Tryg A/S
CSE:TRYG
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Tryg A/S
Earnings Call Analysis
Q2-2024 Analysis
Tryg A/S
Tryg had a very strong second quarter, with insurance revenue growing by 3.9%, mainly driven by price adjustments across all business units. The Private and Commercial segments saw a combined growth of nearly 6%, while the Corporate segment's revenue decreased, aligning with the company's strategy to reduce exposure in that area【4:0†source】.
The combined ratio for this quarter was an impressive 76.8%, marking one of the best quarters ever for Tryg. This was partly due to a strong performance in the Swedish operations. The investment results were also favorable, yielding DKK 347 million largely from equities and covered bonds. The pre-tax result for the quarter was DKK 2.129 billion【4:0†source】.
Customer satisfaction continued to be robust, with a score of 86, slightly higher than the previous quarter's 85. This improvement was attributed to better onboarding processes and customer communications. Customer retention remains a strategic focus, as it directly affects distribution costs and overall profitability【4:0†source】.
While there were improvements in the Norwegian market, the company is not yet satisfied with the profitability levels in the Norwegian personal lines. They have taken significant measures, including price increases and adjustments to deductibles, to mitigate inflation and improve profitability【4:0†source】【4:0†source】.
Tryg reported a 3.9% growth in premiums for Q2, driven by strong performance in the Private and Commercial segments. The Corporate segment's revenue declined as the company continues to focus on profitability over growth in that area. The company expects these strategic adjustments to drive future improvements in the combined ratio and overall financial health【4:0†source】.
Tryg's investment portfolio showed positive results, with the free portfolio yielding returns from all asset classes, especially equities and covered bonds. This performance was enhanced by lower interest rate expectations and narrowing covered bond spreads. The company's cautious investment strategy continues to support strong solvency ratios【4:0†source】【4:0†source】.
The integration of RSA's operations has generated synergies, contributing DKK 806 million thus far, with a target of DKK 900 million for the full year. The company's expense ratio held steady at 13.6%, reflecting tight cost control and efficient operations following the RSA acquisition【4:0†source】【4:0†source】.
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Good morning, everybody. My name is Gianandrea Roberti. I'm a Head of Investor Relations at Tryg. We published our Q2 results earlier this morning, and I have here with me Johan Brammer, Group CEO, Allan Thaysen, Group CFO, and Mikael Karrsten, Group CTO, to present the figures.
Before that, I'd just like to remind everybody to ask 1 question at a time to allow the highest number of questions from participants.
With these words, over to you, Johan.
Thanks a lot, Gian. And before I kick it off, I'd like to stress that after a few quite noisy quarters, we are very pleased to report a quiet quarter on multiple fronts. This is a quarter that brings us a little back to being a leading and slightly boring Scandinavian insurer with high and stable profitability levels.
And with that, in this Q2, Tryg reports an insurance revenue growth of 3.9%, driven by price adjustments across all business units. And when looking at the Private and Commercial segment together, the growth was just shy of 6%, while the Corporate segment decreased in line with Q1, which, broadly speaking, is aligned with our strategy to reduce exposure to this segment.
The insurance service result for Q2 was DKK 2.212 billion, helped by previously mentioned price increases and improving underlying performance, as well as a positive large claims experience for the quarter.
Please note that the same quarter in 2023 included approximately DKK 300 million higher than normal large and weather claims. The combined ratio in the quarter is 76.8%, probably our best combined ratio for a quarter ever held by a very strong Swedish performance. The underlying claims ratio for the group improved 40 basis points, while it deteriorated similarly for the Private segment.
The investment result was DKK 347 million, held by positive returns on most asset classes, especially equities and covered bonds, whereas the asset mix was virtually unchanged in the quarter.
The overall pre-tax result stands at DKK 2.129 billion, with Tryg reporting an operating EPS of 2.93% and a roof of 44% in the second quarter. Tryg is paying a quarterly dividend per share of DKK 1.95 and reports a very healthy solvency ratio of 195, supportive of future capital repatriations.
And with that, turning to the next Slide, we focus on customer highlights for the quarter as we continue to see a very clear link between customer satisfaction, customer retention, and thereby our own distribution cost and overall profitability.
