Nordea and Danske Bank portfolios in total due to very strong sales to Danske Bank.
In Private Sweden, the development was more or less flat. In Private Norway, we are very satisfied that we continue to see a high retention level even with the implementation of price adjustments.
Turning to Commercial. For Commercial Denmark, we saw a flat development, while we in Sweden saw a continued improving trend. In Norway, we saw a positive development even in a period where we've been working very much with price adjustments.
And with that, I'll turn it over to you, Barbara, on claims and expenses.
Thank you very much, Johan. Please turn to Slide 13 for input on the underlying claims ratio. The underlying claims ratio for the group improved by 80 basis points, while it deteriorated slightly by 20 basis points for the Private segment. The group development was primarily driven by continued profitability initiatives in Commercial and especially in the Corporate segment, as mentioned. The development in the Private segment is in this quarter impacted by the continued strong growth, which hampers profitability in the first period, but also by an adverse development in travel insurance.
In Q2, we have seen larger average claims in travel insurance and also more cancellations related to changes in COVID-19 restrictions in a number of countries. We continue to expect the group underlying claims ratio to improve in 2022 and onwards.
On Slide 14, we have some new information regarding large and weather claims. Following the inclusion of Codan Norway and Trygg-Hansa after the demerger, we're disclosing the updated levels of large and weather claims on an annual basis. The annual guidance for both is DKK 800 million, with a quarterly split remaining unchanged. In Q2 '22, large claims were slightly higher than the new guidance around DKK 200 million per quarter, and all 3 countries were impacted. Weather claims in the quarter amounted to DKK 86 million, which on the contrary is slightly lower than the guidance for this quarter, even when bearing in mind that Q2 normally is the quarter in the year with the lowest level of weather claims.
In the last 6 months, interest rates have moved upwards after a [indiscernible] level for many years. This is impacting our technical result as Tryg is fully discounting the claims reserves.
Please turn to Slide 15 for the expense ratio details. Again, following the demerger, Trygg-Hansa and Codan Norway have been fully integrated and hence, you see the number of FTEs increased accordingly. The expense ratio was 13.9% and in line with the target of around 14%. The expense level benefited somewhat from the synergies, but as previously communicated, we invest in business-related initiatives, particularly in the Swedish business and in general in IT across all countries.
In the next session, we will take a look at our investment and capital. At the time of demerger, all RSA assets are now under management of the investment team in Tryg.
On Slide 17, you can see a few characteristics of the assets i.e., that the match portfolio now is close to DKK 51 billion and the free portfolio has a total size of approximately DKK 18 billion. These numbers will remain broadly stable going forward. The asset mix back in both the free and the match portfolio is largely unchanged, and we will continue to mark-to-market as is required according to Danish accounting standards.
Now please turn to Slide 18. When reporting our Q1 numbers earlier in the year, we showed the expected path to aligning the new assets to the Tryg standard, which, at that time, was expected to take place during the coming quarters. I'm happy to be able to confirm that we've been able to accelerate the conversion of the assets from RSA, so we already, during Q2, have a profile aligned with to Tryg's risk profile, and this applies to both the match and the free portfolio.
On Slide 19, we show more details on the actual performance of the investment portfolio. As you all know, Q2 has been a very challenging quarter when it comes to the development in the financial markets. Geopolitical tensions remain high. Inflation is increasing sharply in the Western world to levels that we have not seen for almost 4 decades, and central banks are rapidly increasing rates to fight this development. Markets have been extremely volatile throughout the quarter and all asset classes, apart from property, have reported negative returns.
Despite the low-risk profile, the total investment result ended at a negative DKK 878 million. Tryg's equity portfolio was down by 14%, credit spreads have widened and interest rates have moved sharply upwards. The match portfolio, which now stands at DKK 51 billion was primarily hit by the widening Corporate bond spreads.
This time, we have also added a new slide, Slide 20, with more disclosures on our property portfolio, which accounts for approximately 24% of the free portfolio. As you can see, approximately 20% of the total investments in property is direct investments, while 80% is investments in property funds. The portfolio is well diversified, both with respect to geography as well as sector.
On Slide 21, we have details on our solvency. At the end of Q2, we report a Solvency ratio of 195 after a quarter characterized by turbulent capital markets. Our Own Funds have primarily been impacted by the reported net profit, the dividend and the inclusion of the deferred tax and security funds coming from the Trygg-Hansa business. The SCR has been positively impacted by the sale of Codan Denmark, exactly like we previously disclosed, but now also by the fact that the SCR related to Codan Norway and Trygg-Hansa is taken into Tryg's partial internal model. [indiscernible] including Q1, we were using a Level 2 consolidation.
Going forward, we expect the Own Funds movement to be driven by profits and dividends, while the SCR should broadly remain stable with the exception of large movements in equity markets or changes in the asset mix.
Please turn to Slide 22 for a quick glance on our capital structure. We will not spend much time on this slide, as you have seen it before. It shows an overview of the real Tier 1 and Tier 2 capacity now as we have finally taken in the new assets, both in the Own Funds and the SCR. However, currently, we have no plans to issue more Tier 1 or Tier 2 instruments.
On Slide 23, we show the building blocks of our SCR and also the building blocks of the market risk module of the SCR. Please note that the capital charge on equities is now relatively low, following a big drop in equity markets and an adjustment in the dampener mechanism. Equities would have attracted an approximately DKK 250 million higher capital charge at the end of Q1, assuming an unchanged exposure.
Slide 24 shows the historical development of the solvency ratio, which should be very familiar. As mentioned previously, we are reporting a solvency ratio of 195 at the end of Q2, which we consider to be a highly satisfactory level for the start of our new journey with Codan Norway and Trygg-Hansa as an integrated part of the group.
On Slide 25, you see the solvency ratio sensitivities. In an environment that we're currently experiencing, it's important to highlight that the sensitivities to capital market shocks remain low. The biggest sensitivity remains to spread risk, and this should, given the split of our investments and hence the large proportion of covered bonds, not be surprising.
