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Gjensidige Forsikring ASA
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Good day, and welcome to the Gjensidige Q1 2021 Results Presentation. Today's conference is being recorded.At this time, I would like to turn the conference over to Ms. Mitra Hagen Negård, Head of IR. Please go ahead.
Thank you. Good morning, everyone, and welcome to this first quarter presentation of Gjensidige. My name is Mitra Negård, and I'm Head of Investor Relations. As always, we will start with our CEO, Helge Leiro Baastad, who will give you the highlights of the quarter; before our CFO, Jostein Amdal, will go through the numbers in further details. And we will have plenty of time for Q&A at the end. Helge, please?
Thank you, Mitra. Good morning, and welcome, everyone. I hope you are healthy and well. We have started 2021 on a strong foot, continuing the good momentum from last year. The pandemic is still in progress, and many countries, including the ones where we operate, have been hit by multiple infection waves, followed by tough restrictions. However, thanks to tremendous efforts to rollout vaccination programs, it seems like we are bending the curve in many geographies. And although it is too early to see the end of the pandemic, it is encouraging to here plans for gradual reopening of some societies. We are very pleased to see that despite the challenges and economic hardship, general insurance continues to be highly valued by our customers. And thanks to our strong product offering and dedicated employees, we have managed to generate good results.Let's turn to Page 2 for some comments on our strong first quarter results. We generated a solid profit before tax of NOK 1.597 billion, of which NOK 1.040 billion in underwriting results. Earned premiums rose by 6.1%, reflecting solid renewals and effective and differentiated pricing measures. Our combined ratio was 85.1%, significantly impacted by the unfavorable weather conditions during the quarter. The pandemic had a positive impact on our results this quarter too, primarily related to travel and motor insurance. Large losses were slightly lower than expected, while runoff gains were somewhat higher than the planned releases. Our loss ratio adjusted for the unfavorable weather conditions and COVID impacts improved compared with the first quarter last year. Our cost discipline remains strong as you can see from the ratio of 14.5% for the quarter, and we generated a financial result of NOK 556 million. Jostein will afterward revert with more detailed comments on the results for the quarter.Then turning to Page 3, a few words on our operations. Let me start with Norway. Operations are running very well despite the strict pandemic restrictions and remote working for almost all Gjensidige employees. I am very pleased that we have managed to continue putting through necessary price increases in both Private and Commercial and at the same time, increased volumes and maintained our high customer retention. Being able to do this in this such competitive environment is a strong proof of our solid value proposition to customers. We see the need for further price increases in Norway to reflect claims inflation. The challenging weather conditions this quarter are a strong reminder of the volatility we must be prepared for with implications for claims inflation.We have been raising prices for private property insurance in Norway, well above index during the past couple of years. And we still have pockets in this portfolio, which need to be addressed before we reach a satisfactory profitability. We also plan to continue with significant price increases for certain pockets in the large corporate portfolio in the Commercial segment. With no signs of market contraction so far and the continued hard market, we expect premiums in Norway to continue this strong development. We have had good progress in our Danish operations. Our efforts to consolidate and strengthen the Gjensidige brand have proven effective with a record score for brand awareness among prospective customers this quarter. We see further upside to operational efficiency. And to that end, our cooperation with Tata Consultancy Services is progressing well with prospects for promising results within claims handling. The new core IT system in Denmark is currently in the last stage of testing before opening up for the first Private products. We have spent some more time than initially planned on this stage to ensure a successful and smooth launch later this year.In Sweden, we are fully focused on transforming our business to become a more digital insurance provider. Our ambition is to deliver excellent customer experiences through digital services and a high degree of automated internal processes. We are in the process of identifying and implementing a number of new measures, and we look forward to speaking more about this later this year. We see the need to grow in the Swedish market. To that end, we have recently acquired a well-established insurance agent, Nordeuropa, which will strengthen our position in the commercial markets.Understanding market trends and customer needs is vital to succeed in establishing a strong position for Gjensidige in Sweden. We have recently invested in Schysst, a platform providing a flexible subscription solution for using and owning car. The offering includes a variety of services such as insurance provided by Gjensidige, road systems, hard service and a second holiday car. We expect Schysst to provide us with key learnings on mobility ecosystems and car ownership trends. Challenging market dynamics continue to put pressure on our profitability in the Baltics. We have a clear ambition to increase the results through improving our distribution, pricing and claims handling processes.Then over to Page 4 and a few comments on our latest initiatives and results to support our sustainability goals. We strongly believe in encouraging our customers to make sustainable choices. Earlier this month, we entered into an agreement with the official Nordic ecolabel, The Swan, in Norway. We are the first insurance company in the Nordics to provide an ecolabeling of private house reconstruction in connection with claims settlement with focus on low-carbon footprint and a good indoor environment.We ranked #2 in the insurance and pension category in Norway in the sustainable the brand index ranking for 2021. Competition is tough, and we have no less ambition than to get back to the top ranking.Earlier this quarter, we launched a new coverage for our health insurance in Norwegian commercial market in collaboration with our partner, BRAVE. The extension includes access to an online mental treatment program led by psychologists. Many companies have increased focus on mental health among employees with an aim to reduce pressure from stress and depressing following the conditions during the pandemic. Gjensidige has recently renewed the sponsor agreement with the Norwegian Athletics Association, which through a number of projects, will continue to target physical and mental health. We have a strong focus on our employees that have shown high resilience and made tremendous efforts to maintain our strong operations through this pandemic.We are very pleased to see that the engagement scores have remained on a high level so far. We pay high attention to their well-being and monitor the situation closely. We have introduced a number of initiatives to mitigate potential negative effects in terms of physical and mental health conditions. As you know, the EU taxonomy reporting will come into force from January 2022. It will report on sustainability metrics across 3 dimensions: operations, customer base and product and services. Our focus is currently on transforming product design, tariffs and damage-prevention initiatives to meet the criteria. The transformation will be carried out in a customer-oriented manner and in close collaboration with academic partners.And with that, I will leave the word to Jostein to present the first quarter results in more detail.