In Q2 2024, we reported customer satisfaction score of 86, a similar level as in the same quarter last year, but an improvement compared to Q1 this year, where it momentarily just dropped to 85. I'm of course pleased to see a bounce back in the customer satisfaction in a period with continued high level of price adjustments.
One of the drivers behind the improvement in the score for the quarter is the significant work that is being done regarding the onboarding of new customers when it comes to more efficient processes and customer communications.
Customer satisfaction remains a strategic priority for us, and it is essential for us in our ability to run a sustainably healthy business. Our focus on this is relentless, and we aim to improve further from current levels.
In the next slide, we detail the insurance service result for the quarter by business segment. And as always, the reported figures maybe impacted by items such as the run-off results and the large and weather claims.
As for the Private segment, it is reporting a higher insurance service result driven by higher run-off gains and lower weather-related claims. The previously mentioned increases in motor frequencies and average cost of claims across Scandinavia impacts negatively the combined ratio, all else being equal.
The commercial segment is reporting a higher insurance service result driven by significantly lower last claims, modestly offset by lower run-offs. Additionally, the combined ratio improvement is also driven by price adjustments and profitability initiatives.
And lastly, the Corporate segment is reporting a higher insurance service result driven by the much better last claims experience, partly offset by lower run-off results. The combined ratio improvement is also driven, of course, by price increases and the rebalancing of the portfolio.
In the next Slide, we take a slightly different split as we detail the insurance service result by geography. And to kick it off, it is initially important to note that on a group level, the difference between Q2 this year and Q2 last year is driven primarily by the different large and weather claims experience and the booking of the run-off results.
As for Denmark, the primary difference comes from the run-off result, which was around DKK 125 million higher last year versus this year. In Norway, the run-off result for the quarter is lower, but in general, the underlying performance in Q2 last year was very benign. And the Swedish performance, which you see in the bottom left corner of this slide, was held by a near total absence of large claims in the quarter, and a higher run-off result. And the corresponding quarter last year included a very large claim, as you might remember, with a total cost of DKK 225 million, amongst a generally negative large claim to experience.
Now let's turn to Slide 7, where we illustrate the progress on the RSA synergies. As mentioned, and in line with previous quarters, most of the synergy initiatives are not new, but still producing ongoing impact. We've added a total of DKK 52 million in Q2 2024, but more importantly, we are now at DKK 806 million since we communicated this transaction to the market, and we're staying firm, very firm on our intention to achieve the targeted DKK 900 million for the full year this year.
Procurement in this quarter contributes with DKK 17 million and is primarily driven by our strong and consolidated purchasing power, which enables us again to get improved rates and conditions.
As for the claim synergies, they are DKK 15 million in the quarter and are primarily driven by optimization for fraud and recourse in Norway. And the commercial synergies are DKK 14 million for the quarter and are driven by the improved relations with brokers in Sweden, capitalizing on the former Moderna's strong relations with brokers.
And with that, I turn to the next section on the insurance revenue and portfolio. And in this first Slide, we're showing the revenue growth for the group, as well as by lines of business explaining the key drivers. Tryg is reporting a premiums growth of 3.9% in Q2, fully driven by the Private and Commercial segment, while the Corporate segment is reporting a declining revenue in line with the strategy of improving profitability and rebalancing the portfolio. This decline in Corporate is broadly in line with what was reported in Q1.
The growth in Private and Commercial is predominantly driven by price increases to continue to offset general inflationary pressures and the increasing claims level in motor. The growth of Private and Commercial takes in together is just shy of 6%, a level which remains similar to what was seen in Q1.
The Corporate segment is, as expected, continuing to report a noticeable revenue decline driven by profitability action and rebalancing initiatives to achieve a smaller, more local, and more controllable book of business. The development for Corporate is, as mentioned, also much in line with the first quarter this year. We continue to be very firm to mitigate inflationary pressures and hence continue to implement further initiatives to improve profitability for particularly, but not only, Private Norway.
Turning to the next Slide, we are here showing the rate increases for the Private segments. We repeat that we are pricing according to inflation for both property and motor in all countries. In fact, in Norway, we are actually pricing higher than inflation as we are very focused on improving the performance of our Norwegian private business.