I would now like to hand back to you, Morten, for a few important remarks.
Thank you, Barbara. Getting close to the end of our presentation, we notice a few things on Slide 26, things that are important to remember this year. First of all, Q2 this year is the first time we've started consolidating the new business, which also means we'll be booking quarterly approximately DKK 225 million in intangibles amortization. There's no news on this. And it, of course, relates to the RSA customer relations. It will be booked under other income and costs. And of course, bear in mind that this amortization is a noncash item. So we'll have no impact on Tryg's dividend capacity.
Also bear in mind that we're booking the vast majority of our restructuring and integration costs in this year. We'll come back with more precision on the expected full year '22 amount, and that will also be booked under other income and costs. As mentioned, clearly, the last 2 quarters have been very challenging on financial markets. And despite that, we're able to report a solvency ratio at 195. That is a pretty satisfactory level and a very good place to start our new journey going forward.
And then on Slide 27, we basically reiterate our financial target debt at the Capital Markets Day in London in November. We reiterate our target for technical result of DKK 7 billion to DKK 7.4 billion in '24, including, of course, DKK 900 million of synergies from the acquisition of Trygg-Hansa and Codan Norway. And we've set our new roof target at or above 25%. As you mentioned, Johan will distribute ordinary dividends and extraordinary buybacks in the range of DKK 17 billion to DKK 19 billion in the period. So a very attractive results and dividend journey ahead of us.
And that leads to Slide 28, where we end the presentation, as always, with our favorite quote from John D. Rockefeller.
And with that, we are ready to take your questions.
[Operator Instructions] Our first question comes from the line of Asbjørn Mørk from Danske Bank.
Congratulations with the strong set of numbers this morning. A couple of questions from my side, if I may, starting on the top line and the underlying claims ratio development. So if you could sort of look at the growth -- the pro forma premium growth in Q2, quite strong growth. Could you sort of split that up into repricing and new sales? And just if I got it wrong, if you look at your comments on the Commercial and Corporate premiums, adjusting for the Codan customer transfer, is it then correct that Commercial growth would have been 11-ish percent year-over-year? And is that new sales mainly? Or how much is repricing there? That will be the first question.
I think it's important when we look at 6.8% of top line growth to say that we always monitor the split between price component, number of customers' component, and number of products per customer component. The price component is the largest, but what we have managed to do this first 6 months is that we have managed to push up our number of products per customer further, particularly when we've had a lower set of leads from new car sales, which is dramatically down. The business has had to focus on significantly more sales of additional products to existing customers.
And then we have seen also an increase in number of customers in all 3 countries. But the order of magnitude is price increases is the largest, second is number of products increasing, and this number of customers increasing. And then you're right that the growth in Commercial is very high. It is a combination of price increases, particularly in property that are quite sizable and quite significant. And then we see a strong development in the sort of 0 to 9 employees segment, both in the Danish Commercial business, but also in the Swedish Trygg-Hansa business where small is developing really well. Online is performing, but also our direct call center channels are performing with high growth. If you bear in mind, at the CMD, we did have a target -- we do have a target of increasing our number of smaller SME customers further. It's fair to say that Trygg-Hansa has given us stronger tools to grow in this SME segment.
If I can just add to questions point around whether we are understating the growth in Commercial, you are, in fact, right, that since we are somewhat overstating the growth in Corporate, we are also understating the growth in Commercial. So you are, in fact, right that if you went back to the reclassifications we've seen between Corporate and Commercial, we would have seen higher growth in Commercial this quarter also.
Of around 11%?
I don't have the exact number, but it would bring you close to that number, yes.
Okay. Then the underlying claims ratio development -- is the 80 basis points. Can you just elaborate a bit on how was the underlying development in Commercial and Corporate, I fully acknowledge that 20 bps deterioration in the Private. So I guess, there should be some very nice developments in the 2 other segments. And then maybe just on the Private, the 20 basis points you alluded to travel insurance, and I guess travel season hasn't really started in Q2. So how much of an impact should we expect in Q3?
I understood that you're not covering expenses related to carriers not being on strike, et cetera, but there might be some secondary effects from that. So any comments you can give on that? And then maybe also on the Trygg-Hansa and the Codan Norway business. I hope you said more than that Trygg-Hansa is a big part of the Swedish book. But could you just elaborate a bit on the big assets you bought last year? How is the underlying development in the Norwegian and the Swedish business in the Q2, please?
If I start with the travel claim and then maybe you can follow up on the underlying in general. I think when you look at the Private lines and the travel, it is very volatile in the sense that it had a normal level before COVID, and it went down during COVID and now up again. You're right that Q2 is not particularly a large travel season. Nevertheless, we've had 30,000 customer claims in Q2 on travel. By comparison, that number was 10,000 in Q2 last year. And what seems to be going on is that people have saved up more money for the longer and more exotic trips after COVID.
So people go to the U.S., they go to Thailand. They get ill, they need treatment, which you pay for in private hospitals and then some of them need to be transported back to the Scandinavian countries again, which is expensive. So we see an expense, which is roughly DKK 30 million higher year-on-year in travel alone. So that's a fairly sizable number. And I guess, going forward, we would think that, that trend would continue. We don't see that we are the ones covering that the flights are not flying. So that's not a bigger worry of ours, but the trend of traveling further away at more exotic, more expensive trips seems to be one that is continuing. So back to you, Barbara.
Yes. So regarding your question on the underlying and the development in Corporate and Commercial, I think what we have been working with in the last many quarters with profitability initiatives, both around price increases, but also around the risk selection is what you see coming through the numbers now, predominantly or to a large extent, in the Corporate segment that is really contributing well. But I said also in the larger Commercial segment, you see exactly the same development.
