Tryg A/S
CSE:TRYG
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Tryg A/S
Earnings Call Analysis
Q3-2024 Analysis
Tryg A/S
In the latest earnings call, the management reiterated their commitment to navigating a challenging economic landscape characterized by sustained inflationary pressures. They emphasized that salary inflation remains a significant concern, impacting both operational costs and profitability forecasts. The leadership expressed confidence in the company's ability to mitigate these challenges through strategic pricing initiatives and cost management, ensuring stability despite external fluctuations.
The company's continuing focus is evident in its guidance for 2024. Tryg confirmed its insurance service result (ISR) target between DKK 7.2 billion and DKK 7.6 billion, aiming for a combined ratio at or below 82%. In Q3, they reported an ISR just below DKK 5.6 billion with a combined ratio of 80.5%. This suggests that the company is on track to meet, if not exceed, its financial targets despite the ongoing macroeconomic headwinds.
One of the integral components of the company's strategy involves enhancing the underlying claims ratio, particularly in the Private segment. Although there was a deterioration by 20 basis points this quarter, it reflects a more moderate trend than the previous quarter's 40 basis points. This trend aligns with strategic repricing efforts and initiatives to optimize claims management, signaling potential positive shifts in the coming quarters as these initiatives take full effect.
Management acknowledged that their repricing strategies in both Motor and House insurance segments are critical. They’ve increased deductibles and adjusted pricing structures, notably in Norway, to combat claims inflation while maintaining customer retention. Retention levels remained stable, even amidst elevated price increases, indicating that customer loyalty is holding strong despite rising costs, which is a crucial factor for long-term profitability.
The investment portfolio remains robust, with a total return of DKK 444 million in Q3, driven by prudent management of both match and free portfolios. The leadership emphasized the importance of a careful approach towards equity exposure and real estate holdings in a fluctuating market. They continue to prioritize low-risk investments that align with their long-term financial health and are prepared to adjust strategies as market conditions evolve.
Discussions around growth highlighted that the current surge in pricing strategies is predominantly influencing overall growth metrics. The management anticipates a future return to a more balanced growth profile as inflationary pressures subside. They expect that once the inflation tapers off, particularly in claims, there will be opportunities for organic growth and upselling across their products, especially in strong markets like Sweden.
In response to inquiries about competition, the leadership reported a stable environment wherein competitors are executing disciplined pricing strategies. This stability allows Tryg to maintain its competitive edge without facing sudden aggressive price wars, thus supporting its strategic objectives for profitability and market positioning.
Overall, Tryg’s earnings call reflects a company that is strategically poised to handle current economic challenges while simultaneously laying the groundwork for future growth. With clear profitability targets, proactive customer retention strategies, and a commitment to sound investment practices, the company is in a strong position as it approaches its 2024 goals and beyond. The upcoming Capital Market Day presents an opportunity for investors to gain further insights into the company's strategic direction and financial targets.
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Good morning, everybody. My name is Gianandrea Roberti. I'm Head of Investor Relations at Tryg. We published our Q3 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 would like -- I would just like to remind everybody to ask one question at a time.
And with these words, over to you, Johan.
Thanks for that, Gian. And I will turn straight to Slide 3 on the financial highlights, and I'm pleased that the highlights show solid ISR numbers, solid combined ratio numbers and solid dividend and solvency numbers.
So let's dive in. Tryg is reporting an insurance revenue growth of 3.9%, primarily driven by price increases across all segments. The Private and the Commercial combined, they grew more than 6%, while the Corporate segment, as expected, reported a top line fall, broadly in line with previous quarters following our rebalancing strategy.
The insurance service result was DKK 2.13 billion, driven by the growth and improving underlying performance and helped by large and weather claims being approximately DKK 650 million lower than in the corresponding quarter last year. Please note that this has been partly offset by a generally lower level of interest rates and a lower runoff result.
RSA synergies were DKK 58 million for the quarter and DKK 864 million accumulated since the start of the integration. The combined ratio was 78.2% in the quarter, while the group underlying claims ratio improved 30 bps. Private lines are most important segment, reported an underlying claims ratio deterioration of 20 basis points, slightly lower than the deterioration of 40 basis points reported in Q2, indicating that the Private segment is gradually approaching stable levels.
Motor remains a focus area as overall claims costs remained at a high level. The investment result was strong at DKK 444 million with both the free and the match portfolio reporting good performances due to virtually all asset classes having positive returns. And please note that we have maintained our asset mix largely unchanged.