And to be very specific, we have accelerated the rate increase from Q1 to Q2 this year by approximately 2% points for both property and motor. In addition to the price adjustments, we have also increased deductibles, which primarily will have an impact on average claims levels.
On the next Slide, on customer retention, we are pleased to continue to report broadly stable customer retention levels, even in a period with elevated price increases. The sub-segments in which we do notice a slight drop in retention remain the customers with the shortest tender in the Private segment, which are the customers that typically display the lowest level of profitability. This is totally in line with our experience in the past quarters. In general, looking at longer time series, it's evident how our business continues to show a relatively low price sensitivity across different economic conditions.
And with that, I'll turn it over to you, Mikael.
Thanks, Johan. And we now turn to Page 13. In this Slide, we comment on the group underlying claims ratio that improved by 40 basis points in Q2, slightly lower than the 50 basis points we reported in Q1. And improvements are supported by profitability initiatives across all segments.
The Private underlying claims ratio deteriorated by 40 basis points in the quarter, slightly better than in Q1, where the corresponding number was 50 basis points. And this is primarily driven by motor frequencies moving upwards across Scandinavia.
It's important to note, though, that the development in Q2 was fully in line with our reset claims frequency expectations and no new deterioration. And we continue to expect an underlying claims ratio improvement for the full year 2024, ensuring the delivery of the 2024 financial targets and beyond.
We also reiterate that the composition of the profitability improvement will change over time to be more driven by the private segment as rate and profitability initiatives get full earnings impact.
Turning to Slide 14. After a few volatile quarters, we're pleased to see a normalization in terms of large and weather claims. In fact, the sum of large and weather claims in Q2 is nicely below our quarterly normalized expectations.
Large claims were DKK 31 million in Q2 or DKK 354 million for the first half of the year, virtually in line with our guidance for the 6 months. Weather claims were DKK 104 million in Q2, slightly above our expectations of DKK 80 million for the quarter. And for the first half of the year, the corresponding number is DKK 483 million, somewhat above our guidance of DKK 400 million.
It should be noted that the weather claims reported in Q2 mainly comes from claims cost increases of the weather events that took place in Q1 in Norway. The discount rate was 2.4% at the end of Q2, 30 basis points lower than Q1. Generally, it should be remembered that movements in interest rates is a driver for this, as well as changes in reserve mix and overall claims level.
For this specific quarter we saw broadly unchanged interest rates at a relatively low claims level and small changes in the claims mix. The run-off result was 2.5% or DKK 242 million whereas the level for first half of the year was 3.2%. And our guidance remains 3% to 5% for the full year 2024.
And with that, I hand over to you Gian.
Thanks a lot Mikael. We are now on Slide 15, we're showing an updated picture of our total invested asset of DKK 62 billion split in a match portfolio of DKK 44 billion and a free portfolio of DKK 18 billion. The match portfolio mirrors our insurance obligation and is primarily made up of Scandinavian covered bonds, while the free portfolio composition is generally low risk and very similar to what we've shown previously.
On the following Slide, we show you that the total investment result was DKK 347 million, helped by a good performance of the free and the match portfolio. The free portfolio reported positive returns from all asset classes, equities and covered bonds were the asset classes developing more positively.
In general, capital markets developed positively on the back of lower interest rate expectations in the second half of the year. The match portfolio also developed positively, driven by a recurrent component, the interest on premium provision of approximately DKK 90 million, but also help by narrowing covered bond spreads in the quarter.
Other financial income and expenses was a negative DKK 59 million at a more normal level compared to Q1. The main item here was DKK 46 million related to the interest expenses on the subordinated loans. In general, Tryg maintains a low-risk approach to the investment activities in line with previous quarters.
And with this, over to you, Allan.
Thanks, Gian. Please turn to the first Slide in the solvency and expenses section for details on the solvency position. Tryg reported a solvency ratio of 195, driven by the strong organic capital generation and net of dividend payment, which is modestly offset by a slightly increased solvency capital requirement.
It is important to remember that the second quarter of the year is historically the most favorable for the Scandinavian insurers, and therefore the strong operational result is also reflected in this.