And then maybe if I should say a few words to your last question around the performance of Trygg-Hansa and Codan Norway. As Morten also mentioned, it's not going to be possible to track these assets going forward. But I think it's fair to share a few thoughts on how they are performing at the moment. We saw a very strong Q1 for Trygg-Hansa. We reported that in detail. Now you'll have to find it in the note on Page 34 of our report, how the asset is performing. But if you look at the Private lines in Trygg-Hansa, they're doing very well, and the growth momentum that we saw in Q1 is continuing. On the commercial book of Trygg-Hansa, we are seeing also very strong retention levels and good inflow of customers aligned with the Tryg corporate strategy also.
And for Codan Norway. I guess the most important point here is they are going through a migration plan, migrating the customers into the book of Tryg Norway at the moment and that migration is going very well. So I think overarchingly, the assets acquired are performing as expected, and we don't see any trend breaks as of now at all.
And you can add just that, Asbjørn, on the factual side, Sweden in total, which is, of course, both 80% Trygg-Hansa and some 20% old Moderna. But Sweden in total is doing a combined ratio of 77.2%, which is, of course, extremely strong level. And within that, we see a flat development in the underlying claims, but very, very strong performance.
Okay. Fair enough. Final question from my side, and I can move back in the queue. Just on inflation, in general, one of the things you were out saying this morning as well that you do see inflation and there is a need to reprice. And I guess if you look at the latest development in material prices in the construction sector where [indiscernible] left to do, et cetera, et cetera. It seems like there might be at least in some areas where the worst is behind us. So any comments on inflation and how you see the sort of the latest trends. I guess, you are a big purchaser of both materials and [indiscernible] in general. So it would be nice to hear your thoughts on this.
Yes, of course. I think inflation is, to some extent, very simple and to some extent, more complicated at the moment. I think very simple in the sense that we have zero doubt that we will offset inflation through procurement and working with our repair companies and through price increases. That is the only prudent and responsible way to react, and that is what we do, and we have zero doubt on that. We've been adjusting prices for quite a while to match inflation. So we're in a good place in terms of being at the right point compared to the curve. But at the same time, of course, we see more volatility every month at the moment.
I think we saw just the other day that Danish inflation saw the largest jump in 38 years with 8.2% in June. We see that building materials are some 8%, 8.3%, 8.5% higher. In some areas, we believe it's significantly more than that. We see that with the Tryg building and procurement programs, we can pull that down to 6%. Some areas a bit more, some areas less. We see Sweden has been behind Denmark and Norway on inflation, but is now starting to creep up as well. And also, it's fair to say that the house and property has been the main driver so far. So that's why we've done the majority of our price increases so far. But we also do see now that motor parts is increasing the price. The latest statistics of some 8%, 8.5% more expensive motor parts.
Glass windows for motor 9%, 9.3% up, but we do still see areas where the severity of motor claims is down. So net-net, the development in motor is less of a challenge, but -- so we're doing price adjustments in all the areas where we see that is necessary. That is the only prudent way to do it. Of course, the risk is that as predictability on inflation is more difficult at the moment, we could see a bit more quarterly volatility of when the price increases hit, in which quarters and when the inflation hits in which quarters. Over time, we have zero doubt that we will neutralize that inflation, and then we will have a positive from the interest rates that are higher, but from quarter-to-quarter, the volatility really is quite unprecedented.
So we shouldn't be surprised if we see small changes to the volatility, net-net underlying in some quarters. And that shouldn't be surprising, and it shouldn't be a bigger problem either. It really is quite unprecedented.
The next question comes from the line of Jakob Brink from Nordea.
Just to get a few numbers on my model now after including Trygg-Hansa lease. So I guess it's a bit hard to separate efficiency gains from synergies going forward. So the roughly 80 basis points underlying improvement in the claims ratio we have seen in recent quarters, how should we think about that going forward?
I think, Jakob, it's a fair point to look at efficiencies and synergies. It is something where you can say it will be slightly blurred going forward. But as a starting point, we always work on having a strong and sustainable performance. And hence, I would say, you should continue to see something in the lines of what we have been delivering. But again, given some of the uncertain points that we have just been discussing with inflation, et cetera, we are, of course, not guiding a specific number and target on the underlying.
I guess if I take the part of your synergies on Trygg-Hansa that relates to something that would end up in the claims ratio, it's around DKK 360 million as the procurement and claims. And then maybe some of the Commercial will indirectly hit the claims ratio as well. So that's around 1% plus on the combined ratio or 1% of premiums over 2.5 years. So that's 40 basis points roughly per year of support. But then the old trick, is there any reason why that would slow down in sort of optimization apart from inflation?
I think just to echo what you're saying, I think the way you're looking at it is about right. The procurement and claims part will provide impact on the claims ratio. The Commercial synergies will somewhat indirectly do it through addressing the top and the bottom line. They will somehow impact it. And I don't -- so your impacts are roughly right. And I think there's no reason to see why the rest of the classic business should deteriorate.
You're exactly right. We have no plans to stop the organic improvement process of the underlying. It will vary from quarter-to-quarter, but the ambition level is unchanged. And then in addition, of course, you have synergies. I think so far, the synergies, of course, still are fairly small on the claims side. But I think as they become materially larger, we will try to give you some more information about which of the impacts are driven by more organic improvements to the underlying and which are driven by the synergies impacting claims, because they will fall into the same KPI to some extent. So we'll try to give you some guidance on that as we move on and the synergies numbers grow larger.
And then just to ask a few small ones here. On runoff gains, now 3.7%. It has been at that level a few quarters in the past as well, but not that many. Is this the new level, including the Trygg-Hansa claims research experience? Or is this just -- or could it just as well have been higher?
I would say that this is very much in line with the guidance that we have always given, Jakob. We have sort of guided to a 3% to 5% level. Right now, it may be slightly higher when looking at also some of the spillover from COVID, et cetera, and the reserving in that context, but it's not unusual. And I would say it's very much in line with where we would expect the runoff to be.
