Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Transcript 2021-Q3

[Baris Safak, executive]

Dear all, this is Baris from Anadolu Sigorta Investor Relations team. Welcome to Anadolu Sigorta's 2021 Third Quarter Earnings Call. Today, we will be presenting the presentation with Erdem, our CFO; and me, as Anadolu Sigorta's Head of IR.

As usual, Erdem is going to start the meeting with technical side, and I'll be carrying on with the financials -- summary of financials. We are going to have a Q&A session at the end of the meeting. [Operator Instructions]

So we may start, I guess. Erdem, the floor is yours.

[Ibrahim Esenkaya, executive]

Yes. Thank you, Baris. Welcome to Anadolu Sigorta Financial Results '21 Third Quarter. My name is Erdem Esenkaya. I work as Deputy Chief Executive about account finance, purchasing and law departments.

Our presentation has 3 different titles: company and 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 that it will take nearly 30 minutes. After that, if there's a question, we'll -- pleasure to ask for it.

And now company and market potential. When we look at the company and market potential highlights of sector, first of all, the sector performance, sector premium production reached at TRY 58.3 billion, nearly 21% increasing year-to-date. Price competition has affected the market again. Price competition is important in our sector. Wildfires and flash floods. I mean, as you know, we have some natural disasters like flooding in Northeast and East of Turkey and forest fire Southwest and South of Turkey end of the summer term in July and August.

Motor branches, MOD and MTPL, is important for us, too. Claim cost is surging. Claim costs are surging. Higher frequency levels are taking attention again.

Financial measures. When we look at the 10 years treasury yields floating around 20 percentage and 100% bps rate cuts, and dissipated Turkish lira is depreciation now.

Top and nonlife components in sector '21 quarter 2. Next slide, please. When look at the premium production figure, we can see easily see that we are better than last year in sector, too. Total nonlife premium production is, as I said before, TRY 58.3 billion, '21 third quarter. Last year, same term, it was TRY 48 billion. It shows 21.4% increasing. When we look at the pie chart, we can see the distribution of life and nonlife premium production here. Yes.

Türkiye Sigorta was merged to different insurance companies that's publicly traded. Top 5 companies have 51 percentage, and 10 companies have 17 percentage market share in '21 3rd quarter. We can say there is a big penetration in top companies, again, is the same as [ go income ].

Next slide, please. Before then, maybe I can say, as you see in this page, Türkiye Sigorta is the first, Anadolu Sigorta is second, Allianz Sigorta is the third degree of branch. Last year, Allianz Sigorta was second, and Anadolu was third.

Highlights of Anadolu Sigorta. Now we look at Anadolu Sigorta highlights. Strong growth despite tough market conditions, ranking top 3 at 13 nonlife branches. Premium production at TRY 7.1 billion, nearly 26 percentage year-to-date increasing. Strong health, fire and general losses growth are important in our production.

Disasters, Turkey and the world. Wildfires and flash floods in Turkey is important for international reinsurance markets. In the meantime, maybe a little bit -- it's important to give information about flash floods in Europe. I mean for international reinsurance markets, 2021 has been a year marked by catastrophic losses.

The flood disaster caused by the low pressure here system in Europe in July caused great damage, especially in Germany, and [ Belgium ] in history -- as one of the biggest flood disasters in Europe in history that we look at. And it is estimated that the economic damage will exit EUR 10 billion in European; at the same time, exit EUR 6 billion hurricane, the Ida Hurricane, which has affected in the United States at the end of August and the beginning of September. So estimated insurance damage is over $40 billion. So at the same time, this improvement affected our company, too.

Strong investment income remained. Asset under management reached TRY 8.7 billion in end of the September. Investment yield reached 20% increased.

Now GPW. When we look at health branches last year, our company was below sector. But '21 third quarter, we reached the same increase in percentage. In motor branches, we decreased compared last year, but anyway, better than sector.

Premium production. Motor own damage and motor third-party liability, MTPL, our premium production is TRY 7.1 billion, 28 percentage increasing year-to-date. Our growth rate is higher than sector growth rate again per quarter.

Market share and rank. We are the -- and the next slide, please. Yes. We are the top 3 at 13 nonlife branches. Our company, which attaches importance to balance growth in every branch, has succeeded in winning 5 first places, 4 second places and 4 third places in 14 main branches. And totally, we are second places in the market.

Net profit drivers. Financial studies and activity results of our company are [ excellent ]. It is in that our assets has exited TRY 13 billion with an increase 24 percentage compared to previous year. And the premium production again reached TRY 7.1 billion with an increase 21 percentage increasing compared to previous year. As a result of premium increase realized, our increase is market share and reached 12 percentage. Our company realized TRY 340 million. It is unconsolidated net profit, ended down 12 percentage compared to previous year. And the net profit value in all consolidated financial statement was TRY 353 million.