To sum it up, the overall pretax result was just above DKK 2.1 billion, resulting in an operating EPS of DKK 2.89 and a ROOF of 42.1%. Tryg pays a dividend per share of DKK 1.95 in line with the previous quarters in 2024, and report a very robust solvency ratio of 202%.
Turning to the next slide, we focus on the customer highlights for the quarter as we continue to see a clear link between customer satisfaction and retention, and thereby, of course, our distribution cost and overall profitability levels. For this quarter, we are reporting a customer satisfaction score of 86%, at similar level as in the same quarter last year and also Q2 this year.
I'd like to highlight that we are pleased to see an improvement in the claims processes after having implemented Guidewire in Denmark and Norway. We do indeed see that our customers appreciate a more speedy and efficient claims handling. And although we have many initiatives to improve customer satisfaction going forward, it looks like we'll be challenged to reach the target of 88 at year-end, but let's see.
With that, I turn to Page 5 on the ISR development across segments. We are showing in this slide the insurance service results reported by the different segments. And as usual, many factors are impacting the reported figures. As for the Private segment, we are showing a significantly higher ISR, driven by much lower weather claims and a higher runoff result. As for the Commercial segment, we are showing a significantly higher ISR, helped by lower weather and large claims, partly offset by a lower runoff result.
And finally, as for the Corporate segment, we are reporting a lower ISR, driven by lower premiums due to the beforementioned strategic rebalancing and a lower runoff result, which is then partly offset by lower large claims compared to the corresponding period last year.
Now if we turn to the next slide, Slide 6, where we show the insurance service results split by geographies. We are very pleased to report a good quarter across the board. Sweden comes in again with a very strong combined ratio of 73.1%, Denmark checks in at 78.5% and Norway arrives at 85.1%. Obviously, as you all know, Q3 is supposed to be a good quarter across our business, but I am pleased to notice our Norwegian combined ratio starting to reflect a more appropriate level of profitability following significantly price increases. The plan for Norway is on track, and the medicine is working according to plan.
More importantly, looking at the ISR bridge for the group on the right-hand side, we noticed a very large positive difference of approximately DKK 650 million in large and weather claims performance this particular quarter against same quarter last year, partly offset by a generally lower level of interest rates and a lower runoff result.
Currency movements had a little impact this quarter. Interest rates are down approximately 100 basis points against Q3 last year, and please note that this has a material impact on our combined ratio of around 1%, all else being equal.
Now let's turn to Slide 7, where we are illustrating the progress on the RSA synergies. As mentioned in previous quarters, most of the synergy drivers are not new, but still producing ongoing impact. We've added a total of DKK 58 million in Q3 2024, which brings us to a total of DKK 864 million since the start of the integration, closing in on our target of DKK 900 million for the full year.
Procurement in this quarter contributes with DKK 17 million and continued to be driven primarily by our stronger consolidated purchasing power. As for the claims synergies, these are DKK 19 million and are primarily driven by the optimization of fraud. And finally, as for the commercial synergies, they were DKK 16 million and continue to be driven by improved relations with brokers, but also partnerships in the private business.
And with this, I turn to the next section on the insurance revenue and portfolio development and ask you to move on to Page 9. Tryg is reporting an insurance revenue growth of 3.9% in Q3, similar to the level for Q2 this year. The growth is fully driven by the Private and Commercial segment while the Corporate segment, as expected, is reporting a decline in revenue in line with recent quarters and in line with the communicated strategy of improving profitability and rebalancing the portfolio.
The growth in Private and Commercial continues to be driven by price increases to offset general inflationary pressures and the slightly higher frequency and average claims level in Motor. We'll get back to that. The Corporate segment is, as expected, continuing to report a revenue decline driven by profitability actions and the rebalancing initiatives to achieve a smaller, more local and more controllable book of business. Please bear in mind that the development for Corporate is primarily driven by the renewal of the corporate book 1st of January this year. We continue to be very firm to mitigate inflationary pressures, and hence, continue to implement further initiatives to improve profitability for particularly private Norway.
Turning to the next slide. We are on Page 10 showing the rate increases for the Private segment for both Property and Motor. We repeat that we are pricing according to inflation for both Property and Motor in all countries. In Norway, we're actually pricing even higher than inflation in order to improve profitability, and we see an accelerating level of price increases.
Zooming in on Norway, the chart shows that year-to-date we carried through around 13% price increases for Motor in order to mitigate inflation and improve profitability. In addition to price adjustments, we have also increased deductibles, which will also support improved profitability levels going forward.
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. And in general, the development is stable with very small drops in some areas and even slightly improved retention for Commercial Norway. In general, looking at longer time series, it is evident how our business continues to show a relatively low price sensitivity across different economic conditions.
