AK Sigorta AS
IST:AKGRT.E
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AK Sigorta AS
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Hello, everyone, and welcome to the Aksigorta 2019 Q4 Financial Results Announcement Conference Call. I will now hand the call over to your speakers. Please begin.
Hi. This is Ugur Gulen, the general manager of the company.
This is Osman Akkoca, the Chief Financial Officer of the company. So we will share our year-end results of 2019, together with Ugur Gulen. Welcome all to our earnings call presentation. So we have good results to share with you. Now let me start with the first page, which shows the full year results.
And yes, in 2019, we had 31% growth in top line, and we reached up to TRY 4.5 billion premiums, annual premiums. And we had 61% growth in the bottom line. We had TRY 366 million net income. And the guidance for 2019, which was publicly disclosed, was 20% -- at least 20% top line growth and 50% -- let me check, yes, 40% -- at least 40% growth in the bottom line. So in 2019, our performance was much appreciating, and we beat all the targets we shared with you.
And our total equity reached almost TRY 900 million, with 25% growth. And the good performance was basically driven by the good performance in the operations, mainly coming from the improvement in the loss ratio.
We have a 4% improvement in the loss ratio, and our loss ratio was 73% at the end of the year. And our combined ratio, again, there's 4% improvement in the combined ratio, and it was 96% at the end of the year. And we -- all these results, our ROE reached the 45% with an improvement of 12%.
So this is the full year picture. And I'm speaking to the next page, Page 3, which shows the last quarter's performance figures. We have 40% growth in the top line, with around TRY 1.4 billion gross written premiums. And we increased our net income with 72%, and we have TRY 107 million net income in the last quarter, which is 72% higher than the prior year's last quarter. And you see, again, our performance in the operational KPIs is much appreciating in the last quarter. There is a 15% improvement in the loss ratio and 14% improvement in the combined ratio.
Just a quick reminder, in 2018, after the, let's say, fluctuation in the economy in August and September, the last quarter was far compared to the expectations. And in the last quarter, our ROE was 45%, with an improvement of 12% compared to the prior year last quarter.
So this is the overall picture in the last quarter. And in the next page, we share with you the figures of the market. The growth -- overall growth in the market is 21%, and this is the annual growth. And you see almost it is very close in each quarter.
The last quarter growth was 23%. And in the last quarter, the growth in the bank loans had positive impact on the -- on both mortgage loans and car loans. And these also affected positively the insurance side, especially the MOD business, MTPL business and also the home business. And the overall growth, as I said, was 21%.
Looking to the line of business breakdown. The fast-growing line is the Health business. In the Health side, there's 32% growth, year-over-year growth. And this is basically coming from both the penetration increase and also the price increases. The inflation in the Health business is basically driven by the medical inflation. So it is not directly correlated with the economical inflation. We can say that the medical inflation or the premium increases in the Health business was higher than 25%. And also, the penetration is increasing in the Health business. Combined growth of both the penetration and the price increases resulted with 32% growth in the Health business in the market.
And looking to the others, just they are all very close to each other. In the Motor line, 18% growth in MTPL. In 2019, you may remember, there is a price cap in MTPL and the price cap is increasing by 1.5% per each month. So accumulated, 1.5% growth comes to around 19% to 20% annual growth. So there is almost no change in the penetration in MTPL. All the growth is coming from price increases. And in MOD's side, there is a slight decrease in the penetration, almost 1% to 2% decrease in penetration. And the price increases are higher than 20%. It was around 23%, 24%. So combined growth is 20% in MOD in the market.
And in Non-Motor side, again, there is a 20% growth, very close to the market average growth. And looking to the distribution channels, agency channel's growth is 90%, which is almost the average of MOD and MTPL. So agency channel is mainly driven by the Motor products.
In the bank channel, there is 26% growth. Again, the contribution of the last quarter's loan volume increases is very high in that growth. And also, the bank channel is mainly driven by Non-Motor product and -- products and also the car product.
And coming to the corporate channel, there's 24% growth, again better than the market average growth. And also, the corporate channel is driven by both the group health business in the Health segment and also the Non-Motor products.