Distribution channel. We have got total nearly 2,800 channels and professional agencies, especially. At the same time, we have got the Isbank branches, too. I can say the widespread network to our country. This is the very important site, one of the -- our sector power. At the same time, Isbank branches are very important when we compare the last year, especially the agency premium production decreased, minus 1 point. But at the same time, the increased bank and broker production, increased 1 point plus and 1 point plus, too.

Technical results. First of all, accident, increasing premium production and decreasing claims affected combined ratio positively. Actually, this slide is very ideal branches for us. I wish all branches are like that. Anyway, this branch is very good if we compare to last year, 27.1 increasing percentage, and claims net 49.2 decreasing, and combined ratio 20.7 percentage increase -- decreasing is a very good result for us.

MOD, motor and demand, and robust growth in asset under management. When we look at here, 24.8 percentage increasing in the premium production. Claims is increasing higher than the premium production, like 30 percentage. And combined ratio increased 11.7 here. And actually, especially in this term, our balance and income statement affected this negative combined ratio.

General losses. And we will look at here, the premium production increased 38.1 percentage, and claims net increased nearly or the same, 38.1 percentage again, and the combined ratio increased 11.4 here.

Fire and natural disaster. When we look at the fire and natural disaster premium production, 48.6 percentage increasing, and the claims net increased 38 -- 33.6 percentage increasing, and combined ratio 20.9 decreasing.

Next slide, please. And MTPL. MTPL is premium production increased 15.2 percentage increasing, and the claims net 38.1 percentage increasing is important for us, especially this term again. MOD and MTPL are affected our balance and income. And combined ratio increased 3.8 percentage.

Okay. Next slide, please. As you see, profitability combined ratio -- when we look at the profitability and combined ratio, as you see, our combined ratio has increased and reached 116.2 percentage. We can say, 9-point deterioration about it. It depends on increasing claim, exchange rate change and inflation at the same time -- inflation rate. Inflation is more effective in this ratio. Deferred claims are important in this ratio, too. Anyway, it's very difficult to reflect the premium because the price competition is very effective and very important in our sector.

Next slide, please. And now I would like to give sentence to my colleague, Mr. Safak. Thank you.

[Baris Safak, executive]

Thank you, Erdem. I'm going to continue with the latest part of our presentation, financial highlights.

Our balance sheet has reached up to TRY 14 billion at the end of 9 months results, with an increase around 15.6% year-to-date increase since the beginning of the year. And our assets under management had an important increase. It was around 18.4%, and it was -- it reached to TRY 7.7 billion at the end of third quarter. Technical reserves also increased. It reached to TRY 9.3 billion. Of course, both growth also for -- had an important effect this -- in this strong growth, 19%. And of course, outstanding claim reserves and then weight with our combined ratio increasing. Shareholders' equity increase was a bit less lower with 5.5%, and our shareholders' equity was around TRY 3 billion at third quarter.

When we look at our P&L, in the third quarter, we were able to achieve TRY 26 million net profit in our bottom line. Last year, it was around TRY 102 million in our unconsolidated P&L. And our consolidated premium results was TRY 63 million at the end of third quarter. And last year, it was TRY 130 million. One-off claims that we experienced both from floods and wildfires had an important impact in our P&L, we should mention, I guess, in the third quarter.

The breakdown of our net income. Our 9 months cumulative net income breakdown, it can be seen in this -- on this page. As you see, our technical earnings was negative, around TRY 700 million. We had a strong investment income with TRY 1,175,000,000. And our dividend income from Anadolu Hayat was strong this year also, TRY 72 million. And after the depreciation provisions and tax, we were able to achieve TRY 340 million in our P&L as of third quarter -- at the end of third quarter.

On this chart, you may see our return on equity, both in solo and consolidated forms. These numbers show our trailing ROEs last 12 months at the end of third quarter. Our unconsolidated ROE stood at 15.3%, and our consolidated ROE was around 20% at the end of September.

And our latest -- last presentation is our investment portfolio breakdown, as usual. We had mentioned the assets under management portfolio reached to TRY 8.7 billion. Bonds has the highest weight in our portfolio breakdown, 43%. Deposits stood at 33%. We have funds and stocks as well with 11% and 12%. And we have repo also. And then we look at our investment income, it was around 1 -- TRY 1,124,000,000. And when we include Anadolu Hayat dividend, it is around TRY 1.2 billion. And our portfolio return was around 12 -- 20% at the end of third quarter.

So this is -- this was our last slide for our third quarter webcast. We may continue with Q&A session, if you have any questions, of course. Thank you for listening.

[Baris Safak, executive]

I think we have a question. Ovunc, go ahead, please.

