Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Transcript 2020-Q3

[Baris Safak, executive]

[ Hello, everyone ]. Welcome to our third quarter earnings call presentation.

Today, we will be having the presentation with Mr. Gören as usual. He is the CFO of our company. And I am Head of Investor Relations, Baris Safak. Thank you for participating, in advance.

So I'd like to hand over to Mr. Gören for the start. [ Thank you ].

[Fatih Gören, executive]

Thank you very much, Baris. Good afternoon, everybody. Welcome to Anadolu Sigorta conference call about third quarter 2020 results.

Today, I'm going to make our presentation with Mr. Baris Safak, our IR Manager. And there are 3 main parts of our presentation. The first part is about company and market overview, then I will give you some information about our technical results. And then I will hand over to Mr. Baris Safak, and he will inform you about our financials. And finally, of course, we have a Q&A session as usual.

Now let's start with highlights of the sector about third quarter. When we look at the sector performance for the third quarter, we see that the premium production in non-life business has reached TRY 48 billion, with 17% increase. And now we are focusing third quarter, it is even better. It's 19% when we compare the third quarter with the previous year's third quarter despite COVID. And we are seeing -- as you know, there are 2 big branch which was directly affecting the [ COVID ] target positively for the claims side. As you remember, the first one is motor, and second one is health branch. For motor claims, we see that -- the claims frequency back to pre-pandemic levels. It's still a couple of percent below actually, but on the other hand, we are experiencing an increase. Especially, expense -- claims expenses, because of FX rates, is increasing.

And the third point I would like to underline about the sector. The investments income is increasing, and the estimations are changing continuously. We are experiencing also increasing exchange rate environment, so insurance companies will be trying to take position to get the benefits of that increase in investment income.

So if you look at the next slide, you will see the 17% increase. We put 3 business lines. Health business, we see that for the sector 22% increased for 9 months and 20% for the first quarter increased. Our motor branch, as you see that, for the 9 months 11%, but it is increasing for the third quarter up to 18%, as you see here. And also for other branch, for the 9 months, increase is 24%, while third quarter performance is better and it has reached 30% for the sector.

Let's look at the next slide, if we look at top 10 non-life companies for the sector. We are -- you'll see that Anadolu Sigorta has an increase around 22%. And then we look at Anadolu Sigorta performance for premium increase. It is above the average of top 5 companies or the sector average, as you see here. Our premium income has reached TRY 5.7 billion. On the top, we are seeing 3 insurance companies. As you see here, Allianz and Anadolu gap is very small. 1 month, Anadolu is at the second rank. Or another month, Allianz takes the second rank. And at the top, you see the Türkiye Sigorta. At the end of this year, from my point of view, I'm expecting that, those 3 companies, insurance premium income will be higher than TRY 8 billion. You will see at the top those 3 companies.

If I'm going to say a couple of words about Türkiye Sigorta. As you know, they announced their unification at the end of August and that -- it's an interesting situation. I want to look at the bright sides actually. There are many similarities with Türkiye Sigorta and Anadolu. First of all, Türkiye Sigorta, 19% is [ open to ] stock exchange. And when we look at their market share, it is quite similar to Anadolu Sigorta, as you see here. And on asset side, our asset is around TRY 11 billion, and their asset is TRY 9.5 billion. Their equity is around TRY 2.9 billion. Ours is nearly TRY 2.4 billion, so quite similar structures. And also, 7% of -- the company is having 7% of life and pension company which is called Türkiye Hayat Emeklilik [indiscernible], while Anadolu Sigorta, as you know, we have 20% of Anadolu life. And when you look at their [ m-cap ], it's nearly double of Anadolu Sigorta. So I think it shows the potential of Anadolu Sigorta to go up, especially on [ m-cap ] side, if we continue our sustainable profitability and productivity. And of course, to keep our premium [ income track ], we will increase our [ m-cap ], from my point of view. And if we look at the top 5 companies' premium increase, you'll see that it's around 20%.

Now let's look at the next slide, if we look at Anadolu Sigorta highlights. For this time, we see that with a well-diversified portfolio -- I would like to mention here, with a very well-diversified portfolio, Anadolu Sigorta has first ranked (sic) [ ranked first ] for most of non-life insurance business branch still. [ It is power us ] actually. And our premium production, as you know, has reached TRY 5.7 billion. And when we look at third quarter growth, it is 33%, which is also above the sector third quarter results. And actually if we look at the assets under management, you will see the proactive cash flow management. And our asset under management reached to nearly TRY 7 billion with an additional increase of TRY 340 million for the third quarter. And we have a very strong balance sheet with a solvency ratio around 122%, and total growth reached 15% in 9 months. And if you look at investment income side, the increasing interest rates is an opportunity for Anadolu Sigorta with its allocation and turn of their investments.