And I guess with that, I'll turn it over to you, Mikael, to take us through the next section on claims development.
Thanks, Johan. And with that, we turn to Slide 13. In this slide, we comment on the group underlying claims ratio that improved by 30 basis points in Q3, slightly lower than the 40 basis points we had in Q2, and this was supported by profitability initiatives across all segments. The private underlying claims ratio deteriorated by 20 basis points in the quarter, a more modest deterioration than in Q2, where the corresponding number was 40 basis points. And this is primarily driven by increases in motor average claims and a slight increase in motor frequencies.
The Q3 development in both average claims and claims frequency was fully in line with our expectations. And we also note that we experienced a somewhat better Scandi claims frequency development than, for instance, what Danish external statistic implies.
It's important to remember that 20 basis points is equivalent to DKK 13 million in a quarter, implying broad margin stability. 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 rates and profitability actions get full earnings impact.
And with that, I turn to Slide 14. In this slide, as usual, we comment on the level of large and weather claims as well as discounting rate and runoff results. Large claims were very low this quarter, while weather claims were broadly in line with expectations and also included approximately DKK 20 million amount, coming from adjustments to Q2. Year-to-date, large claims are now below normalized level, while weather claims are slightly above guidance.
The discount rate was 2.2%, down some 20 basis points from Q2 and just over 100 basis points from Q3 last year. It's important to remember that we use an average discount rate in the period. Taking the September level in isolation, the discount rate would have been closer to 2.0%. The runoff result was 2.4% in Q3 and 3.0% year-to-date, in line with our guided range between 3% and 5% for 2024.
And with that, I hand over to you, Gian.
Thanks, Mikael. In the first of the 2 investment slides, which showed the usual split of the DKK 63 billion of invested assets in the match and the free portfolio. Not much has changed since Q2. As a reminder, the match portfolio of DKK 44 billion is primarily made up of Scandinavian covered bonds, while the free portfolio composition of approximately DKK 19 billion is virtually unchanged and relatively low risk.
In the next slide, we show the total return on investments operations. It was DKK 444 million in Q3, driven by a good performance of the free and the match portfolio. All asset classes produced positive returns in the free portfolio. Equities were up more than 2%, corporate bonds more than 4%, while also properties posted a positive return. The match portfolio reported a result of DKK 83 million, primarily driven by the inclusion of the interest on premiums provision.
Finally, other financial income and expenses totaled a negative DKK 70 million, slightly better than normal. As a reminder, the main item here is interest expenses on our loan, Tier 1 and Tier 2, which were around DKK 40 million in the quarter.
And with that, I turn over to you, Allan.
Thanks, Gian. Please turn to the first slide in the solvency and expenses section for details on the solvency position. This slide shows the movements in our solvency ratio, which ended at 202% as per end of Q3. As always, the movements in own funds are primarily driven by the strong organic capital generation and the dividend payment, while the SCR is slightly down due to a modest fall in the market risk. The predictability of our solvency ratio remains paramount for us as the moving parts are very clear and observable. A solvency ratio of 202% is obviously a very robust level to support future capital repatriation.
Please turn to the next slide. Here you can see the historical development of the solvency ratio. It is very clear that the current level is higher than most recent history. As a reminder, we took a more conservative approach to solvency following the RSA Scandinavia acquisition, which we believe was the right choice also considering the big inflation jump that followed. We will come back and discuss our solvency position at our Capital Markets Day in December. However, don't expect any big swing from us as we prefer some degree of stability. Make no mistake, we remain very focused on capital repatriation, but when we do make changes we will do it gradually as opposed to one big move.
Now please turn to the next slide. Solvency ratio sensitivities remain low as per previous quarters and not much has changed to this picture. The biggest drop to our solvency ratio comes from a 100 basis points movement in covered bond spreads, which should not be surprising as covered bonds are by far our single biggest asset class. All solvency sensitivities to other asset classes remain very limited due to our low-risk approach to investments in general.
Please turn to the next slide for details on the expense ratio development. The expense ratio was reported at 13.3% in Q3 and slightly lower than our guidance around 13.5%. This was helped by tight cost control and synergies from RSA Scandinavia acquisition. In general, we strive to have a low expense ratio as we believe this to be a very competitive advantage for us.
In addition, we believe that an efficient company is appreciated also from our customers. As mentioned before, a significant amount of the cost synergies are being reinvested in developing the business, especially in Sweden. The number of employees is decreasing further after a period with significant reductions following our efficiency initiative announced last autumn and as part of our ordinary business. Any adjustments to our workforce has also an impact on the other income and cost line as charges related to employee layoffs are booked here. 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.
