Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Transcript 2020-Q1

[Baris Safak, executive]

Dear, dear investors, we are very sorry for this problem. We had a link issue. Therefore, we were not able to start at 5:00. So it's 5:15 now. We are starting. Thanks for participating in our webcast 2020 first quarter earnings call. I hope you are all fine and healthy out there.

First of all, I shall say -- I may say that Mr. Gören, our CFO, and myself, Head of Investor Relations, Baris Safak, will be the speakers today. First of all, Mr. Fatih Gören will be the first speaker. So I'm going to hand over to him. The floor is yours, Mr. Gören. Please go ahead.

[Fatih Gören, executive]

Thank you very much, Baris. Welcome, everybody. Good afternoon. I hope that everybody is safe and healthy. And today, I'll start to give you some information about an Anadolu Sigorta first quarter results, and we will talk about some COVID effect to the sector.

Today, we are going to make our presentation with Mr. Baris Safak, as he said, he is our IR department manager.

Now let's look at the headlines. Yes, today's headlines are, as usual, we are going to look at our company and market overview. We will talk about technical results of Anadolu Sigorta, and Baris will explain you our financial highlights. Finally, we have a Q&A session, as usual.

Yes, we can go on for next slide. Let's look at the technical -- company and market overview. As you can see here that for the first quarter of this year, insurance sector has reached for non-life business, nearly TRY 18 billion premium income with an increase of 18%, as you can see here. While Anadolu Sigorta premium income has reached nearly TRY 2 billion for the first quarter with an increase of 21.2%.

We are keeping our leading position, as you see here, Allianz and Anadolu is -- has a leading position in non-life sector Aksigorta and Ziraat follows that. As you know, that Ziraat, Halk & Günes has a merging story, and after their merging, their market share will be around 13.3% and they will have the first trunk after that unification.

If you look at the top 5 companies premium increase, it is around 18%. As you see that here, and top 10 companies produced nearly 16% of the total premium. And we can look at the next slide. If you look at the business lines for the first quarter of this year, as you see that Motor TPL has [ reaped ] first rank with an increase of 19%.

The total premium reached nearly TRY 4.9 billion, and health branch follows that branch with TRY 3.3 billion with an increase of 24%. Motor own damage has nearly TRY 2.4 billion revenue with an increase of 12%. General losses, TRY 2.6 billion with 12% increase. Fire branch, TRY 2.5 billion, with a 17% increase, and accident branch nearly TRY 640 million with 9% increase. General liability, we see that TRY 538 million with 23% increase. Marine transportation, TRY 318 million, with an increase of 22%. Financial losses, watercraft, credit and other branch follows that branch. As you see that for the first quarter of this year, health branch has the biggest increase with 24% and general liability with 23% and Marine with 22% increase.

Of course, this is the -- a picture of first quarter. It will be changed for the second quarter, actually after COVID because of economic activities getting down. The motor TPL and motor own damage branch, especially, will be affect this situation. Some of policies will be canceled, some of them will be not renew and insurance companies, because of decreasing claims ratio, are going to make some discounts. So it will affect the second quarter of insurance sector, especially for non-life brands. Our expectation is the total premium increase will be down to 5% for total of the half of the year. And then for the second half of the year, the economic activities will be determined whether the insurance company will keep its premium income or not.

So let's look at the next page. I would like to give some information about the technical results. We start very strongly actually this year, as usual. As I mentioned you before, with 21% premium increase. While we succeed to recover our technical results, and our combined ratio dropped down to 104% with the help of the decreasing claims ratio, especially in motor business. I think this will be -- go down a little bit more for the second quarter of this year.

And for the first quarter, as you see that, also we [ drew ] a TRY 135 million for dividends, cash dividends. We succeed to increase our assets under management, 2.5% and it has reached TRY 6 billion, and we have credit card deposits nearly TRY 566 million. So we have a portfolio around TRY 6.6 billion, and that means an increase nearly 2% when we compare the previous year.

We can go on with the next slide. In this slide, you can compare the non-life sector results with Anadolu Sigorta. As you see that, while sector increased 18%, Anadolu Sigorta has an increased nearly 21%. And as you see that motor TPL, we increased motor TPL, 28%. Motor own damage, 20%, fire and natural disaster, 16%. And health branch, 30%, and other branch increased 14%.