And then on the technical interest, was DKK 24 million, DKK 22 million, is that -- given where interest rates are now, is that the level we should expect going forward? Or is there something else going on this quarter?
No. I think that's a fair assumption you make there.
But at the same time, Jakob, I guess. So we have no knowledge of anything different to what we see this quarter. At the same time, I guess, volatility on the various interest rate curves in the various countries haven't exactly stopped yet. So we're not at a plateau or at a stable level yet. So I think we still expect some volatility, but no actual knowledge about the different number than what you see in Q2.
Okay. On interest rates, just continuing on that, but the impact on discounting on the combined ratio, how much would there be an additional support in Q3 if interest rates were flat from the end of June? I'm just thinking, I know you're using the end month -- end month curve through the quarter. So how much that you sort of -- how much positive spillover would you have into Q3?
I would say, I've not been doing the calculation in terms of spillover into the quarter, Jakob. I think, usually we have a look at how is the business in general, impacted by moving interest rates. And there, you can say that overall, for the group, in all matters, we're also taking into consideration the impact on the investments and the discounting and so forth, we say that it's approximately DKK 500 million a year. So I think, again, that is probably what I would be using in my models that I can hear that you are updating. So again, a little bit dependent on what is happening with rates but this is a good proxy in terms of how our business is impacted overall by changes in the interest.
Okay. And last question from my side for now on investment income. If I look at your free portfolio now, then equities makes up 20%, which, I guess, is a fairly large compared to where it has been some time historically. Also, of course, as we all know, it's been quite bad market now for half a year. So around half of your -- half of the technical profit so far this year has been lost in investment income. I know it could bounce back. We all hope that. But I'm just wondering, is this really the level of investment risk you want going forward given your sort of stable investment case as technical profits and stable dividends and everything?
I think if you look at our overall portfolio of DKK 70 billion and the investment profile that we have applied, we're quite happy with that. Remember, we are now looking at a portfolio, which is significantly higher than in previous quarters. So we moved overall from the DKK 43 billion to now around DKK 70 billion. And out of this, you have just below DKK 20 billion being in the free portfolio, in this quarter, DKK 18 billion. Looking at the equity portfolio, that is around 20% overall. So you look at a number of DKK 3.45 billion of the overall portfolio, which is not significant. And if you then also look at the profile of the investments we have on equities, we are actually pretty happy with that.
What you have seen in this quarter and also at the time of the breakout of COVID, our extraordinary moves in the equity markets. But you can also see in general that all asset classes are down. So looking in the longer run, we're quite happy with the asset allocation. It is diversified, and we believe it supports the low-risk profile that we are looking for. Obviously, we are reviewing it from time to time, but we believe long term that it has a profile overall that we're quite satisfied with and that we will continue with going forward.
If I just may follow up on that, sorry. But if you do the return on equity on a sort of a normalized capital charge of 40% on equities, after tax, it gets around 10%, which, I guess, is higher than your implicit cost of equity, but it's not super high. And then now you mentioned COVID yourself. The Tryg here didn't perform that well during that time where I guess most people would have wanted to own Tryg in a downturn like that. So isn't that the problem that it creates sort of unnecessary volatility in the share price?
I would say, like every other manager of assets, yes, of course, it has an impact. But I promise you, Jakob, in times where you see positive development on equities, we would then be asked why we wouldn't have a higher proportion of equities in our portfolio and thereby not returning what you would see also in the market. I think the share we have is relatively conservative. It is a benign size in totality. So, I think, again, taking things in the long-term perspective, we are quite happy with the performance of the overall investment portfolio.
The next question comes from the line of Youdish Chicooree from Autonomous.
I've got 3 questions, please. The first one is really on growth. And I would like to come back on the development in Commercial. I believe, you said the growth was understated because of the portfolio transfer and it would have been 11% adjusted for that. I was wondering whether double-digit growth can be sustained here considering you've had quite high price increases for a while now. That's my first question.
The second one is actually on price walking. I think the Swedish FSA launched a review a few months ago. And I see that EIOPA launched a consultation across Europe yesterday. So I was wondering whether you can tell us firstly, whether you're seeing this practice is widespread in the markets you operate? And secondly, what is Tryg's approach on pricing in your business versus renewal fees?
If I kick it off by answering your first question on growth. First of all, I didn't exactly confirm the 11%. As I said, we are getting towards that when you sort of adjust for the reclassifications we've seen. So -- but I think your question still stands valid, Youdish, that is this a sort of sustainable level of growth in our Commercial business. And I think, first of all, I'd like to just highlight that, of course, pricing plays a role in the growth we are seeing in the Commercial business right now in an inflationary environment. So pricing is a part of it. We are also seeing strong growth from our organic business. We are seeing strong product growth, having launched new bundles into the market, both in Norway and in Denmark. And we're also seeing our Swedish Commercial book actually having quite a good growth in the lower part of the SME market through their digital sales channels.
So I think in general, we feel comfortable with the growth levels we are seeing in Commercial. That being said, it's not a level we are used to seeing. We're not in these markets for the growth stand-alone, but we'll take it when we can, since this is a profitable segment for us to be in with little capital consumption. And bear in mind that where we're trying to grow in Commercial is not across the entire Commercial book, it's in the lower end of the Commercial, where we've set a target to achieve a growth of 30% over the strategy period, and we're tracking well towards that. So I think we are comfortable with the growth levels we're seeing in Commercial these days.
But any chance you could basically tell me of that growth, how much is from these new product launches that's driving that your double-digit level growth?
I think the way we look at it is we don't disclose how we actually break down the growth numbers. But what we do on a daily basis, do is monitor that the growth is not coming stand-alone from customer growth, price growth or product growth. We want to have a stable growth profile. Anything else wouldn't be sustainable and wouldn't be healthy for us or the market. So we are monitoring that pretty closely. And right now, we can see we are seeing a healthy split between these 3 categories. It's not a one-trip journey in the growth at all.