Thank you, Helge, and good morning, everybody. I will start on Page 6. We delivered a profit before tax of NOK 1.597 billion in the first quarter compared with a loss of almost NOK 500 million in the same quarter last year. The significant improvement was driven by our financial results, which were hit hard by the financial turmoil last year. Our Pension business also recorded higher results than the first quarter of last year. Despite strong growth in premiums, our underwriting result was slightly down year-on-year, reflecting unfavorable weather conditions in Norway compared with the same period last year.The winter in Norway this year has been extraordinary cold with long periods of low temperatures in many regions. This resulted in significantly higher freeze and fire claims for property insurance in the first quarter compared with the first quarter of last year when weather conditions were favorable. We saw some positive claims effects from the COVID-19 situation for all segments this quarter, too. Adjusted for both the weather and COVID-19 claims effects, the underwriting result was up compared with the first quarter of last year, driven by Private, Commercial and Denmark. Sweden and the Baltics reported lower results.Turning to Page 7. Earned premiums were up 6.1% or 6.4% adjusted for currency effects. All segments accept the Baltics recorded higher premiums. In the Private segment, the increase was driven by price increases for motor, property and accident health insurance. We also increased a number of customers. I'm very pleased with us demonstrating such strong competitiveness and maintaining our solid position in Norway. Lower demand for travel insurance due to the pandemic resulted in slightly lower earned premiums for this product line. The rise in premiums in the Commercial segment was the result of effective pricing measures, solid renewals and portfolio growth, including one new large contract. All the main product lines in this segment recorded higher premiums. Price increases in volume growth in the Commercial segment drove the premium growth in Denmark. Premiums rose for most insurance products in the Commercial segment, price increases for workers' compensation have been substantial going into 2021 in response to index increases. Premiums in the Private segment was somewhat down. We continue to see lower demand for travel insurance and motor was negatively impacted by depressed auto sales.Earned premiums for our Swedish operation were mainly driven by volume growth in the Commercial portfolio. This was slightly offset by a volume decrease in the Private portfolio. Premiums in the Baltics were down year-on-year. There has been lower demand for travel insurance over the past quarters as a consequence of the pandemic. And we've had significant price pressure on motor insurance on the back of fierce competition.Turning over to Page 12. The loss ratio for the first quarter was up 1.7 percentage points to 70.6%. Large losses were up year-on-year, although the normal level was somewhat lower than the expectations for our quarterly average. And runoff gains were somewhat higher than our planned release. We had estimated the increase in weather-related claims in Norway to approximately NOK 360 million or 4.5 percentage points on the loss ratio. The low temperatures caused problems not only for pipes, but also for vehicles. However, motor claims were not materially above the first quarter last year as motor rescues are less costly than many other types of motor claims.We saw less travel activity and driving during the first quarter as a result of the pandemic. We estimate the positive impact on claims to approximately NOK 130 million, corresponding to 1.9 percentage points on the loss ratio this quarter. This is 2 percentage points higher than the same quarter last year. Then we had the negative pandemic impact of 0.1 percentage points. Adjusting for both these weather and COVID-19 claims effects, the loss ratio improved by 0.8 percentage points, and the underlying frequency loss ratio improved by 0.7 percentage points compared with the first quarter of last year. In terms of segments, I'm particularly pleased with the development in Private, Commercial and Denmark all showing further improvement in profitability.We see a clear upside potential for the results in Sweden and the Baltics. As Helge mentioned, we are on the path to transform our Swedish business into becoming a more digital and highly efficient insurance provider. We are implementing fundamental changes, laying the ground for becoming a strong niche player in the attractive Swedish market. Also in the Baltics, we have a clear priority of returning to a more profitable level with a particular focus on improving cost efficiencies. We have already seen results of some efforts in the cost ratio, however, there is much more to be done.So talking about costs, let's turn to the next page. We recorded NOK 1.011 billion in operating expenses in the quarter, corresponding to a cost ratio of 14.5% and 13.9%, excluding the Baltics. We have steadily brought down the cost ratio over time, thanks to a combination of growth in premiums, cost-efficiency measures and strong cost discipline across the group. We are pleased with the decline of our cost ratio in Norway to 11.5%. Denmark recorded a stable cost ratio of 14.6%. As Helge mentioned, we are in the process of preparing for the launch of the new core IT system. The system will allow more flexibility, increase our agility and enable further simplification of processes. We expect this to make a significant contribution to our cost efficiency in Denmark.Our Swedish business had a cost ratio of 18.4%. As mentioned, we are in the process of making significant changes to operations, and we expect to see further cost efficiency when the changes are implemented. The cost ratio in the Baltics came down 0.7 percentage points. Nominal costs were also