Looking at the main open fund movements, we would highlight the strong operating earnings in the quarter together with the positive impact from currencies movements, which increases the value of the subordinate loans and the balance sheet. The main negative item is obviously the dividend payment.
Please turn to the next Slide. In this Slide, we show the solvency ratio in a historical perspective. 195 in this quarter is a robust level to support future additional capital repatriation. As previously mentioned, we will come back with a more precise plan on capital repatriation during the second half of this year. It's worthwhile to remember that we will host a Capital Markets Day in December, which would be the most natural date to discuss the solvency position.
Now, please turn to the next slide. In this slide, we show the updated solvency sensitivities. As you can see, not much has changed from previous quarters. Our single biggest asset class is covered bonds, and therefore, it is not surprising that shocks to this asset class result in the biggest movement to our solvency ratio.
An assumption of 100 basis points, widening or tightening of covered bond spreads will result in an 11 percentage point decrease or increase in the solvency position. In general, our low-risk approach to investments ensures that solvency sensitivities to capital markets movements remain low.
Please turn to the next Slide for details on the expense ratio development in the quarter. The expense ratio was reported at 13.6% in Q2, in line with our guidance around 13.5%, held by tight cost control and synergies from RSA Scandinavia Acquisition.
As mentioned before, a significant amount of the cost synergies are being reinvested in business developments, especially in Sweden, as well as in digitalization across all geographies.
The number of employees has fallen as a consequence of the efficiency initiatives launched in the autumn. We maintain a strong focus on the expense level and we stick to our guidance for an expense ratio of around 13.5% for the full year 2024, which we believe is a strong competitive level.
With this, I would like to hand it back to you, Johan, for some concluding remarks.
Thanks a lot, Allan. And before I dive into the concluding remarks and the financial targets, I'd like you to go to the next Slide, which provides an updated view on some of the more strategic initiatives that have kept us busy during the last 3 years.
As for the first pillar on the left-hand side, the implementation of Guidewire as a claims handling system is coming to an end, with the system now fully implemented in Norway and 80% implemented in Denmark. The implementation results in a more digital, more automated and more accurate claims process. We'll soon start implementing Guidewire in Sweden as well in order to fully leverage our scale.
As for the middle pillar, our increased focus on the SME segment has resulted in a growth of more than 30% in the portfolio in Denmark and Norway. And please remember that the SME segment is a highly attractive segment characterized by low capital requirement and a high profitability where earnings are generally very stable.
And finally, on the right-hand side, we are virtually done with the rebalancing of the Corporate segment, reducing exposures to non- Scandinavian Property and U.S. liabilities. Our priority in the corporate segment will remain profitability as opposed to growth.
And with that, I'll take us to the final section on financial targets. Following a good Q2, we are pleased to again reconfirm our guidance for a full year 2024 insurance service result between DKK 7.2 billion and DKK 7.6 billion, driven by a combined ratio at or below 82%.
As per H1, we are reporting an ISR just below DKK 3.5 billion and a combined ratio of 81.7%. Nothing much to add on this slide except reiterating the reference to the external macroeconomic factors such as the level of interest rates, currency movements, and inflation spikes that may impact the reported insurance service results.
In the following Slide, we are reprinting the financial targets. We are repeating all our financial targets for 2024. And there is very little news here, as we have repeated this slide for quite a few quarters now.
And that brings me to the last and favorite part of the presentation, where, as usual, we end with the Rockefeller quote repeating our intense focus on dividends.
And I guess with that, I'll hand it over to you again, Gian.
Well, operator, we are ready to take questions.
[Operator Instructions] We will open up with a question from Tryfonas Spyrou from Berenberg.
Well done on the record, combined ratio and the strong result. I just had a question on underlying motor claim frequency dynamics at a close Norway and Denmark. I wonder whether you can maybe discuss a little bit of what you're seeing here, whether it's coming more from comprehensive comments or third party motor policies and what you think the underlying drivers of this frequency are. Is it to do with sort of more EV sales bouncing back to any color on the trends would be appreciated.
And then just maybe on Slide 10, I think for giving you the price, the price increase would be harder. I just want to confirm whether the number you show is on a reaching basis or an earned basis. And secondly, whether you'd be -- what do you think we should be expecting inflection point in terms of the pilot underlying loss ratio to improve given the underwriting actions we're taking?