Let's look at the next slide. You'll see that the third quarter -- results for the 9 months have increased with 14%. And for the third quarter, health branch increase is 21%. For motor branch, again for the 9 months, increase is 26%. And for the third quarter, Anadolu increase is 45%. And for other branch, 9 months increase is 20% and third quarter is 19%.

On the next slide, we are going to compare the branch and business lines increase Anadolu and non-life sector. You'll see that motor third-party liability is the biggest branch still for the sector and Anadolu. Anadolu increases 32%, while sector increased 10.5%. Motor own damage, our increase is 18%, while sector increased 11%. Fire and natural disasters, as you see here, 19%. Sector increased 26%. Health branch, 14%. Sector increase was 22%. And you see the other branch.

Let's look at the next slide, please, yes. This is the well-diversified portfolio that I mentioned here. You'll see that for most of the branch our -- we are keeping our market leadership. So you see that motor third-party liability, motor own damage, general liability, watercraft, aircraft, aircraft liability are the branch Anadolu Sigorta has the first rank. Fire, marine transportation, we have second rank. Health and general losses. As you know, health branch, our competitors are Allianz and [ Aksigorta ]. For general losses is -- mainly comes from agricultural production. And Günes Sigorta, the new one, is -- Türkiye Sigorta, as the first rank, as you'll remember.

So if we look at net profit trends, we see the motor and health branch positive effect. And our net profit, when we compare our net profit with previous year's one, it has reached TRY 380 million with that nearly 23% increase, yes.

Next slide, please. And if we look at distribution channels composition, you will see that, the sector, it is very parallel sectors. Still, professional agencies have -- consists the biggest part. It is 58% for the sector, 33% (sic) [ 63% ] for Anadolu. If we look at banking channels, 14% for the sector, 11% for Anadolu. And broker side. 14% of the premium comes from brokers for the sector, 11% for Anadolu. And other premium channels, 14% for the sector and 15% for Anadolu, as you see here.

Let's look at next slides. Now here are some technical results for the third quarter. I would like to start with accidents because it's the much more profitable one. As you see here, we realized a premium increased, 12.5%. As you see here, our premiums reached TRY 42 million for the third quarter; with a 56% increase, our claims net. Our combined ratio is 73%.

Our next branch is health, as you see here. You see that, the 21% increase for the third quarter. And our combined ratio is around 94% (sic) [ 93% ], as you see here. Next branch is land vehicles. Our gross premium written has reached nearly TRY 360 million with 33% increase. Our combined ratio reached 110%, as you see here.

Next branch is general losses, as you see, TRY 91 million premium income, which means 35% increase for the third quarter. Our combined ratio is 102.5%. And the next, fire branch, our gross premium written has reached nearly TRY 270 million with a 17% increase. Our combined ratio is 150%, nearly. The next branch is motor TPL. It has reached TRY 666 million for the third quarter. Our combined ratio is 120%.

And if you look at the profitability and combined ratio of the company, you will see that, when we compare the previous year results, it is 107%. You see the branches here. I have already mentioned most of them. You see the trend also here.

For the next slides, now I will -- I'm going to hand over to Mr. Baris Safak, and he will give you the information about our financials.

The floor is yours, Baris.

[Baris Safak, executive]

Thank you, Mr. Gören, yes.

So to follow with the next slide. We have [ some months here ], as you see [ and as relates with our ] balance sheet. Total assets amounts growth continued in first 9 months of 2020 with around 15%. The compound average growth of our assets, if I look at last 4 years, is around 19%. As well as our assets under management, growth for the last 4 years, compound growth, was around 19%. And our first 9 months growth is close to 17% [ at the end of ] September, third quarter. [ And our ] technical reserves on the liability side increased with 19%. And our shareholders' equity reached to TRY 2.5 billion with an increase of 15% at the end of third quarter.

On the next slide, we are going to see a brief summary of our income statement. Our technical income stand at TRY 1.3 billion at the end of -- this is -- these are stand-alone quarters, I should mention. And yes, our technical income amount number does not include the investments income that's transferred to the technical side. We exclude this while we are preparing our presentation. So our technical income increased. Our technical expenses also increased, which we expected because second quarter was -- the ratios, combined ratios, [ increased ] significantly. So it was expected.

At end of the day, our net profit stood at TRY 102 million. It was TRY 128 million second quarter of 2020. And last year, third quarter, it was TRY 79 million, which means we were able to increase by the bottom line with 28% compared to previous year's third quarter.

