Gjensidige Forsikring ASA

OSE:GJF

Earnings Call Transcript 2022-Q2

[Operator]

Good day, and welcome to the Gjensidige Q2 2022 results presentation. Today's conference is being recorded. At this time I would like to turn the conference over to Ms. Mitra Hagen, Head of IR. Please go ahead.

[Mitra Negård, executive]

Good morning. And welcome to the second 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, giving you the highlights of the quarter, followed by our CFO, Jostein Amdal, who will run through the numbers in more detail. And we have plenty of time for Q&A afterwards. Helge, please.

[Helge Baastad, executive]

Thank you, Mitra. Good morning and welcome, everyone. Since our last earnings call, global economic uncertainty and market turbulence have reached new highs, fueled by persistent geopolitical risks and higher inflation. All of the Nordics are not immune. The strong government finances, particularly in Norway, mitigate the risk of grave recession in our region. Gjensidige's markets are strong, and our operations continue to be robust, evident in yet another strong set of quarterly results.

Starting with a few comments on our second quarter results on Page 3. We generated a profit before tax of NOK 1.138 billion. The underwriting result was a solid NOK 1.748 billion, the highest we ever had in a second quarter. Earned premiums rose by healthy 8.3% or 8.7% in local currency. Large losses this quarter were significantly lower than the expected level, contributing to be good development in our results.

I'm very pleased to see that we continued improving our underwriting profitability. Our combined ratio for the quarter was 77.5%, including a cost ratio of 14.1% for the quarter. The heavy turmoils in the financial markets resulted in a negative return on our investments of NOK 598 million this quarter. This impacted our return on equity, which came to 18.3% year-to-date. Jostein will revert with more detailed comments on the results for the quarter.

Then turning to Page 4 and our unique customer dividend model. For the 13th year in a row, Gjensidigestiftelsen has distributed its share of regular dividend from Gjensidige to our general insurance customers in Norway. Our unique customer dividend model is an important retention tool. This year, more than 860,000 customers will receive total of NOK 2.3 billion corresponding to 11.8% of the premiums paid in 2021. The customer dividend model is highly valued by our customers and supports our strong brand and delivery of superior customer experiences. As you can see on this slide, the model is well-known. This year we have a marketing campaign with a new angle, focusing on damage prevention and how it impacts the customer dividend. We also emphasize the importance of strong cooperation between us and the customers, expressing our appreciation of their contribution to damage prevention.

Then turning to Page 5, a few words about our operations. I will start with inflation, which continues to be a global challenge. The Nordics have not been spared. Interest rates are being hiked to dampen activity. Although the situation from a macro perspective is challenging with the heightening risk of global recession, we do not currently see any areas of significant concern for our business, and are confident in our ability to pass inflation on. We continuously monitor the development in close cooperation with our partners, and we are well-prepared. Claims inflation so far has been in line with our previous expectations. And we have not had any challenges related to supply or materials or man-hours. But of course the extent, reach and duration of the inflationary pressure is uncertain. Based on our latest analysis, we expect claims inflation for private property in Norway to come down 2 percentage points to 5% to 7% going forward.

For motor in Norway, we have recently concluded contract renewals with many partners, partner repair shops. The CPI readings and higher prices on spare parts call for a slightly wider range for expected claims inflation than we have saw 3 months ago. Now at 47% going forward at the higher end in the short term.

We are prepared to handle this and ensure that we are ahead of the inflation curve. Hence we will raise prices at least in line with claims inflation for all products. The strong development of our Norwegian operations continued in the second quarter. Premium growth in private remained high despite tough competition. We have managed to continue to put through necessary price increases while maintaining very high customer retention. And profitability is very good. Premiums continue to grow strongly in our commercial segment as well. Volumes are up and we have successfully put through necessary price increases in a very competitive market. And retention remained at a very high level.

We have a strong market position and also reflected in our top ranking among P&C insurers by the Norwegian Insurance Broker Association. We also climbed to a second place among all the pension providers in the same survey. I'm very pleased with the improvement in profitability for the commercial segment this quarter. Going forward, we will continue to raise prices to reflect high expected claims inflation and beyond expected claims inflation for certain pockets in the large corporate portfolio. And we are confident that we will be able to put this through.