So this is the picture of the market. And in the next slide, we share Aksigorta results. And looking to the Aksigorta results, we have very good performance almost in all lines. We all performed to market in all products. We have 41% growth in all our -- let's say, meetings and calls, we share that Health is a strategic line of business for Aksigorta, and we have the intention to grow in the Health business. So we have a very good performance in 2019 in the Health business.
And in Non-Motor, you may all know that we say Non-Motor is the most profitable product group in the market. And it is very -- it is a very important line, considering the profit margins. So our performance in Non-Motor is also very good news for both the top line growth and the bottom line growth. And we have 31% growth in Non-Motor, which is better than the market's 20% growth.
And in MOD, the Casco product, we have 22% growth, which is slightly better than the market average growth of 20%. And in the MTPL, the compulsory motor product, we have 35% growth. And this growth is basically bringing Aksigorta in MTPL to the fair market share, overall fair market share. So we reached around 8% market share in MTPL.
And our overall market share reached up to 8.3%, which is 7 bps better than the prior year, which was 7.6% in 2018. So we are growing in top line, increasing our market share. We have a good trend in top line growth.
And looking to distribution channel, almost -- we have a very balanced growth in each channel. In the agency channel, it is driven by almost all lines, not only in the Motor product, but also in Non-Motor and other products. We have a very good growth rate in the agency channel, and overall agency growth is 33%, which is far higher than the market agency growth rate, 19%.
In the bank channel, again our growth rate is higher than the market average. We have 31% overall growth in the bank channel, while the market average rate was 26%. So in the individual segment of the bank channel, it was comparably less than the growth in the corporate and commercial side. But in the coming period, that will be adverse or change in the favorable individual segment in the bank channel.
And in the corporate distribution channel, we have 26% growth, which is slightly higher than the market's 24% growth. So looking to all lines and all distribution channels, we all performed to market in 2019.
So in the next slide, we have the underwriting results per lines and per channel. And going over the year-end results, we have TRY 41 million underwriting results in the Health business. So we increased our underwriting results in the Health business. And in the Non-Motor segment, we have TRY 102 million underwriting results, which is almost very similar to the last year's TRY 104 million. So as I said, in this year, compared to prior year, we have a growth, but mainly the growth came from corporate and commercial segments, which have less underwriting margins compared to the individual segment. So in the next year, that will change in favor of the individual segments in Non-Motor.
And looking to the MOD, you see the main improvement in underwriting results is in the MOD product. We have TRY 83 million-plus of underwriting results in MOD, while the prior year's result was negative TRY 90 million, so almost TRY 102 million improvement in MOD.
Again, after the economical fluctuation in 2018 in the third quarter, you may remember, there was a 30%, 35% depreciation in Turkish lira. So as we told you in our prior calls and meetings, MOD is priced in a Turkish lira basis. But the majority of the cost is coming from spare parts -- 70% of the cost is coming from spare parts and the spare parts cost is driven by foreign currency. So there was a mismatch between the pricing and the cost in MOD in the last year.
So in this year, basically due to the actions taken by Aksigorta in pricing, in claims management and in other functions, our underwriting results improved and our underwriting margins reached up to almost our historical levels.
And in MTPL, as we told you in our prior meetings, in MTPL, our target is to compensate the losses we received from the Pool with the profits -- with the underwriting profits we generated from the Non-Pool part. So we have a positive margin in the Non-Pool. We have a negative margin in the Pool side as all -- the rest of the markets have. So we compensated, and in this year, we almost -- even -- we have a positive result in MTPL with TRY 26 million.
And you may also remember, there was a high increase in the minimum wages in the last year. I can say higher than the market expectation and also our expectation in the last year. It was 20% expectation, and the realization in the minimum wage increase was 26%. So there was also a negative impact of the minimum wage increase in the last year's financials. But in this year, our expectation was around inflation, less by 13% to 14%, and the realization is 15%. So the gap between the realization and the expectation was not so high. So there is not a material negative impact on MTPL results coming from the minimum wage increases.
And looking to the channels, you see we have positive underwriting margins in each channel. We have 8% underwriting margin in the agency channel, which is mostly driven by the MOD positive results. And in the bank channel, we have 34%. And you may remember also our historic underwriting margin in the bank channel is about 30%. So we can say that we are aligned with our historical underwriting margin in the bank channel.