So to continue with our net income [ by the ] P&L. This is a bit details about our P&L. Our technical earnings stood at TRY 260 million, minus. It's the result of our combined ratios being 100%. Our investment income stood at TRY 782 million. We have dividends income from [indiscernible] TRY 56 million. Amortization and depreciation [ was -- at the payment was ] opposite side.

We were -- we keep reserves in -- at the end of 9 months with around TRY 64 million. These are receivable -- doubtful receivable provisions. Rediscounts, TRY 5 million. And tax is almost TRY 90 million. We reached up to TRY 380 million, the net profit at the end of 9 months, which almost 30 -- 23% higher than last year's 9 months results.

So our next slides is our investment portfolio [indiscernible] our investment portfolio has reached almost TRY 6.9 billion, of which is -- almost 50% of which is bonds. We have invested in bonds. 9%, we have mutual funds. 3% of our portfolio is invested in stocks. And the remaining part is time deposits, both Turkish liras and hard currency time deposits.

Then we look at our income coming from this portfolio in terms of 9 months. We were able to generate TRY 668 million investments income, which makes around 15% return yield. So as a result, we were able to make profits around TRY 380 million at the bottom line of our P&L.

So this was our last slide of our presentation. We are going to continue with Q&A session. [Operator Instructions] Thank you for listening to us.

[Baris Safak, executive]

I think we have a question...

[Unknown Analyst]

I am [ Eric from Monaca ]. I have a question. I wondered how you see the current competitive environment. When we look at the fourth quarter's, for example, already 1 month is over. Do you think profitability -- your profitability will continue to increase over the coming quarters, in the fourth? And maybe you can give us some highlights about 2021, especially the first quarter.

[Fatih Gören, executive]

Well, thank you very much for the question. Actually we started the year very strongly, as you know. And we are very happy about the market share and profitability of the company. And we are keeping our strong position, and I'm not expecting a change until the end of this year. Of course, Anadolu Sigorta strong financial structure help us in this environment. You see the investments income of Anadolu and its strong cash position. It will help us for the next year also, but we are focusing on allocation and the term of our investments. It will help us. If we look at the -- also the last quarter of this year, I think the top 3 company will continue to grow the markets. And maybe we are going to see some M&As for the small ones, but I can easily say that likely it will be not easy for the small insurance companies for the coming year especially because the big companies will get the benefit of big numbers, from my point of view. So it will -- for the small ones, it will be not easy to survive, to produce only motor TPL policies. They have to diversify their portfolio. They have to enrich their portfolio. Otherwise, if they depend on only one unique product like motor TPL, the demand will be not easier more for them. I hope these explanations are enough for you.

[Baris Safak, executive]

We can get questions, if you have any more. [Operator Instructions]

[Unknown Analyst]

This is [ Karim ]. I don't know if you can hear me.

[Baris Safak, executive]

Very well, [ Karim ]. Go ahead.

[Unknown Analyst]

A quick question I wanted to ask. Obviously, Türkiye Sigorta announced results for the third quarter which were very strong. And then I was just looking at the combined ratios. I think their combined ratio was 82%. Aksigorta was closer to 100% or so. Allianz -- I was wondering, given what happened with the combined ratio, whether -- were any -- were there any additional provisions taken in the third quarter? Or how would you, how do you explain the difference in the combined ratios between your largest competitors and yourselves?

[Fatih Gören, executive]

Well, thank you very much for the question, [ Karim ]. Actually, as you know, that Türkiye Sigorta is relatively new company. And most of their premium income comes from banking channel. And their especially accident business lines is very strong, and personal expense side. And much of them are very, very profitable one. So the answer of your question is depending the structures of those companies' portfolio structure, but for Aksigorta, their case is different, I think. From our point of view, as you see, we are both trying to keep the market leadership, on one hand. And on the other hand, we would like to keep our sustainable profitability. So we try to balance it together. And both on our reserve sides and our market share side and our profitability side, we are balancing all those 3 aspects of the case. And so if we look at Anadolu Sigorta combined ratio, it is generally relatively higher than those companies, but with the high interest rate income, investment income, we are trying to balance that situation. And actually we know that it's a long, long way, not a short run. It's a long run. And we will try to do our best actually in that business.

[Unknown Analyst]

Great. And I guess, just as a quick follow-up: As you look at next year, it seems like structurally, at least for the first half of the year or until tourism really comes back, the structure of the market will be higher rates. Given that environment and the fact that COVID -- there seems to be a second wave of COVID hitting Europe -- maybe Turkey gets a little bit of that. Do you expect the first half to be -- or the first quarter to be exceptionally strong for you next year, in 2021, in the sense that you may have less driving and obviously the highest rates you've had in the last 12 months? If we can just talk about structurally what you think in or see playing out in the first quarter -- the first half of next year given the current environment.

