Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Transcript 2022-Q3

[Baris Safak, executive]

Good afternoon, ladies and gentlemen. Today, we will be presenting our third quarter results. To present us will be our CFO, Mr. Erdem Esenkaya and me as IR Manager of Anadolu Sigorta. As usual, we are going to have a presentation related to our third quarter results. And at the end of the presentation, we are going to have a Q&A session. [Operator Instructions]. Thanks for your participation in advance. So the floor is yours, Erdem.

[Ibrahim Esenkaya, executive]

Thank you, Baris. Hi, everybody. Welcome to Anadolu Sigorta financial presentation of '22 quarter 3. Old presentation has 3 different titles, company and market overview, technical results, financial highlights. I would present company and market overview and technical results after that, my colleague, Mr. Safak present financial highlights. I think that will take nearly 30 minutes. If there is any question, we will pleasure to answer it.

First of all, when we look at third quarter of 22, we can see Turkish economy remains on sustainable balance of payments dynamics. The current account deficit has been widening rapidly. Consumer inflation has higher since the start of the year. As you'll see, the government announced the midyear minimum wage hike in July, bringing the net mostly minimum wage, TRY 5,500 compared to June.

We are waiting another increase in end of the year. Of course, we believe that Turkish people also us – also me waiting for it. It will be helpful for us in his position, inflation rate. But this increasing will be affected financial statements, every financial segment, on point issuance financial statement affect too much.

Again, I can say that [ COVID ] worries about inflation, justifiably focusing household budgets at the same time, companies budget to the cost leading to soaring on the other hand, the volatility in Turkish economy is going [ come ]. Now when we look at the highlights of the sectors. Sector peel production reached TRY 1026.3 billion. Year-to-date, 116.8 percentage increasing. Growth level CPI is important for us.

On expiratory reserve calculation methodology change and it affects our financial statement. Maybe next slide, we will talk about it. Maybe you asked some questions about it. Motor branches, [ MMTL ] monthly incremental rate increased 4.75 percentage effective from 1st September and other one-off price increased 22 percentage on the -- especially for commercial vehicles, surging MOD PolicyPrices.

When we look at the financial measures, interest rate change from interest rate change, especially from 14% to 10.5% in 22 quarter 3 Inflation in rising trend. CPI reached [ 83.45 ] percentage and increase in stock portfolio I think it's a very important thing that the Central Bank indicated interest rate down to 10.5%. And I hope or we believe that end of the year will be 9 percentage.

Next slide, please. then we look at the premium production figure, we can see easily that we are a similar sector. Total online print production, EUR 126.3 billion to third quarter '22. Last year's same term, it was BRL 58.3 billion. It shows really approximately 117 percentage increasing under firm production increased the risk approximately the same, only 0.2% more than we compare. When we look at the pie chart, we can see the distribution of channel distribution of production shared by companies and may we maintain our market share, 12%. Top 5 companies have [ 3% ] and top to companies have nearly 70 percentage market share in '22 quarter 3. As you see in this page, Sigorta is the first analog second, as Berit and quite different that if you compare the last year, HCI is the fifth insurance company in this table.

Next slide, please. Let me look at iliadoloFanodo Sigorta to growth in premium growth in main branches ranking top 3 at 15 nonlife branches, MOD growth 304 percentage sector growth EUR 56. NTTR growth 162, sector growth 158 percentage. Portfolio allocation updates CPI-linked treasury bonds and increasing FX loan position is important for us. Investment portfolio asset under management, asset under management reached EUR 13.1 billion, additional EUR 1.8 billion in quarter 3 as of 30 September investment yields reached 36.5%. Next slide, please. Highlights when we look at price, for example, in MOD average premium increase, we can see the price increasing at 22 third quarter because car average price increasing, new average premium increase rate 113 percentage on renewal. Average premium increased rate was 195 percentage. This means there is a nutrition and we're following the inflation, and we're selling above the inflation. So we are increasing oil prices in prices, fuel prices. And when we look at the average premium, there is a big increasing for them. Next slide, please.

In this slide in this page, when we look at the health branches, our company was below sector because we would like to get profits, so we choose risk, especially here. In Motor branches, we reached the increasing percentage rate higher than sector. We have the same idea but in this section, we will increase the prices for market reality, I can say. Next slide, please. or premium production is nearly TRY 15.5 billion when we compared to last year's EUR 117.2 increasing year-to-date. Our growth rate is just a little bit sector growth rate quarter 3. Next slide, please. All company, which affects the importance to balance growth in every branch has succeeded in winning 6 first places and 3 second places and 4 third places in 14 million branches. As I told before presentation in 2022, we are not only one branch insurance company like MOD, like NTPL. We are -- in all branches, I think it's very important to compare or the generate to our company.

