Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Analysis

Strong Asset Growth and Improved Combined Ratio

In the first half, Anadolu Sigorta achieved a 40% increase in total assets, reaching TRY 81.5 billion. Technical income grew by 86%, while technical expenses rose by 56%. Despite last year's FX gains, financial income saw a 27% increase. Net profit jumped by 87% to TRY 5.4 billion. The combined ratio improved significantly, dropping from 121 to 101 due to better risk selection and conservative pricing. The motor and health sectors saw robust growth, with combined ratios improving by almost 20 points. The company is strategically focused on enhancing its health insurance sector, despite the challenges in controlling claims.

Strong Premium Growth Amid Market Dynamics

In the second quarter of 2024, Anadolu Sigorta reported a remarkable 73% increase in total premium production, reaching TRY 31.5 billion, against last year’s figures. This growth is not only substantial but outpaces the overall industry growth of 81.3%, indicating the company's resilience and competitive positioning within a challenging economic environment influenced by local elections and monetary policies.

Improving Financial Health and Profitability

Anadolu Sigorta’s total assets skyrocketed by nearly 79% to TRY 82 billion. The company's technical income surged by 86%, with technical expenses increasing at a slower rate of 56%. This dynamic drove net profits to TRY 5.4 billion, and unconsolidated net profit to approximately TRY 7 billion. Notably, the combined ratio improved significantly from 121 to 101, a remarkable 20-point drop, reflecting enhanced operational efficiency and effective risk management strategies.

Operational Highlights: Successful Risk Management

The combined ratio in the Mandatory Traffic Liability (MTPL) insurance sector notably decreased by 13 points, indicating improved claims management. The Health segment saw a premium rise of 138% despite facing higher claims, showcasing the company's strategic focus on growth sectors. Furthermore, Anadolu Sigorta's claims ratio also improved, suggesting prudent underwriting practices.

Guidance and Future Outlook

Moving forward, the company aims for continued growth. Expectations for the remainder of the year are cautiously optimistic, with strategic focuses on enhancing their product offerings in bank insurance, which already holds a market share of 14%, up from 13% last year. The leadership appears committed to maintaining profitability while exploring new revenue opportunities, particularly in the health insurance space.

Earnings Call Transcript 2024-Q2

[Baris Safak, executive]

Good evening, everyone. It's time. I think we can start our conference call. Welcome to Anadolu Sigorta's second quarter earnings call. As you might recall, we have disclosed our second quarter results last night. And today, we are going to have a meeting related with these results. Thanks in advance for participating on our call.

As usual, we'll be making a presentation with Erdem Bey, our CFO. He is going to start the presentation. I'm going to continue with the financial figures. And at the end of the presentation, we are going to have a Q&A session. [Operator Instructions] So I'm going to give the floor to Erdem Bey. Erdem Bey?

[Ibrahim Erdem Esenkaya, executive]

Thank you, Baris. Welcome to Anadolu Sigorta financial presentation '24 quarter 2. My name is Erdem Esenkaya. Our presentation has 3 different titles: company market overview -- company and market overview; technical results and financial highlights. I will present company and market overview and technical results. After that, my colleague, Mr. Safak will present the financial highlights. I think it will take nearly 30, 35 minutes as Safak says, if there is any question, we will pleasure to answer it.

At the beginning I would like to say of the first 6 months. One of the important agenda items of the second quarter in our country was whether there will be an increase similar to exchange rate attack experience after the election last year following the -- I mean, the local elections.

The increasing dollar demand of residents before the elections decreased after the elections. And the U.S. dollar demand gave way to TR demand. The TR deposit interest rate, which reached 53 percentage or 54 percentage something like that, mostly in April and the attention of international investors have ensured a hike of portfolio inflow of the Turkey in this term in order to accelerate the exit from we say, the [indiscernible] currency protected deposits and [indiscernible] TL deposits, the required reserves. The high interest rate application was implemented for conversions from currency protected deposit to TL deposit and the Central Bank took various steps, such as increasing required reserves, standardizing TL in the market in this term and thus ensuring that deposit rates were in the range 55 and 57 percentage in May, while the slowdown in the loans continued towards the end of the second quarter.

In these highlights, that we can go to sector. And we look at the sector, sector premium production reached TRY 337 billion and year-to-year, increasing 81.3 percentage in this term. And the growth above CPI, 5.66 percentage in this term again and the motor branches, MOD and MTPL, new calculation method in force in June '24, 3 percentage -- 3.25 percentage in this term. Again, in this term no mid-year minimum wage hike.