Yes. So I think if I try to sort of unpick that question in a couple of different sort of parts, if we look at the frequency development in Q2, I would say that it's been no news sort of whatsoever during the quarter. It's been very much sort of in line with our expectations and something that we have already sort of built into our pricing models going forward. So we think that has been a pretty sort of positive quarter from that perspective that the claims frequencies have been sort of stable, although they are stable on a higher level, they are stable and that we're pricing for.
And then if we go over to our price increases, as mentioned, so price increases are on an earned basis that we show. And I think it's important here to reiterate the earnings impact of the actions that we are driving. So what we're seeing here is the earned impact in Q2. And obviously we see trends sort of improving and increasing this earned impact going forward, both from actions that we have taken historically and actions that we are taking and that will have sort of an increasing positive impact.
Just maybe to clarify, given that the price increases are on an earned basis, then at some point, if you're pricing ahead, I guess at Kensington Station in Norway particularly, we should expect an improvement to follow in the underlying loss ratio in Private. Would that be a fair comment?
Yes, I think that's a totally fair comment. I mean, obviously, as we have stated before, I think there are 2 things to keep in mind. One is to that we are, of course, having top priority to mitigate the inflation development, both in terms of severity and frequency. And then in addition to that, obviously in Norway, we know that our starting position is not where we want to be. So we drive actions which are on top of the inflationary development that we're seeing and quite sort of significantly on top of that to see improvements going forward.
Up next, we have Asbjørn Mørk from Danske Bank.
Yes. A little bit of a follow-up on the previous question. So just sure I understand fully. So if I go back to the Q1 presentation you had, and you showed the frequencies and you showed that basically half of the frequency was from weather. So basically you're saying today you're seeing the same picture on the line for Q2, hence the re-pricing, let's say, Norway 12% or something like that from motor. That should be seen relative to sort of the underlying frequency. Was that sort of correctly understood? And just to make sure, if you don't do anything going forward, but just take the price changes that you have already done, what would be sort of the year-end motor price changes then on your premiums or else equal? That would be sort of the first just follow-up.
And then maybe I can add on the deductibles, you mentioned that you have adjusted those. Could you give us a little bit of a flavor on how much have you actually increased the deductibles in the different markets?
All right, I'll try to sort of unpick that question again. So, and good morning, Asbjørn. So on the weather, or sort of -- on the sort of Q2 versus Q1 part, obviously we had weather effects in Q1. We're not having that at all to the same extent, but sort of for the rest of our expectations, all what we said in Q1 is still what we see in Q2. So no changes there.
And then when we come to rates, we don't guide on specific numbers, but you're quite correct that just from the earnings impact of the actions that we already have put in place, those earnings impact will improve gradually as the year matures towards the end.
And then finally on deductibles. So you're quite right that we're not only sort of having rate increases as the profitability initiatives, but also deductibles, also pruning as part of the portfolio. And if I take specific examples, so for instance, the standard Swedish deductibles are being increased by 20%. So previously the standard was 1,500 for part of the Casco insurance. It's 1,800 going forward, very much in line with the market average. And there are some other similar deductible initiatives, for instance, in the Norwegian market.
But is it fair to assume that you are repricing or increasing the deductibles by more than you're repricing on average? Hence, we should expect sort of a frequency decline or else equal going forward from you -- from the change you do to deductibles. And hence, should that mean that the underlying claims ratio in Private, which of course deteriorated 40 basis points in Q2, but it's better than the 50 basis points in Q1, are you quite confident that we're sort of behind, we have the worst behind us?
Yes, I think when we're sort of speaking more overall on the deterioration in the Private segment, I mean, obviously, just as you say, Asbjørn, we're not satisfied with an underlying deterioration, but on the other hand, it's moving in the right direction and we know there's more to come. So I think if I sort of pick it up a little bit sort of from a more helicopter perspective, I think if we start by looking at the severity inflation, we're not saying that severity inflation is dead, but we're saying that the worst is behind us.
When it comes to the frequency inflation, we see that that has stabilized in Q2, so that's good news. And when it comes to profitability initiatives, what we have implemented and what we are implemented will have an increasing earnings impact as we go along. So all those sort of factors work in the right order for us. But I think it's just sort of really, really important just to state again that mitigating inflation and making improvements where necessary is a top priority for us. That will always be sort of number one.