Next slide, please. When we look at the financial status and activity results of all companies are exempt. It is seen that our assets exited TRY 23 billion with an increase of nearly 42 percentage compared to previous year. And the premium production reached, as I said before, TRY 15.5 billion, which an increase EK 117 percentage compared to previous year. As a result of premium increase realized or increased its market share and reach the level 1 12 percentage. Our company realized 498 million in unconsolidated net profit rise 46 percentage compared to previous years. And net profit value in our consolidated financial statement, TRY 567 million.

Next slide, please. Then we look at the distribution channels, there is no big change if we compare the last term. We have got nearly — or nearly 60 – to 600 or 700 nearly, we have got channels. I can say the white striped network all country. This is a very important side of the core sector power. There are nearly 350 direct seller stop. We say MSU Mesa in Turkish. They are working in [ Ishank branches ]. So all of them interested in for sale is very important for our sells channel. When we look at the technical results in the next slide. increasing premium production and decreasing declines affected combined ratio positively.

And as I say before, again, an idle branch for us. Then we look at the House branch in next slide. House branch is very important for us. Last year, it was a healthy year for us, again, this year, halter again because we have to improve ourselves in this branch like that. We're planning to grow this branch. But on the other hand, health inflation rate higher than the inflation rate. We are very careful. We're taking attention for taking risk in this branch. Next slide, MOD. MOD is another important branch for us. high CapEx rate disruption in supply chain and other results increased the price of cars and cars and fixed cost affects this branch profitability.

But anyway, especially third quarter it is better than the last year. We are improving here, and we are getting -- we will get profit in the short term. We believe that. And the next slide, please general losses, and we can pass it, I think so. [ Firasimilar ] we are going is very good in the subject to. Next slide. And LTL is very important and very effective to our financial statement negatively. We are increasing our premium very strongly in this branch.

But anyway, it is very difficult to control cost here. As you see, MTPL in our countries [ confuse rate ]. At the same time, we don't any arranged pricing [ SPT ]. So the legal authority -- legal authority followed this sells very closely and especially some companies doesn't want to sell this policy because the effective financial statement negatively.

And so our production more increasing the last term, and it affects our financial statement. Yes, print production is very good. But at the same time, demand cost side is very negatively for us. Next slide, please. When we look at the profitability and combined ratio. As you see our combined ratio is increasing and reached 130.3 percentage. We can say 14-pint differentiation about it. It depends on increasing client exchange rate change and inclusion rate change and inflation more effectively in this ratio.

The feed clients are important in this ratio, too. As I said at the beginning of our presentation, inflation is very important for us at the same time and negative real estate effect of income. And finally, we are reaching this combined ratio. But we are trying to decrease it, and we have some plan and we are some planning something for decrease this combined ratio. Now financial highlights.

And now I would like to give[ Santos ] to my colleague, Mr. Safak. Thank you.

[Baris Safak, executive]

Thank you, Ibrahim. I'm going to continue with financial ideas as Andy mentioned, going through similarly with our balance sheet starting at our balance sheet be in the last 9 months of the year, our assets grew around 43% and reached TRY 23 billion at the end of the third quarter. The increase in amount was around TRY 7 billion. Similarly, our assets under management had a growth rate around 41%. And we have reached $13 billion at the end of third quarter. On the liability side, technical results, the growth rate was higher than the assets under management rate, it was 52%. Our total technical reserves reached TRY 16.3 billion. But for this year, we should mention that the one per results had an important growth. Of course, it was related with our premium growth -- gross premium growth also more premium growth was huge. It was around 94%. So most of the growth of our technical reserves was coming from other premium reserves. Outstanding claim resource growth rate was smaller. It was 23% at the end of September. And our shareholders' equity growth was 27%.

It was EUR 4 billion at the end of third quarter. Then we continue with our P&L. These are our third quarter results, stand-alone third quarter results. Our technical income growth rate compared to the year-on-year comparison was 91%, but our technical expenses growth was higher than our technical income. When we look at the breakdown of our technical expenses rate on realized claims growth rate was 110% and our operational expense growth rate was higher. It was 136%, and total, the growth rate was 117%, as you see on the left-hand side of the table. And our net financial income growth rate was EUR 278 million, thanks to higher assets under management and also higher yields -- at the end of today, our unconsolidated net profit was EUR 28 million at the end of last year's third quarter. And this year, it was 12 unconsolidated form.