And with this, I would like to hand it back to you, Johan.
Thanks a lot, Allan. And with that, I will take us to the final section on financial targets. So please move to Slide 24. And following a good Q3, 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 the first 9 months of the year, we are now reporting an ISR just below 5.6 and a combined ratio of 80.5%. Nothing much to add 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 result.
In the following slide on the financial targets, we are repeating again all our financial targets for 2024. There is very little news here, so let's move on to the next slide. This should be one of the last times we actually visit this slide.
And that brings me to Page 26. We are approaching the end of the current strategy period, and we are here displaying the 4 key strategic pillars of the current strategy towards 2024. It has indeed been a very intense period, primarily characterized by the integration of RSA Scandinavia, but also by extreme weather events, war in Europe and the arrival of a high and unexpected inflationary pressure. I'm satisfied by how Tryg has managed to navigate through a changed and highly challenging macro environment, while also demonstrating the ability to fight inflation and protect margins at the same time. This provides us with a strong platform for the future, and we look forward to sharing our plans towards 2027 with you all.
And therefore, moving to Slide 27, I'd like to remind all participants on this call about our Capital Market Day on December 4 in London, where we'll be launching our new strategy and disclose our new financial targets towards 2027. We're quite excited about this day, and we hope to see you all there in person.
And I guess that brings me to the last slide of this presentation, where as usual, we end with the Rockefeller quote, repeating our intense focus on dividends.
And with that, your favorite slide, Gian, I'll pass it back to you.
Thanks a lot. Operator, we are now ready to take any questions.
[Operator Instructions] Our first question comes from the line of Asbjørn Mørk from Danske Bank.
Yes. Congratulations with your solid Q3 numbers. I'll limit myself to one question, as requested. If I look at the sort of the underlying trends, the 30 basis point improvement year-over-year, obviously, the lowest improvement in quite some time. But then if I look at the underlying improvement in Private, as you also mentioned, Mikael, the second order derivative is improving for the third quarter in a row, 20 basis points deterioration.
You also mentioned a couple of points I would like to sort of dig into a little bit. You said that the data that you have in motor frequencies is different from what we see in the sector statistics. So if you could elaborate a little bit on that? It would also be interesting to hear your thoughts about the repricing that you have done in Motor and House, one you showed in the slide, especially in Norway, where you say you're repricing above claims inflation and then with the trends we're seeing on the claims data. What would be your sort of expectation for Q4 and into 2025 on the underlying improvement in Private given that, as you said, Johan, the medicine is actually working as expected? That would be sort of the first part of the question.
Second question being the counter of this, the corporate and commercial, I guess, is improving less than it has been improving for quite some time. So maybe a little bit of comment on that as well would be interesting.
Thanks, Asbjørn, and I'll see if I can sort of untangle those sort of different part questions of that. I think if I start with the motor frequency part, I think it's just important to note that we know that there are some sort of, on a frequent basis, external statistics that shows the development in Denmark. That's obviously something that we look at as well. We also report into it. But I think it's important to note that there is no sort of clear short-term correlation between that statistic and our statistics, at least not to 100%.
So I think it's important to note that there are some deviations there. And it's also Danish statistics versus Scandinavian statistics. But I think with that said, the important thing is that we see claims frequency being very much in line with our expectations. It's slightly up, but again, in line and very much as expected.
If I then take to the second part, the repricing, specifically for Motor and specifically also for Norway, I mean we are not by any means shying back from our actions. Quite the opposite, we are very comfortable with the actions set forth. We're continuing to take that medicine, as Johan said, and we think we are exactly sort of taking the right medicine, and we're also comfortable with how that is coming through.
And the way that plays out going forward, I think I'll just go for my reiteration that the underlying will support our financial targets of 2024 and beyond and also that there will be a change in the composition of that as the earnings impact, especially in personal lines is coming through. So I think that's just the big thing to take forward that we have strong comfort in this.
And if I then, third, should briefly comment on commercial and corporate, I think you're right. And I think the sort of read-through on that is there is still improvement to go for in commercial and corporate, but the big things in that, and again, looking back to our strategy slide here and what we set forth in the 2024 strategy period, we have targeted profitability improvement. We have delivered large profitability improvements, so I think it's quite natural that there is still profitability improvements to go for, but they are less than what they have been historically.
Okay. That's very helpful. If I may just follow up, so would it be fair then, given the repricing and the trends you're seeing that the -- to expect the underlying claims ratio in Private, which was 40 basis points in Q2, 20 basis points now in deterioration, that, that will be around 0 in Q4 and then you could get a pretty good improvement in '25 given the sort of lag effect from repricing trends?