Performance in Denmark was somewhat weaker than the same quarter last year as a consequence of higher underlying loss ratios for private and motor and property. Premium growth remained high, and operations to see that our turnaround efforts in Sweden continue to show results. Operations are becoming increasingly efficient. Our portfolios are more healthy, and we are improving profitability. We are moving forward with planning of the new core IT system in Sweden, which we expect to start implementing from next year.

Our transformation in the Baltics continues with full force, with an aim to bring down our CR below 100% from Q4 this year. The results compared with last year are weak, but we are moving forward according to plan. And I'm very happy to see the improvement quarter-over-quarter which we expect to continue going forward. We are well underway with implementing necessary pricing and pruning measures and improving our tariffs and claim handling processes. And we have improved over cost ratio also compared with last year through several initiatives, including reducing head counts and closing unprofitable sales offices.

Then turning to Page 6, a few words about our recent acquisition in Denmark. Earlier this month we strengthened our foothold in the health insurance segment by acquiring the largest dental insurance provider in Denmark, Dansk Tandforsikring. We see a very interesting potential in this gap in the public health service, not only in Denmark, but over time also in Norway and Sweden. The offering is good fit with our health insurance offering in Denmark, primarily directed towards commercial customers. Although we expect demand to pick up in the private segment as well. The transaction is expected to be completed in October, pending regulatory approvals.

Then over to Page 7 and a few comments on the latest products and services. We have launched Boligblikk in Norway, piloting a new home insurance with the integrated smart home solution based on sensors. The new product is a result of continuous focus on innovation based on deep custom insights. It is aimed at providing safety solutions, becoming a problem-solver insurance provider and preventing damage. We have also launched a pilot on change of ownership insurance for secondhand cars, providing comfort for both the car dealers and the private buyers of the cars. The third new product I would like to mention today is our new RV insurance offered through our partner Kemper, which is the Airbnb-equivalent in the RV market. We support the sharing economy trend by offering an insurance which makes it easier to rent out RVs.

Then over to Page 8, we continue to make progress on sustainability. We have a number of initiatives, as you can see on this slide, taking important steps towards delivering on our ambitious targets. We have also received a strong recognition this quarter, which with top ranking among all non-life companies in Norway in this year's sustainability survey conducted by the Norwegian Business School.

And with that, I will leave the word to Jostein to present the second quarter results in more detail.

[Jostein Amdal, executive]

Thank you, Helge, and good morning, everybody. I will start on Page 10. We delivered a profit before tax of NOK 1.138 billion in the second quarter. Premium growth and lower large losses were the main drivers behind the increase in the underwriting results, which climbed to the highest level ever for a second quarter. We saw solid growth in all segments and improvements in the underlying profitability for all segments except Denmark and the Baltics when adjusting for the COVID-19 impact on claims in the second quarter last year.

Commercial in particular showed a very strong improvement. And I'm very happy to see underlying profitability for private climbing further from an already very high level. Sweden is showing continued progress. And as Helge mentioned, results in the Baltics are also improving quarter-over-quarter. Our investment portfolio generated negative returns this quarter, reflecting tough market conditions. Our pension business generated lower results. And I'll revert on both of these in a moment.

Turning to Page 11, the strong development in premiums continued in the second quarter with all segments showing good growth. Total earned premiums were up 8.3% or 8.7%, adjusted for currency effects. We saw strong increase in premiums for the private segment, driven by price increases for motor, property and accident and health insurance, as well as higher volumes for motor and travel insurance, despite the decline in new and secondhand car sales.

We also increased the number of customers. We maintained our strong position and competitiveness. The rise in premiums in the commercial segment followed the effective pricing measures, solid renewals and volume growth for the motor and accident health insurance products. Premiums in Denmark increased by 7.6%, measured in local currency, driven by growth in the commercial segment and in specialty travel, as well as the contribution from NEM Forsikring.