You can add to this, that there's lots of investigations showing a service, showing that particularly the SME segment in Commercial are underinsured. So basically, just talking to both existing SME customers about the insurances that they don't have, the sums that are too small, the number of employees, that is not correct, et cetera. Just doing that adds growth, and talking to potential customers in the same segment. So also upselling, if you will, on the sums and the scope and the products as a significant driver. The Tryg used to do that in an efficient way with the small SME customers. But this is actually, I think, a hidden part of the market that should grow more because they are underinsured today.
Into that, we can see that the traction we have with the tailored packages to specific segments of the SME have got a really strong response. It is something, again, that makes it digestible for them to understand what is relevant running a small business. So we see that, that is fueling the growth that Johan was talking about.
Your second question, Youdish, the Swedish authorities have just published their report on price walking survey in Sweden. And I guess it says a lot of things, but I think the overall gist of the report is that they see a trend in products like house and content that prices increase when you've been a customer for longer. Then on the other hand, they don't see that trend in car. And actually, when you look at the data, it shows that the pricing of car insurance reduces as the customer has been there for longer. So the opposite trend to house and content. So that is roughly what the report says.
I think the report also says that this is a pattern that they see in the market more broadly. So no sort of big differences between the companies. And of course, you can debate how would you want to react to that. As an authority, would you like customers in the house and content to have lower prices when they stay for longer? Would that then implicitly mean that the upfront pricing should be higher? That would be natural. If you increase the upfront pricing, would that then actually take out competition from the market and is that what the authorities want a less competitive market.
So not completely sure where the authorities would want to take that survey. But the way we see it, we work with price differentiation, which is understanding the differences in risk and then pricing, and then right and becoming better at that than our peers and gauging an advantage from that. And if there are rules in the future at some point on price walking, and I'm quite certain that the upfront pricing would increase and we would work even harder on the other parameters of price differentiation. So we're monitoring what authorities will say and we take that sort of -- and if there are changes, then, of course, we'll behave under those potential changes.
But in your portfolio, you don't sound like you're concerned that there might be big gaps in terms of higher pricing between your new and your old customers. Is that correct?
Well, we've done models to show what would happen in the various products if there were views on price walking from authorities. So for instance, a price couldn't increase in house or content over time, then we've done models to say, so how much higher would the upfront price need to be to capture that difference. So we have a pretty clear view of that. And we have very clear plans on how to continue to improve our price differentiation methodology. We can see that Trygg-Hansa has had more focus and more people on price differentiation and the techniques around that. So we've been increasing the headcount in the actuarial mathematicians, et cetera, in all of our business areas, and we're doing so at the moment, because this is an area we believe we can improve further.
So no, we're not worried about if there are changes. Of course, we're observing if there will be changes. And if we have to behave under a different regime or not, but we have a pretty clear view on how to react to that and work with different rules, if that may be the case in the future.
The next question comes from the line of Jimmy Fan from UBS.
On the investment risk side, so I can see from the solvency sensitivities, your sensitivity to covered bonds spread has decreased and also your sensitivity to property has decreased as well. But there is a slight increase in sensitivity in corporate bonds spreads. And could you give us a bit more color in terms of how you would manage the investment risk given the risk of recession at the moment is high, and should we expect the sensitivities to change further going forward?
Yes. I think obviously, very important to elaborate and understand this. I think as a starting point, it's extremely important to understand, you can say the thinking of the overall investment profile. So the fact that we apply a proportion of the investments to actually counter the liabilities we have in our insurance business is what you see in the match portfolio. And there, you need to have a profile that, again, is taking into account the curves that are used for discounting on the obligations or the liabilities that you have across the business that you run.
That is the vast majority of our book. It's the approximately DKK 50 billion and that is very much done, you can say, by using the covered bonds in terms of that particular part of our portfolio. So I think the fact that you see that there is the biggest sensitivity in that space is also coming down to the fact that it's the major part of our book. When you then look at the other assets in our investment portfolio, as mentioned, they will predominantly go into the free portfolio, so around DKK 18 billion. And there, you have the diversified asset allocation that should, you can say, when looking into both the split between the various asset types as well as geographic exposure, et cetera, et cetera, give you a good combination and low-risk profile.
So, therefore, you can say, overall, it should be a rather robust investment portfolio also on the free portfolio. I think looking at the individuals, so how much is it sort of moving in between is not having an impact in terms of how we change or adjust the portfolio. But it's basically down to what is sort of the allocation and what are the movements in the market that is then impacting the solvency ratio.
Yes. And just a quick follow-up on that. I mean, a similar point to what Jakob has mentioned. I mean we perhaps not very normal words at the moment. So do you feel that there is more need for you to manage your risk on the investment side?
I think, of course, it requires a lot of attention when you see volatile markets that are moving to the degree that you see right now. We have a good governance when it comes to the investment policy where we have mandates to move within certain boundaries, both when it comes to the asset allocation, but also in terms of overweight and underweight. So of course, it requires a lot of focus as it is right now. But I think it's also important to stress that we don't turn the whole portfolio on a short-term basis. We see this as long-term investments and therefore, don't sort of have massive changes to neither asset allocation or overweight -- underweight as a general rule.
And my second question is on pricing and given you have mentioned that the -- we are in kind of present situation with inflation. And how much do you think -- how much do you think there's more work to be done in terms of pricing? And also that we see on the synergies, there's not much being realized on the clients on procurement side. When we see that flowing through, we would see the profitability of your business overall improvement, would that have an impact on your pricing strategy going forward?
I think if you start by looking at the pricing strategy, as Morten alluded to, what we do on a continuous basis, so obviously, it's intensified now, but we always do that, is monitor how the claims cost is developing across the business. We have very good procurement deals with our supply chain for a significant part of our business. If you look at, for instance, the Private segment, there, you have a really high use of the supply chain agreements that we have in place. But of course, there are certain parts in Commercial and Corporate, where the claims that occur are not necessarily possible to fix under the agreements that we have.