But is it fair to assume that your deductibles are being increased by somewhat more than the average price on the insurance?
That's correct. It's a little bit different depending on market, but obviously the deductible increases will support us in both having a little bit less sort of claims frequency for the very sort of low end, but also making the average claims a little bit lower because obviously there will be a little bit more sort of payment from the deductibles. So they will support us in both of those aspects.
And up next, we have Mathias Nielsen from Nordea.
Congratulations on the great results. My question goes on the premium growth. It looks like it's slightly lower in Q2 compared to Q1. And looking at the geographical split, it looks like Sweden is lacking a bit compared to the other countries. Could you maybe give a bit of a flavor on the competitive situation in the different countries and if you should expect anything different from Sweden going forward?
Thanks a lot, Mathias, for that, and good morning to you also. I think you're right in saying that the growth numbers seem slightly lower than what we saw in Q1. So for Private lines, we are now reporting 6.5% growth. It was 7.4% in Q1. And for commercial line, we're reporting 4.1%. It was 5.1% for Q1. But if you take a step back, I think the overall growth levels for the group are 3.9% for the quarter. That's exactly the same number we had a year ago. And I think we feel very comfortable with the composition across segments, that in this particular segment, we are seeing a shrinkage of our Corporate book, whereas our Private book is actually growing 6.5% and Commercial 4%. So we are quite pleased with the mix in the growth composition.
And then you're rightly saying that we're seeing a growth level in Sweden that is slightly below that. If you take a step 2 years back, upon the acquisition of RSA, we wanted to see more growth in the Trygg-Hansa book of business. We felt they were punching slightly underweight and we wanted to bring that up to sort of at or above GDP in Sweden.
We've been at a time where inflation and macroeconomic conditions has impacted us quite a lot. And we've been very focused on running a profitable book across geographies. I think when we see the world stabilizing, we feel confident that the brand and the strength of the business in Sweden will unfold itself. But for now, we're pleased to see a focus on bottom line and profitability across all geographies. So we are quite pleased with the growth levels for the group, to be honest.
Sure. And on the competitive situation, is there anything you see there like someone being slow on price hikes or how is the competitive situation?
I think in general, the Nordic region is a competitive place to run an insurance business. Nothing has really changed in the last few quarters on this. So I think it's fairly stable.
And the next question is from Vinit from Mediobanca.
So my question is on what I have addressed, but just looking at the geography, I mean, on Norway, I can sense that you're still not happy. I mean, it is an improvement -- 1Q quite a substantial improvement. And maybe even 2Q '23 was quite low last year. I'm just curious if you're thinking anything different about Norway, if you'd like to comment on anything. I know we heard from you just 1 month ago on the Norwegian strategy. But I'm just curious if you feel that there's anything on the quarter you would like to comment, given that it does look like an improvement on the outside quarter-to-quarter, but obviously you're not very pleased. But I just wanted to hear anything from Norway.
Also, if you don't mind, the season is very low. I mean, it's obviously you've commented on low, large losses, and obviously the personal accident is good. But is there better performance than you were expecting, underlying the season as well? Just comment on these 2 geographies, please.
Vinit, so if I start on the question on Norway, I mean, first of all, I mean, as we've said before, you're correct that we are not sort of satisfied with this starting position of the profitability in Norwegian personal lines. And that's very much what we are approaching and what we are taking actions towards. And as we have said previously, sort of this is something that we will improve and that we're taking significant actions towards. And that is also what you're seeing in, for instance, that rate page that was presented earlier, that the earnings impact on Norwegian rate, as Johan was mentioning, is roughly 2 percentage points higher this quarter relative to the last quarter. You should be expecting that is even higher sort of in the next quarter.
And on top of that, yes, there are other actions that we're taking as well, for instance, deductibles and pruning and so. So it's a sort of combination of different factors, all being done to make sure that we are delivering on our promise to improve the profitability in personal lines Norway. So we're super committed to that, doing exactly what we said, looking back, and we will continue to do that going forward.
