Anadolu Anonim Turk Sigorta Sti

IST:ANSGR.E

Earnings Call Transcript 2021-Q4

[Baris Safak, executive]

Good afternoon, everyone. I think we may start. It's time. Actually, it's 5:00. Good afternoon. Thank you all for coming to our presentation for our 21st fourth quarter earnings call. Today, we will be having the presentation with Erdem Esenkaya, our CFO, and I will be also having some parts in the presentation as Head of IR. For those who don't know me, I'm Baris Safak, Fund Management and Investor Relations Manager; and Erdem bey, our Chief Financial Officer, is going to start presentation.

So Erdem bey, the floor is yours.

[Ibrahim Esenkaya, executive]

Okay. Thank you, Mr. Safak. Hello, everyone. Welcome to Anadolu Sigorta Financial Presentation of '21 Quarter 4. My name is Erdem Esenkaya, I'm working as a CFO of the company. Our presentation has 3 different titles: Company Market Overview, Technical Results and Financial Highlights. I will present the company and market overview and technical results. After that, my colleague, Mr. Safak, who is the Manager of Fund Management and Investor Relations Department, will present the financial highlights. I think that will take nearly 35 or maybe 40 minutes. After that, if there's any questions, we will pleasure to answer it.

First of all, I would like to give you a small summary for 2021. In the first half of 2021, we saw the COVID-19 pandemic effect, especially after normalization life will begin to move. So insurance indemnity and postpone indemnity began to increase, MOD and half branches.

Third quarter of 2021, we had some natural disaster like flooding in Northeast and East of Turkey and flash floods Southwest and South of Turkey. But the third quarter of 2021, really very interesting and difficult term for us.

In this point, I would like to say English people say the VUCA year for 2022. It means volatile -- volatility, uncertainty, complexity and ambiguity. I mean volatility, unpredictable and out of our control; uncertainty, without certainty; complexity, with many interdependencies; ambiguity, unfamiliar, outside of our expertise. English people tell it, but we live end of the 2021 before 2022. And we began to leave VUCA year of 2022 in the third quarter of 2021. Now we can start for presentation.

I'd like, first of all, company and market overview, highlight sector, sector performance. Sector production reached at 70 -- TRY 87.6 billion by 29% year-to-date increasing. Easing price competition, especially in the disposition company see the reality because the increase in foreign currencies and inflation so that the prices increased. And easing price competition, there is be narrow area.

Motor branches, MOD and MTPL. MTPL policies being folded cat prices, surging MOD policy prices, too. Financial measures, especially in this term, negative real interest rates is very important position for us. Inflation in rising trend financial year '21, 36 -- nearly 36 point. Turkish lira depreciation and 72 percentage depreciation against the currency basket. And there are -- they are very important effects of our economy and insurance sector in this term.

Highlights and regulation change are important in this term, too, especially financial year 2021. Minimum wage increased nearly 50 percentage, and it affect our outstanding client provision. What about it, especially MTPL, motor third-party liability, and liability branches are affected in this kind of minimum wage increasing. This constraint changed from 9 percentage to 14 percentage are important legislation again. Capital at currency threshold increase for dividend payouts from 115 percentage to 135 percentage, especially the insurance regulation and supervision agency. Legislation, this kind of legislate, so they affected our financial highlights.

Financial year 2022, especially change in capital address calculation, multiplayer changes. MTPL in the -- MTPL from 0.18 to 0.21; MOD from 0.14 to 0.15. MTPL price cap incremental rate increased from 1.25 percentage to 1.5 percentage. And MTPL price cap one-off increased 21 percentage.

Next slide, please. Top 10 life companies in the sector. When we look at the premium production figure, we can easily see that we are better than last year and sector, too. Total nonlife production, TRY 87.6 billion in '21 quarter 4; last year, same term, it was TRY 68.1 billion. It shows percentage, 28.5 percentage increasing. Anadolu Sigorta premium production increase rate is higher than the sector premium production increased rate.

