Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Transcript 2024-Q3

[Baris Safak, executive]

Hello, everyone. Thank you for participating in our Third Quarter Financial Results webcast. As you know, we will be making the presentation with Erdem Bey, our CFO. He is going to start the presentation, and I'm going to continue with financial figures, as always. So Erdem Bey, the floor is yours.

[Ibrahim Erdem Esenkaya, executive]

Thank you, Baris. Welcome to Anadolu Sigorta Financial Presentation of '24 Q3. My name is Erdem Esenkaya. Our presentation has 3 different titles, company and market overview, technical results and financial highlights. I will present company and market overview and the technical results that after my colleague, Mr. Safak, will present the financial highlights. I think that it will take nearly 40, 45 minutes. If there is any question, we will pleasure to answer it.

And first of all, we would like to talk about the first 9 months, especially the highlights. I think that the most important issue on the urgent of world economies in the third quarter was the moves of central banks to reduce interest rates in the world. It was very important. And when we look at Türkiye in this position, closing the second quarter of '24, 71.6 percentage. Headline inflation fell down to 49.4 percentage in the third quarter and negative real interest rate trend. And on the other hand, fell from 50 percentage in June to 33.1% in September, maintained the 38 percentage level for the end of '24 and its inflation report. It shifted the emphasis to 34 percentage.

The year '24 end of the inflation target, 41.5 percentage and the market expectation that interest rate cuts will begin in November seems to have been postponed following the 2.9 or 3 percentage mostly increased in September, which are above expectations or expectation, especially, while the cooling in the economy is strongly start the manufacturing industry and rigidly experienced the services side continues to remain the most important obstacle, the decline of inflation in this term.

And when we look at the company and overview, first of all, the sector. Sector production at TRY 501 billion and 73.6 percentage increase last year. And the growth about CPI 16 percentage. When we look at the motor branches, MOD and MTPL side, NIM calculation method for September '24 2 percentage. MTPL policy is being sold at cap prices in this term.

And the financial conditions, when we look at the financial conditions, Fed cuts rates by 50 bps and the Central Bank rate cut expectations delayed after September CPI. And Istanbul Stock Exchange 100 returned the U.S. dollar terms, [ 1,000 ]. I mean there is no move in '24 third quarter.

When we look at the top 10 non-life companies in the sector, we can see easily that we are below the sector here. It shows nearly 74% increasing in the sector. Total non-life premium production, TRY 501 billion in third quarter. Last year, same term, it was TRY 289 billion. It shows nearly 74 percentage increasing. Anadolu Sigorta premium production increase rate is lower than the sector premium production increase rate.

When we look at the pie chart, we can see the distribution of production. Türkiye is the first, Allianz is the second and Anadolu is the third production share in the sector, the 9.3 percentage.

Next slide, please. Then look at the highlights in Anadolu Sigorta. Core business, strong growth in 5 branch, 73 percentage is very important for us. Fire and natural disaster combined ratio last year, it was 134 to 135 percentage approximately. And this term, 91.5 percentage and it is a good increasing or developing for us. And the bank insurance premium above sector average, of course, affect our financial statement positively. And MTPL premium growth, 52 percentage in '24 9 months.

We are continuing to increasing premium production here, but we are trying to control it. MTPL claims ratio, 98.6 percentage and last year in this term, 137 percentage. And this developing rate is very important for us again because the control of the claim ratio.

And when we look at the assets under management reached nearly TRY 15 billion, an additional TRY 8.3 billion in quarter 3. Time deposit compound yield, we can say the 63 percentage. A lot of volatility in FX markets and nearly 6.7 percentage depreciation against the currency basket in 3 quarters.

Next slide, please. When we look at the highlights, branch breakdown and the growth rate, especially in the health branches is very important again this term. And when we look at -- when we compare the last year, the same term and the sector, if you look at this term, 135 percentage increase lower than the last year, but higher than the sector in this term.

And in the motor side, we are increasing the 42 percentage and last year, 68%, a little bit we are lower than the sector, but we are, again, the #1 in this section. And the other side, 67 percentage increase and Sector 100, nearly 20 percentage increase in this subject.

When we look at the premium production here. Actually, we are totally, totally in the sector, 74 percentage increased and our production increased 63.4% increase and nearly a 9-point decrease or below the sector, but we are trying to control improving production.

Next slide, please. When we look at the market share and the rank, there you can see the 12 different branches here. And most of them, we are in 3 in these branches, especially MOD and watercraft, we are the #1 and fire aircraft, general transportation and aircraft liability, we are the second degree and accident health general liability, we are the third degree. And totally, we are the 9.3 percentage market share and third degree in the sector.