And I guess just to elaborate slightly, we had a Q1 combined in Norway at 102%. We're now delivering 88.1% combined ratio for the quarter. It's still not where we want it to be for Q2, but it's going in the right direction. We can see that the medicine that has been prescribed for Norway Private lines is working, and we'll gradually get to a level where we are comfortable.
If you look at the same quarter last year, we had 80.8% combined for Norway, but bear in mind, this is not a good comparison. This was a very benign quarter for the Norwegian business. So don't use that as a reference point. We are heading in the right direction in the Private lines Norway, but these things take time and we need to stay patient in getting to the right level. We will get there.
Up next, we have Martin Gregers Birk from SEB.
Just continuing in the lines of the last question, especially if you look at the year-on-year comparisons and also adjusting for the run-offs, as Johan, you alluded to being one of the explanations for sort of the big swing factors when you measure by geography. I mean, you still see quite a big deterioration in Norwegian business Q-on-Q. You also see 2.2x run-offs for the Danish business year-on-year measured on combined ratio. What are sort of product-wise, what are the main villains in these deteriorations?
Thanks for that question. I guess I think we've highlighted most of those, to be honest. So the biggest swing factors, if you look at it from a geographical point of view is actually run-off. And then if you just, so if you look at the run-off levels in Denmark and Norway, that is impacting quite a lot. But if you go to Sweden, just to highlight the Swedish numbers, we're delivering a Swedish combined of 60.2% for the quarter. But bear in mind that this is a quarter that has had almost no large claims for the quarter, and it has quite a lot of run-off for the quarter. So in the comparable quarter last year had a significant large claim.
But I guess if you look from a product point of view, I think we're back to where we started. I think we are looking into the motor, where we've seen frequency being fairly elevated for the first half. I think if you look at the aggregated market numbers for first half in Denmark, frequencies for motor up around 10%. For Norway, they're up around 6%. With Q1 definitely being the peak, and we're seeing a leveling off in Q2. Where this is going to end, I think we need to see a few more quarters to see frequency stabilize. But as Mikael was clearly stating, we feel comfortable that we are on top of this development, but motor is by far the biggest villain in the underlying deterioration.
But, and just to clarify the deterioration, when we're talking about deterioration in Private lines in general, if you take a 10 basis point deterioration on underlying on a group level, it's DKK 9 million, just to put it in perspective. So I think we feel comfortable that we've got things under control.
So basically, once you fix your motor issues, then we shouldn't expect a year-on-year deterioration of each run-off of 5.4% in your Norwegian business anymore, then that number should drop to 0.
Yes, correct. I mean, as Johan was mentioning, I mean, it's very much a motor history when it comes to person lines. So once we get ahead in the earnings impact versus the inflation that we're seeing, you're very correct that that should be sort of the mitigating factor and the improvement going forward.
And you wouldn't say that there are other sort of reasons in your Norwegian business besides motor?
I think as we've stated before, I mean, motor is a general issue across sort of geographies. So it's sort of Sweden, Norway and Denmark, mainly person lines, less Commercial lines, but it's very much because it's very tilted towards personal cars. In terms of Norway, motor is a big factor, but it's not the only factor. And that's also why you're seeing, for instance, in the rate slide, we're showing quite high increases when it comes to the property business. So the actions in Norway is not only falling into the motor category, it's falling across the different pieces.
And just to elaborate 1 thing on the Norwegian performance for the quarter with the risk of bringing optimism to the table, a part of what we see of weather impact for the group comes in Norway and a large part of that is actually a spillover from some of the weather related claims we saw in Q1 that are now being finalized and wrapped up in Q2. So a component of that is actually also in the Norwegian numbers for the quarter. So we are optimistic around the ongoing improvement for Norway. So, all those things take time.
And how much is that?
I don't think we're disclosing that.
What's the impact of that?
I don't think we're disclosing that, but a significant part of the weather we do see for the group comes out of Norway. Let me put it that way.
[Operator Instructions] We will now take Johan Ström from Carnegie.
I'm curious to hear your thoughts on the customer behavior in the Private lines after all these price hikes that we've seen over the years and generally higher cost of living. So do you expect the changes in deductibles to have any significant effect on retention levels? Or is it more part of the price that really moves the needle? I guess, it all boils down to the competitive environment, but just interested to hear your thoughts on this.