And then maybe in addition to that, some of the measures that you did in Motor, looking at frequencies in Casco on your own numbers, frequency went from 20% in the long period to 32% last year on cash flow. So you talked about some of the deductibles and other things you were working on. So if you can give a little bit of flavor on what is it actually that you're doing now besides repricing.
I'll try to start as well. We're not giving specific numbers for the improvements in sort of how it will come from Private or from Commercial going forward, but reiterating that we do see that this will support our financials going forward and our financial targets. And it's also correct that Private will improve from where it is today given the actions that we're setting forth, which we're very comfortable with.
And before I hand over to Johan to give a little bit of sort of even more strategic flavor to this, you're fully correct that we're also beyond the rate increases. We're also doing other profitability initiatives. They include deductibles, for instance, specifically in Norway and Sweden mainly. And that is something that is implemented and is gradually earning through as we speak as well.
And I guess maybe the only thing to add, I totally agree with you, is probably just putting it a little bit into context, as you also did earlier saying, when we see a 20 bps deterioration in private lines, it equates to DKK 13 million, I think that is in our books considered stabilized in Private lines. And whether it's a little bit up or down is not important for the financial contribution to the business. So I think overall, we're seeing the right trajectory on Private lines also. And I think that's what you should take with you.
Our next question comes from the line of Faizan Lakhani from HSBC.
I just wanted to untangle some of the price increases you're putting through versus the top line you are seeing. The price increases in Property were up roughly 11% and in Motor 9%. Retention remains high, but your top line growth in Private was roughly 7%. Can you help me understand how to square that? Is that coming from other personal lines?
Second question is, my sense is that you're expecting claims frequency to be up a touch this quarter, what are your expectations or outlook for claims frequency and claims severity in Norway?
So I think if I start again on -- and let's start with the second part of the question, the claims severity and claims frequency, especially in Norway, I think first of all, it's important to note that -- and that goes not only for Motor, but the main part of inflation is salary inflation. So it's important to note. And it's also important to note that we are not calling inflation off. Inflation is still out there and particular in the salary inflation.
And then specifically for frequency, that's a little bit different depending on what country and what product we're talking about, but we are factoring in a modest impact on frequency going forward as well and pricing for that accordingly.
And maybe I can add to your question regarding pricing. I understand that it's difficult to see a direct link and correlation between the rate increases on Page 10 and the growth numbers we are reporting for the Private lines. But I think, as you also alluded to, there are many moving parts and other product categories. I think probably if you take a step back, I think the important thing to take with you is that we do see that the majority of our growth today -- in today's quarter is driven by price. If you go back a few years, you would have seen a more balanced growth with a little bit more of organic cross and upsell and even customer growth. Price is the predominant driver of growth today. And I think that is where we need to be in this inflationary environment. As it tapers off, I expect us also to see a more balanced growth profile. But it's difficult to make a one-to-one correlation.
Okay. So there's no real mix impact [indiscernible] premium business or anything along those lines that would dampen down the headline growth number?
I must say it's very difficult to understand your question. It's breaking up the connection, so we couldn't hear you. Do you want to try again? Or do you want to try and call in again?
Sorry. My question was, is there a mix impact in there? So are you writing lower average premium business that is damping down the headline growth number?
No, I think the way to look at it is that there's a broader portfolio mix that comes into play. We have other product categories. So it's not that there is an inflow of below average pricing in the new customer book, no.
Our next question comes from Mathias Nielsen from Nordea.
Thanks a lot. And congratulations on the strong results this quarter as well. So my question goes to like growth, like you already touched upon it in the previous question, but like when do you expect growth to be more balanced again? Like right now, it's primarily price-driven. And I know that you also had some growth expectations for Sweden a few years back when you bought Trygg-Hansa. So when should we expect that to be more balanced again? Could you give any flavor on that? And also a bit on the competitive situation in different countries, like how is that looking at the moment.
Thanks for that question, Mathias, and it's a good sort of more strategic question on a solid Q3 here. I think I'm not going to fall in the trap of giving you a date as to when the growth will be more balanced. I think right now, as Mikael also alluded to, we are still seeing the inflationary pressure on our business, so protecting margins is still priority #1. But we do expect, of course, in due time that inflation will sort of taper off, even claims inflation will taper off. And we do believe that we have very strong distribution and product engines in both Denmark, Sweden and Norway that we are ready to reactivate when we see inflation tapering off. But we are still being a little bit, let's call it, conservative or pessimistic on inflation and waiting to start that.
