Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Transcript 2022-Q1

[Baris Safak, executive]

Welcome to Anadolu Sigorta 2022 First Quarter Earnings Call. As usual, we are going to have this call with our CFO, Erdem Bey. He is going to start the presentation. And I'll continue with financial side of the presentation. So at the end of the presentation, we are going to continue with the Q&A session. You might have your questions at the end of our presentation. Thanks for attending. Erdem Bey, the floor is yours.

[Ibrahim Esenkaya, executive]

Thank you. Thank you, Mr. Safak. Welcome to the Anadolu Sigorta financial presentation of '22 quarter 1. My name is Erdem Esenkaya. I work as a level 3 Chief of our Account Finance, Purchasing and Loan departments. Our presentation has 3 different titles: Company and Market Overview, Technical Results, Financial Highlights.

I will present company and market overview, technical results. After that, my colleague, Mr. Safak, who is the Manager of Fund Management and Investor Relations Department, will present the financial highlights. I think that it will take 40 minutes. After that, if there is any question, we will -- pleasure to answer it.

At the beginning, as you've seen in fourth quarter of 2021, really very interesting and difficult turn for us. Turkish economy was volatile, uncertainty, complexity, and ambitious at the same time. So '22 quarter 1 affected by fourth quarter of 2021 mostly.

And first of all, we would like to give attention about highlights about sectors, sector performance. Sector premium production reached TRY 37.3 billion, by 74% in year-to-date increasing. Easing price competition, companies see the reality because of increasing foreign currencies and inflation, I can say. Sector growth, above CPI, about 2/3. It is a little bit better or good, improving for us.

In motor branches, MOD and MTPL. MTPL policy is being sold at cap prices and surging MOD policy prices. Financial measures, negative real interest rate, it affect the financial instruments and the company's financial incomes, of course.

Inflation in rising trends, '22 quarter 1, 61.14 percentage hike. Low volatility in FX markets, I mean, 12 percentage year-to-date depreciation against the currency basket. Most of them, they affect our sector and they are the highlights of our sector.

Next slide, please. When we look at the financial year 2022, discounts rate changed from 14 to 17 percentage. It is very important improving for us and insurance sector. Change capital at the currency calculation for MTPL from 0.18 to 0.21 and MOD from 0.13 to 0.15. MTPL price kept incremental rate increases from 1.5 percentage to 2.25 percentage. And MTPL price kept one-off increase 20 percentage.

Next slide, please. When we look at the premium production figure, we can see easily that we are betters than last year and sector 2. Total nonlife premium products, TRY 37.3 billion in '22 quarter 1. Last year, at the same time, it was TRY 21.4 billion.

It shows 74.2 percentage increasing. Anadolu Sigorta premium production increase rate is higher than the sector premium production increase rate. When we look at the chart, we can see the distribution of production shared by companies.

Top 5 companies have 50 percentage and top 10 companies have 70 percentage market share in 2022 quarter 1. We can say there's a big penetration in top 10 companies. Again, it is going on.

As you see in this page, Türkiye Sigorta is the first, Anadolu Sigorta is second and Allianz Sigorta is the third degree of the range. Last year, Allianz Sigorta was second and Anadolu Sigorta was third.

Next slide, please. Premium growth higher than the sector ranked in top 3 at 12 nonlife branches. It is a good result for us. Premium production, TRY 4.2 billion, nearly 76 percentage year-to-date increasing. MOD growth, 120 percentage. MTPL growth, 57 percentage in '22 quarter 1.

Portfolio allocation updates, CPI-linked treasury bonds increase in equity portfolio. Investment portfolio reached to TRY 10.5 billion, additional TRY 1.2 billion quarter 1. And the investment position is better than last year. We are trying to more financial income fees turn to. Investment yields reached 24 percentage increase.

Now we would like to show a little bit a different part -- chart for you, especially MOD average premium increase and average vehicle price increase because when we look at this turn, the high inflation rate is -- affect all financial tables.

