Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Transcript 2021-Q2

[Baris Safak, executive]

Hi, everyone. Sorry for this little delay. I think we can start our webcast now to you all. Welcome to Anadolu Sigorta's 2021 Second Quarter Earnings Call.

For today's meeting, our presenters will be our CFO, Erdem; and me as our IR Manager. As usual, Erdem is going to start over the meeting for the technical site and I'll be carrying on with the financials. We are going to have a Q&A session at the end of our presentation. [Operator Instructions] So we are going to start with Erdem. Erdem, the floor is yours.

[Ibrahim Esenkaya, executive]

Thank you, Baris. Welcome to Anadolu Sigorta's financial presentation. My name is Erdem Esenkaya, I'm the Deputy Chief Executive about account finance purchasing and the departments.

Our presentation has 3 different titles: company market overview, technical results, financial highlights. I will present company and market potential and technical results. After that, my colleague, Mr. Safak, who is the Manager of Fund Management and Investor Relations department, will present financial highlights. I think it will take 20 to 25 minutes. After that, if there is any question, we will pleasure to answer it.

Company and market potential. First of all, our introduction subjects. During the COVID-19 pandemic that affected the whole world, our company adapted to working from home conditions as a result of the information systems investments. It has been so far. It has always [indiscernible] by its employees, insurance and business partners and succeeded in providing uninterrupted service. All employees and all other stakeholders devoted efforts.

On the other hand, we have some natural disaster, like flooding in Northeast and East of Turkey and forest fires Southwest and sort of Turkey. As you know, wildfires are also raging the North Macedonia and Greece too, and in U.S. and Canada. We believe that the climate change is the most important reason of the disasters. So first of all, I would like to say, get [indiscernible] on the people who will face natural disaster like this.

Then let me look at the highlights, '21 quarter 2 sector. Premium production at TRY 39.4 billion. Then you'll compare the last year, year-to-date, 20% increasing. Prices competition, again, there is a big impact, all sectors. Motor branches, MOD, MTPL is important again the sectors. Parliament has passed awaited bill. Mobility back to pre-COVID periods are very important and affected the motor branches. On the other hand, policy rates, CPI levels, treasury yields floating around 18% increasing. CPI still surging. Baris, next slide, please.

[Baris Safak, executive]

I have a problem. I couldn't change, I'm sorry.

[Ibrahim Esenkaya, executive]

Okay. Now when we look at the top 10 non-life companies and sectors. Then looking at the pie chart, we can see distribution of life and non-life premium production. Total non-life premium production, TRY 39.4 billion in '21 second quarter. Last year, same term, it was TRY 32.9 billion. It shows nearly 20% increasing.

When we look at the premium production figure, Türkiye Sigorta was merged, 3 different insurance company, the public waited, top 5 companies have 51%. Other companies 30% nearly market share in 22's quarter 2. We can say there's a big inflation in top [ 10 ] companies. As you see this figure, Türkiye Sigorta is the first. Anadolu Sigorta is second. And Allianz Sigorta is third [indiscernible]. Last year, Allianz Sigorta was second, and Anadolu was third.

Highlights. Next slide, please. Highlights '21 quarter 2, Anadolu Sigorta, all premium production is TRY 4.8 billion, 25% increasing year-to-date. If you compare the sector, we are the higher than the sector. Our growth rate is higher than the sector. Growth rate is growing in 2020 quarter 1. We are in the top 3 at 12 non-life branches. Robust growth in asset under management, proactive cash flow management and under -- assets under management reached TRY 8.25 billion end of the June. We have stronger investment income, and investment yield reached 9.8% first half.

This is the highlights again, GPW. And when we look at the figure, we can see -- easily see that we are better than last year and the sector too, especially in the health and motor branches. In the motor branches, when we compare the last year, this year, 20% increasing. Last year only 11%. Motor branches, 20% increasing, but at this same time last year, 17%. If you compare the sector in the health, 19% this year, but 20% in the same term for all company. And in motor, in sector, 14%, increasing over 20%.

And if we look at this first half of the year, we are very good performance in sectors. And if we compare the last year...

[Baris Safak, executive]

Yes. We can go on.

[Ibrahim Esenkaya, executive]

Premium production, and we can look at some branches here. Motor third-party liability, motor on demand, fire and nature, health and other. If you look at the non-life sector, we are better than this, increasing. When we look at the motor third-party liability, 19.4% increasing; motor on demand, 20.7% increasing; and fire, 35.8% increasing; and health, 20.1% increasing, and other, 28.9% increasing; and totally, 25.1% increasing.