Those are the areas where we are extremely focused on, what is the development in raw material, what is the development in the salaries and so forth. And as Morten also mentioned before, that is where we are, following it very detailed and also adjust pricing accordingly to mitigate the developments that we see. So you can say a lot of focus in terms of the granular development. And as we've also seen, just in the small markets across Scandinavia, you have seen differences just in Sweden, Norway and Denmark in some of these areas. So it is extremely important to be very close to the development in order to make the business as strong as possible and being able to act when it comes to pricing adjustments as needed.
And lastly, on the solvency ratio. So what is kind of the new level of operating level solvency ratio we need to kind of think about this -- currently is 195, perhaps more than you needs in terms of solvency buffer over the longer term?
Yes. I was sort of expecting to get that question. So happy for you to ask it. I would say, when we had our Capital Markets Day in November, we were quite, obviously, looking at the many changes that are happening with our company, taking on board the new business of Trygg-Hansa and Codan Norway, having the impact on, you can say, a number of cost items, et cetera, et cetera, that obviously has a number of large one-off impacts. So that's why we lean forward, so to speak and guided towards a range now at the first half year of this year. But ordinarily, we don't provide guidance in terms of longer-term expected solvency.
There is a lot of moving parts right now. We are very happy that we start the journey as the combined business at 195. And then we will, of course, always have in mind what is the dividend capacity and how do we work with ordinary dividend as well as buybacks going forward.
I think the last comment is probably extremely important to bear in mind, because for us, the solvency ratio is, of course, extremely important for an insurance company. But we don't have a target solvency ratio that guides our decisions on an everyday basis. For us, the stability and predictability of the dividend is much more a first, second and third priority. And of course, we monitor the solvency ratio to make sure that it's comfortable and the 195 we're at now is very comfortable and actually even given 2 quarters of unusually negative development on investment market. So a comfortable place, but we don't give the guidance, and we don't make that a first priority because it is.
The next question comes from the line of Martin Gregers Birk from [ SEB ].
Two questions from my side. The first one, maybe I could just follow up on the question regarding solvency. So assuming that the world continues as it is today and you still pay out roughly lower DKK 1 billion in quarter in ordinary dividends. Are we still comfortable in our capital situation by year-end?
I mean, absolutely. I think we, of course, have a very prudent approach to make sure that we don't cross any lines. But with what we're looking at right now, Martin, absolutely comfortable.
Okay. Is there any -- I mean, if you look at banks, it is a 100% payout ratio, glass ceiling they decide to go through. When you talk to local regulators, they don't make any comments on you guys distributing above 100% on sort of a recurring basis?
No. What they focus on, Martin, would be the absolute level of solvency. So you can say for companies like ours, they have a lower threshold in terms of when they start looking closer at the way that you behave and distribute capital. It is around the 124 -- sorry, 125% level. And then there is another level around 100%. We are nowhere near those levels. So as long as you continue to demonstrate that you can run your business in a prudent and disciplined way, then they actually don't have any say in terms of the levels that you distribute. But obviously, we need to make sure that we have an overall profile that is strong and that is exactly what I believe we demonstrate.
And I think it's fair to say also that whether you are a rating agency or an FSA or a regulator, the core driver is the stability and strength and size of the earnings capacity in the insurance business, which is exceptionally strong and now even stronger. With the outlook to get stronger with the synergies and having bounced up further with Trygg-Hansa for Sweden and Codan Norway. And that is the basic foundation and the focus whenever we talk to regulators and whenever we talk to rating agencies.
All right. Very clear. And then just a final question. Natural Perils Fund and the new regime in Norway effective from 1st of January 2023. How they can impact you?
I think if you look at the setup and the structure in the NPP, then you can say, obviously, we argue that it sort of skewed towards the new incumbent companies in the marketplace. You can say the well-established disciplined companies that has been in the market for a long time and that have put capital aside to support the Natural Perils Pool, obviously, is penalized somewhat, if you look at the long-term structure in the new setup. Obviously, that's not ideal, but it is what it is. And we will have to, of course, adhere to the new regulation.
But it is something where you can say the responsible and disciplined companies that have been around the market, that have put aside capital into the pool, et cetera, et cetera, are getting a disadvantage in the way that it is set up as it is right now.
Can you elaborate on how that disadvantage is created? And then second, can you also put some numbers on it?
Yes. I guess in terms of numbers, that is not something that we would like to do. But what you can say is that it will tie up, you can say, a disadvantaged proportion of your capital capacity in the way that it is structured. So over time, you will have to fill up, you can say, the pool and the funds that are sitting there in terms of the events that it should support. And then it has to be filled up if it is empty, so to speak, at a given time in the future. So basically, you get to have to allocate capital in a way where some of the newer companies that haven't got the balance already have an advantage compared to the old companies like ourselves.
And the next question comes from the line of Tryfonas Spyrou from Berenberg.
I have 2 questions. One is on a comment Morten made about lower claims, low severity on motor claims. I was wondering what is the key driver and whether this is part of a bigger underlying trend and across which geographies you're seeing this?
And the second is related to motor again. I'm trying to understand how much of your new business volume related to new car sales? And I guess here, my thinking is that once we see a rebound in that, that could obviously be a further driver of growth going forward.
Yes, thanks for those questions. I think, I guess, new business from motor is always sort of double-edged sword, because whenever there is a customer with a new car, there's also a customer getting rid of the old car. So you may argue that in most areas, leads from people buying new cars could be as high as 40% of all leads coming in. So when you see 20% to 40% lower new car sales, that is a very significant driver of a lot fewer leads. And I'm really happy that our cross-sell engine is becoming stronger and stronger, because if that was not the case, then this drop in motor leads would have been much more negative for us.