In the corporate channel, the underwriting margin is 26%, and overall company underwriting margin is 12%. Again, we can say that you see in the last quarter, our overall underwriting margin is 13%. So that picture in the last quarter is our historic and the long-run underwriting margin picture, we can say for your, let's say, forecast for the future.
And then in the next slide, we share the combined ratio results per quarter and also the year-end. We have 96% year-end combined ratio, which is 5% better than the last year's 101%. And also, again, in our guidance, we referred to the combined ratio improvement, around 1% to 2%, but you see we have a 5% improvement in the combined ratio. So the positive improvement in the underwriting result and also the net profit is basically coming from the improvement in combined ratio.
And referring to the each, let's say, part of the combined ratio, each component of the combined ratio, the expense ratio is 8% at the year-end. And in the last quarter, it is better than the year average, it's 7%. So you can forecast for Aksigorta, the long-run expense ratio will be around that level, 7% to 8%. You all know that, every time, our expense growth is less than our top line growth, so this means, every time, we are focusing the efficiency and improving our expense ratios.
And in the commission ratio, you see almost there's a stable trend in the commission ratio, it is around 16%. So you can use that rate in your forecast also. And the basic, the main improvement is in the loss ratio side. You see we have a 14% improvement in the last quarter compared to the prior year. And year-over-year, you see the improvement is 4% in the loss ratio.
And in the next -- on Page 9, we share the breakdown of our investment portfolio. And I can say that we have also a good performance in the investment side, just like the top line and underwriting margin and the overall profit quality. Our average return yield is 19%, which is around 3% better than the market average, referring to Q3 results. And again, this 19% is better than our main competitor's return yield.
So our asset under management reached up to TRY 2.6 billion at the year-end, and our full year financial income, the interest income is TRY 408 million in this year.
And looking to the breakdown of the total portfolio, we have 66% of our total portfolio in the deposits. So looking to the prior year's breakdown, there is a reduction in the deposits. So we tried to increase the duration of our overall portfolio, so we reduced the share of the deposits and it's 66% at the year-end.
And we have 16% in the corporate bonds. So we are eager to invest in the corporate bonds, mainly the high-rated and the well-reliable issuers' bonds, but you may know that, in 2019 and in January, there was not much issue with these conditions, the high-rated and the well-reliable issuers.
And so we could not increase the exposure, but we are renewing our current corporate bonds and the share is -- as the shares come down to 16% at the year-end. And we have 7% of our total portfolio in the Eurobond. So year-over-year, almost 1% increase in the share of Eurobonds. And in the government bond side, this is another instrument which we invested in this year. We increased our exposure in the government bond side in order to increase the duration of the total portfolio.
And we also invested in the equity side. It was 2% in the last year, and we increased it to 6%. And already, we are increasing our share in the equity. We see a good potential in the stock exchange, and we see the stock as cheap compared to the other emerging market averages and also Aksigorta stock prices comparably low. We have almost 6.5% P/E, while the emerging market averages are around 12% to 13%. And also, the Istanbul Stock Exchange average is around 8% to 9%.
So in the next -- so like we show all the quarter financial results as well as the year-end financial results, we have TRY 366 million net profit at year-end, and that all of you know, that the last quarter is higher than the prior quarters because we are increasing the gross written premiums, so we are increasing the business. So each quarter, the underwriting results would be expected higher than the prior year same quarter. We have a much appreciating result in the last quarter, TRY 107 million, which is better than the market consensus, TRY 94 million. And we told the details of the combined ratio and underwriting margin.
So in the next page, we share the figures from the balance sheet. Our assets reached up to TRY 4.6 billion at the year-end, and our ROE is 45%, which is far better than our competitors and the market's average ROE.
And then the next page, Page 12, shows the bridge between our statutory results and IFRS results. You know the main difference between the 2 financial statements is coming from the discounting of outstanding claims, and we have TRY 74 million coming from that discounting in the P&L in this year. So we have TRY 309 million net profit in IFRS financials.
So next, we share the risks and the opportunities for the coming period. Slowdown in economic activity is almost always a risk for an insurance business because all the insurance, the market is underpenetrated compared to the peer economies. So we're always expecting growth in the economy.