down, thanks to cost-saving initiatives. We'll continue to put through measures to enhance cost effectiveness in the Baltics.A few comments on our pension operations. The pretax profit came to NOK 45 million, up year-on-year, reflecting growth in the business and good returns from the financial investments but also the financial turmoil of Q1 last year. Assets under management continue to grow, reaching NOK 44 billion in the first quarter. Annualized return on equity was 13%. The solvency margin at the end of the year was 150.5%. So far, the introduction of individual pension accounts has not led to any significant change in market dynamics. However, it is prudent to expect some pressure on profitability in the short to medium term. We and the other players in Norway are in the process of preparing for a transfer of policies, which will start in May. This is expected to make -- take most of the year. The Pension business is an important complement to our general insurance business in Norway, particularly within the SME part of our operation and generates cross-selling opportunities. 67% of the customers in our bench pension business were general insurance customers as well in the first quarter.Moving on to the investment portfolio. Tremendous fiscal stimulus packages and accelerated vaccine rollout in many countries have fueled optimism about the global economic rebound. Equity markets performed strongly this quarter with a sharp boost in appetite for cyclical shares. And credit spreads continue to contract. On the flip side, claims inflation and rising interest rates put pressure on bonds. Our investment portfolio generated a return of 0.9% in the first quarter with the match and free portfolios returning 0.6% and 1.3%, respectively. We have a solid fixed income portfolio with a large majority having an investment-grade rating. The rise in interest rates had a negative impact on our fixed income investments with long duration. Widely improved the outlook for economic recovery, supported returns on our fixed income investments with credit exposure.Our equity investments and commodities generated good returns, reflecting the strong market development. Our private equity holdings had particularly strong returns this quarter. This was a result of both higher market valuations and successful transactions in some of the underlying PE funds. We have a good share of property investments mainly in offices in the central business district of Oslo and with very low vacancies in the portfolio. We are very pleased with the return on our property investments, reflecting the strong commercial real estate market in Norway.Going to Page 12, a few words about our successful issue of 2 subordinated loans back in March. We wish to utilize the attractive market opportunities and our loan capacity to ensure a more optimal capital structure. We issued 1 Tier 1 bond and 1 subordinated Tier 2 bond, both in the amount of NOK 1.2 billion. The Tier 1 bond has a perpetual tenor, the floating rate coupon of 3-month NIBOR plus 225 basis points. And the Tier 2 bond has a 30-year tenor with a floating rate coupon of 3-month NIBOR plus 110 basis points. Both bonds were settled on the 7th of April. As announced earlier, we will redeem the subordinated Tier 2 loan of NOK 300 million for Gjensidige partial Forsikring in June. And we also have the intention to call the Gjensidige Forsikring's Tier 1 loan of NOK 1 billion issued in 2016 later this year.Looking at our capital position on the next page. Our capital position is very strong with a solvency ratio of 215% at the end of the quarter, including both the subordinated loans, which was set own on the 7th of April. The solvency ratio is up 16 percentage points from the end of Q4, mainly driven by the issuance of the loans I just mentioned.Operating earnings are returns on the free portfolio also contributed to the increase in eligible own funds. And as usual, we have the formulaic dividend of 80% of the result. The capital requirement is up due to rise in market risk, reflecting higher exposure to equities, both for the non-life insurance business and in the unit-linked portfolio in our pension business. The proceeds from the new subordinated loans also led to an increase in market risk. Our own partial internal model gave us solvency margin of 262% at the end of the first quarter.Finally, a few words on the latest development of our operational targets on Slide 14. I'm very pleased with the progress on the majority of our operational targets this quarter. By delivering on these operational targets, we continue to improve our competitive position and lay the ground for future profitability. Both customer satisfaction and retention in Norway remain very high. The latter reflects a strong general renewal for both Private and Commercial. The retention level outside Norway is slightly down for all 3 segments this quarter, primarily driven by temporary market contraction due to pandemic. We have exceeded our target on sales effectiveness based on running 12 months at 17% compared with our baseline year 2016 -- '17, mainly driven by higher sales in Norway. There will still be some volatility in these figures going forward. The share of automated tariffs is somewhat up compared to the level last quarter, and we currently stand at around 53%. Progress is good and will continue to include more products going forward. In addition to further refining tariffs already included.On the claims handling side, digital claims reporting has gone slightly down this quarter, whereas the share of claims handled fully automatically have been stable. We'll continue to develop these digital services further through 2021 and onwards. We have reduced claims costs further and have exceeded our target this quarter, with procurement and process automation making the largest contributions to the increase.I'll then hand the over back to Helge for some concluding remarks.