When we look at the pie chart, we can see the distribution of life and nonlife production, too. Top 5 companies have 52 point -- 52 percentage, and 10 companies have 71 market share in '21 quarter 4. We can say there is a big penetration in top companies. As you see this page, Turkiye Sigorta is the first, Anadolu Sigorta is second, Allianz Sigorta is third, degree of the range. Last year, Allianz Sigorta was second and Anadolu was third.

Highlights, Anadolu Sigorta. When we look at our company, strong growth despite tough market conditions, ranked in top 3 at 12 nonlife branches. Premium production, TRY 10.7 billion, nearly a 34 percentage year-to-date increasing. Strong fire and general loses growth in financial year '21, nearly 20 -- 41 percentage.

FX position, additional long position during the quarter monitoring recent years and managing FX position accordingly. Strong investment income remained in this term. Asset under management especially reached TRY 9.3 billion, additional TRY 625 million in quarter 4. As of 31 December, investment yield reached 24.5 percentage.

Highlights, gross premium written, GPW. When we look at the health branches last year, our company was below sector. At '21 quarter 4, we reached the sector increasing percentage rate very closely. In motor branches, we reached the increasing percentage rate more than sector.

Next slide, please. Premium production. Motor on demand or premium production is TRY 10.7 billion. Again, 24 percentage increasing year-to-date. It's a very important increasing for us. Our growth rate is higher than the sector growth rate is in '21 quarter 4.

Next slide, please. Market share and rank Turkish liras. We are in top 3, 13 nonlife branches, all company, which attaches importance to balanced growth in every branch has succeeded in winning 2 first places, second places and third places in 13 main branches.

Net profit drivers. When we look at the financial status and activity result of our company are excellent. It is seen that our assets exited TRY 16.8 billion, with an increase of nearly 39 percentage compared to previous year. And premium production reached TRY 10.7 billion with an increase of 34 percentage compared to previous year. As a result of the premium increase realized or increased its market share and reached the level of 12.3 percentage. Our company realized TRY 522 million in its unconsolidated. Net profit rise 13.2 percentage compared to previous year, and net profit value in our consolidated financial statement was TRY 519 million.

Distribution. When we look at the distribution channel, nearly 2,800 distribution channels. I can say that while separate network to all country, this is a very important site, one of the -- or sector, power. There are nearly 300 direct sell stock. We say MSU, M-S-U. They are working in Isbank branches.

And technical results, next slide, please. Yes, excellent increasing premium production and decreasing clients affected combined ratio positively. And actually, it is an ideal branch for us.

When we look at the health branch, next slide, please. Health branch is very important for us, especially we call the hot year for '21. So we increased, premium production is very good if you compare to last year. We are planning to grow this branch, too. But on the other hand, had the inflation rate higher than the inflation rate. So our combined ratio is higher than the others.

One of the other similar thing in MOD, motor on demand. MOD is another important branch for us. High FX rate and disruption in supply chain and other results increased the price cars and the car fixed cost. So it affect our combined ratio again and higher than the last year.

Next slide, please. Yes, general losses, again, they're similar, but it's better than the MOD and the healthy branches.

Next slide. Fire and natural disaster, then we look at the high combined ratio here. But I would like to take your attention. This is the last quarter. And last quarter, we have a big fire industry -- fire accident. So it affect our combined ratio timely. But when we look at the next slide, we will see together more compatible.

Yes, next, MTPL. MTPL, it's a pity because we have got some legislation so that it affect our term H2. So its combined ratio affected 121.2 increase last term. But totally, when we look at the next slide, we will see the more -- the compatible.

Before slides, when we look at only the last term of '21. But when we look at the year and '21, of course, there is again something changing here. MOD, end of the year, 111.8 percentage; MTPL, 153.7; fire, 136.7, something like that; totally, 127.7 combined ratio here.

As you see combined ratio has increased and reached 128.7 percentage. We can say a 12-point deterioration of audit. It depends on, especially increasing client, exchange rate changing and inflation rate change. And inflation is more effectible in this ratio. Deferred declines are important in this ratio, too.

Now I would like to give the sentence to my colleague, Mr. Safak.