And of course, on the other hand, it does help the retention rate, but fewer people change their cars. So if you look at the lower severity, your first question on motor, we see that in several areas, we're particularly spending more time on standing claims, both frequencies and severities in Sweden, since that's a more new portfolio to us. So Sweden is a good and big example of a geography where severity is continuing down. So we are seeing this trend at the moment where inflation, motor, spare parts and glasses is starting to pick up and quite rapidly so. But on the other hand, severity is down and Sweden is a big driver of that, but not the only driver.
Is it any sort of particular reason why that is down? Or is that sort of part of a bigger trend, car is becoming safer and roads becoming...
I think the -- yes. I think the severity moving downtrend is one that has been going on probably about a long period of time. People are buying more and more secure cars. Those cars they have lane system, they have automatic braking. They warn when you are falling asleep at the steering wheel and they do also stuff that helps the severity risk. Then on the other hand, we do see that replacing the spare parts of cars with more expensive equipment has a lot higher expense. So in that sense, actually, the motor product as such is growing bigger because the repairs are becoming more sophisticated.
But the trends on most severe claims is still favorable. And I think the big driver is the safety equipment of the cars improving. Then there's a negative driver of people being preoccupied with their smartphones while driving. And I think that's more of a societal risk that we want to try to influence over time. That's probably not very easy, but the safety equipment of the cars is a big helping hand.
And the next question comes from the line of Faizan Lakhani from HSBC.
The first is on investment income. Interest rates are rising. Can you give us a steer in terms of how you see your running yield versus reinvestment yield?
The second question is on the underlying improvement. At Q1, you suggested Trygg-Hansa showing some marginal improvement. But at a group level, you've had a very, very strong 80 basis point improvement. I just wanted to sort of square that one off. Have we seen a better experience Trygg-Hansa this quarter? Or is this very much driven by the classic business?
And the third one is on the expense ratio. So you've already got below the 40% level. You still have some various sizable synergies to come through. Can we assume that given the fact that you're sort of steering towards 14% that we're not going to see the full benefit of the synergies come through at the bottom line given the fact you going to have to invest in IT?
So if I just start with the latter question around where to sort of follow the synergies, so to speak. If you just break down the synergy impact in Q2 of around DKK 90 million, DKK 60 million of that will fall in the expense line. And as Barbara alluded to, some of that will not show up in a drop in expense ratio, because we are reinvesting in IT and product development in the Swedish market, for instance. Around 2/3 of the DKK 92 million falls in the expense ratio, then you will have DKK 10 million to DKK 15 million falling in the claims ratio through procurement and claims. And then the Commercial synergies around DKK 15 million for the quarter, you'll see falling into the top line and bottom line straight-through, as a lot of that is actually repricing of portfolios, migrating from Codan Norway or Moderna into the books of Trygg-Hansa and Tryg Norway.
So that's how you'll see and follow the synergies. As for this quarter, it's still sort of rather benign numbers. As Morten alluded to earlier, as the numbers grow bigger, we will start to track them and make that visible to you guys also where to check them going forward.
Also you asked a question as to the underlying performance, whether that is coming from a classic or whether it's coming from Trygg-Hansa? I think it's fair to say that we are seeing a very strong performance in the Trygg-Hansa asset. You can see that when you look at the Swedish geography note on Page 34, you can follow the combined ratio of the Swedish asset altogether. That is Trygg-Hansa 80%, Moderna 20% and we're seeing a combined ratio of 77.2%, which is a very strong combined ratio. That being said, we are also seeing improvements in the rest of the Tryg Classic business on a group level.
And just to add to that, as mentioned before, on group level, you saw the contribution coming from, in particular, the profitability initiatives on the larger Commercial clients and then the Corporate clients. So fully in line with the patterns you have seen in recent quarters.
And I think when it comes to the investment income and what to expect in terms of run yield, I mean, I wish I could give you a clear answer on that. I think in general, right now, there is a lot of uncertainty and I would say, in an ordinary environment, we will probably guide to, you can say, a yield on the investment portfolio between DKK 100 million and DKK 300 million a year. But it's very difficult to assess how it will end this year for -- given where we are and the huge volatility that we expect will continue in the coming quarters in the financial markets.
And just to clarify the last one. Have you lengthened your duration as of yet at Q2 to take advantage of the high...
No. I think the duration on say the match portfolio will naturally increase given the fact that the liabilities that we have taken on board from Trygg-Hansa have longer durations than what you would see in the ordinary Tryg portfolio. So given the link and you can say the whole positioning in the match portfolio there, you will see that the duration will increase.
It's important to say that, that when we -- when we have the match portfolio, we don't speculate in crawling further out on the curve when interest rates are higher. We match that sort of the liabilities period, whether we like the yields or not. So just to make that methodology point very clear.
On the free portfolio, is there anything you've done in duration side?
No, it's rather limited. As mentioned, the majority of the investments in the bonds would relate to the match portfolio. And exactly like we also said before, we are not taking big swings or churns of the investment portfolio from day to day. We are there for the long run. And I think maybe, Faizan, it's also regarding the free portfolio, it's also important just to bear in mind that you can actually follow the daily movements on tryg.com in order to track the performance of the free portfolio.
And the next question comes from the line of Michele Ballatore from KBW.
Thanks for taking my question, which is on retention. In Private, in particular, I mean there is a gap between the Swedish business, the Danish business. I'm wondering in Sweden, is this kind of a structural level of retention that you see or you see potential improvements? And what are the levers you can use to improve this? I mean, increase the number of products per customers.
And the second question is in terms of why customers leave. Is there difference in trends between Denmark and Sweden?