Thank you, Jostein. To sum up on Page 15. We are very pleased with the strong underlying results we have delivered in this winter quarter. This is, to a large degree, a result of a solid brand, efficient operations and dedicated employees who put strong efforts in serving other customers everyday. Structural growth is still on our agenda. Our solvency position is very robust. We are committed to having a strong capital discipline. Together with the encouraging results outlook, this provides us with a solid base to deliver a continued, steady and nice regular dividend curve also beyond 2022 when the planned runoff gains will come down. Special dividends have been and will still be utilized from time to time to ensure an efficient capital structure.Our outlook is promising. Our Nordic markets have shown strong resilience. And the pricing environment, particularly in Norway and Denmark are very good. This, together with our strong product offering and efficient operations, lay the ground for continued strong results going forward.And with that, we will open for a Q&A session. Thank you.
[Operator Instructions] We'll now take our first question.
This is Håkon from DNB Market. So 2 questions from me. The first one is on the runoff side. Can you just -- is there a particular reason why the runoff is a bit higher than usual this quarter? And the second question...
Sorry, Mr. Håkon, your line is blurred.
Håkon, your line is blurred. Could you speak directly into the microphone?
Is this better?
Not much really. Let's get a new turn.
Hello? Is it better now?
Yes.
Yes. Okay. Sorry for that. Two questions from me. The first question on the runoffs. Is there any particular reason why the runoff was higher this quarter than usual?And the second question on solvency. You have a very good solvency position at the moment, NOK 250 million. Also if we assume that we're going to call them later this year, so what will you do with the excess capital?
Thank you, again, Håkon. On the first one, we continue with the plan there on around NOK 250 million per quarter. And then each and every quarter, there will be volatility around plus NOK 250 million, and that could go both ways. And that's based on the -- just ordinary process offsetting reserves. Remember that we are talking about of around NOK 30 billion technical reserves and parameter changes in the actual models may introduce small changes there. And there has been -- there have been some positive runoffs this year. But there's nothing particular about the runoffs this quarter.
Yes. So the message that the runoffs coming down after 2022 still stands?
I think the message is still the same that we have the planned runoff gains of approximately NOK 1 billion per year throughout 2022, and that we continue to reserve according to best estimates. On the solvency question, as you correctly point out, if you follow up on our intention to redeem the Tier 1 issue of 2016, that takes out around NOK 1 billion or approximately 10 percentage points on the solvency ratio. I'd like to stress that what we did now was to utilize what we saw as a good market opportunity to issue new loans. And I think it is because the spreads that we achieved here, that seems to be at a very competitive level compared to what others have done recently and what we also have done ourselves earlier. And that has been the intention all the way to utilize good market opportunities to increase the utilization of the available capacity for subordinated loans. And then how to spend or use that capital is -- I think that will be resolved over time.
We will now move to our next question.
Yes. This is Christoffer Adams from Kepler Cheuvreux. Helge, you said there's a need for further price increases in Norway. How large do you expect these price increases to be? And what do you expect from claims inflation?
Yes. Thank you, Adam. First and foremost, we are really satisfied with the momentum in our Norwegian business. And we have increased competitiveness and strong growth. As I said, we still see some room for further price increases above claims inflation with this on property, which is around 4%. We think the claims inflation for motor insurance will be in a span of 3% to 5%, and we will also price above that. But when it comes to motor insurance, if you look at our earned premiums, we have a very balanced mix now between price and volume effects. It's 50-50. So we have a very strong and good proposition of volume and price effects. So I guess going forward, we will be just above claims inflation for motor. For private property, we will be more than above still. And we still see some pockets also in the commercial book for price increases above claims inflation. But we are in a much better competitive position now compared to 1 year ago with more balanced between volume and price effects.