Financial conditions, then look at the financial conditions. Central Bank stood at 50 percentage in this term. TL depreciation below CPI 1.46 percentage in quarter 2 -- quarter 2 in '24; and CPI, 8.2 percentage. Some of them look at stock exchange, XU100 rises 16.3 percentage '24 quarter 2. Next slide, please. When we look at the top 10 non-life companies in the sector, we look at the premium production figure, we can say easily that we are below sector. Total non-life premium production TRY 233 billion end of the quarter 2 in '24. Last year, same time, it was TRY 186 billion, it shows the 81.3 percentage increasing and Allianz Sigorta premium production increased rate is lower than the sector premium production increased rate in this term.

When we look at the pie chart, you can see the distribution of production shared by companies and 15 percentage Türkiye, 11 percentage Allianz and 9 percentage Anadolu. And we are at 3 in the range, in the production share in the sector.

When we look at the highlights Anadolu Sigorta improvement in MOD client ratio, 57 percentage. And in the first quarter, it was 60 percentage. There is a good improvement in this area. Strong growth in health branches, 133 percentage in this term and bank insurance premium above sector average. It's quite take attention in this point.

Then we look at MTPL. MTPL premium grew 56 percentage in first half of '24. MTPL claims ratio 98.6 percentage and 167 percentage ended '23 first half. When we look at the assets under management reached TRY 41.5 billion in this term -- I mean the second quarter be at TRY 5.1 billion our assets under management. Time deposit compound yield when we look at debt, 64 percentage.

Highlights, then look at the highlights. Branch breakdown growth rate. If you look at Anadolu Sigorta and the sector, the percentage are quite similar, but only 1 or 2-point differences. Then look at the motor side in Anadolu Sigorta 40 percentage; sector, 42 percentage. And fire, there is quite differences here, fire 21 percentage and sector 17 percentage. Anti-health in sector 19 percentage and Anadolu Sigorta 18 percentage in this term.

Next slide, please. When we look at the premium production especially if you compare the sector. The sector, 81.3 percentage increase. And as I said before, TRY 337 billion spring production in this term. And when we look at all premium production, TRY 31.5 billion. And 72.3% nearly 73 percentage increases all total premium production.

Next slide, please. When we look at the market share. Our company has succeeded in winning 2 first places, 4 second places and 4 third places in 12 main branches. As I said before, we are selling all kinds of branches, and we are facing all kinds of branches, not only traffic, not only MOD or MTPL or fire, we are valued in any branches in this sector.

Next slide, please. When we look at the net profit side, the financial status and activity results of our company are examined. It is seen that our assets exited TRY 82 billion, which increased nearly 79, 80 percentage and compared to previous year and premium production TRY 31.5 billion increases 73 percentage in this term compared to last year. As a result of the premium increase realized our increased market share reached 9 percentage, our company realized TRY 5.4 billion and unconsolidated net profit TRY 1 -- nearly TRY 7 billon in this term.

Next slide, please. When we look at distribution channels. As I said before, all company premium production depends on the mostly agency side. But in this term, there are 3 percentage decrease in this term. But anyway, if you look at and compare the sector, we are above the sectors in agency-side premium production. Maybe the bank insurance side quite take attention in this position last year in this term it was 13%, but now 14 percentage and the sector 13 percentage, we would like to increase our premium production side in the bank insurance and we are trying to improve. In this term again, the broker side premium production, 5-point plus in this term.

Next slide, please. And when we look at the technical sides, accident and health together, when we look at this page and growth premium written to TRY 271 million in this term and to 111 percentage increase and clients 18.2 percentage increase and the combined ratio decreased 2.1 in the term. Accident side is very good and profitable for us in this term. And when we look at the health side in premium production increased nearly 138 percentage increase and claims net 181.5 percentage (sic) 187.5 percentage increase and the combined ratio 9.6 point increase in this term. Health branch is very strategic branch for us. We would like to improve and to grow ourselves and our branches in this site.

But the claims ratio and the combined ratio because it is very difficult to control the claims in the health side. But in the future, we would like to improve ourselves and at the same time, the control of health claims here.

Next slide, please. If I look at the MOD side. MOD side is profitable and very effective and good side for us and then look at the premium production, 35.1% in the term and claims net 89 -- sorry, 58.4 percentage increase in this term and the combined ratio nearly 1 point decrease. And as I said before, MOD side, we would like to improve. At the same time control it.

Then look at the MTPL side, MTPL side, nearly 80 percentage increase in this term. The claim is nearly 22 percentage increase and the combined ratio nearly 13 point decrease in this term. Of course, MTPL side combined ratio decrease is very important for financial statement and profit. So it is -- we are very taking attention these branches.

And the fire and natural disaster side, all premium production increased to 55 percentage increase and claims side 60 percentage decrease in this term and the combined ratio, 90 percentage decrease. It is a good improvement for us, but it depends on the -- especially the research and choosed risk after that a little bit chance, I think so. But this improvement, of course, that effected our financial statement positively.