And it's indeed a valid question how customers receive these changes that are going into the market. But I think you highlight the key factor here is that these are market changes. It's not just Tryg, it's actually happening across a lot of operators in the region. We've so far seen retention levels staying fairly stable. We are seeing them sort of somewhat giving in a little bit on that very high retention levels, but nothing that we didn't expect. It's all according to plan. And we don't expect the pricing changes or the changes in deductibles to have any significant impact on retention as this is actually a market movement more than a Tryg movement alone.
I think just to add one comment on that when we talk about the deductibles, I mean, for instance, we mentioned Swedish motor deductibles before. I think it's important to note here that these are deductibles that are fixed in kronor amounts. So in an inflationary environment that we have experienced during the past 2 years or so, it's quite natural actually that these deductible levels are being changed. And as Johan was saying, this is something which is happening in the market in general. Everyone is seeing sort of the same things. So it's, I think, a quite natural development.
We have a follow-up question from Vinit from Mediobanca.
Just picking up on the motor, sorry to come back with just one curiosity. The severity topic, the slightly higher average cost of claims which is on Slide 13. I think that's a bit new and you did say that severity inflation, the worst is behind us. But I just, maybe if you could reassure us that while you mentioned this, with the first, not the first time maybe, but it seems to be a new topic that the average claim is going up even now. I'm just curious if I'm reading too much into that or whether there's any thoughts on that?
Yes, thanks Vinit for that question. So, I mean, the fact that the average claims are going up, I mean, definitely not a new thing. Obviously, we're having an inflationary development and I've had that, especially now the past 2 years. So, that is nothing new. It's something that we expect. It's not something which is worsening. And I think that's very important to note here as well, that we do believe and we're quite confident that the worst is behind us when it comes to severity inflation. And again, just reiterating that the severity inflation is something that we are building into our pricing models and sort of moving very much in line with expectations.
The next question is from Alex Evans from Citi.
Firstly, I just, I don't know if I just missed it, but did you comment on the 60% combined ratio in Sweden and what was driving that? And then I just wanted to ask on the deductibles. So, obviously, it's a market thing that appears to be doing as well. I mean, one of them was suggesting that the 70 basis points improvement in the loss ratio from moving the deductibles. Is that something concurrent with your thinking and how we should be thinking about the impact of that?
Maybe I'll take the first question on the Swedish combined for the quarter of 60.2% because I do understand how that, of course, stands out. That is a very, very strong number to print in Sweden. And I guess, there are 3 driving factors behind this number. One is the fact that we have had the total absence of large, almost total absence of large claims in Sweden.
The second one is we've had a quite significant, extraordinary run-off in Sweden. But thirdly, we're actually having a very, very strong performance in our PA book in Sweden. So if you sort of take the 60.2% and adjust it for the large claims and adjust it for the runoffs, we're still mid 70%s for Sweden, which is a very strong level. And actually, from a strategic point of view, this emphasizes the strengthening we've done to the Tryg Group by doing the RSA integration that we now have a very strong producing business out of Sweden. So that is the explanation behind the 60.2%.
And as for the next question, Mikael, will you take that on deductibles, I think?
Yes. So I think, I mean, coming back to, we don't guide specifically on the number for the underlying loss ratio improvement, but what we do state is that we continue to see improvements which will support our financial target for this year and beyond. And in terms of sort of the actions to get there, as mentioned before, well, obviously pricing is one very big and important factor, but it's not the only factor. So we are running multiple actions sort of across different things and where deductible is one of those actions.
And I don't like to sort of guide specifically on how much underlying loss ratio improvement that gives, but it's supporting the overall ambitions and the overall target and the overall promise that we give to you, that we are -- again, having this as a top priority for us. And the fact that sort of we're changing deductibles is quite natural and it's also natural in the market where it's not only ourselves that are running similar changes.
As there are no further questions, I will hand the word back to the speakers for any closing remarks.
Thanks a lot to all of you for the good dialogue and very good questions. As always, Investor Relations will be around today, the next few days. So if you have more questions or if you want to discuss more, just feel free to give us a call. Looking forward to see you around and thanks again.