As for Sweden, you're right, we expected when we acquired Trygg-Hansa to see sort of more organic growth in Sweden. That was before we saw double-digit inflation numbers. I'm pretty comfortable that the brand strength in Trygg-Hansa in Sweden and the customer base is so strong that when we reactivate the brand and activate distribution in Sweden, that will come. So we feel we're in a good position right now. And I must say, and coming out of a strategy period where there's been a lot of macro shocks to the business, I feel very comfortable that we haven't been in a stronger position ever at Tryg coming into a new strategy period. So this is a good place for us to be, and we feel well positioned to rebalance growth when we see fit. But I'm not ready to set a date. I need to see how inflation ticks in every quarter.
And then on the competitive situation in the different countries, is that the -- is that still solid with price increases from your competitors all around? Or is there any signs of someone getting more aggressive on?
Again, sorry, I forgot that question. I think we are seeing a very stable competitive environment. There's lots of competition in the market, but nothing has changed either for the better or for the worse. It's stable with disciplined players in the market.
Our next question comes from Jan Erik Gjerland from ABG.
One question on the combined ratio outlook, so to speak, and you're now approaching a very good level in Q3, as you alluded to, Q3 is a good quarter. How far down could actually a combined ratio be on the long run for the full company? If you think about you now having it below 82% or around 82% as your target for 2024, where could we actually end up long term? Do you think 75% is doable? Or is this so that you being a financial supervisory authority company being less able to go far below 80% in the long run?
Let me try and give that an answer. It's a difficult question to answer, especially as we're coming to the end of one strategy period and enter another one. We are saying at or below 82% for this strategy period. I have a feeling we'll get back to this topic 4th of December. But I think fundamentally, sort of more strategically, of course, there's a limit to how low you can go on your combined. And the limit comes down to how your competition and how your customers react. So I think those are the determining factors.
But if you ask me, is there still potential for us to optimize our business? The answer is yes. Are we seeing players in other markets who within their home markets are making below 80% combined? Yes. But I think at a group level, playing in both Private lines, Commercial lines and Corporate, I think that has some limitations to as to how low you can go. But I think being in this quarter at 78.2%, that's a fairly strong Q3, but bear in mind, that this is also one of our better quarters from a weather perspective. So you'll see Q1 and Q4 being on different levels. So I think -- I know where you're coming from. I think we'll get back to this 4th of December.
Our next question comes from the line of [ Youdi Chicooree ] from Autonomous Research.
It appears Youdi is not on the line, so we will move on to the next one.
Our next question comes from the line of Martin Gregers Birk from SEB.
2 questions from my side, the first one being on solvency position. And just out of curiosity, why is it so important for you guys to wait until the 4th of December? I guess, capital -- excess capital is clearly there. And if you look at what -- where peers are pointing to, then it's definitely there. That's my first question.
And then the second question goes on reinsurance. Yes, I guess we've seen a -- we are seeing a U.S. hurricane season, which is ending with the fire and fury. And what do you guys think this will have -- do you guys think this will have any impact on reinsurance prices? And just sort of for sensitivity measures, what does it mean if Tryg's reinsurance prices increased by 25% to your combined ratio?
Thank you, Martin, and good morning, and I will start out by commenting a bit on your questions around solvency. And while we wait for our Capital Market Day, we actually find the Capital Market Day as a very good situation for us to elaborate around all parts of our solvency position, and thereby, we find that date very, very good for all of us. And let me just -- I mean, repeat that we feel very robust and comfortable with our current level. We want to -- as always, we want to have some kind of stability around our solvency position and not making too big changes overnight on that part. So we are looking very much forward to elaborate and to give you some updates on our solvency position in December.
Okay. And if I then turn to the reinsurance question. I think if I first divide it into 2 parts, I mean, obviously, there is some international development pretty much as we speak with the hurricane season going on and Milton going on in Florida, et cetera. As for us, the CAT program is not something that we have seen a lot of discussions on. Obviously, we're now going into the renewal season, and we're doing that a little bit earlier than what we have done before and also sort of approaching it a little bit differently, which I think is good.
So I think the big discussion from our part with our reinsurers will be much more on the property part where we're seeing some big fires, obviously, in the Scandinavian region. We have had our fair share of this. There's also been other large fires in Scandinavia. So that's where we expect much more discussions. But it's also something that we have factored in, in terms of what we expect in terms of pricing and conditions, et cetera, going forward. So we have taken height for that in our renewals and our prognosis going forward.