Last year, we were able to have EUR 63 million. And this year's consolidated net profit was SEK 204 million. it performance was also driven in third quarter. But I should also highlight that we are taking for the tax incentives. As you see tax rate was smaller than last year's tax rate in our income, P&L net profit. On the next slide, we can see the breakdown of our net profit. As you might recall, we had received almost TRY 500 million in 9 months. which was 340 last year's net profit. And the breakdown compared to last year, technical earnings, it was loss-making, around EUR 2 billion investment income, but profit-making, of course, around TRY 303 billion. And other items are smaller, dividend income from adored, EUR 90 million amortization. It was SEK 100 million and provisions of bad debt and the discounts and the tax was EUR 38 million.

So at the end of the day, our net profit stood at TRY 498 million. To continue with our return on equity figures. As you see on the right-hand side of the table, these are trailing 12 months ROEs, average ROEs. -- unconsolidated ROE was around 20%, whereas our consolidated ROE was almost 29% at the end of third quarter.

I should also still highlight that this is the average equity ROE. And the last page, last slide of our presentation is our investment portfolio breakdown as usual. As I've said, our own reached EUR 13 billion. It was important jump in the last quarter. We were able to grow around TRY 2 billion. We should mention that our cash position has been positive in the last quarter coming from our insurance sites.

That's what's very good for [ endostatin ] is going to be growing in the fourth quarter as well we see. When we look at the breakdown of this TRY 13 billion bonds had an important portion in our portfolio. It was 57% and France also was an important portion, 21%. Our stock share grew in the third quarter, as you see, 8% and deposits was 14%.

Maybe I should mention that our net FX position was USD 100 million, it was around USD 100 million, of which protected deposits are not included in this FX position. So totally, we were able to have investment income around TRY 2.6 billion in 9 months, which makes 36.5% yield return at the end of. This is the annualized portfolio yield calculation also we should mention that. And underlie dividend is not included in this investment income. So this was all for our third quarter presentation.

I think we can continue with Q&A session.

[Baris Safak, executive]

We have a question from [ Evinch ].

[Unknown Analyst]

Can you hear me?

[Baris Safak, executive]

Yes, we can hear you, [ Evinch ].

[Unknown Analyst]

What should we expect for the last quarter in light of the third quarter results, I really wonder about your expectation about the minimum wage rate. And do you expect any development, any regulation coming out, which favors your financials? Could you give some color on that, I would appreciate that.

[Ibrahim Esenkaya, executive]

I can say something for it, especially, of course, we are following megas, as you see, and we are hearing something from Ankara, and they are telling about TRY 10,000 for minimum wage. It's necessary. It is important for the people, Turkish people because the high completion rate be needed. But on the other hand, if there is TRY 10,000 Turkish are will happen, it will be very effective for the financial statement for every sector are financial statement, but more in insurance sector differences, I mean, this is not only cost for us, for the company, it's not only cost.

At the same time, it's interested in about reserves also for us outstanding reserves. It affects all standing offers very strictly in any change of this minimum wage. But they are selling or we are hearing TRY 10,000, but I -- or not to [ believe ] I can say only it must be higher than now, but not 10,000, nearly maybe INR 7,500 or INR 8,000 could be. And we are waiting, let's say, more than 100 percentage increasing only 40, 45 percentage increasing because it will affect our financial statement very strictly, as I said before.

If there is funding happen like that and insurance regulation and supervision agency must do something must some legislation about our financial statement for to get relaxed. I can say very briefly. We are hearing TRY 10,000, but we are thinking that it will be 7,500 or 8,000 Turkish tires. Of course, every condition, it affected our financial statement negatively, I can say very clearly. If more than this point regulatory have to legislate it.

[Baris Safak, executive]

We have a recent question from Mr. [ Sadrettin ].

[Unknown Analyst]

Thanks for the presentation. Any further comment on that or -- have you booked any reversal in third quarter of '22?

[Ibrahim Esenkaya, executive]

Reevaluating some regulation on expense reserves before, but we're working that it will happen at the end of the year. But SADD, insurance regulation and Supervision Agency, Sigorta and tea decided before. end of the before end of the year, it is affect our financial statement, of course. And when we look at our financial statement to nearly SEK 240 million or PLN 250 million positively. And again, it will have the same position will affect the end of the year, but it is very -- it is not easy to say the point how will it be. But in the quarter, it's effect, EUR 240 million to TRY 150 million positively... This was the supply for Mr. [ surety question ].

[Baris Safak, executive]

Any other questions -- we have a question from [indiscernible].

[Unknown Analyst]

Thank you for the presentation and for your time. If everything goes in line with your plan for the last quarter, do you expect any dividend distribution next year?