And we'll arrange all premium prices -- premium to the average vehicle price increase, especially when we look at the MOD [ vis-à-vis ] in Turkish [ cost co ] -- average premium last -- in 6 months, nearly 93 percentage increasing, new average premium increased 93 percentage. And renewal average premium increase rate was 64 percentage.

We mean we are following the reality of the market. At the same time, we will look at the vehicle price or hard price. For example, we increased 93 percentage. But at the same time, vehicle price increased 57 percentage. So we are -- average premium increasing more than the increased rate -- vehicle price increase rate average.

Next slide, please. Especially when we look at the highlights, gross premium writing -- when we look how the branches or company was below sector because we would like to get profit in this branch especially. So we choose the risk in motor branches. We reached the increasing percentage rate motor sector.

We have the same idea but in this section, we increased the prices for market reality. But it is very good improvements for us especially when we compare the sector. Sector has increased 74 percentage. But our premium production increased 76 percentage. And it is a good news in this bad turn.

Next slide, please. Again, when we look at the compared premium production on both Sigorta and nonlife sector, last year and this year quarter 1, 76.3 increasing -- percentage increasing last year in Anadolu Sigorta and in online sector, 74.2 increasing last year. In this section, especially the MOD and other branches are very good, improving and increasing for us.

Next slide, please. Then we look at the market share and strength. We are in top 2 in 40 nonlife branches. Our company, which attached importance to balanced growth in every branch, has succeeded in winning 2 first places, 4 second places and 6 third places in 14 branches. And in average, in the second rank, all of the premium production.

When we look at the financial status and activity results of our company are examined, it is seen that our assets exceeded TRY 19 billion with an increase 43.5 percentage compared to previous year. And premium production reached TRY 4.1 billion and an increase of 76 percentage compared to previous year as a result of premium increase realized or increased its market share and reached a level of 11.1 percentage.

Our company -- after that, our company realized TRY 197 million and the unconsolidated net profit rise 18 percentage compared to the previous year. And net profit value in our consolidated financial statement was TRY 147 million.

Next slide, please. When we look at this distribution channel slide, we have got nearly 2,650 agencies all about the country. And at the same time, nearly 1,000 each bank branches and others, totaling 3,700 -- or 3,750 like that, brand channels, all of the country. I can say the words, repeat, network, all country. This is a very important side of the sector cover. And there are nearly 300 direct sales staff, we say [indiscernible] [ NSU ] and they are working in each bank branches. And they are very strong channel for us.

When we look at our premium production, if we compare the last year, agency production, just a little bit 9 point decreasing. But at the same time, broker increasing and bank insurance increasing. Premium production is increasing if we compare to last year. But if you compare the sector, we reached same level in agency premium production.

Next slide, please. Technical results. Excellent increase in premium production and decreasing climate effect combined [indiscernible] [ the way is going on]. And it is a good result for us and it affects all. Financial situation is very profitability.

And then we look at the next slide. We will see the half branch. Next slide, please. And half branch is very important for us. We are planning to grow this branch. But on the other hand, have inflation rate and higher than the inflation rate. We know it and we are very careful in this branch. So we would like to grow. But at the same time, we are very careful at this.

And finally, the -- only 59.1 percentage increasing is branch. But in the next term, we'll increase and we'll grow more.

Next slide, please. MOD is another very important branch for us, especially premium production increasing to 120 percentage. It's a very good increasing. But at the same time, clients net is increasing 100 -- nearly 10 point increasing, is very high. And combined ratio 150 in the next term. Especially, we will try to decrease this combined ratio in this branch because it affects our financial station negatively. We believe that, but at the same time, it is very important for our premium production in portfolio.

Next slide, please. I go very rapidly in this slide just because general losses. And next slide, general losses -- next slide, Mr. Safak? Foreign nature.

And the next slide. MTPL. Especially, MTPL is more important for the others because we say in Turkish locomotive very important branch for our portfolio. We increased premium production 56.7 increasing. At the same time, clients net 23.4 increasing and combined ratio is similar. It is a very good result for us. But it is a branch. We will be very careful again to -- like a help branch.