Can you be a bit more specific on the Commercial side in terms of the price increases?
It's some pockets, both for SME and large corporates. So -- but as you also have seen from the report, we had strong momentum in our Commercial business. It's a hard market. We gained new customers. The retention level is high, 91%, 92%. But it has been a long period behind us with soft markets. So still, it's pockets where we have to increase price increases more than claims inflation. And we managed to do that without losing customers. So, so far, this is very -- is a very good position also for the Commercial business.
We will now move to our next question.
Firstly, how large was your acquisition in Sweden? What's the expected ROI? And what's your latest hurdle rate for maybe larger M&A more broadly?And secondly, it sounds like your year-over-year price increases have peaked based on your comments about now requiring price increases above claims inflation in certain pockets, certain books. Do you think that the 0.8 percentage points year-on-year underlying frequency loss ratio improvement you're flagging this quarter is a reasonable run rate for the short term based on your current actions? And what's still to earn through?
I'll then start with the first one. I might need to ask you to repeat the last one. But I'll start on the -- you ask about the asset acquisition in Sweden of Nordeuropa which is general managing agent. So it's not an insurance company. It's an managing agent. And we have not disclosed neither acquisition price nor any ROE. There is no reserves or portfolio of such following this. This is not an insurance company. But they have a very competent and good staff with a good standing in the Swedish market, especially towards brokers. And say a royal customer base, but it's not -- they're not an insurance company, so we will take into these customers as we want at renewal. So yes, sorry about not being precise about the hurdle rate. Our general hurdle rate, as I said, is 6% after tax is our cost of equity. If that's what you're asking. And of course, when we look at acquisitions, we will see how much value can we drive above that hurdle rate or that cost of equity.
On the second question, I could maybe start and give you some more visibility regarding the underlying change in frequency loss ratio. And you mentioned 0.8%. As you have seen, it's still positive COVID effects in first quarter of 2021, at the same level as we had in fourth quarter, 1.5%. And you have also seen from the report that it has been really cold winter in Norway and significantly higher freeze and fire claims for property. And you have to go back to the year we listed the company to find a similar year, 2010.We have estimated this NOK 360 million, 4.5% points on the loss ratio. The impact on the underlying frequency loss ratio was 3.1%. And so you also have large losses into this picture. So -- and we are very pleased with the positive change in frequency loss ratio adjusted in Norway and Denmark. So if you look at the Private segment, we have a positive change, 1.9% positive change in underlying frequency loss ratio adjusted. And for the Commercial segment, 1%, and in Denmark, 0.7%.And talking about the future, and it's hard for us. We have commented that we have strong competitiveness, strong momentum, hard market in commercial market in Norway. And if you adjust for the freeze and the COVID, we have improvement underlying frequency loss ratio. So that's a good starting point for the next quarters.
If I may add also remember that when things go -- start to go a bit sour in insurance, it takes time to turn it around. The good thing about that is when things -- when we are in a good momentum, like we are at the moment, it also lasts for some time. And as Helge mentioned, if you take away one-offs , we are or -- and the COVID is that one off as such has been the fifth quarter, whatever it is now. But there is a good momentum in our profitability underlying, taking away this kind of disturbing elements like weather and the COVID.
And that combination with growth. So it's a good situation.
Yes. Yes.
And is it fair to say that your price increases have peaked year-on-year? Or is it -- I guess you're saying with your more corporate business that you're now talking about SME and some pockets of large corporate that need rate increases. Or because it's a hard market, are you going to try and put through the rate increases even if you don't necessarily need them?
I think what we're going to do is slip through the prices increases where in some pockets we do and don't take the profitability meets our targets, which is ambitious targets. But in general, we take out the price increases that we deem also possible. So it's a combination. And it's still fairly -- in the Commercial segment, we're talking about, it's still a fairly hard market, I would say. Also given a bit a much harder reinsurance market, which probably most effects the top end of the Commercial segment, but still trickles down somewhat through the remaining market.
We will now move to our next question.
Yes. It's Jan Erik from ABG. Just to be clear on your weather versus large losses, did I understand it correctly that you had 3.1 percentage points underlying weather losses and 1.4 of those are -- that are taken into the large loss level, if you can clarify that?
It's not 1.4 of those. It's 1.4 on top of the 3.1, so 4.5 percentage points altogether.
Yes. So there is 4.5 in total. 3.1 is underlying and 1.4 is large losses out of the 4.5.
Yes.
Okay. And then is there any news on the runoff gains beyond 2022, which you can shed light into? Is it so that we should expect 0 from that level? Or is it so that we should take 1/2 level? Or what should we think about that, if you could shed some light on 2022 for us?
Jan Erik, I think the communication is just as it was last quarter. The planned releases ends in '22. And from '22 and onwards, it's best estimate. And we have also said that we think you will live with positive gains instead of negative gains also after '22 that we haven't given any guidance on that.