[Baris Safak, executive]

Thank you, Erdem bey. I'm going to continue with financial highlights. At the beginning of my presentation, there are some figures related with our balance sheet. As you see, our assets reached up to TRY 60.7 billion at the end of 2021 with a growth rate around 39%. Assets under management amount reached up to TRY 9.3 billion, which means we are going to start the year with this amount, we are going to be earning from TRY 9.3 billion. The increased rate in our assets under management MR costs, 27%.

On the other hand, on the liability side, technical reserves is the biggest portion of our liability, as you all know, I guess. Its growth rate was 39%, and it was TRY 10 billion -- TRY 10.8 billion. And our shareholders' equity reached TRY 3.2 billion at the end of the year.

Our income statement, you are seeing at your screens for third quarter compared to previous year's third quarter. Our technical income growth was 13% for '21 Q4, and technical expenses change was 72%. The main effect coming from -- was coming from Turkish lira depreciation. I may say, of course, as Erdem bey also mentioned, the minimum ratio effect of the OR and TPL had a negative effect on our technical expenses for sure.

Net financial income and other expenses and the huge growth, the change was 526%, thanks to FX; on the other hand, opposite player because we were on the long side of the -- we were holding a long position in terms of FX. So we had a huge impact coming from that. Opposite to last year, the currency had negative effect because the Turkish lira had appreciated in the fourth quarter of 2022. This time, Turkish lira's depreciation had a positive effect in our net financial income.

So when we deduct our taxes at the end of the day, our net profit was TRY 182 million for '21 fourth quarter in unconsolidated form, and our consolidated net profit stood at TRY 237 million.

Our net income breakdown for our financial side can be seen on the slide. We had negative technical earnings with TRY 1.6 billion. Our investment -- this is full year figures, I should mention. Our investment income stood at TRY 2.4 billion, but dividend income from Anadolu Hayat was TRY 72 million. Amortization was 1 14. Provisions, we had kept provisions for bad debt, TRY 1 05. Discount had a negative effect for our P&L, and other income was TRY 18 million. And also, tax was TRY 126 million. So we do reach TRY 522 million net profit at the end of the year.

The trend of our return on equity for both solo -- for both unconsolidated and consolidated figures. As you see, at the end of the year, we were able to keep our 24% ROE target for consolidated. Unconsolidated ROE dropped a little bit slightly. It was 17.4. These are the average ROEs, I should mention.

Lastly, our investment portfolio breakdown. We are going to manage more than TRY 9 billion. At the end of the year, our assets under management amount, I had mentioned. The breakdown, as you see is bonds mainly, 65%. We have funds, 3%; stocks, 4%; deposits, 4% [ PR ] and FX; and 5%, repo. We were investing at the end of the year. And our investment income is placed on the right-hand side of the page. We have dividend income. Investment income was TRY 2.2 billion. And its portfolio return calculated 28.7%, but this is according to the P&L table curl, I should mention. So at the end of the day, our investment portfolio was invested in these instruments, I should say.

So this was the last slide of our presentation. Thank you. Thanks for listening and attending our presentation. [Operator Instructions] Thanks for listening.

[Baris Safak, executive]

So far, we have 2 written questions. Firstly, Bandra. The question, can you repeat your ROE target?

Actually, we didn't mention our ROE target for upcoming year. Maybe I may let -- give the sentence to Erdem bey for this question. Asghar bey also asked another question. Is there any change in your portfolio breakdown in January?

So far, we didn't change our portfolio. We didn't have major changes, at least I may say, Asghar bey in our portfolio breakdown yet.

Yes, we have a lot of written questions. Erdem bey, can you repeat your ROE target as per annum?

[Ibrahim Esenkaya, executive]

Okay. Especially before presentation -- at the beginning of the presentation, I talked about VUCA. So it was very difficult to prepare the 2022 budget for us. But anyway, of course, we are planning to good results for next year, especially we like to increase or profit 15 -- more than 15 percentage increase in the last year.

[Baris Safak, executive]

Mehmet -- Mehmet bey asked a written question. Do you expect combined ratio to improve for 2022? Erdem bey, would you like to answer this one also? Shall I repeat the question?