And when we compare the non-life sector is better than the sector. We are the first places [indiscernible]. If we compare the branches and degrees, we are the first places. They create 8 branches and second place is at 2 branches and third place is 4 branches. And totally, 11, 12, nearly 12 main branches, we have got 1 or 3.

Yes, we can go on. Net profit drivers, unconsolidated and consolidated, we can see easily. Net profit unconsolidated, TRY 278 million, and consolidated, TRY 273 million. And investment income, 300 -- unconsolidated, TRY 380 million, and consolidated, again, TRY 380 million. And net profit in the first half of the year, TRY 311 million, and consolidated, TRY 290 million net profit in the first half of the year.

Distribution channel, as you see, our very wide distribution channels and professional agencies, and at the same time, the bank branches. And totally, nearly 2,500 professional agencies and nearly 1,000 bank branches, and totally, 3,500 different types of branches. This is very wide of Turkey. So if you look at the premium production, if you compare the last year at the same term, there is no big differences, only in agencies, one point minus and in -- especially in broker in the bank, in the bank 1-point plus, if you compare the past year.

Yes. We can go on, please. Technical results, profitability and combined ratio, especially. High accident GPW and technical earnings, GPW, [indiscernible], 36.1 percentage and claims net 53.7 percentage, and combined ratio, 16.5 plus in evident branch. In the health branch, when we look at -- if you compare the last year, 24.8 percentage increase, in claims net, 46.5% increasing, and combined risk ratio, 17.7% increase.

MOD 20-- 20 -- GPW, 24.8 percentage increasing and 57.8 percentage increasing and 19.3% combined ratio of point [indiscernible]. General losses, GPW, especially, a 35-point increasing, claims net, 18.7 percentage increasing, and combined ratio, 7.5 point minus. Fire, 30.5 percentage increasing, clients net, 17.5 percentage increasing and combined ratio, 15.4 minus. Yes. We can go on.

[Baris Safak, executive]

We have changed MTPL.

[Ibrahim Esenkaya, executive]

Yes. Sorry. Yes. MTPL, motor third-party liability, especially, 25.7 percentage increasing, claims net, 75.8 percentage increasing, and combined ratio, 55.3 increase. As you see, all combined risk is increasing and reached 115.9 percentage. We can say, nearly 11 point [ of reach ] [indiscernible] increasing claim exchange rate change and inflation, especially. But our general premium production is very good. At the same time, the order from management is very strong. So we can easily compare it.

Yes, we can go on. And now financial highlights, and Mr. Safak will go on here or the next time.

[Baris Safak, executive]

Yes, this one.

[Ibrahim Esenkaya, executive]

Okay. Yes, financial line. Okay. Now, my colleague, Mr. Safak, I'll give to explanation for him. Thank you very much.

[Baris Safak, executive]

Thank you, Erdem. I'm going to continue with some financial figures. As usual, growth performance slide, we are placing total assets increase can be seen on the left-hand side of this presentation. We had a strong growth with 16%, and our total assets has reached TRY 14 billion. As also assets under management had a strong growth with 13%. We are managing TRY 8.3 billion at the end of second quarter. We -- technical reserves. We -- the mainly coming from the IBNR, I may say, has also grew strongly with 13.3%, and our technical reserves increased, inched up to TRY 8.8 billion. Of course, I may say, unearned [ terming ] reserves, we had a strong growth with 25%.

As you might recall, in the first half, had an important impact in growth of technical reserves. Our shareholders' equity inched up. It was a slight increase, 3.3%, and it was TRY 2.9 billion at the end of second quarter. Of course, our Anadolu Hayat store stake price has an important weight on our shareholders' equity and we had paid out dividend in the first half, as you might recall again. These are the main reasons behind relatively smaller growth in our shareholders' equity.

When we look at our income statement, second quarter results are compared year-on-year. Our technical income grew at 19% in the first -- in the second quarter compared to 2020 second quarter, last year's second quarter. Our technical expenses increased higher than technical income as a result of higher claims that we experienced in the second quarter. Of course, there was an important base effect in the second quarter coming from COVID-19 lockdowns, as you might remember.

But on the other hand, our financial income had a strong growth. We doubled our financial income. In -- on consolidated side, you might see a 101% increase, and on the consolidated side, it was 18 -- 89%. The difference is coming from the dividend from Anadolu Life, I may say. And after the tax deductions in our unconsolidated net profit, we had achieved TRY 146 million in the second quarter, which was 14% higher than last year's second quarter. And on consolidated form, our growth was a bit lower than our unconsolidated form, and we were able to reach to TRY 170 million net profit in the second quarter of this year.