Premiums in the private segment, excluding the contribution from NEM were somewhat lower as a consequence of competitive pressure and lower car and property sales in Denmark. Premiums in Sweden measured in local currency increased by 8.2%, driven by volume growth in both the private and the commercial portfolio. Customer retention increased by 3.1 percentage points, with improvements in both portfolios, thanks to successful efforts to strengthen customer satisfaction with sales, service and claims processes.

Measured in local currency, earned premiums in the Baltics increased by 13%, the growth in most insurance lines and in particular for motor. The increase in premiums was a result of pricing measures in particular for motor. Customer attention rate decreased as a result of the implementation of higher prices. We were prepared for this on the part to improve profitability.

Turning over to page 12. Underlying frequency loss rate increased by 0.6 percentage points. However when we just for the absence of COVID-19 impacts on claims this year, the underlying frequency loss ratio improved by 1 percentage point. This strong development was driven primarily by commercial, based on effective pricing measures, solid renewals and good risk selection. Private in Sweden also contributed to the improvement.

Large losses were lower than both loss year and the average expected levels. Together with lower runoff gains, this brought the loss ratio for the quarter down to 63.4%. We would have seen an even larger improvement if reserves had been fully discounted in our accounts.

Let us turn to page 13. We recorded NOK 1.094 billion in operating expenses in the quarter. Our cost ratio moved slightly further down by 0.1 percentage point to 14.1%. And if you excludable the Baltics, the cost was 13.5% for the quarter. The main driver of this improvement is premium growth and strong cost discipline in the group. Our cost ratio in Norway came slightly up by 0.4 percentage points to 11.3% in the quarter due to among others, increased IT cost and sales capacity. But the cost ratio level is still at the very competitive level.

The 3 segments outside Norway have an improvement as you can see from the chart on this slide, with the largest declines in the Baltics and Sweden, thanks to effective cost-cutting measures as well as higher premiums.

A few comments on the pension operation on Slide 14. The pretax profit came to NOK 44 million, down year-on-year, reflecting the expected decline in margins with the new individual pension accounts. We continue to grow our business and have a strong focus on being a cost-efficient player. We expect profitability to increase again in the media-term, driven by further growth. Assets under management decreased by 4% to NOK 49 billion, reflecting the development in the financial markets. And last, the return on equity was 13.6%. The solvency ratio at the end of the quarter, 173%.

Moving on to the investment portfolio on Page 15. Our investment portfolio generated a return of minus 1% in the second quarter, reflecting the significant market turmoil this quarter too. The match portfolio returned minus 0.2%. And the free portfolio returned minus 2.5%. The result for the quarter was negatively impacted by higher interest rates, a decline in the equity markets and higher credit spreads. All asset classes except for fixed income instruments with short duration show negative returns. We have continued to reduce risk in our portfolio in response to the market conditions. It is worth mentioning that our equity risk exposure was NOK 1.5 billion lower than the NOK 3.4 billion recorded as carrying amount at the end of the quarter due to derivative positions.

We are prepared for further market turbulence for quite some time, although we cannot avoid the impact, we have impact. We have a balanced portfolio and solid fixed income investments with a large majority having investment-grade rating. Our investment strategy remains firm with risk exposure within the ranges set by our board.

Over to Page 16. Our capital position is very strong, with a solvency ratio of 192% at the end of the quarter. The ratio is up 4 percentage points from the end of the first quarter. Eligible own funds were stable with the Solvency II operating earnings offset by the loss in the free portfolio and the subtraction of the formulaic dividend. The capital requirement decreased mainly due to lower market risk as a result of lower exposure to equities, commodities and convertible bonds.

Finally, a few words on the latest development of operational targets on slide 17. We launched a set of new operational targets at our Capital Markets Day in November last year. These are important in supporting delivery on our strategic priorities and financial targets towards 2025. Customer satisfaction continues to be at a very high level. Retention in Norway is slightly down from the first quarter, but still on the very high level. Retention in Denmark and the Baltics came somewhat down, but we're satisfied with improvement in Sweden.