And what -- do you provide any sensitivities to reinsuring prices? I guess with these kinds of developments, I mean, it seems like there's a long way to Christmas, right? And from what I can read out there, it sounds like the market for CAT is heightening pretty rapidly these days.
I mean if I start with that, we don't expect and don't foresee as well that the reinsurance sensitivity is sort of that large that it would have fundamental and significant impact on our bottom line. So I think that's sort of something that we feel pretty comfortable with. And the sort of increases in terms of price is something that we have factored in. So I don't foresee that as being sort of a significant driver. But again, I mean, you said it, it's some months to Christmas, the world develops all the time, but that goes sort of up or down. That's what we hear for. We manage volatility. That's what we're experts on.
Just to echo that, I don't think this is something we should take out of proportion. I think you need to consider reinsurance, that's the way we consider reinsurance as a raw material that goes into the ingredients for our pricing. So for us, it's a matter of getting it right and passing it on to our end customers. So don't expect this to be any sort of an issue in terms of our financial performance. This is a matter of us getting it right and passing it on.
Our next question comes from the line of Johan Ström from Carnegie.
I would like to come back to Asbjørn's topic of the underlying claims trend for Private. As previously mentioned, you were able to reduce the deterioration by 20 basis points compared to Q2. Given that Motor frequency is in line with expectations, and we've seen the implemented rate hikes, particularly in Norway, and then also, and surprisingly, the very strong and robust retention levels. Is there anything that shouldn't bring you closer to a more flat or actually improving underlying claims trend in Private for the next few quarters? I appreciate the comments you made on the nominal effect here, but just wanted to try to understand this trend given that we're getting closer to the more challenging winter season.
Thanks, Johan, and I'll try to start on that question as well. I mean, I think back to my sort of earlier point that -- I mean, first of all, sort of inflation is not dead. It's important to note that there is still inflation out there, especially in terms of salary inflation. So having said that, we are, as noted before, extremely comfortable with the actions that we're doing. That goes for Motor across the board. It goes for Norway in particular, and we're not shying back from those actions by any means. So we're continuing those and then sort of reiterate what I said before that will have an impact on the composition of profitability improvement going forward. But I think it's too early to sort of call exactly how that will play out and exactly when, but we are very comfortable with the actions that we put forth.
[Operator Instructions] Our next question will be from the line of Vinit from Mediobanca.
So my questions have been addressed on the frequency and motor and everything. But just Corporate remains something of interest. And I know it's not strategically of interest, but it is having some swing on numbers. And I'm just curious, one question, please, in the Q3 '23, there was a very, very positive effect from Corporate and the underlying, obviously, not adjusting for discounting, but -- and that was about 16 points. And now in our calculation for this quarter, 3Q '24, with a worsening of 11 points. And I'm just wondering if -- and I know it's not strategically important, but I'm just wondering if this is just a high base effect of facing a very, very, very strong 3Q '23 in your Corporate lines and that's what led to an optically worse 3Q '24? So that's just my question on Corporate.
Yes. Thank you, Vinit. And I think it's important to note, first of all, that the corporate book is now below 10% of our total book, so obviously -- and that holds some volatility when it comes to large losses, obviously. So I think reading off individual quarters and sort of the up and down in that is quite difficult because that's -- I mean there is volatility for such a small book, but that volatility is very little when you play it out to Tryg total. So I think that's the first one, an important one.
And then the second part, sort of for the corporate development generally, I mean, we have executed on our strategy derisking our book. That's number one. That's what has an effect on the minus 18%. There's also been a couple of individual agreements, which is more linked to fronting that has a top line effect, very little bottom line effect. And then there are a couple of individual accounts where we -- that we have pruned because we haven't found the right mix of exposure risk and pricing, and then, we are stepping out of those because we are focused on bottom line.
Our next question is a follow-up from the line of Asbjørn Mørk.
Just a second question from me on the investment portfolio at the split. So you still have quite a lot of equity exposure, DKK 2.6 billion, also quite a lot of real estate exposure. I guess that's more difficult to do something about. But just -- basically just a little bit on your view or strategy for the free portfolio and especially the equity exposure. You did some adjustments last year where you did sort of like a 1/3 step down on your equity exposure, and then, nothing has really happened since. I'm just wondering what your sort of thoughts are around tying up so much capital into your free portfolio.
Thank you very much, Asbjørn, for your question here. I think if you have actually been asking us before around our match -- sorry, our free portfolio decomposition, I mean, overall unchanged profile since Q3 2023. And as of now, printing pretty good returns here in 2024. And for now, we are satisfied with our relatively low risk profile, also in terms of the capital requirement linked to this portfolio. So as for now, nothing has changed. And yes, not that much to add on this for now.