Actually, it's another advantage for us. Before entering COVID, we succeed to increase especially motor TPL and motor own damage portfolios, and it will help us for the future to -- because, as you know, that while claims frequency will be decrease, it will be not easier to keep those portfolios. So we start strongly this year, especially on motor own damage and motor TPL portfolios.

Now let's look at the next slide. As a market leader, as you see that we are -- for most of the branch, we have the first rank, like motor TPL, with a market share around 11% and 28% growth. For motor own damage, we have nearly 15% market share, and we have a leading position for fire branch, 12% market share and first rank. General liability, we have 18% market share with again, 18% growth. We have market share, again, nearly 33% for watercraft, and we are a market leader. Aircraft branch, we have 58% market share. Aircraft liability, 40% market share, and we have a second rank for a marine transportation, 12% market share. Health and general losses branch, we have third places, and as a result of all those brands, we have the second rank with 11% market share and 21% increase as you see here that.

Let's look at the next slide. If we look at the distribution channels, you see that agency has 62% premium share in our portfolio. Bank has 14%, broker, 16%, and other channels has 8% in our portfolio. While more or less similar to sector, [indiscernible] sector, agency has 61% market share, bank has 17%, broker has 15%, and other channels has 7%.

During COVID period, we are lucky that all of our selling channels then easily produce their policies. They can stay at home and they can work safely. So there is no interruption or there is no problem while we are offering our policies to our customers by our channels. Let's look at the next slide. And in these slides, I'm going to give some technical results.

If you look at quarterly results, Accident branch, we see that gross premium written for the first quarter of this year has reached TRY 46 million, which means nearly 10% below quarterly quarters when we compare it previous quarter results. But when we compare it the previous year first quarter, it is showing an increase nearly 42%, while claims ratio decreasing is 16% in that branch. As you see here that.

For health branch, gross premium written has reached, for first quarter, TRY 292 million, and our claims ratio is around 86.3%, as you see here that. Health branch is one of the branch, which is affecting by COVID. As you can guess, on one hand, we are paying COVID payment to pandemic private hospital. On the other hand, because people are afraid of going to hospital, claims ratio is going to decrease. And in that branch, when we look at the total, I'm optimistic about the results of that health branch, and I'm expecting that this combined ratio will be getting lower for the coming months from my point of view.

Now let's look at the other branch technical results. For land vehicles, our gross premium written has reached TRY 351 million while our claims ratio is 66%. And for general losses, our premium income has reached TRY 201 million while claims ratio goes down to 68% for the first quarter of this year.

We can go on next slides. For motor TPL, as you see here that our gross premium written has reached nearly TRY 520 million with a claims ratio, 84% as you see here that. While for fire branch the premium written has reached TRY 296 million and our claims ratio is 67% as you see here that.

Now we can go on the next slides. As total, we are giving in that slides a combined ratio as you see here that, that also combined ratio trend of Anadolu Sigorta. Last year, the total combined ratio was around 111% as you see here that. And net commission ratio and expense ratio, you can see here also. This year, we see that decrease especially motor truck parts liability branch and health branch as you see here that. And the total of our combined ratio is dropped down to 104%. For the future -- for the second quarter of this year, I'm expecting that while on the one hand our premium increase will be draw. On the other hand, we will see that the claims ratio will be go back to or especially for health branch and for motor business and this will support our profitability especially on technical sides.

Now let's look at next slides. And now we are going to talk about financial highlights. And now I would like to hand over Mr. Baris Safak. Baris, the floor is yours.

[Baris Safak, executive]

Thank you, Mr. Gören. So moving to the next slide, I'm going to give some information about our balance sheet, financial report figures. We were able to increase our figures at the end of the first quarter. As you see we were not affected by COVID-19 at the end of first quarter, we are going to see some results impact maybe in the second quarter or in the third quarter. But in the first quarter, our assets [indiscernible] at around 3%. It was around TRY 300 million, and it reached up to TRY 10 billion as of first -- at the end of first quarter. Also, our assets under management had an increase, similar, almost 2.5% increase, where -- was happened in the first quarter in 2020, and it went up to TRY 6 million. Maybe you should also bear in mind that we have paid out TRY 125 million dividend in the first quarter. So even though we paid TRY 125 million dividend, we were able to increase our assets and our portfolio as well. After we paid our dividend, it was forbidden or it was postponed for the dividend payouts, but we were able to pay at the end of March, I may say. Also, our technical reserves increased. They went up to TRY 6.6 billion with an increase around 6.5%. Mainly the increase was coming from growth, and we have 3 parts for technical results, mainly -- especially -- actually 2 parts of technical results, mainly, I may say, outstanding claim results and annual premium results, almost TRY 200 billion increase came from annual premium results increase as an example, growth of around 20%.