Digitalization and automation are key measures to secure efficiency. The digitalization index, we have established to gauge the progress in our digital sales and service interaction with our customers is a combined index which we aim to raise by 10% annually over the next years. We are up 9% this quarter, a progress I am very satisfied with.

On the claims handling side, digital claims reporting has been stable this quarter at 76% for the group. Automation of the whole claims settlement process is an area with significant savings potential. The KPI on automated claims and the share of claims processed automatically in Norway has improved with 1 percentage point during the quarter, currently standing at 57%. We'll continue to develop these digital services further going forward.

I'll then hand the word back to Helge.

[Helge Baastad, executive]

Thank you, Jostein. To sum up, on Page 18, we are very pleased with the solid results we continue to deliver. We are confident that we will stay ahead of claims inflation and put through the necessary price increases. Although the global economic outlook is highly uncertain, we do not expect to see any significant spillover to our non-life business. The Nordic economies have a strong starting point and the non-life markets have proven to be highly resilient even through economic downturns. In addition, we have a superior market position, highly efficient operations, and a strong capital position, all contributing to our ability to continue paying out attractive dividends to our shareholders. And with that, we will now open for Q&A session.

[Operator]

[Operator Instructions] We will now take our first question.

[Ulrik Zürcher, analyst]

Two questions from me. You have the lowest runoff gains in the private segment since 2016. So I was just wondering what's driving this? And second, everything else the same with what you're saying on short-term claims inflation on motor. Should we expect some pressure on the private claims ratio in the short term?

[Helge Baastad, executive]

Maybe I'll answer first. As I said, we expect the claims inflation to be in the range of 4% to 7% for motor. This is driven by wages, materials and type of claims and frequency. And based on the increased forecast of cost indexes, according to statistics, Norway, last update, we expect increased costs for parts as a result of both increased raw material prices and continued high energy and shipping costs. It's various purchasing agreements renewed on an ongoing basis. And significant part of 2023 parts purchased and hourly fees are already locked in. So several elements can affect the development. Exchange rate developments have an impact also. And as we maybe said, we think this will be in the lower end at the end of the year. Yes. And as Mitra say, of course we will price in line with expected claims inflation. We have done that quarter-by-quarter, and we continue to do that.

[Jostein Amdal, executive]

And the question of, on the runoff gains of private. I mean, if you look at the runoff gains in total, we have the NOK 1 billion a year which is the planned reserve release. And on top of that, there will be some runoff gains on average, probably positive runoff gains. But we do not guide for anything else than the NOK 1 billion [indiscernible] which will end this year, and refer back to the communication we had, especially on the Capital Markets Day when we looked at the runoff gains over time, where we see that this typically have been somewhat in a positive territory. There is nothing particular about the runoff results for private this segment. I wish you can kind of read anything into.

[Ulrik Zürcher, analyst]

Okay. If I could just follow up on what Helge said. So since you locked in a lot of prices, even though claims inflation on motor and spare parts in the short term will be in the higher end, that won't necessarily affect your claims ratio the next quarters, that's correct?

[Helge Baastad, executive]

That's correct.

[Ulrik Zürcher, analyst]

Great. This was Ulrik from Nordea, if that was mentioned by the way.

[Operator]

We will now take our next question.

[Tryfonas Spyrou, analyst]

This is Tryfonas Spyrou from Berenberg. And congratulations on the very strong result. I've got 3 questions, if I may. Can you first elaborate a bit more on why do expect inflation in property to reduce 2 points going forward? Is it fair to say that we are past the peak inflation in building materials? And I guess I was wondering if you have any comments on inflation expectations in Denmark going forward?

The second one is on the reduction in SCR. And I was just wondering if this is -- what is driving this, is it more change in allocation or lower equity stress? I'm just trying to see how much we can extrapolate this going forward. And the third question is a more broad one on the competitive environment. We have obviously had now price increases for 2, 3 years because the market profitability is near record levels. Do you see any scope for competition to increase across markets? Or do the inflationary pressures put a break on this for the time being.