General losses. When we look at general losses 45.3 increase in growth premium product written. And clients net 12.3% decrease and combined ratio of 34.3% decrease in this term. Next slide, please. When we look at the profitability and the combined ratio, we have got very good improvements in this site. As you see, our combined ratio has decreased from 121 to 101. It's very good improving for us, nearly 20 points decrease in this term. At the same time, the claim ratio from 95.9 to 73.1 in this term again because we are -- again, we are choosing the risk at this term, and we didn't use any aggressive pricing and the marketing pricing in this term. Next slide, please. Okay. Thank you very much in this position. I would like to give sentence to my colleague, Mr. Safak. Thank you.

[Baris Safak, executive]

Thank you, Erdem Bey. I'm going to continue with the financial figures. As I mentioned at the beginning of the presentation. As you see there, the balance figures on a screen on the left-hand side. Our assets and -- our total assets trend can be seen. We had achieved a 40% increase in the first half of this year, and our total asset amount is TRY 81.5 billion.

Our portfolio assets under management portfolio, had an increase with 30%. And now we are beginning the second half of the year with TRY 41.5 million. And our liability side, the biggest part comes from our technical reserves, as you know, and technical reserves increased in the first half was 18%. It was a bit below and total assets marked mainly related with FX stability and the minimum wage increase wasn't expected, and it didn't happen, as you know. So our technical reserves had advantage, were positively affected from these 2 financial news virtually. And our shareholders' equity, the right-hand side, the increase was 90%. Anadolu Hayat is booked with mark-to-market value in our shareholders equity. So the jump in Anadolu Hayat's market price affected our shareholders' equity positively almost TRY 7.5 billion effect comes from Anadolu Life stock price.

Our income statement, we have given 2 income statements in this presentation. The first one is first half compared to last year's first half. Our technical income in the first half increase was on the left hand side. The unconsolidated figures are placed and on the right-hand side, the consolidated figures can be seen. Technical income increase was 86% in the first half of the year compared to previous year's first half, and technical expenses increase was below technical income. It was 56% and financial income increase was 27%, and we were able to achieve to TRY 7.1 billion financial income in the first half.

And after tax deductions, our increase in net profit was 87%, and we achieved TRY 5.4 billion. I should also underline you might see the notes just below the page, that the transferred income -- financial income is excluded from these tables. We do transfer our financial income to technical side, but while we are preparing this presentation, this slide, we are excluding those figures. On the next slide, our Q-on-Q income statement can be seen. Last year's second quarter is compared to this year's second quarter. This time, technical income increase was 73%. 9.9 technical income was achieved in the first -- in the second quarter and technical expenses increase was 52%.

And financial income was 24% below last year, you might remember the FX increase had an important rate in our financial income last year and mainly due to a fixed increase. Our financial income last year was bigger than this year's financial income. And after tax deduction, our net profit was 15% below last year's second quarter in solo form, and unconsolidated form it was 12% below and we achieved TRY 2.8 billion consolidated net profit in the second quarter of this year.

When we look at the breakdown of our nontechnical sites. On the right-hand side, you might see the figures at the end of first half, our technical earnings was almost at breakeven point. As you know, our combined ratio was 1.1. So technical earnings was minus TRY 223 million, almost 0. After that, our financial side or nontechnical site breakdown, investment income was TRY 7.7 billion. Anadolu dividend was TRY 200 million, amortization was TRY 73 million. We had -- we booked recovery provisions and debt provisions was something like TRY 5 million and early discount and tax was over TRY 1 billion in the first half of this year, and we can reach to TRY 5.4 billion net income in the -- just at end of the table.

And when we look at our return on average equity, we might see a peak at 2023. And in the first half, calculated with 12 months trailing profit, our consolidated ROE stood at 71%, and our unconsolidated ROE was 51% at the end of first half. And on the last page, as usual, you can see our investment portfolio breakdown, which is TRY 41 billion. Funds takes an important place in our -- in the breakdown, 39% of our portfolio is invested in funds, mainly money market funds, 23% is invested in bonds, 12% stocks and time deposits is 24%.

And as Bey mentioned, investment income was TRY 7.7 billion, which is -- which gives us return ratio of 23.3% in the first half. So this was all for our second quarter presentation. So if we can proceed with Q&A session, please ask your questions in the chat box or you can raise your hand also, we can unmute your microphone to ask your questions. Thanks for listening to us again.

[Baris Safak, executive]

I think we don't have any questions Erdem Bey as far as I see from the screen. No written questions or no raised hands either. So back to you for the closure, Erdem Bey.

[Ibrahim Erdem Esenkaya, executive]

Okay. Thank you very much for joining our first half presentation and see you at the next third quarter presentation in the better results and better day than we had today. Thank you very much for joining again. Bye.