Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Transcript 2020-Q2

[Baris Safak, executive]

Hello, everyone. Welcome to our second quarter of 2020 results webcast. It's national holiday. It's holiday since noon in Turkey, actually. All the ones who are participating to our meeting from outside of Turkey, please note that also we have declared our second quarter results yesterday in the evening. So we are going to give some brief information about second quarter and half of the year 2020 with Mr. Gören. After the presentation is over, we are going to have a Q&A session. Please feel free to ask any questions you'd like to. [Operator Instructions]

So the floor is yours, Mr. Gören.

[Fatih Gören, executive]

Thank you very much, Baris. Hi, everybody. Good afternoon. Welcome to Anadolu Sigorta conference call about second quarter of 2020. Today, I'm going to make our presentation with Mr. Baris Safak, our IR department manager. He's already introduced himself.

And let's start our presentation. Today, we have 3 main points in our presentation. In the first chapter, we are going to look at company and market overview. And then I will give you some information about our technical results for the second quarter. And on the third part, I will hand over Mr. Baris Safak, and he will introduce you financial highlights.

Now let's start with company and market overview. Actually, I'm glad to say in here that we started the year well, and we maintained the same performance in the second quarter of this year for both profitability and premium income. If you look at the premium income results for the second quarter, you'll see that the insurance sector increased around 15%. And the total premium has reached TRY 33 billion, nearly, while Anadolu Sigorta increased, reached up nearly 18%, which is higher than the sector.

And we are a market leader for the first half of the year. Our premium income is TRY 3.8 billion. Then Allianz follow us, as you see here, second rank. Aksigorta, Axa and Gunes are followers. You will notice that there is a huge increase in Gunes Sigorta. It's because of one-off business, one-off engineering business which they write for the second quarter of this year. When we look at the general of increases, as you see that, it is 15%. And our performance when we put aside the Gunes Sigorta one-off business -- engineering business is above our partners, as you can see here.

Let's look at the next page. I would like to detail it for the branch. As you see here that when we look at the business lines, motor TPL constitutes the biggest part. The premium income has reached nearly TRY 9.5 billion, with an increase of 8.3% for the sector. Motor own damage follow that branch at TRY 4.6 billion premium income with nearly 5% increase during that period.

Health insurance has the third rank, as you see here. When we are making this ranking, now I'm noticing that it has a big figure, and it is at the second rank. This ranking is according to previous year's results, and it has reached TRY 5.4 billion with an increase of 22%.

Fire branch has an increase of nearly 21%, and it has reached TRY 4.9 billion. General losses with an increase of 32% has reached TRY 4.7 billion. This includes that one-off business of Gunes Sigorta. That's the reason why this branch increased above the sector average. Accident branch, TRY 1 billion; general liability, again, TRY 1 billion; and marine and transportation, financial losses, watercraft, credit and other branch follow, as you see here.

Now let's look at the next slide. If you look at the highlights of the first half of the year, I would like to underline that our technical results is getting better. As you see here that for the first half of the year, it drops to 104% combined ratio we have. And we think that this performance will continue through the end of this year. Maybe it will be a couple of percentage will be better for the coming period.

If you look at our investment portfolio, also in that term, Anadolu Sigorta has increased its portfolio. And our portfolio has reached nearly TRY 7 billion. It's also including credit cards, as you see here that. When we compare the beginning of the year, it is more than 10% increase, I can easily say. And also, I already mentioned to you the strong premium growth of Anadolu Sigorta. So both in profitability and technical results, we are going well.

Let's look at the next slide. I would like to say a couple of words about the COVID period and its effects. Actually, after the COVID, as you know, non-life sector growth rate was flat, especially in April and May. But with the increased sales in auto and houses fueled by low credit rates as well as deferred demand of policy renewals, both of those factors boosted premium growth in June. So we get back, and the sector was able to compensate previous months' tiny growth. It's a good point. We are a very strong player in motor business, as you know that, and it helps us to grow our portfolio during that term.

And when we look at the claims frequency in that period, especially motor and health branches, the claims frequency decreased significantly because of lockdown periods, which is also -- this leads to some discounts in order to keep our customers in premium income. But after the lockdown period, we see that the frequency is still a little bit lower than the COVID -- before COVID period. Most of -- during that term, most of the companies, also including Anadolu Sigorta, announced that COVID-19 cases will be covered especially on -- by health policies.

Also during that time, motor TPL policies, which are included in the pooling system, maturing in May were extended for 1 month without additional premium. Government tried to help customers, especially during that period, and we gave some extra additional installments during that period or credit card transactions, and it helps us to keep our portfolio alive.