[Ibrahim Esenkaya, executive]

It is very difficult to say something about it because it depends on the regulation, not to our company? It depends on the regulation. As you see last year, there was a regulation and capital decency Composer 135 percentage last year. Again, this year, for example, yes, there is some regulation about DAC on ex passes, I will say. But the authority told us in the regulation, yes, you can take the profit from this, but you can't use in the other capital adequacy for it or you can use it for the dividend change. sharing this. So we aren't sure what will happen end of the year. It depends on the regulation.

[Unknown Analyst]

Do you expect any change in the current regulation? I mean, do you expect any increase in the ratio?

[Ibrahim Esenkaya, executive]

Could be. Okay. I think then when you compare the last year, nothing better than the last years today.

[Unknown Analyst]

What is your current ratio, by the way, on…

[Ibrahim Esenkaya, executive]

Current ratio Solvency ratio, you mean, I guess...

[Unknown Analyst]

Yes…

[Ibrahim Esenkaya, executive]

Above the 100 percentage...

[Baris Safak, executive]

And we have another question from Mr. [ Salil ]. Kumar, go ahead please [ Salil ].

[Unknown Analyst]

Can you hear me?

[Baris Safak, executive]

We can [ Salil ].

[Unknown Analyst]

For the presentation. On the URR release, you mentioned that third quarter release was 240 to 250. But I guess there will be more to be [ related ] in the fourth quarter. So could you please tell us like what should we expect in the fourth quarter? And will it be full in final settlement in fourth or the URR release may continue in 2023 as well?

[Ibrahim Esenkaya, executive]

We said, we have got a very strong print production. We guess that will go on at end of the year. We get it. On the other hand, we are planning to, of course, the profit, but it depends on the regulation. What I mean? For example, in September, atonic fees changed in Turkey certainly and fees increased too much, nearly double something like that, and it affects our outstanding reserves. And to nearly TRY 180 million or TRY 200 million effect negatively our financial statement. But if you asked me in the first half of the year, but you guess. I contest it. Anyway, really, it is very difficult to say if in this condition, we have got a very good profit. We believe that we can say it. But next month, in November or in December, can manage anything. It is it is very difficult to explain something like that. I would like to give some example for it. It's clear, I'm not sure. Is it clear?

[Unknown Analyst]

Yes. I mean I understand the point because there are a lot of moving parts and the regulations. But I guess what I'm trying to understand is the URR release, I mean, obviously, the regulation is out now. So we have the certainty like how much amount will be released in the fourth quarter. And this is what I'm trying to understand.

[Ibrahim Esenkaya, executive]

Yes. You are right, you like to understand it, but it is very difficult to say something in this condition. If there is no change in this condition. We have got a very strong pre-production. I think it will more than TRY 20 billion, I can say. And it depends on we have got profit again. But if there is no change negatively.

[Baris Safak, executive]

We have a written question from [ Mr. advance ]. Could you relate the effect of last regulatory change that you are on your financials?

[Ibrahim Esenkaya, executive]

We did it in the quarters.

[Baris Safak, executive]

Okay. And Mr. [ Sadi ], another question. Will 8-person equip stock sharing on will remain in fourth quarter 2022? Do you see stock exchange as an interest rate.

[Ibrahim Esenkaya, executive]

And [ I'm shall ] I because this is your real subject.

[Baris Safak, executive]

Yes, subjecting we will -- we think we are going to continue keeping our stock share, actually, we have increased our stock share in fourth quarter. I should also mention that -- if we see stock exchange as an interest rate instead of a rate hedge. We don't have any other instrument to make profits or to bring our net profit closer to inflation rates. So we think there is some more way to go in the stock exchange market. But the important point is picking stocks, of course, as you more better than we do. So as I replied to your questions, yes, we do keep our share in fourth quarter. We even have grown a bit more in the stock share in fourth quarter. We don't have any other written questions as far as I've seen, and hands in the as I've seen, Ibrahim, I think we can close Back to you.

[Ibrahim Esenkaya, executive]

Okay. Thank you very much for joining and interest in our company. And I can say after this presentation, really very difficult term for any company or any people in Turkey, of course. But we are very strong in production, and we are very strictly following what is going on, what is happening in the sector or the Turkish economy or the world economy again. Of course, we are interested in the legislation very closely. We would like to say very good teams for you. But really the difficult fortune teller, something like that. This is very difficult. But we are very strictly following what is happening and end of the year will be a good financial statement we are targeting, I can say. Thank you very much for joining again. Have a good night or have a good evening.

[Baris Safak, executive]

Thank you.