[Fatih Gören, executive]

Well, thank you, [ Karim ]. Actually, this year, we have experienced a strong January and February. And with March, as you know, the COVID started. And for the second quarter of this year and around May and -- April and May was not good. And then the things go well. So if we compare the first quarter -- it's not easy to estimate, of course, the next year. The -- what seems very important items is that -- if the economy can't survive -- if the economic life can survive, then I'm expecting a good first quarter for Turkish economy. The -- sum insured are increasing, especially on motor business, as you know, because of FX rates is getting higher. So the premium will be increased. Of course, if the -- if you are not experiencing lockdown periods for the first quarter of the next year -- I'm actually optimistic about the next year for Turkish economy and the insurance sector.

[Unknown Analyst]

Great. And final question, if I may, as you look at the portfolio, your investment portfolio. I know that you had exposure to FX, obviously the hedge, the potential increase in the costs of the motor lines of business. Are you changing anything in terms of the mix of the FX versus domestic investment portfolio right now? And if so, if you can just talk about that.

[Fatih Gören, executive]

Yes. Actually we don't have short position. Maybe Baris, would you like to answer that question in detail?

[Baris Safak, executive]

Yes. When we consider our claims have some exposure to FX changes, we try to keep our long FX position, strong FX long position, as much as we can, as much as our liquidity let us to keep. So I think we are hedging the FX rates that we face from our technical side with our financial instruments, with our long position [indiscernible]. Okay, [ Karim ]?

[Unknown Analyst]

Perfect.

[Baris Safak, executive]

We have a [ recent ] question. I'm going to read the questions [ while we're still ] [indiscernible]. Would you expect the competition to pick up in traffic segment in 4Q '20 and onwards? What's the impacts of the currency hedge on technical results? Is there any hedge mechanism? I think we have replied to this one. Will you be able to pass-on weaker TL impacts on your customers through high premium prices. I think we have answered that we have some hedge mechanisms in our investment portfolio with our long position in terms of Eurobonds and [indiscernible].

Other than that, Mr. Gören, would you like to answer the questions on, "Will you be able to pass-on weaker TL impacts on your customers through higher premium prices?" Then the last, the other [ financing ] question, just to remind you: Would you expect the competition to pick up in traffic segments in 4Q '20 and onwards?

[Fatih Gören, executive]

Yes. Actually I would like to start with the first part of the question. Yes, I'm expecting the competition to pick up in traffic segments as usual for the fourth quarter of this year because cash flow is very important. When the investments income, the interest rate increase, especially companies are much more willing to produce that product because of that cash flow effect, as you remember. So I'm expecting competition also. And it also still consists the biggest part. Nearly 1/3 of the premium income comes from that motor TPL business lines, but of course, companies are -- try to select better risks in that side. Do we -- the impact of weaker TL on technical results, as you know, it's especially increased the cost of claims, which is [ dependent on FX ]. Like motors pay parts. Motor policies and claims pay parts. And so that's why we have long position, especially on that side. And we -- of course, we are evaluating the increasing costs, and it's directly affecting sum insured of the policies. Then your car's value is increasing. It's -- affects the sum insured of your policy. And it affects the prices, not directly, not [ equally ] maybe, but the companies have to consider those effects also. Shortly, I can say those things. Maybe Baris, would you like to add something else to this question?

[Baris Safak, executive]

Well, Mr. Gören, I think the prices, as you mentioned, are going to be increased as a result of higher car prices on the motor segment. I don't have actually much things to add comments.

[Fatih Gören, executive]

Actually that's why I'm expecting the first quarter of next year will be good, because sum insured are increased. When we compare the value of cars the 1 year before, we are seeing 50% increase, nearly. So of course, the number of car sales are very important, but also the sum insured will be increased for the coming first quarter of 2021.

[Baris Safak, executive]

Thank you [indiscernible]. [Operator Instructions]

[Fatih Gören, executive]

Maybe I should add a couple of words about the earthquake, Izmir earthquake, as you know that a couple of days ago we experienced an earthquake in Izmir. Actually I'm not expecting for the sector or for Anadolu an impact in their financials, a significant effect, for that earthquake. And also I think it's a good opportunity for us to increase the awareness of insurance. The penetration is very low, especially for noncompulsory insurance, householder's compressive insurance covers. So we will try do our best. Especially, we will try to pay quickly our claims, and we will try to fill the wants of people because of earthquake.

[Baris Safak, executive]

I think we don't have any further questions, Mr. Gören, as far as I see, so back to you for the wrap-up.

[Fatih Gören, executive]

Okay, okay. Thank you very much. I would like to thank you for attending our conference call. I hope to meet you for the next meeting. Till that time, stay safe and healthy. Bye-bye.