Next slide, please. As you see, our combined ratio is increase the reach, 122.6 percentage. We can say nearly 9 point deterioration about it. It depends on increasing client exchange rate change and inflation rate change. And inflation is more affectable in this ratio. Deferred clients are important in this ratio, too. At the end of the year, we are targeting to decreasing our combined ratio, too.

Now I would like to give sentence for my colleague, Mr. Safak. Thank you.

[Baris Safak, executive]

Thank you, Erdem Bay. I'm going to continue with -- on our feed, P&L breakdowns and continue our portfolio breakdown as usual. Our assets amount increased around 14% with TRY 2.3 billion in the first quarter, thanks to strong premium growth of 74%, as we had mentioned in the previous slides.

Also, our assets under management volume increased to TRY 10.5 billion. The increase was around TRY 1.2 billion. On the other side, on the line of sight, our technical reserves increased around 9.4%. And it reached to TRY 11.8 billion at the end of first quarter. And our shareholders' equity growth was a bit stronger, 23%. And it was around TRY 4 billion.

And if we continue with the next slide, our income statement, this summary is seen on the presentation with the footnote. You may not expect transferred income and deferred tax are excluded. So it is a bit different from our disclosed P&L.

In terms of first quarter, our technical income grew 47%, again with the strong growth coming from premium. Technical expenses also, claims payout was strong like fourth quarter with fixed depreciation to [indiscernible] And also, of course, the minimum wage increase affected expenses strongly. So it increased 56%. But our financial income also was strong in the first quarter with 72% increase. And we were able to achieve TRY 674 million financial income and other expenses, I may say.

So when we deduct tax and deferred tax, we were able to reach TRY 197 million net profit in the unconsolidated form with 19% increase. And consolidated P&L results was -- increase was 22%. And we were able to achieve TRY 147 million net profit.

And on the next slides, we have analyzed our breakdown of the P&L according to earnings, technical and financial sides. Our technical results was most -- as you see, around TRY 400 million. And investment income stood at TRY 700 million. Dividend income was coming from Anadolu Life as usual. And the other items, as you see amortization provisions and other tax -- at the end of the day, we were able to reach TRY 197 million.

On the next slide, we have calculated ROE. But this is a trailing 12 months ROE. So long -- it was consolidated and unconsolidated. In terms of first quarter, trailing ROEs were 23% for consolidated balance sheet and 17% -- around 17% for unconsolidated balance sheet.

On the last page, our investment portfolio breakdown can be seen. As you -- as we had mentioned, we have -- we are managing around TRY 10 billion. The breakdown was bonds. This both includes Turkish lira bonds and eurobonds. But this time, we also have bought some CPI-linked bonds. It's around 5%, starting from late 2021.

And we have funds, 8% stock. Our stock portfolio also increased for 2022 first quarter. Also, we have some funds that are stock funds, around 2%. So we may say our stock fund is really around 10% and time deposits is around 16% for the end of first quarter. Our investment income was TRY 531 million in the first 3 months of this year.

So this is our presentation for 2022 first quarter. We may continue with your questions, if you have any. Thanks for listening to us.

[Baris Safak, executive]

[Operator Instructions]

[Unknown Analyst]

This is [Sayev] from Moon Capital.

I think one question from my side is on the combined ratio side-wise. If I look at your numbers, in the first quarter, your MTPL claims ratio improved substantially versus the last quarter of 2021. Obviously, there was minimum wage adjustment and few other adjustments as well.

But if I look at the historical data as well, I mean this ratio was among the lowest since 2017, I mean if you look at the historical data. So -- but the situation in the market is right now, the high inflation is here, currency depreciation, we saw in the first quarter. So how you were able to manage such a low claims ratio in the MTPL side? And what is your expectations going forward as well?

[Ibrahim Esenkaya, executive]

Thank you very much for your question. In this position, I would like to give a little bit of historical answer about it. I mean last year in this term, we were talking about end of the year and FX rate will be for U.S. dollar, maybe TRY 9 and inflation will be 14, 16 percentage. We were talking about last year in this term.