Next slide, please. When we look at the financial status and activity results of our company are exempted. It is in that assets exceed TRY 84.6 billion, and it's quite increasing if we compare to last year. And premium production reached TRY 46.5 billion with an increase 63.4 percentage compared to previous year. Our market share, 9.3 percentage. Our company realized TRY 7.9 billion in the unconsolidated net profit and net profit in our consolidated financial statement, TRY 8.3 billion.

When we look at the distribution channels, we have got 2,700 agencies and nearly 1,000 bank agencies. We can say the [indiscernible] network, all country. This is a very important side of one of our sector power, marketing power, especially. There are nearly 300 direct sales staff we say MSU. They are working in each bank branches. And after these distribution channels, when we look at that, we are, again, agency tendency company, and we are higher than the sector, 62 percentage. And when we look at the sector, 59 percentage and 3 points more if we look at the sector.

And on the other hand, the bank side is very attractive and very -- take attention position because the nearly 2 points increasing in this term. And on the other hand, the broker side, 3 points increase in this term, too. And direct sales and other distribution channel, 9 percentage in this term.

Next slide, please. Technical results, accident and health, when we look at about the third quarter, 85.6 percentage premium production increasing in this term and the net claims net decreased 23.8 percentage in this term and the combined ratio 15.5 point decreased, which is a good result for us.

In the health side, we are very -- health branches is a very strategic branch for us, and it is very important for the whole middle way strategy, especially. And when we look at the premium production, [ 137, 138 ] percentage increase and the claims net 175 percentage approximately. And the combined ratio increased nearly 10 points.

It isn't strategic, but at the same time, the combined ratio and the claims net is higher than the last year, but we have gotten -- we accepted some claims net here and the combined ratio here.

Okay. Next slide, please. MOD side is important on the other hand, because we are earning money and it affects our profit positively. In third quarter, 23.2 percentage increase and declines nearly 5 percentage increase and combined ratio 1 point in this term. MTPL side is, again, improving in this side, but we are controlling improving, as I said -- I can say. And premium production increased 44.3 percentage and declines 64 percentage and combined ratio 13 point increase in this term.

Next slide, please. Final natural disaster side is very important and affect our financial statement positively because the premium production increased nearly 55 percentage and claims net 90 percentage, combined ratio 44 point decrease. It is a very good result for us, especially.

General losses, premium production, nearly 7 percentage decreased and claims net 15 -- sorry, 12.6 percentage increase and the combined ratio, 20.3% decreased.

Next slide, please. And the combined ratio, when we look at the combined ratio and first of all, the claim ratio is very important because last year, it was 88.2%, but this year, 73.1%. And when we look at the combined ratio, 113.6% last year and 102.2% this term. It's quite positively improving for us. And of course, this improving affected all financial statement positively, as I said before.

Next slide, please. Okay. Now thank you very much for listening, and I would like to give sentence to my colleague, Mr. Safak. Thank you.

[Baris Safak, executive]

Erdem Bey, thank you very much. I'm going to continue with financial highlights, starting with balance sheet. On the left-hand side, our assets and on the right-hand side, you can see our liabilities, biggest financial figures.

Our assets in the first 9 months of the year increased with 45%, which reached TRY 84.5 billion. Our portfolio -- assets under management portfolio had a significant increase as well. It was above total assets increase with -- the growth was in 9 months growth, 55%. And our AUM reached almost TRY 50 billion. Our technical reserves increase was a bit lower than our AUM. As you see, it was 24%, and we were able to -- we booked some reserves like TRY 44.5 billion. And our shareholders' equity increase was also strong. It was 95%. It was TRY 26.6 billion at the end of 9 months.

We can say Anadolu Hayat MCAP increase had a significant impact in our shareholders' growth. Of course, our net profit, which was almost TRY 8 billion has a weight in the increase of our shareholders' equity.

On the next slide, we have our 9 months income statement summary both unconsolidated and consolidated. We use equity pickup method for Anadolu Hayat. As you know, we have 20% stake of Anadolu Hayat. So we do consolidate Anadolu Hayat with equity pickup method. So on the left-hand side, our unconsolidated figures, you can see 9 months.

Our technical income increase was 79%. It was similar in consolidated form. Our technical expenses growth was 61%, again, this is similar in consolidated and net financial income increase was 21% in unconsolidated form. So after tax deduction, our net profit increase was 45% in the first 9 months of the year.

On the next slide, you can see our quarterly Q-on-Q comparison, both again, this is similar like the previous slide. On the left-hand side, you see our unconsolidated figures and right consolidated figures. Q-on-Q comparison, technical income was grow 68%, technical expenses 70% in the third quarter of this year compared to last year's third quarter.

And net financial income was stronger than previous years. It was TRY 3.8 billion in solo and TRY 3.9 billion in consolidated P&L. And after tax deduction, our net profit was TRY 2.4 billion in the third quarter of this year, solo figures and consolidated figures was TRY 2.6 billion in third quarter 2024.