Let's look at the next slide. If you look at the trends on our net profit drivers, as you see that the value compared with the previous year's first half results, it rises up from TRY 230 million to TRY 278 million operating profit. And when we look at technical profit breakdown, when we compare it to previous year, as we see that, as you see here, that motor own damage, motor parts liability and health branch produced extra profit during that term, as we mentioned before, because of decreasing frequency, while fire and other branch was not good -- as good as motor branch and health branch.

Let's look at next slide. And I'm going to give you the comparison of business lines with sector and Anadolu Sigorta between. As you see that during that term, sector increased 8%. Anadolu Sigorta increased to 21% for motor TPL. When we look at motor own damage branch, you see that also our performance is really double and our increase is 11%. For fire and natural disaster branch, it is sector's performance and Anadolu Sigorta's performance is closer. And it's around 20%, as you see here that.

For health branch, the sector performance was -- is higher than Anadolu Sigorta. It was because of the first quarter, especially some of our cutdowns for nonprofitable business lines, some of our big unprofitable customers, we cut down some of our big business in health branch. But for the second quarter, we are going well. And I'm sure that this gap will be getting closer, and we are going to reach to the sector increase till the end of this year for that branch also.

And for the other branch, as you see here that the increased rate is very -- closer to the sector. And at the total, as you see here that our increase is 18%, and we finished the first half of the year with TRY 3.8 billion premium income.

Let's look at next slide. And you will see that, as you remember, we are the market leader for the first half of this year. Actually, we don't have any intention to be market leader, but with the strong increase, especially of motor branch, as you see here that we are the market leader for most of the branches. Actually, except health branch, we are a very strong player, as you see here, the end market leader. For motor TPL, our market share is 10.5%; for motor owned damage, 14%, fire branch, 15%; general liability, 20% -- sorry, 19%; for watercraft branch, 31%; aircraft branch, 92%, which is not including Turkish Airlines.

Gunes Sigorta, as far as I know, they are writing down actually Turkish Airlines portfolio for the last quarter of this year. And after that, maybe we will keep leading position or we can -- we will be at the second rank. We will see that.

Aircraft liability, we have a first line, as you see here that our rank is first. Marine transportation with a 14.5% market share, we have second rank, but I'm expecting that we will be market leader through the end of this year. Health branch, as you know, that at the first rank, Allianz Sigorta. And second rank has the Acibadem Sigorta and Anadolu Sigorta has the third rank. For general losses, we have fourth rank. And as total, our market share is around 11%, as you see here that.

And let's look at the next slides. If we examine our distribution channels, our agency channel produced 63%; banks -- channel bank insurance channel produced 11%; brokers, 12%; and other channels has produced 14% of our premium. We have 338 direct sales staff in Isbank branch. Most -- as you know that, all of Isbank branches are exclusively working with us. We have more than 2,500 professional agencies, and nearly 1/4 of those agencies are exclusively working with us. And also, you can see the sector distribution channel results in that slide.

Let's look at the next page. We have the second block of our presentation. In that part, I will give you some information about our technical results for the second quarter of this year.

Yes. Let's start with the accident branch. This is the most profitable branch, as usual, for many years. It's the much more profitable branch compared with the other branches. And during that term, because of economic conditions, the increase rate was not good for that branch. Our increase is nearly 0. We have produced nearly the same premium income for that time. But with the increasing credit lines, I'm sure that we will get a reasonable increase to the end of this year for that branch. Its claims ratio is 15% as you see here that.

And if you look at health branch, as you see here, our combined ratio and our claims ratio is going down. The claims ratio goes down to 63%. And the gross premium written has reached, for the second quarter, TRY 222 million. When we compare this change year-over-year, it is 9% increase.

Let's look at the next page and look at the other branch. Land vehicles, as you see here, our premium income for the second quarter of this year is TRY 310 million. And its claims ratio again goes down to 48%, as you see here.

For general losses, second quarter of this year, premium income is TRY 135 million and claims ratio with an increase. As you remember at the first phase of my presentation, you remember that the claims ratio is 82%. It's reasonably higher than the previous year.

For the next slide, we will see -- I think we will see the -- if you look at the next slide, we are going to see the motor TPL. As you see that there is a dramatic decrease also in claims ratio in that branch. It has 83% claims ratio. And for the second quarter, we write down TRY 475 million premium income. It means 14% change.

And when we look at the fire branch, again, you see that there is an increase. We have some losses in fire branch during the second quarter, some big losses. And as a result of this, the claims ratio rise up, 83%. But it is -- it will be a profitable branch until the end of this year, our expectation. The gross premium written is TRY 426 million.

Let's look at the next page and the combined ratio results as a whole. As you can see here that motor own damage, the combined ratio down to 85%; motor TPL, 100%; fire branch, 112%; health branch, below 100%, with the help of COVID period; accident branch, 54%; general liability, 255%, which is the highest combined ratio we have, but until the end of this year, I hope that these branch results will be getting better; and general losses, 100% combined ratio. When we look at total for this year, when we compare the previous year, we see that a dramatic decrease in combined ratio. And it is 104%. When we compare the previous year, that means 7-point downward action in that meaning.