Okay. Finally, then on the weather side, the 4.5 percentage points, is all of that into housing or -- year-on-year? Or is it also in the cars? Because some like in new car or motor insurance side was more a flattish level versus the last year if you think about the driving versus the weather conditions and we recall the weather. Could you shed some more light into the 4.5, how it's split into housing and motor, please?
This is only related to property, only property.
Okay. Perfect. Finally, then on the structural side, do you expect structural growth to happen? How should we do that?
Structure what?
Structural growth.
Structural growth. Yes.
Yes. The communication is unchanged also there. It's on our agenda. We want to increase our -- strengthen our position in Nordic general insurance. And we are prepared to look into any M&A opportunities that arise. And you know our hurdle rates, et cetera, et cetera, and we have a very strong financial position. So it's quite unchanged also on that side, Jan Erik.
We will now move to our next question.
This is Vegard from Pareto. I was first wondering on the runoff gains in the quarter. Could you say something about which products these are related to and how we should think about the run rate and the yearly communication? The high run rate, the higher runoff gains in Q1, should that reduce the expectation for the remainder of the year? Or is this with low impact all important?
The runoff gains above the NOK 250 million that was spent is further on different lines of business. It's not in particular about these runoff gains. What we've done outside of NOK 250 million does not have an impact on the planned reserve releases for the remaining part of the year.
Okay. And then on a couple of the foreign operations here. Customer retention seems to be falling in Denmark. Are you losing market shares here? And how should we think about the growth outlook in local FX?
I think the target remains the same, 85 outside of Norway. But the COVID situation and the effect to travel insurance has some effect on the retention rate as well because these are also policies that are not renewed, so it have a negative effect on retention. I think it's the main single reason there. As we talked about in the Baltics, you have the tough competitive situation on the -- especially the obligatory motor product, the motor TPL insurance, which also varies negatively on retention numbers since we are kind of trying to keep our profitability there and then they loose some customers.
But is -- in Denmark, is it your understanding that you are maintaining your market shares?
Market shares numbers in Denmark are extremely lagging. So it's -- but I think we have the impression that they are more or less in line with market development overall. But these numbers are, I think, more and more in a year, lagging I guess.
It's a 1-year lag, I think, Vegard. The situation now in first quarter is actually it's very strong sales and strong momentum in Denmark also. But the latest market shares, do you have?
We have the latest market shares. But I think the development is so -- it's some old -- I think the figures are old. So it doesn't really -- our retention numbers are fresh. Yes. I think you need to look at the when the -- in the other company's report.
Picking up on your comment there on the Baltics and also your previous reminder that it takes a long time to turn around to profitability. The pressure you see on the motor product there, how long do you expected years to use to turn that around?
I mean I have 2 problems on the top line, the Baltic is COVID, which very heavily on the traveling insurance, and then the competition on the motor side. I think that's the main 2 headlines there. And COVID, your guess is as good as mine. On the motor, I think we are seeing positive signs underlying, which means that we should be able to come back to you with positive results over coming quarters. But we have to wait and see we are not giving short-term guidance here. But we're still fairly confident that we'll -- Baltics will contribute positively to the 750 outside of Norway and we should promise for the next year.
Okay. And then finally, moving on to Sweden. You were referring to the loyal customers of Nordeuropa. Could you tell us roughly how much premiums these loyal customers currently have?
I don't think we have disclosed that, Vegard. So it's -- I'm sorry, I can't. We of course have them, but we haven't disclosed those payment figures. It's not a large...
Okay, terms. But we will find out over the next 3 years?
Yes. Well, let's say, the next 12 months really when we -- when the renewal says -- this is annual policies as well.
We will now move to our next question.
Alex Evans from Credit Suisse. I just wanted to follow up on something you said, Helge. You said 3% to 5% claims inflation in motor. I seem to remember you previously saying 3% to 4%. So is that rising claims inflation you've seen there? And then maybe just secondly, on private property in Norway. Maybe if you could just give a bit of an overview of what you've seen competitors doing in there? Do you think you've been a little bit ahead and now competitors are maybe catching up so there's potential for some volume growth there? And then just finally, on Commercial. Obviously, very strong growth. It looks like commercial, accident and health has been a big driver there. Could you just give some details on what's driving that?
Yes. On the claims inflation first, I think we have, earlier quarter, commented 4% to 5%. And now we have expand 3% to 5%. I think the main figure from Norway is actually 4% claims inflation. That's may be the estimate for -- that's the estimate for property, and I guess that's a good estimate also from motor insurance. But it's more, I would say, uncertainty to motor insurance going forward. It's new cars as you know, and so therefore, I commented 3% to 5%. But I think 4% is a good estimate. And 4% is a good estimate for property. And personal lines is more GE regulation wage increase regulation. This is higher claims inflation when you compare to Denmark. So in Norway, we still have to increase prices above these levels to maintain the profitability level. And as I said, we had to increase prices some areas more to strengthen the profitability. So if anything from last quarter to this quarter, it's may be slightly reduced around 4% is a good estimate, talking about motor insurance claims essentially.