I think it's fair to say that when we look at the new Trygg-Hansa business, it has been run very much out of RSA as a tool to optimize profitability and efficiency, which I think has done a lot of good things for claims efficiency, online selling, straight-through processing, et cetera, et cetera. But if, for instance, we measure back to your question on retention, if we measure customer satisfaction on claims. Customer satisfaction on claims is in Trygg-Hansa is lower than customer satisfaction on Claims in Tryg Classic, Denmark and Norway. So this is one of the examples of one of the areas where we, together with the Trygg-Hansa team is working to further improve the claimer's experience, not just the efficiency, which they also did out of RSA, but also how understandable is the process, how fast is the process, how humane is the process, et cetera, et cetera. We also saw that Trygg-Hansa had some instability issues on some of the online solutions for claims that has been, we believe, we solved or improved just very recently, that will further improve customer [ sat ] in Trygg-Hansa.
Then we also see that Trygg-Hansa has been very successful on driving new sales online, where often online customers come in with 1 or 2 products. So it's extremely important to get the upselling as strong as possible, because with more products, the loyalty increases, the retention increases. There's no doubt that the children's insurance and the PAE portfolio in Sweden provides an isolation, extremely high retention. On the other hand, the online sales portfolio provides lower retention. And that is why there is a strong plan to further upsell on those segments.
So I think over time, of course, there is the difference on what is called bonds guarantee. So the way you price new car insurances in Sweden, which probably pulls the loyalty down a bit. But we believe, over time, it will be possible to further increase the retention rates in Sweden, and we are working on a number of initiatives together with our new Trygg-Hansa colleagues to do so.
And we have a follow-up question from Jakob Brink from Nordea.
Sorry, just 2 clarifications on your new guidance for large claims and weather. Looking at your slide there, I think large claims in the past 12 years has never been DKK 800 million in a year, and weather only one time. So I was just wondering is there any sort of history in Trygg-Hansa before 2010 that I can't see here that justifies such a high level?
So I think if you look at the combined business, it is a total number where you can say this is taking into account the swing. If you look at the weather and large claims in Trygg-Hansa, it's nothing extraordinary, so to speak. But it's just taking into proportion a business of the size and magnitude, obviously, compared to the DKK 600 million and DKK 550 million that we had as guidance before. This is very much in line what we expect.
Okay. And then just on the rate sensitivity, I see in the report, you now say 1% gives 1%, which was also the case previously. But obviously, Trygg-Hansa has a lot longer durations than Tryg Classic. So I was just wondering why is it not more than one-to-one?
I think this is a good talk here at the moment, Jakob. I think I will allow ourselves to come back with a little bit more specifications in this area going forward. Bear in mind, we have only had the data for a relatively short time. So this is a good rule of thumb guidance at this point in time, but I'm pretty sure that we can be able to elaborate a little bit more on that in the future.
And we have just 1 more follow-up from Asbjørn Mørk from Danske Bank.
Just a follow-up on the previous question on the investment -- the free portfolio and the equity exposure. We also talked about on the Analyst Day some weeks ago. But just basically looking at just slide, the DKK 1.2 billion of the capital requirement for your equity exposure and then adding the DKK 250 million back from Q1, which I guess is basic market adjustments in Q2. I guess, we're around DKK 1.4 billion. And since you don't want to guide on solvency, if we use the 195, I guess your Own Funds requirement is around DKK 2.8 billion from that equity exposure.
And just looking at your group return targets for your Own Funds, the 25%. On my math, at least you need to deliver 20% return on equities to meet that group target. And I guess we're talking single digit or at least very low double digit in a normalized world. And I seem to remember at least you, Morten, at the Capital Markets Day in November mentioned that Corporate business, which was sort of our -- the worst area and an area you needed to improve, then you said 10%, 15% is sort of the bare minimum on funds requirement in that business. So why is it that you need this equity exposure? And why is it that you want to have it at a high single-digit Own Funds return, especially considering the vast amount of slides you have provided today on your investment portfolio and how much work you're doing on the match side. So just seems a bit inconsistent that you have such a big free portfolio equity exposure?
I think as a starting point, I would just highlight, it is less than DKK 3.5 billion out of the DKK 70 billion that we have in our equity portfolio. So again, overall, looking at the totality in the investment portfolio, it is a relatively small proportion. When looking at the ROE calculations that you've been doing and tying it back to the impact on the solvency, I think the 1 thing that you miss out on is the dampener and the impact in terms of the solvency calculations there. But of course, as a rough calculation, it's probably fair to do the math as you do.
I think, we always review our investment portfolios. And I think I will reiterate what I said earlier, we're quite happy with the overall profile, both in terms of the approach we have around the free and the match. And also, you can say the asset allocation, which we tend to believe is quite diversified and healthy, you can say, across the assets and across the equity portfolio we have. And then, of course, having to deal with markets as we have in this particular quarter, yes, we do have a hit at times like this, but it's also what enables us to have a small pickup in times where markets are positive.
So I think a fair question and always good to be challenged in markets that we see at the moment. But I think I will just revert to the fact that we have a long-term strategy around our investment, which you should take into account here.
So I fully acknowledge that the dampener impact, which I guess is temporary. But anyway, it is what it is. But it is more -- and of course, this discussion is a bit backwards looking at this point in time, which is a bit unfortunate, because you had 2 weak investment quarters. But just fundamental view that you don't think tying in shareholders' equity in a Corporate business that delivers 10%, 15% or less than 10%, 15% Own Funds return is the right thing to do. Then I just don't understand, why you think it's the right thing to have equity exposure in your free portfolio that delivers less than that and is more volatile?
Yes. I think we probably -- yes, don't get to a conclusion on that one. We always have a good, you can say, a review of our overall balance sheet. And obviously, we will take that into account as well. But I would say, don't expect any massive changes in the short-term in that matter.
And as there are no further questions, I will hand it back to the speakers.
Thank you, everybody, for all your very good questions. Peter and I are around, of course, if you need more during the day. I just wish you have a very good summer, whenever it comes to and speak to you soon. Thanks.
Thank you.