But when we came at the end of the year, especially last quarter, we have seen the different improvements. I mean the completion and the volatile Turkish lira and FX rates changing. And after that, our damage cost increased the highest.

It increased. In this position, it was very difficult to arrange our financial station for it because last year in this term, we thought our policies, as I said before, 14 or 16 percentage inflation rate and TRY 9, $1 from the collected FX rate. And we range policy prices last year in this term.

But after that, we have seen the different position end of the year. And in this position, we arrange all stuff very quickly. And we began to increase our premium price -- premium, I mean -- prices of premium.

And end of the year nearly -- in December, we began to increase oil prices. And now in May, we are going on the increased oil prices again. First of all, we don't have any targets about -- we will be the first, we will be the second. No, we'll take the profits.

So we are choosing to risk, first of all. And we are increasing all prices. And we are managing all damage, three of them. So finally, we were trying to control our combined ratio, okay?

[Unknown Analyst]

Yes. So in the sense, obviously, as you highlighted, the previous policies were issued at a lower rate and lower inflation assumption. So as we move forward, I mean, the MTPL prices have been adjusted and the per month rate has already increased. So is it fair to assume that every quarter, we should see a combined ratio improvement? Or do you think that would come in the second half of this year and the second quarter may probably be similar to what we saw in the first quarter?

[Ibrahim Esenkaya, executive]

It's a pity. Inflation is high in my country, or our country. And it will go something like this for a long time. 3 months, 6 months, end of the year, I don't know.

So it's affect all damage and the damage costs at the same time. But I mean I'll try to manage it. And especially, end of the second quarter we will do the same. But after that, we believe that -- or we hope inflation rate will be decreased. And after that, all combined ratio will be better than we are planning it.

[Baris Safak, executive]

We have 2 written questions. I'm going to read the questions. The first question is coming from [indiscernible].

Can you comment on the impact of the change in discount rates in the calculation of outstanding claims on your Q1 results?

Shall I read again, repeat?

[Ibrahim Esenkaya, executive]

No. Look at -- discount effect all financial situation. If the discount rate couldn't change, it will be near the breakeven point. It could be a little bit more for us for our income statement will be the loss but near the breakeven point, I would say.

Perfect. Pricing side, low volatility, do you expect aggressive competition in terms of pricing sector? This is a very difficult question. I mean nearly 26 to 27 years, I'm working in the sector. And price competition is -- affect financial statement too much especially in this term. But I believe that in this term, insurance companies will be more -- mentality, more careful about price competition.

I don't think so. It won't be any aggressive competition, something like that because all of the companies have seen the loss of the money in this time because of the high inflation.

So if you don't earn money, if you don't get profit, you can go on more. So if you do the aggressive -- I'm talking about the aggressive competition, it won't be useful for the sector and insurance companies as well as insurance companies, investments and financial statements.

[Baris Safak, executive]

Maybe Erdem Bey for this part. As we have seen the companies are cautious, even though the volatility is low as Met Bey mentioned, companies tend to be more cautious. They might -- they are, I think, expecting some hike in FX. Therefore, we haven't seen any confidence in pricing yet for this year.

So we don't expect any aggressive competition. Just the opposite, companies are having meetings with our association for another one-off increase. We have been experiencing these kinds of things. But we are not sure if it's going to happen or not for MTPL, of course.

As you might recall, 20% one-off increase was placed for cap prices in MTPL. So I'd like to -- I wanted to add these comments. Thank you.

[Ibrahim Esenkaya, executive]

At the same time, I would like to more -- it is very difficult to say for other insurance companies. But I can say for my all country and my company, I mean, we won't do any aggressive competition about it, I can say. You're welcome.

[Baris Safak, executive]

I think these are all the questions. There's no further questions, Erdem Bey, as far as at I've seen.

[Ibrahim Esenkaya, executive]

Okay. Maybe for investors and investment analysts, don't know if they're here but end of the Bayram and Bayram Holiday. Anyway, thank you very much for joining our -- this presentation. And see you next end of the term. I hope for my country and for my company, it will be better than this term. Thank you.

[Baris Safak, executive]

Thank you.