[Ibrahim Esenkaya, executive]

It is very difficult to decrease the combined ratio quickly, but we are planning to decrease it, especially the 100, 110, 115, between them because really, in this term, it is very difficult to control the damage cost especially. So we are planning less than the -- first of all, end of the year, we are planning to less than 127. But it's a pity, the inflation rate and other changing affect all the mix negatively. And our ratio increased for debt. But in 2022, we are planning to decrease 110 , 112, something like that.

[Baris Safak, executive]

[Operator Instructions] Mehmet bey's -- we have replied Mehmet bey's questions. Now Murat [ Invental ], actually, what's the outlook for MOD pricing? Impact of vehicle Turkish lira fully passed onto new MOD premiums? And he added also, new contracts, I meant? Erdem bey, shall I repeat the question?

[Ibrahim Esenkaya, executive]

Just a moment, please. Yes, in this position, we are trying to increase the positive prices especially. It is very difficult to say any point like that. But now, we are increasing the prices.

[Baris Safak, executive]

So Murat bey's question, we are increasing the prices very strongly also, we had mentioned at the beginning of the presentation.

And Karim, Mr. Sawabini, asked a written question. Can you remind us how much of a positive impact the change in the discount rate was on pretax earnings? Thank you. And here another question, where do you forecast inflation for 2022? And how do you see pricing in the key business lines?

[Ibrahim Esenkaya, executive]

Especially -- maybe, first of all, I would like to -- a little bit information about it. The cost of minimum wage increased 50% in this term end of the year, and it affect our outstanding claim provision. At the same time, the sector outstanding claim provision saw insurance regulation and supervision agency legislate discount rate change and from 9 to 14 percentage. Of course, it affect our financial statement positively, but it is very difficult to say. It's -- how -- it's very difficult to say the pretax earnings now. It is necessary to calculate it. After that, maybe we can talk about it.

[Baris Safak, executive]

And Karim, Mr. Sawabini, also asked about our forecast inflation. Maybe I can reply this. Erdem bey, should I?

[Ibrahim Esenkaya, executive]

Just a moment. We are forecasting about it 30 percentage in 2021 -- 2022. And we are planning to increase 2 or 3 points than the inflation rate.

[Baris Safak, executive]

Okay. And Asghar bey has another question. Any changes in your dividend policy this year due to increase in the capital adequacy ratio?

[Ibrahim Esenkaya, executive]

Yes. We changed our dividend policy this year, especially we are planning to offer any dividend distribution from 2021 earnings to the general assembly. Of course, general assembly will decide it. But end of the year, said that the insurance regulation and supervision agency legislate. And if you want to give dividend, you have to reach 135 percentage capital adequacy threshold. So it's legislated in the middle of December.

And most of the companies like us aren't ready for it because the normal capital adequacy threshold, 115 percentage. And our percentage is nearly 100, 2022. We were ready for it. But after that, I mean, 135, it is very difficult to arrange our capital adequacy threshold in the short time. It's mean don't give dividend. And we decided -- or we're planning now to offer any dividend distribution from '21 earning to the general assembly.

[Baris Safak, executive]

So far, all written questions are answered, as far as I see. Ovunc, you had a question? I guess you had raised your hand? Shall we turn your microphone on?

[Ovunc Gursoy, analyst]

You hear me?

[Baris Safak, executive]

Yes. We hear you.

[Ovunc Gursoy, analyst]

I actually want to ask about the pricing dynamics in the market at the moment. Considering the onetime one-off price increase, 20% this month and going forwards, 1.5% in MTPL prices, how do you see the trends in the markets? You think all the companies will adopt this policy and increase the rates? And also, how do you see the competitive environment compared to last year 2021, in terms of -- especially my focus is on the motor segments, on MTPL and MOD.

[Ibrahim Esenkaya, executive]

Mr. Ovunc, definitely, you are right. Before there's a big competition, especially the price competition, in these 2 branches. But end of the year, company see the reality because increasing foreign currency and inflation.

Last year in the third quarter or the -- I think the third quarter, I told the car fix inflation, 35 percentage, I said. But there was no big FX -- effect in this percentage. But after that, there's a big FX calculate after that. So it is very difficult to solve this cost problem for the company. So now they are increasing the prices, and they have to beat us, too. Is it enough?