Let's look at previous block. In that block off-line, we are going to talk about financial highlights. And I would like to hand over to Mr. Baris Safak. Baris, the floor is yours.

[Baris Safak, executive]

Thank you, Mr. Gören. I'm going to continue with financial table figures as the previous presentations. As you see, our total assets, we had a strong growth in the first half of 2020. It was around TRY 1.2 billion, our total assets growth in 6 months.

Our assets under management also had a strong growth. We were able to put more than TRY 600 million to our assets under management portfolio, thanks for the positive cash flow coming from our technical side. Actually, of course, our investment side had a positive effect on this assets under management growth, but technical side also had positive effect, unlike previous years, actually. That's why it was stronger for these 6 months.

Of course, on the other hand side, on the liability side, technical reserves had a growth rate similarly like our assets. It was mainly coming from our premium reserves like previous years.

And our shareholders' equity, we had a growth rate around 11%. In amount, it was more than TRY 235 million. And you should also bear in mind that we had a dividend payout in the first half. It was around TRY 144 million.

So to continue with our P&L, as you see, a summary of our income statement on the page. I'd like to highlight our change year-on-year change in technical income side. It was 12% compared to previous year's second quarter. And also our technical expenses growth was very tiny with 30% -- 3%. So at the end of the day, our net profit was around 22% compared to previous year second quarter, actually.

First quarter this year, our net profit was a little bit smaller than first quarter. It was TRY 150 million in the first quarter. This quarter, we were able to make TRY 128 million net profit, but we have a one-off coming from Anadolu Hayat dividend income. So when we exclude that dividend, our net profit is higher than first quarter this year also, and it's around 36% when we compare it with our first quarter net income, and it was 22% higher than previous year second quarter.

On the next page, our balance sheet, some of the figures. We had explained we had an important growth in our asset side, cash and marketable securities. This one is -- included -- credit card transactions are included on this figure, actually, and our assets under management was around TRY 6.5 billion. Our equity participations is Anadolu Hayat. So there was an important capital increase in Anadolu Hayat, and it came to TRY 628 million at the end of second quarter.

On the other hand, on the liability side, our technical provision set an increase around 12%. And our other liabilities, the reported increase, it was around 15%. These are the payables and some deferred commission income, I may say, in other liabilities. So this is our balance sheet summary.

On the next page, we are placing our trends coming from 2016. As you see, our ROE has boosted in the last 5 years, last 4 years. And we were able to keep the track since 2018. Our consolidated ROE, unconsolidated ROE and average equity calculated. At the end of first half, we were able to achieve 27.7% ROE or -- on unconsolidated basis. And when we look at our [ solo ] results, our ROE stood at 21.7%. These are still strong -- very strong figures, we think, actually. So the trend is going to continue in the coming quarters, we assume.

So on the next page, we have our investment portfolio distribution. As you see, we were able to reach TRY 6.5 billion. And according to the graph, you may see, we have bonds around 44%. It's -- the amount is like TRY 2.9 billion. Our deposits is 39%, which are around TRY 2.5 billion. And we have some stocks and funds and some repo and forward instruments and reached the sum up to TRY 6.5 billion.

At the end of first half, our investment portfolio yield was around 13%, 13.4%, which makes TRY 400 million. We should also mention that Anadolu Hayat dividend is not included in this TRY 400 million and also yield calculation, which is 13.4%, I'm sorry.

So on the next slide, you may see a comparison of our assets under management composition change. At the end of the year, our bonds stood at TRY 600 million. We had an important increase in our bond portfolio. They almost reached almost TRY 3 billion. On the other line, deposits shrank. It was around TRY 4 billion at the end of the year. Now our deposit portfolio is around TRY 2.5 billion. These are the most important changes in our portfolio breakdown.

So this is all from our second quarter results, our presentation. This is the end of our presentation. I want to thank you all for participating our webcast, especially our Turkish friends because it's holiday at the moment in Turkey. So we may have a Q&A session. [Operator Instructions] Thank you for participating again.

[Unknown Analyst]

Can you hear me?

[Baris Safak, executive]

Yes, we can hear you. [ Karin ], is that you?

[Unknown Analyst]

Yes, it is. Congratulations on the results. I had a quick question, which is, as you look into the second half, what type of yields are you hoping to achieve on the assets under management on your float? And what should we think about as the average size of the float? Just to give us a rough estimation.

[Fatih Gören, executive]

Baris?

[Baris Safak, executive]

What's the question? What's your assets under management portfolio average until the end of the year? Did I get the question right?