In terms following up on the property side. It's -- I mean we have a fairly flat development in terms of number of houses that we insure, but fairly high price increases, which drives, of course, for a good premium growth there. Given that we put through price increases significantly above the expected claims inflation it should mean that -- and without losing customers. It should mean that competitors probably are doing something of a similar. But this is hard to kind of discern because this is -- most companies like us use fairly differentiated tariffs. So it's not 1 market price for house insurance that is observable. But judging from our price increases and the market tractions, I think probably competitors are doing something similar.
And for motor insurance, you asked if you are ahead or not versus our competitors. As I commented, the premium growth for motor insurance it is absolutely balanced 50-50 between price effects and volume effects. That means, I think, that we may be are ahead some of of the competition when it comes to price increases for motor insurance.
And the final question was about the volume growth within the Commercial sector. I think Gjensidige have a very good starting point there because we have significantly higher profitability in that segment than a couple of our main competitors there. And our market share is higher within Commercial than in part. We have an extremely loyal customer base there and a very satisfied customer. So it's -- I think the potential here for driving through price increases on average still above expected claims inflation is absolutely in place. And here, we have also, as we already commented, this is -- the total premium growth within Commercial is a combination of volume and price, although price is probably a bit more than 50%, but still it's a combination.
And can I just follow up on the commercial, accident and health. Is there anything in particular going on in that line? Or is it just a bit volatility?
It's -- that is mainly volume growth.
We will now move to our next question.
It's Blair Stewart from Bank of America. I've got a couple of questions left. Firstly, you mentioned, Jostein, about pressure in the pensions market. Could you maybe just quantify that? I know it's a small segment for you, but are you able to quantify what margin pressure you would expect as the individual pension accounts rolls through? And I wonder if you could comment just generally on the M&A environment in the Nordic region. Is there anything going on that you can talk about?
I'll give you a flavor of the movements in the pension business rather than quantifying it. It is as a move away from what have been the main source of income in pension capital certificates and over to this new own pension accounts. We expect then there to be a margin pressure. But also the volume is, over time, growing here. So I think longer term, this could still be positive for the -- for our profits within that business given that we maintain -- or at least maintain our market shares. So that is margin negative. But the profitability as such will grow in line with increases in assets under management still. M&A environment, Helge?
Yes. Blair, as you know, the list has become shorter. But there are still further consolidation opportunities in all markets. And I guess it's always something going on. It's not always it ends with M&A transactions. But we see still opportunities. And we are actively seeking opportunities. And we are very well prepared for small opportunities and bigger opportunities. That's, I think, the signal from us.
Yes. Can I just ask one thing that's been troubling me on M&A? You've got a very good business that generates attractive returns on equity. I think your target return on equity is 20% or 16% excluding reserve releases. Yet when you talk about acquisitions, you talk about a hurdle rate of only 6%. I just wondering how do you square those 2 things? Should we just accept that M&A would be dilutive to your ROE targets? Or would M&A with businesses that you buy be expected to move up to the 16% to 20% ROE over time?
I think the 2 numbers are slightly different. 6% is the cost of equity. The kind of the cost of new money put into our business whereas the book return on equity is at 20% after tax that you are referring to. And if you take gap, for instance, the 1 really large acquisition that has taken place in the Nordic market over the last 12 months, which is the acquisition of Tryg by -- or of RSA by Tryg or the Scandinavian part. Yes, of course, has a huge effect on ROE as a book to ROE. But whereas when we've done our 17, whatever it is, portfolio transactions and small transactions over the last year, that is contained within the the ROE book target. So it all depends. That's the easy answer.
So I'm assuming by that, that your book ROE target wouldn't change?
It's unchanged.
It is unchanged. But...
Yes. But if you were to do a sizable acquisition, let's say, by historical standards, is that -- does that present a risk to your ROE target?
I think we'll comment on that when we get there, if we get there.
We will now move to our next question.
It's Will Hardcastle from UBS. Just a couple of quick questions left. Just thinking about Norway home, I'm just trying to understand what must be the underlying concern on this line. This demand in prices above trend and inflation. I assume you're assuming large losses and largely against the one-off. Is there any adverse claims trend, for example, I may not have captured? Or is it just a pricing issue over motor same period? And secondly, just thinking if I look at markets like U.K., there's pricing pressure coming through, for example, because of COVID frequency being passed to the consumer. Is there any debate in the Nordic market? Is there any challenge on pricing do we have as a result?