[Ovunc Gursoy, analyst]

Yes. Yes, yes. And last question is in line with that. So there's a damage in financials, and the prices are increasing. How long do you take -- do you think it takes prices to reprice and partly offset this loss in income? If we think that, given that the currency stays almost flat, it is that was, like 1 quarter or 2 quarters? How long, do you have any estimates?

[Ibrahim Esenkaya, executive]

Actually, this is a wrong question for us because if there is a FX study like that, we can adapt the adaptation ourself to the stability. But if it has changed, it will affect us and our company too, especially in this term, we are -- in 2022, we are waiting to, I would say, the basket U.S. and -- U.S. dollar and [ EUR 17 ] together, I mean, approximately.

But we hope that the FX rate is stable like that. If it has changed, again, we have to calculate. For example, end of the year, we changed our budget 4 or 5 times. And the next term, in 2022, again, we're very -- follow our budget very closely. And if it's necessary, we'll change very quickly.

[Baris Safak, executive]

Additionally, maybe I may add a few words, Erdem bey.

[Ibrahim Esenkaya, executive]

Of course.

[Baris Safak, executive]

We have increased our prices around 50% in the last couple of months in MOD branch. Of course, not us, also the market had such a huge increase. And we are going to be seeing the effects in terms of earned premiums, of course, starting from the second quarter. The weight of these highly sold premiums -- earned premiums are going to be felt in our P&L starting from second quarter, I may say, Ovunc.

Of course, the MTPL prices, we had mentioned that almost all of the levels are being used in cap before, at the beginning of last year in the midterms of last year. Almost 30%, 40% below the -- below cap was being used in terms of pricing. Now fully almost cap is being fully used in all layers. And of course, 20% one-off increase is going to have an impact. And it seems that companies are not -- do not willing -- are not willing to be competitive when we consider inflationary rate in average is going to be around 45%.

So as a result, to wrap up, maybe second quarter is going to be more positive in terms of earned premiums going to be bigger, okay?

We don't have any...

[Ibrahim Esenkaya, executive]

One more sentences maybe for -- about for it. For example, at the beginning of '22, in general auto, what I'm talking about January, insurance companies, not a big, not a small, all of them is trying to increase their pricing, MOD and MTPL. We have seen it very closely and very easily. It means they understand the reality of the prices and inflation effects of their damage.

[Baris Safak, executive]

And also maybe, Erdem bey, when you talk about that, the change in capital adequacy calculation, which Erdem bey mentioned at the beginning of the presentation, MTPL is going to increase to 0.21 in 2022. It's going to have negative impact in equity. So it's going to be important for the competition, I guess, for -- especially for the smaller companies because the companies tend to sell MTPL policies as it is being used as a key product in insurance because it had an important cash flow advantage. So -- and the payouts for claims were later than 18 months, maybe 2 years. But this time, the effects in the equity side is going to be seen immediately in 6 months' time. So I think we might -- it might have a positive impact in terms of competitiveness. This capital adequacy multiplier increase. Thank you.

So we don't have any written questions and no one is raising his or her hands. So I think, Erdem bey, back to you for closure.

[Ibrahim Esenkaya, executive]

Maybe in the meantime, I can say a little more sentence about for '22. This is my personal idea. But anyway, '21 was a difficult year, but '22 won't be an easy year for us, for sector, for Turkish economy. Both of them affect together. But anyway, we are a very strong company. So our selling and our sales departments, our branches, all of them working very strongly. So we hope that end of the year will leave our targets.

[Baris Safak, executive]

Erdem bey, we don't have any further questions.

[Ibrahim Esenkaya, executive]

Is there any question, more?

[Baris Safak, executive]

There is no written question, Erdem bey.

[Ibrahim Esenkaya, executive]

Okay. Thank you very much for joining and asking question. And again, thank you very much for your interest our presentation. I hope '22 is being better than '21. Thank you very much.

[Baris Safak, executive]

Thank you for attending our webcast. See you next quarter.