And on the right-hand side of the slide, you are going to see our shareholders' equity. There was a contraction here, as you see. There's 2 reasons for the contraction, you may guess. The most important is Anadolu Life stock that we do book mark-to-market, and there was some decrease in Anadolu Life stock at the end of first quarter, like all other stocks like stock market as well. Also, we had some dividend income from Anadolu Life. So it affected also our shareholders equity, and we had a decrease around 9% in terms of equity. So moving on to next slide.

There's our P&L. Summary of our P&L, of course. In the first line, you may see our technical income. In the first quarter, our technical income had an increase at a growth around TRY 44 million on Q-on-Q basis when we compare it with a year-on-year basis, you may see TRY 183 million technical income increase. On the technical expenses side, the contraction -- the increase was much smaller on Q-on-Q basis, TRY 6 million. Increase happened in the first quarter. On a year-on-year basis, TRY 10 million increase, you may see in our technical expenses. So our technical income. Technical income plus technical expenses reached minus TRY 50 million at the end of first quarter. It was TRY 99 million for the last quarter of 2019, and it was minus TRY 122 million, at the end of first quarter 2019 again.

So the improvement in terms of technical side was very strong, I may say, in 2020. On the bottom of that slide -- no, no, the previous slide. After the deductions of taxes and deferred taxes, on the net profit stood at TRY 150 million at the end of first quarter, whereas it was TRY 125 million the year before and TRY 94 million in the last quarter of 2019. So the net profit in both technical side and investment side was strong in the end of first quarter [indiscernible].

On the next slide, there's a summary of our balance sheet. We have spoken actually about our assets. And when we look at the breakdown of our assets, cash and marketable securities had an increase in around 3%. And equity participations, which I have spoken about, Anadolu Life is our equity participation line had a decrease around 23%, which is some of -- at least 10% of it is because of the dividend they had paid. This year, it was strong also. And the remaining parts are other assets, deferred commissions, et cetera. On the right-hand side, you may see our liabilities, mainly the technical provisions is the biggest part of our liabilities, and we have spoken about it has an increase around 6%, and shareholders equity, the contraction around 9%. And I also told that technical provisions growth was mainly coming from our net premiums.

So on the next slides, you see we were able to grow almost in all figures, when we speak about. Assets had an increase, our shareholders' equity contracted, and we have spoken investment portfolio also increased and net profit in terms of -- of course, the other ones are annual net profits and TRY 160 million is our quarter net profit and important points that I'm going to highlight, our ROEs. These are average ROEs. 28% is our consolidated ROE and 22.4% is our unconsolidated ROE. We were still able to increase these 2 figures.

Yes. Well, if we proceed on the next slide, the last one of our presentation. Our investment portfolio breakdown at the end of 2019, our portfolio was around TRY 5.9 billion at the end of first quarter, our portfolio increased up to TRY 6.1 billion. This time, investment portfolio breakdown has some changes, especially, you are going to see some shift from bank deposits to bonds when we compare with 2019, for example, the bank deposits was around 86 -- no, 68%, I'm sorry, 68%. At the end of first quarter the bank deposits decreased to 57%. Bonds was around 15 -- 11% at the end of the year, at the end of 2019. At the end of first quarter, the bonds rate ratio increased to 24%, and another change was in the funds part. Funds at 17% from all portfolio. Now they came down to 14%. So funds and deposits decrease was around 40%, which bonds increase was similar. So I may say we bought some bonds, both Turkish lira bonds and Eurobonds in the first quarter, in order to increase our premium -- in order to increase our investment income. At the end of first quarter, our investment income was around TRY 190 million, and our average yield was around 19%. For sure, we are going to see some decrease in our portfolio in the remaining part of the year but still, we are going to have a nice portfolio income in our P&L, I may say.