The last question, it's easy to answer. It's no discussion and no pressure so far.
First one. The line was static there but I think you ask about private property or housing. Is that -- was that correct?
Yes. That's right. Just trying to understand the exact drivers of what's causing prices to be -- expected to be above claims inflation? Is there an adverse claims trend from them or?
I think we commented on this since around 2019 that there is -- but we haven't quite been satisfied with the profitability in that line of business. When we kind of turn the corner on private cars, we kind of moved on to private housing Gjensidige. There is a need there to increase prices more in claims inflation to get -- those are rate down. And also longer term, we do expect kind of, weather or climate, climate effects or at least increased volatility in weather to have the -- an effect that we need to price in on average. And then from each and every quarter, there will be volatility in both directions. But on average, do we expect higher claims from -- for private housing due to weather or climate? And so this is also part of our strategic agenda, again, to try to mitigate those claims effects to claims prevention and preventive measures there. But in the short term, we need to price this up. or we need to do price increases.
We'll now take our next question.
Johan Ström of Carnegie. First, on the weather effects. I'm not sure if I missed any previous comments there. But can you break that down into different segments? And then secondly, you obviously have very impressive cost efficiency with the 13.9% cost ratio, excluding the Baltics. But I'm just still a bit curious if you have any impact on costs from COVID-19?
Yes. Maybe you can try to explain what I tried to explain, Jostein. Maybe it's easier.
Not Helge meant to say, what's not.
No, I said the right thing but you can repeat.
Yes. No, on the weather effects that we quantified per segment, that it is NOK 316 million overall, what we said is there. And just to be open about it, both weather and COVID effects are estimates. You don't have an account or a claims type which says weather or COVID. So this is estimates based on our analysis of the claims patterns. On the weather effects, we've only included the property related there and with the kind of the claims types that are typically related to cold weather. And it hits the Private and the Commercial segment in Norway as well as we have 1 large loss including, that the large loss above NOK 30 million is included in the corporate center in our segment setup. So it's on Private we included NOK 136 million, and in Commercial NOK 107 million, and the remainder is in corporate center related to the large loss.
And maybe comment the improvements for underlying frequency losses once again.
Yes. Just add one more explanation regarding the large loss it is not one single thing. It is that in -- within our insurance program, we are allowed to accumulate within a certain time period all claims related to the freeze. And that's why we kind of call this a large loss, it's also a large loss in in the reinsurance market as such, although not large enough to get us any recovery this time since it's below the NOK 200 million general limit. If you look at the underlying frequency loss improvements for the Private segment and adjusting for both COVID and -- which is a positive and weather, which is a negative, we have an underlying improvement of 1.9 percentage points compared to 2020. And for the Commercial, we have 1.0 percentage points improvement compared to first quarter of 2020. And for the group as such 0.7 frequency loss and 0.8 on the total loss ratio.
We will now take our next question.
It's Jan Erik from ABG again. Just on the housing new claims level, is it so that you have discovered more water damages other than the freezed pipes, et cetera, in the housing? Or is it because people are staying at home, they actually detect more things at home? Is that a trend you have been seeing of late?
Could you please repeat. Helge didn't quite capture what you said.
On the housing insurance claims, do you have water damaging detected by people staying at home, not the cold weather as freezing pipes may have caused. But generally, have you seen any water damage detection as people have stayed more at home during the last year than previously and that has been reported, so to speak. Is that something you have seen in your housing claims?
No, actually, I think if anything, we have discussed the hypothesis that we could actually see less kind of ordinary water damages because people stay home and discover it before it's a serious loss. But it's -- I mean we haven't tried -- we haven't managed to quantify it really. So these are kind of truly related to the cold weather as such.
Okay. Okay. So you've actually seen that people manage to do better housekeeping, so to speak, by staying at home?
This is a as I say an unquantified hypothesis we have, that there could be some positive effects there. But as I said, it's not included neither in the weather estimates nor the COVID estimates.
We will now take our next question.
It's Thomas Svendsen from SEB here. A question to the weather again. Is it fair to say that it was February that was extremely cold that caused all these damages and as March was more and normal, so we don't get the risk of any time lag effects moving into Q2?
That's right. It's February. That was really a special month. And so it's right what you are saying. Talking about the future, you know what kind of policy we have. But that's right. It was February and not March.
There are no further questions. So I'd like to hand the call back to our speakers for any additional or closing remarks.
Thank you. We'll be participating in a number of roadshow meetings and conferences over the next weeks virtually also this quarter due to the pandemic. Our meetings will be held with investors in Norway, the U.K., Switzerland, Sweden and The Netherlands. Please have a look at our financial calendar on our website for more details.Thank you for your attention, everyone. Have a nice day and stay healthy. Bye.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.