[Unknown Analyst]

Yes. So I was asking what do you think the -- your -- I'm assuming your assets will grow in the second half. So what do you roughly think the average for the second half will be roughly? And then what are you targeting as the yield and -- for the second half? And finally, how do you see your mix of AUM? How do you see that mix changing as we continue through the second half?

[Baris Safak, executive]

Well, we assume that we are going to be able to put on around TRY 250 million or TRY 300 million extra on our assets under management portfolio. Of course, technical side is going to have an important effect on that side. So it's not very easy to assume, but we think we will be able to increase our assets under management. So for the whole year, we target a yield around 12% at the end of the year. I'm not talking about second half of the year. But all year, we may assume that we are going to be able to get a yield around 12%.

So at the moment, our breakdown, as you see, was on the favor of bond side. We will be watching the interest rates very closely, as you know, because nowadays, it's been discussed that Central Bank or will there be another deal bank -- Central Bank is going to start increasing rates or not.

So if there is something like that, we will be -- therefore, we are not going -- our nature is going to be shorter than it used to be in order to watch the rates, and we will act accordingly, of course. I think our portfolio direction is going to be similar until the end of the year for 2020. We will be -- we may talk about 2021 in the upcoming meetings. It's not easy to assume anything for the upcoming year, actually.

So I think we don't have any further questions. Are there any?

[Unknown Analyst]

It seems to be just me asking questions. I'll ask another one, which is as you look at the full year, obviously, you have a large float and the economy has been stimulated by a lot of lending growth, especially from the state bank. As you look into the second half, what kind of premium growth are you expecting? And is -- and how does that tie into, I guess, lending growth? Do you expect the slowdown in this growth rate? Or generally, what are your thoughts?

[Fatih Gören, executive]

Thank you very much, [ Karin ], for the question. Actually, we see that especially on June, the credit lines was actively operated on banking side. And there's a huge increase, especially house credits, mainly within 1 month, especially government banks, the whole of the previous year's numbers, credit within 1 month for house credits. Again, for car credits, especially for the second half because investment income interest rates is relatively smaller figure, Turkish people like to invest their money to second-hand cars and increase the volume.

For the house side, I think the government banks will be getting some branch for the coming months. But on the car side, it's still -- it seems that it's still a good investment opportunity for Turkish people to buy and sell car because of the supply and demand. Nowadays new cars is not coming to Turkey. As a result of this, second-hand car price is getting higher, and people are trying to get used car as the price increases. They are buying and selling cars, and it's increased the insurance business volume also.

We are -- at the beginning of this year, we are planning to finish between 15% to 20% premium increase. And we keep our strategies. And for Anadolu Sigorta, yes, I think if this trend goes like this, for the end of this year, it will be around 20% increase. It seems that it is -- and also for the sector, my expectation is between 15% to 20%. Maybe Anadolu Sigorta for this year, it will be a couple of percent higher than the sector. At least the first half results shows us.

If you look at the investment side, Baris is also managing the investment side, as you know, and I'm expecting from them higher and much more positive results. They will have a challenge, of course. But if the interest rate is going higher, of course, the -- our investment income side will give us much more, much higher investment returns for that period, for the second half of the year. Our portfolio allocation and distribution is designed to get the cash, those chances. It is designed favorable to that environment.

So we are -- if you look at -- as a total, with the growing portfolio and with the coming opportunities, I'm sure that on investment side, Anadolu Sigorta will have higher investment incomes when we compare the years.

[Unknown Analyst]

Great. And then final question is, obviously, we know that the sovereign wealth fund has acquired and combined the 3 nonlife/life insurance businesses from the state bank. Wondering if you're seeing any impact from them in the market from a pricing perspective, if they're being aggressive. Just some brief comments would be appreciated.

[Fatih Gören, executive]

Well, for automobile branch, for auto branch, we are not seeing any aggressive attribute of that companies for -- especially for the branch for the business lines, which is directly related with credit like house credits or consumer credits. They try to sell, especially personal accident policies, life policies and health policies because I think they see a huge profit potential on that business of lines.

Of course, on the market for the second-hand cars, we are much more in a profitable position when we compare Anadolu Sigorta because our know-how and our market expertise helps us on that subject. For the next year, of course, this strategy might be different. But so far, they are much more focusing on fire business, personal accident business and also agricultural policies because they are giving agricultural credits also to the customers. They are growing.

[Baris Safak, executive]

So we don't have any further questions as far as I see, Mr. Gören. Are there?

[Fatih Gören, executive]

Yes. So thank you for attending, and I hope to see you on our next meeting. [Foreign Language] And wish you good holidays. Hope to see you soon. Bye-bye.

[Baris Safak, executive]

Bye. Thank you.