Our first half net profit had an [ 2.5% ] increase, which we had previously said. We then -- we reached TRY 1,311 million. And we -- when we look at the breakdown of our net profit, we had done a loss from our technical side. It was around 400 -- minus TRY 400 million. Our investment income, we reached up TRY 1,800 million. Dividend income from Anadolu Hayat was TRY 72 million; amortization, TRY 50 million. We had some net debt provisions, which was around TRY 50 million again. And after tax, discount and other income, we reached net income which is TRY 311 million.

So on the next slide, which we are pointing out our ROE, average ROE in both consolidated and unconsolidated form. At the right-hand side of the slide, you might see that we had achieved 23% unconsolidated ROAE, average ROAE at 18% unconsolidated ROAE. These figures are trailing 12-month trailing results. I may highlight that one also.

And last slide, our investment portfolio distribution. We have told it was around TRY 8.25 billion, which we are managing. Mainly most of it is still invested in bonds, both Eurobonds and Turkish [indiscernible] bonds. We have deposits seconds -- on the [ second ] as investment security. We have funds, 19% (sic) [ 9% ]. Our stock's at 4% and other instruments like repo are around 1%.

So as a summary, we have said we had dividend from Anadolu Hayat, which was TRY 72 million. And other that -- other than that, our investment income was TRY 732 million, which equals something like 20% portfolio return in the first half of 2021 for Anadolu Sigorta. It was a strong investment income, I may say.

So this was the last presentation. Thank you for listening to our presentation. Thank you for participating our presentation. So you may have questions. If you have any, just please go ahead. [Operator Instructions] Thank you for listening to us.

[Baris Safak, executive]

We have a question from Serhan. going to read the question. Do you expect any impact on your financials from forest fires? Wildfires, he is mentioning, of course.

[Ibrahim Esenkaya, executive]

Thank you very much, Mr. Gok. Of course, it will be affected sector financial highlights, especially. But if we look at our financial highlights, it will be very limited because we have got a very good reinsurance treatise. So we have got some responsibilities for this kind of damage, of course.

For example, the [indiscernible] reactors, thermo reactor, for example. But at the same time, we have got some responsibilities. We have got to share but it is limited for us, and it is not a big effect or financial highlights. It's limited. So there is not a big problem for us. Is there any more question?

I can say maybe one more thing. We are very following closely the forest fires at the same time, some damages, very closely. On the other hand, we have got some float damages in the North [indiscernible], but we are very good in -- claim management is very strong. There is no -- as said, there is no panic for it.

[Baris Safak, executive]

We have another question from chat box. I'm going to read that question.

What's your outlook -- that's coming from Karim. What's your outlook for the second half? What are you seeing in terms of pricing dynamics in the key lines of business? What type of portfolio yields are you forecasting for the rest of the year? And are you changing portfolio bond duration?

[Ibrahim Esenkaya, executive]

I think, Baris, you can answer for it because especially for the -- about the fund management, you can say something for that.

[Baris Safak, executive]

Sure. First of all, I'm going to start from the end of the question, portfolio, related to the portfolio. We expect our portfolio return to be at these levels, around 18% to 20% for the rest of the year. Full year, we are targeting not less than this return actually, Karim, I may say. We are not changing our portfolio bond duration, especially on Eurobond side, but we are taking advantage higher yields on the Turkish [indiscernible] bond rates, especially if we see advantage, we are buying some bonds, between 2- and 4-year bonds mainly.

Other than that, the first part of the question was with the pricing dynamics. What are you seeing in terms of pricing dynamics in the key lines of business?

Yes, we have mentioned the competition on the pricing, especially on the motor side, MTPL and MOD side, but we are seeing a little bit breakdowns in the pricing competition. The competition is not as fierce as it was in the beginning of the second quarter, I may say. At the end of the day, the inflation on the spare parts is very strong. Therefore, companies are not going to be able to decrease their prices as much as they used to.

On the other hand, as you might recall, 1% increase per month in MTPL is still continue -- is still going on. So with dynamics of the pricing, I may say, I think it's not going to be as fierce as it used to be in the first half of year. In the second half, we might see it's being lighter.

[Ibrahim Esenkaya, executive]

Maybe I can say 1 or 2 more sentences for it. Of course, we have got some targets for end of the year. But -- and there is a big price competition in these branches, of course, but we haven't got any target to be first in MTPL or MOD. We are targeting to get profits so that -- yes, there is a price competition, and we are very competing for it, but not too much. I mean the profitability is more important for us, I can say.

[Baris Safak, executive]

And maybe -- Karim has another question. I'm going to read again. Are you expecting more market share consolidation as it seems that small players with smaller floats are disadvantaged in the current pricing environment. We -- Erdem, are you going to answer?