And a risk, we can raise the decline in new vehicle and mortgage volumes. This is another risk, for especially the individual segment. And a further decrease in interest rates, so at the moment, we have around 11% in deposits and also, the Central Bank interest rate is around 11.25%. So the further decrease will impact, will affect our financial income. And a natural disaster is a natural inherent risk for an insurance business.
And coming to the opportunity side, decreasing interest rates will trigger the economy, and the increased vehicle sales and the mortgage sales is an opportunity. And in the market and also in the category to that, will be always the introduction of new products because we are spending money as well as the other competitors on the innovation and also the new technology and also these kinds of new products and as also the efficiency, which will cause -- or which will bring better cost management. So these are the opportunities.
And next, we are now sharing our guidance for 2020. This year, we expect a top line growth between 15% and 25%, which is higher than the inflation, plus the economical growth. And also, again, we are targeting to overperform the premium production or overperform the market again in this year.
And in the next, in the bottom line, our guidance is up to 10% growth in the net profit line. So these are the 2 guidance we are now sharing for 2020.
And our, in the next page, as usual, we are sharing our long-term ambitions. Our ambition is, first, a TRY 1 billion market cap; and then 10% -- higher than 10% market share; and net combined ratio at around 95%, we almost reached that 95%; and ROE, annual ROE higher than 30%. We are still probably down the 30% in both IFRS and TFRS financials.
So that's all from our side, and we are ready for your questions, both Ugur and myself.
[Operator Instructions] We do have a question from the line of Ovunc Gursoy from [ DVBMP ].
It's Ovunc from OYAK. Great presentation and congratulations for the good results. You have announced your guidance for 2020. If you give us more colors on that, about the cyclical line and financial income side, your expectation, [ maybe we could ask for expectations ], it would be very helpful. Also, about dividend distribution, what should be -- what we should expect for 2020, could you give some color on that?
Okay. Thank you, Ovunc. This is Ugur. Thank you for your question. With guidance, as you know, 2019, it's a year of making a lot of financial income other than underwriting results. From the presentation Osman showed, there is an improvement in the underwriting result starting from Q3, of the quarter 3. So most probably, the next year, we will have less financial income and then a clear underwriting result. The last year's on-average yields of our portfolio was around 18%, 19%. We could look at 19% again via Osman's presentation. When we look at this year's market yield, it is around 11%. So there is a very dramatic reduction on the yield of the portfolio, average yield of the portfolio. This was resulting in lower financial income.
But on the other hand, of course, our asset under management has been increasing due to the higher growth of Aksigorta compared to the market. And as Osman's guidance indicated, our GWP guidance is 15% to 25%, which indicates, again, a strong market share for Aksigorta that will increase our assets under management.
That asset under management increase may compensate some of the financial losses compared to 2019. On the other hand, this year, we invested a lot on the underwriting performance, particularly on the MOD and MTPL side. We are one of the underwriting margin champions in Non-Motor and as well as Health. So we improved the technical capability on the MOD side particularly, and most probably underwriting results performance would be better than 2019 in 2020. So underwriting results, plus assets under management growth and better portfolio management will compensate the loss from financial income in 2020.
The second question, dividend distribution expectation. First of all, I would, in general, say that Aksigorta is always a dividend payer company, and in 2020, Aksigorta will distribute dividends, always considering the capital adequacy ratio. So it is still not certain. The dividend policy is not certain. It will be certain in the general assembly as in March 2020. But I was trying to say that Aksigorta will pay dividend, always considering the capital adequacy ratio in compliance with the regulations.
Just a follow-up, what is your expectation for Aksigorta management growth? Is it like TRY 3.2 billion in 2020?
I [ cannot say that Aksigorta ], our assets under management, will end up over TRY 3 billion here at the end of 2020.
[Operator Instructions] And it looks like there are no further questions submitted or registered, so I'll hand the call back to the speakers for any closing comments. Please go ahead.
So we checked the questions on the platform, and we see no written questions. So thank you for all participating in our earnings call. So we are happy, very happy with our results, and we wish to welcome you with better results in this year also. Thank you very much. Operator?
Thank you very much for your participating to the year-end financials of Aksigorta. We are looking forward to seeing you in the first quarter results. Thank you.
This now concludes the conference call. Thank you all for attending. You may now disconnect your lines.