Next slide, we give the breakdown of our financial side. On the right-hand side, you see our technical earnings, our technical side profit was below breakeven, very slightly below breakeven, TRY 650 million. Investment income was TRY 11.8 billion, as we have some other figures, amortization, provision for bad debt, early discount and our tax expense was TRY 2.4 billion and net income stood at TRY 8.9 billion, as you know.

And on the next slide, we do show you our return on average equity. There was a peak at the end of first quarter. Now our 12 months trailing profit, we should underline. Our consolidated return on average equity was 61% and our solo unconsolidated return on average equity was 44.4%.

And on the last slide, our investment portfolio breakdown can be seen. As you know, we have something like TRY 50 billion AUM at the end of third quarter, 23% of them is invested in bonds, 34% mutual funds, 11% is invested in stocks, and we have deposits like about -- just about 30%. And first 9 month results, our portfolio return was 34%, not annualized on the 9 months portfolio return.

So this was all from our side for our third quarter results. We can proceed with Q&A questions if you have any questions. Thank you for listening and participating in our webcast. Back to you for your questions. You can write your questions through chat box. We can read and answer them, reply them. You can raise your hands also as well so we can unmute your microphone so that you can ask verbally. Thank you, again.

[Unknown Analyst]

Hello?

[Baris Safak, executive]

Hello Sahil.

[Unknown Analyst]

Hi. This is [ Sahil from Moon Capital ]. I have one question. I mean, historically, in the past we have seen the discount rate increase, right, because of the higher inflation, higher interest rates, so the discount rate increased in the previous period. Now at some point, we will be heading into a rate-cutting cycle.

And so how do you see the discount rate in this scenario when we see lower inflation, lower interest rate? And with the discount rate cut, obviously, the reserve requirement would increase. So how do you see that play out and the overall sector and for Anadolu Sigorta as well?

[Baris Safak, executive]

Yes, with the rates coming down in the coming year, probably we are going to be expecting discounts in the discount rate as well. But we expect a gradual discount decrease in 2025 and also the following years. And I may say with our portfolio, especially in MTPL coming down, we are going to be impacted -- affected minimum from this discount rate, I may say, for 2025.

And also, we should also keep in mind that we expect a gradual, not a very strong discount rate decrease in 2025. And also, we should also consider that net profit for Anadolu Sigorta has significantly risen. That's another point for the smaller effect that we expect coming from discount rates in the following year, Sahil.

[Unknown Analyst]

Yes. I mean that's very clear. And looking at your financials, you have been well placed with the discount rate decrease going in the future periods. But for the overall sector, I mean, obviously, smaller companies usually rely on MTPL products, right, to have their AUM and to have the investment income. How do you see the overall sector provisioning level? And what would be the impact on the smaller companies? Do you think like there will be more consolidation in the sector? Or like how this would play out for the overall sector in your opinion?

[Ibrahim Erdem Esenkaya, executive]

We can -- it's not easy to say about the sector, but the small companies selling the MTPL site cheaply or the aggressive prices in the sector and because they need cash flow in this term. And as you see this year, there is the high interest rate get good income for the financial statement. But next year, it will be a little bit down. And of course, it will affect their financial statements negatively. And it depends on the claims. And I think it will be difficult to I'll say, the compensate the clients next year.

And on the other hand, capital adequacy rate will be down for them, I think so. But next year, if you don't get any financial income, you need to get -- earn money from the technical side, and it depends on the technical knowledge and technical history. So I think it will be a difficult scenario and it will be a difficult term for them. Is it clear, Sahil?

[Unknown Analyst]

Understood. Yes. I mean, obviously, those who can survive can take the market share versus the smaller players. So...

[Ibrahim Erdem Esenkaya, executive]

Yes, because the capital adequacy rate, it's very difficult to get enough range next year for them. I think so. I told. Would you say anything because I cut here speaking. Will you add anything for, Sahil?

[Baris Safak, executive]

You told what I was going to say, Erdem Bey. We don't have any other questions as far as I see. I am checking rechecking that. No written questions as well.

Erdem Bey, back to you for closer.

[Ibrahim Erdem Esenkaya, executive]

Okay. Thank you very much for joining this presentation. Next year, it will be a very important year for us. Yesterday, we celebrated the Turkish Republic and 101 years old. And nearly 1 month ago, we celebrated 100 years for [ Turkish Bank ] and next year will be the 100 years for us. So '25 is a very important year for our company, for us, especially. And we would like to make a good sign in this term. And we would like to see a better financial statement and better conditions next term. Thank you very much for joining.

[Baris Safak, executive]

Thank you very much.