Just -- I obviously acknowledge the solid numbers for Q3. And just more if I look at the capital consumption and the sort of normalized return on equities that you would expect your return on own funds from the equity exposure in the free portfolio is basically your lowest yielding activity at all. And you have been doing a lot on the corporate business because you were not satisfied with the return on own funds in that business, but you seem to accept a much lower return on your equity exposure in the free portfolio. It just doesn't really add up to me. So I would just like to sort of understand your thinking here. Maybe it's something you come back to the Capital Market Day, that's obviously perfectly fine if that is the case. But I just don't understand why you want that exposure.
And again, Asbjørn, and thank you very much for the follow-up here. And as I mentioned before on the questions around our solvency position, we will come back at our Capital Markets Day with a broader view on our total solvency position, both in terms of our decomposition of our capital requirement and the own fund situation. And of course, our investment portfolio is linked to this one as well, so yes.
And just to add to that because I totally agree, Allan. But to Asbjørn, we're not going to argue against your logic, we follow your logic, so the question is just how we react to that logic. And for now, we've been comfortable with the position we have on our free portfolio. If that changes, we'll let you know, of course.
The next question will be a follow-up from the line of Jan Erik Gjerland.
This is regarding growth. And if you look into the growth in each country as we sort of look at it in that way to capture the FX changes, it looks like Sweden seems to be a little bit lower than expected or the growth has come down from 4.4% at the start of the year for 1.4% in the second quarter, now just below 1%. So how should we think about your portfolios in each country? How is it renewed, so to speak? How is your typically household portfolio in Sweden renewed? Is it gradually through the year?
When is the big corporate renewals in Sweden? And how is that? It's also in -- happening in Norway and Denmark, so we can understand more about how your price increases is filtering through and potentially how your competition is working and how your strategic review on the corporate book is doing in each country. So to speak, is the latter the biggest portion of the nongrowth in Sweden this quarter?
Let me try to start answering that question. I think, first of all, if you start sort of high level as for the corporate book in general, around 50% of that renews 1st of Jan and the rest is spread across the rest of the year. As for the retail-oriented part of the book, it's more evenly spread out through the year.
And I guess it's fair to say that as for the Swedish numbers, as you're alluding to, we are fairly comfortable with the Swedish growth numbers. Bear in mind that the corporate decline also flows into the Swedish numbers. So for private lines and commercial lines, we are fairly comfortable with the growth levels.
That being said, of course, we did expect to take it up a little bit of a notch when we acquired Trygg-Hansa, but considering high inflationary environments, we are comfortable with the levels. But bear in mind that corporate plays into this. So I think -- and I think we're not sort of disclosing specific numbers country by country on those lines. We are reporting by segments. And you are seeing the minus 18.1% for Q3, totally aligned with what we saw in Q1 and Q2. And I guess if we take a little bit of a forward-looking stance on that, I guess you should expect it to, of course, flow into Q4. And some of the drops we saw 1st of Jan this year will also flow into Q1 next year. But then you should see that starting to sort of taper off.
Our next question comes from the line of Daniel Wilson from Morgan Stanley.
I had a quick question on growth and kind of the underlying claims improvement in Private. So as I understand it, you guys are aiming to improve the underlying claims ratio in Private through pricing and other initiatives. How do we think about that against also targeting improved volume growth, as I think, as you said earlier, which might have slight pressure on the underlying claims ratio improvement? How do we think about those 2 matching up?
If I start on that, I think, first of all, and we've said this numerous times in previous calls as well, I mean, we are very focused on the bottom line, that's our #1, and where we start. And obviously, now that we are pushing through our initiatives in terms of price and other profitability initiatives that has some, but a very modest effect on the retention rate, as Johan has said before. So we do see a very modest but very much in line with expectations or below expectations effect on the retention rates.
And that's an effect that we are fully comfortable with. We are totally committed and focused on the bottom line. So I think that's our starting position. And then as alluded to before, at some point, this will gradually decrease, and our growth composition will be different going forward, and we have the distribution engine and the brands to capture that growth.
And if you perspectivize that into the underlying, of course, growing organically will, of course, create some sort of a headwind on the underlying. But please bear in mind that we are confident with the action -- as Mikael said, the actions we are taking to mitigate that going forward.
As no one else is lined up for questions in this call, I will now hand it back to the speakers for any closing remarks.
Thanks a lot to all of you for the good dialogue and the good questions. As always, Investor Relations will remain around at your disposal today and the next few days. And we look forward to see you around in the forthcoming roadshows. Thanks again.