So this is all the presentation slides have. So if you have any written -- so you may proceed to a Q&A session. If you have any written question, you can just type them on our Zoom chat group area. But if you have any verbal question, you can just unmute yourself or you can raise your hand, we can unmute your microphones, and you can ask. So, Q&A session. Please go ahead.

[Baris Safak, executive]

Yes. We have a question from [ Alfar Gufkumar ].

[Unknown Analyst]

My question regarding COVID-19. You mentioned that you made payments related to COVID-19. But as I know, that as COVID-19 is pandemic, insurance policies do not cover these kind of things. Am I wrong?

[Fatih Gören, executive]

Thank you, [ Alfar ]. At the beginning, it was not covered, but after private hospitals declared as funding hospital, some of our insured goes to those hospitals. And also, they have private -- had policies. We couldn't pay actually COVID payments. But after all the insurance companies -- after talking among us, we decided to pay this COVID payments for private hospital. So it is not only an Anadolu Sigorta, also the whole of the sector. It was important to keep our -- to keep the trust of our customers and to keep good relations because nowadays, nobody goes to hospital because they are paid off, COVID. And while they are going to care, they are going -- it's also because of COVID. If you do not pay, call it, treatments, that will be a big question for the necessity of insurance policies and insurance companies. As a result of this, we are paying COVID. But the amount of these figures are very limited.

[Baris Safak, executive]

If you have any questions, you may just -- we have a written question, I'm going to read it. It's from Mr. [indiscernible]. Bank channels -- bank channel as a percent of sales is decreasing and the reason for the decline? Mr. Gören, shall I repeat the question?

[Fatih Gören, executive]

No. I can see here. Thank you very much [indiscernible]. Actually, the bank insurance is directly related with credit lines. And for the first quarter of this year, especially when we look at commercial credits and new credits, especially house credits or car credits, there was a decrease in that credit lines. As a result of this, some of bank customers are choosing to wait until that COVID period pass to produce or to renew their insurance policies. That's the reason why we see a decrease in bank insurance channel. If -- but as you see that after Central Bank regulations, they are much more willing to give credits nowadays. And if there will be state an increase in that credit lines, it will directly affect our bank insurance channel also.

[Unknown Analyst]

Can you hear me.

[Fatih Gören, executive]

Yes, [indiscernible], we can hear you. Please go ahead.

[Unknown Analyst]

I have a few questions regarding with the impact of the virus. I mean I wasn't able to join in the conference in the early minutes. How do you see the impact of it? I mean, which impact is bigger? I mean, obviously, the premium growth will drop down. But so will be claims. Claims will also come down. Which impact will be bigger on your technical income? And when the things get normalized, how do you see your combined ratio will evolve? Will it go back to 105% or 110% level again? And I know it's too early to talk about that, but I would like to get your view, and I have a few more questions afterwards.

[Fatih Gören, executive]

Thank you, [indiscernible]. Actually, if I will look at our sector, we are one of the lucky sector actually for COVID period because we can stay at home, and we can keep our premium production. That's the good point. On the other hand, the economic, the insurance sector is directly related with economic conditions and the consumers' decisions. Nowadays, as you know, that new business is not possible. So we are much more focusing on renewals. And during that term, some of renewables are not possible because of expectations. People are -- want to wait and see because they are not using their cards, especially for motor business. And so the claims is decreasing, as you said. I see that -- for the second quarter, we see a dramatic decrease not for Anadolu Sigorta and for also sector in motor business especially because of that renewables and no new business, but on the other hand, the combined ratio will be getting better, as you mentioned before. After that period, for the second half of the year, expect that economic activity and mobilization will be increased, and it will effect positively. And some of our customers are waiting to produce -- to renew their policies, the economic situations. So it will balance, from my point of view. For the beginning, we see that the premium will decrease and combined ratio is follow that. And that will be no problem for the profitability side. For the second half of the year, it depends. Economic activities, if we can't recover our economy, not rapidly but gradually, our premium will be increased, our number of policies will be increased, of course. Time will show us what will happen for the second half of the year. But nowadays, we see that the insurance companies are seeing the claims ratio are decreasing. So premium is going to increase, and there will be balance between that. We are not expecting bad results on technical side actually for the first half of the year. For the second half of the year, if we have to choose one of them, of course, we are going to choose profitability, technical profitability for the rest of the year as Anadolu Sigorta.