[Ovunc Gursoy, analyst]

You hear me, right? I have a question. How do you see the trend in the last quarter -- this quarter and for next year or, let's say, first half of the next year? How do you see the trend in terms of combined ratio and claims? And also interest rates, I also wonder about it because Central Bank continued to cut rates, it seems so. In terms of your portfolio's yields, how do you see the trajectory going forward? And what do you expect from the minimum wage increase?

[Baris Safak, executive]

Thank you for the question, Ovunc.

[Ibrahim Esenkaya, executive]

Thank you very much for your question. Now we are going on making '22 budget. So it is very early to say something for next year. Anyway, I can say that, first of all, end of the year, especially third quarter, we really -- we didn't weigh this result, especially, I can't say, because Anadolu Sigorta is an insurance company, but at the same time, we are working like reinsurance company. So we have some damage and claim from outside, especially the Europe. So it affect our balance sheet. But this is the churn and catastrophic. So this is our business. So it's normal. But end of the year, we are waiting -- or we are -- we hope that it will be better and we'll take -- or we'll reach our target plan and target profit end of the year.

You are asking some question about next year. They are right questions, but really to say something very difficult because every day changing something very quickly, as you know, because you're in the financial sector. And -- but when we look at it from today, we see that Central Bank decreased interest rate, 100 or 150 decreased again. And of course, it will affect all other financial institutions income, especially, but we are trying to very -- not aggressive, of course, not aggressive, but we are trying to alternative financial situation. So we are trying to minimum affected in this decreased interest rate.

Baris, would you say something more?

[Baris Safak, executive]

Yes. Erdem, I made a few words. We were expecting, of course, rate cuts from Central Bank, but we were not expecting so quickly to happen. Yes, we will -- our investment portfolio will be affected with the rate cuts, but I should also mention that more than half percent -- more than 50% of our portfolio is invested in longer-maturity instruments, Eurobonds and Turkish government bonds or TL bonds, I may say. So we were expecting a rate cut. Therefore, we will be affected gradually throughout the years, I may say, because almost 40% of our portfolio is in longer-maturity instruments. It's around 5 years, I may say, approximately. Also, we have some Turkish government bonds.

But in next year, we expect volatility to continue, actually. So yes, rate cuts will continue. On the other end, Turkish lira depreciation is going to continue, as expected. So volatility might bring some opportunities for us to get more investment yield from our portfolio. That's the other point -- other side of rate cuts, Ovunc. It is going to be Negative. Okay.

[Ovunc Gursoy, analyst]

Yes. Yes. And about the minimum wage increase, what do you expect then to -- could you give us some sensitivity on that front?

[Baris Safak, executive]

Erdem, shall I continue?

[Ibrahim Esenkaya, executive]

Yes, you can.

[Baris Safak, executive]

Minimum wage -- well, we have modeled -- our actuarial model calculates some increase in the minimum wage, but it, at end of the day, makes a calculation according to previous years' minimum wage increases. So a minimum wage increase higher than previous years' average might have a negative impact on our reserves, I may say. We don't have -- we are not going to be able to give you an exact number of what we expect. But in my opinion, it's not going to be less than 25%. Maybe it's going to be around 25%. But it -- 25% increase is going to be -- is not going to have a strong impact on our P&L, I may say. But higher than 25% might have negative effects in our results.

[Ovunc Gursoy, analyst]

And one question more on my side related to medical liability insurance. Are there developments? Will there be any release of provisions do you think by the year-end?

[Ibrahim Esenkaya, executive]

Maybe I can say something for it. I think you are talking about on malpractice, isn't it, malpractice liability, Ovunc?

[Ovunc Gursoy, analyst]

Yes, yes, yes.

[Ibrahim Esenkaya, executive]

Okay. Malpractice liability. Yes. Actually, we have got a big reserve debt, and other insurance companies the same -- similar problem in that position. Actually, we are waiting the regulation about it. And authority told us end of the year -- before the end of the year, there will be solid -- a little bit solid. So it will be affected -- insurance sector balance will affect positively like that and our balance, too, because they are -- they will arrange some reserve condition. And after that, they will be affect the reserves, and it will affect balance and income results. Is it clear?

[Ovunc Gursoy, analyst]

Yes.

[Ibrahim Esenkaya, executive]

Is there any more question, Baris?

[Baris Safak, executive]

Wait a minute, Erdem. I'm checking.

[Ibrahim Esenkaya, executive]

Okay. We were talking about 30 and 31 minutes now.

[Baris Safak, executive]

I think we don't have any further questions. Erdem, back to you to wrap up maybe.

[Ibrahim Esenkaya, executive]

Okay. Okay. Thank you for joining our presentation. See you end of the year, and we take good results. Thank you very much.

[Baris Safak, executive]

Thanks for participating in our meeting.