[Ibrahim Esenkaya, executive]

Yes, you can -- but actually I could not understand clearly because our market share is good, very steadily and there's a Türkiye Sigorta reality in Turkey. And there is a reality of Allianz Sigorta especially. But we are the second [ then enough ]. End of the year could be second, then maybe first, maybe third. But again, I would say the profitability is important for us.

[Baris Safak, executive]

And capital adequacy ratio also is going to be more important for the companies, I guess, because there was an amendment which raised ratio for the weight of MTPL policies. So it's not going to be as easy as it used to be to write MTPL policies. It's going to have more weight on capital adequacy ratios of companies. And maybe I may add for your question, Karim, that we don't expect any market share consolidation at the moment. We don't have any colors about it also.

[Ibrahim Esenkaya, executive]

Is there any question or more question?

[Baris Safak, executive]

It seems that we don't have any other questions -- we have.

[Ovunc Gursoy, analyst]

Ovunc speaking. Congratulations for the good set of results. I have a question. It's about draft law regarding technical reserves. As far as I know, there is a draft law and states insurance companies will be able to use their own statistical methods to set reserves. Do you know anything about it? And if you know, could you give us some color on that? It would be very helpful.

[Ibrahim Esenkaya, executive]

You are definitely right about it. Technical reserves are very important insurance companies. And if you value of the any highlights of the insurance companies, you need to know about the reserve policies. You are right, definitely. Especially we are obeying the rules one to one. There is no question about it. Well, I can say, first of all.

And secondly, if we compare the last year, there is the COVID-19 effect or financial highlights. I mean, last year, there was a limited claim demands. But this term is increased because we are getting to normal life. So it will affect a little bit higher than the damage. And so that if there is any more damage, you can get more reserve, too. So in the near future, maybe it will take a little bit more reserve increasing, but after that, it will get a normal cycle.

[Ovunc Gursoy, analyst]

And about combined ratio, what is your expectation for year-end? Do you think the current trends continue in the second half of the year?

[Ibrahim Esenkaya, executive]

I wish it will be getting down. But I think we are getting at a normal life. So it will be a little bit high because of the -- as you see, there is a inflation rate is high in Turkey and FX rates increasing. So if there is any damage, and if there is any damage and -- it depends on the FX ratio, it will be higher than the -- all the [ major ] expenses.

So that if you compare the last year, nearly 11 -- 10 or 11 points increasing to last year. And I think the next term, it will be the same level, 9 point or the 10 point increase in [indiscernible] because the foreign exchange rate is increasing, at the same time, the inflation rate is increasing. But we are getting or we are trying to manage the damage very closely. So we are trying to -- we are trying to decrease it. I think it will be the same level in next term.

[Baris Safak, executive]

But maybe we should mention the law that has passed through the Parliament. We are waiting for the sub regulation. We may see some positive effects coming from that sub regulation. But we don't -- we cannot give any color about that because we haven't seen it yet. But that's a positive thing for our bottom line.

[Ovunc Gursoy, analyst]

What is it? Could you tell it?

[Baris Safak, executive]

The bill that has passed related to MTPL, but we haven't seen the sub regulation yet. But so far, we see it as positive for our bottom line.

[Ibrahim Esenkaya, executive]

Okay. Is there any question?

[Baris Safak, executive]

We don't have any written questions, but verbally, [indiscernible] other questions. We have a question from [ Mehmet ] [indiscernible]. He asks if are you able to raise insurance prices in line with inflation. Shall I repeat, Erdem?

[Ibrahim Esenkaya, executive]

Yes, please.

[Baris Safak, executive]

Are you able to raise insurance prices in line with inflation?

[Ibrahim Esenkaya, executive]

It is very difficult to say like that because the inflation rate, at the same time the insurance rate is difference, especially it depends on the foreign exchange currency. So it will be affect, of course, but it is early to say something or to say from now.

It will be end of the year. Especially September and October, we'll make new treaties for next year, and it will be the -- this term. Now it is very difficult to say something. This is the [ regulations ] policy. Is it enough?

[Baris Safak, executive]

Mehmet, do you have any follow-up questions? I think we don't have any further questions. Erdem, so -- back to you, Erdem, for wrap-up.

[Ibrahim Esenkaya, executive]

Okay. Thank you very much for joining our presentation. I hope there will be better condition, especially better -- not like a catastrophic disasters, we don't see in the next term. And next term will be better for us. Thank you very much for joining and asking any question. Thank you very much.

[Baris Safak, executive]

Thank you all. See you next quarter.

[Ibrahim Esenkaya, executive]

See you.