[Unknown Analyst]

Okay. And regarding with your cash flow in terms of your receivables, are you getting your receivables mostly -- I'm assuming that most of you are getting your special retail receivables in credit cards, right? Do you see any disruptions in the cash flow? I mean did they apply to you to defer their payments? Or delay their payments? Or how do you see the trends?

[Fatih Gören, executive]

Actually, as insurance companies, as I said, we are on the lucky side that we are a cash position. The problem is our customers, actually, financial positions. As you mentioned before, most of our receivables, nearly more than 60%, are credit cards, coming from credit cards. So we are lucky about that point. But on supplier side, for hospitals, car sellers, for agencies, et cetera, they -- they may need some extra cash. And for our -- especially for our customers, policyholders may need some extra bonuses this year. And we try to give some extra installments for them during that period. For example, we try to motivate them to pay their premiums by using credit cards, we are giving some extra installments. On the one hand, we try to make them easier to pay and on the other hand, we are giving some extra bonuses for them. And during that term, also the government giving some extra bonus to companies. For example, we are transferring some of our premiums to the pools, as you know, that for [ dusk ] earthquake policies. And for motor business, they are giving some extra periods to insurance companies, and we are giving those extra periods to our customers nowadays. Cash flow is important, especially for our customers, of course. On the other hand, from our point of view, the claims ratio is decreasing. So we have a positive side that are payments is sharply decreasing. That's the good point. But on the other hand, as you mentioned, we try to motivate our customers not to cancel their policies by giving some extra installments for their policies.

[Unknown Analyst]

And this last question would be regarding with your investment portfolio. Baris mentioned that you increased [indiscernible] allocation to [indiscernible]

[Baris Safak, executive]

I couldn't hear your question. Can you repeat?

[Unknown Analyst]

Yes. How much of your investment portfolio is now invested in Eurobonds compared to the 2019 year end. Did you hear me?

[Baris Safak, executive]

Yes, I heard you very clearly now. Almost 10% -- no, I'm sorry, 15% of our portfolio is invested in Eurobonds. Of overall portfolio.

[Unknown Analyst]

Overall?

[Baris Safak, executive]

Yes. That was the question, right?

[Unknown Analyst]

Yes.

[Baris Safak, executive]

So we have another written question. I'm going to read the question. There are 2 written questions, actually. I'm going to read the first one.

Mr. Gören, what's the impact of the competition and overall to the market you expect from merger of state bond insurers? Market impact to the competition.

Mr. Gören?

[Fatih Gören, executive]

Yes. I'm here. So far, they are much more focusing into merging transactions and we are expecting that they are -- as a part of insurance sector, they are going to act softly, and they are going to defend the interest of insurance sector because nowadays, it is important to explain our position as insurers to the government. And it's a good point from my point of view to explain insurance sector problems and insurance sector private authorities, et cetera. It's an important point. On the other hand, I think they are going to much more focusing to sell their policies by using banking channels. And it is quite important to wait and see what will be their strategy going to be. So far, we are not seeing a disruptive competition. And I want to look at right side that it's a good opportunity for insurers to explain their problems to the government, especially for COVID periods.

[Baris Safak, executive]

Thank you, Mr. Gören. And [indiscernible], back to your question, maybe I should update you because my answer was regarding for the end of first quarter. At the end of April, I may say, that our Eurobond portfolio is about 20%. I'm not going to be able to give you an exact number because I haven't got yet, but we have bought some more Eurobonds in April. So it's maybe it's around 25%, I may say our Eurobond portfolio.

I'm going to read another written question. If the interest rates stay where they are currently, how fast will the average yield on your investment portfolio start to decline?

I'm going to give you this -- the answer to this question in that data. I may say that we have -- we are on cash position with around 15% of our portfolio. So that part is going to be affected immediately. But remaining part is going to be affected more in term -- in 3 or 4 months, I may say. The decline is going to be seen obvious now after 3 months, maybe for the remaining part of the portfolio, reply for this question, I may say.

So any other questions, do we have? [Operator Instructions] Mr. Gören, I think we don't have any further questions.

[Fatih Gören, executive]

Yes. Thank you very much for attending our conference call. I wish you and your family healthier days. Thank you very much, and hope to see you on next conference call.

[Baris Safak, executive]

So we are closing the meeting. Thank you for attending as well. Bye for now.