[Helge Baastad, executive]

That was lots of questions. I can start with private property Norway and then Jostein will continue, and I can give you some comments regarding the sustainability and the competition situation finally. And private property, the inflation is driven both by materials and wages. And pressure on material prices over time now seems to have peaked as a result of demand cooling off. Those of you who are living in Norway, do not start with cabins and houses and things like that. So it seems to have peaked as a result of demand cooling off. And we are seeing lower price level, for instance, on construction wood and building boards. As you maybe know, building index is at 12.3% in 2021. And last time it was over 10% loss back in 1987. So it has been really high. Our claims inflation was considerably lower. Building index is around 9% in June Q2 this year, and our claims inflation has continued to be lower. So yes, so the comment that it seems to have peaked is maybe the important comment. And secondly, that we see considerably lower claims inflation in Gjensidige compared to what I commented.

[Jostein Amdal, executive]

Yes, Denmark also.

[Helge Baastad, executive]

Denmark, maybe.

[Jostein Amdal, executive]

Yes, the comment there is, yes, that we see more or less the same claims inflation for property Denmark as we see for property Norway now in the, yes, say around 5% to 7% in property Denmark as well. Then you had a question on the solvency capital ratio. And as you rightly pointed out in your question, there is a positive effect here from that the capital requirement actually then decreases somewhat due to the derisking of the of the asset side. Of course, the capital requirement for insurance risk will increase somewhat due to the overall growth in the portfolio. But on the asset side, our derisking and the fall on the values due to the financial markets, both contribute to lower capital requirement.

[Helge Baastad, executive]

Competition. Yes, we, at the moment, it's uncertainty related to claims inflation. And we see rationality in all markets outside Norway and Norway. So of course competition is strong. Just to comment, the main competitors now Fremtind and Storebrand is taking more customer from us compared to Tryg Garanti. And they maybe operate with different kind of profitability targets compared to the other listed companies. But it's stable and rational, I would say. And I think this is related to the uncertainty related to claims inflation. To start the price war and heavy competitive activities in this quite uncertain times, I do not think we will see that.

So I'm really optimistic going forward. We delivered once again very strong profitability in Norway in combination with solid growth. And for me, inside this organization, it's lots of further opportunities to further strengthen our performance. Our pricing strategy and our ability to pass through prices at least in line with claims inflation is crucial. But of course, our brand smart and differentiated pricing and customer dividend is also important. I see more to achieve regarding CRM and distribution efficiency. And I see new potential every day regarding our motor business, repair methods, procurement, et cetera, et cetera.

And finally, you have also seen that we have outstanding figures from our commercial business in Norway. And it's important to remember that this is SME and agricultural and direct business, more or less, with a unique retention level. And I would also state that we maybe have a commercial division, which is world-class when doing active benchmarking. So the starting point is claims inflation and the ability that we have and also rational competitors willing to price in line with claims inflation.

I do think we will experience that for the next few quarters also. On the commercial side, we are having nice balance between price-driven and volume-driven growth. So it's a really nice combination of volume and price. So we gain new customers. We managed to renew with present customers, and we increase profitability in a very, very comfortable way. That was a long answer actually, some competition and some regarding sustainability.

[Tryfonas Spyrou, analyst]

No, it's very helpful indeed. And congratulations again on the strong quarter.

[Operator]

We will now take your next question.

[Vegard Toverud, analyst]

This is Vegard from Pareto. I have a few questions. Maybe I should continue on the profitability. You have now yet again a very low claims ratio. Yet you are also stating that you will continue to increase prices in Norway in line or above claims inflation. At 0 claims you will obviously want more volumes. At which level between 0 and your current claims level would you consider pricing below the inflation to gain more volumes?

[Jostein Amdal, executive]

I think it's a very hypothetical situation to be without claims. And where we are at the moment, I think that's the only thing I could really answer meaningfully, is that we still continue to price at least in line with claims inflation. And to speculate further, I think I'll just refrain from that.

[Vegard Toverud, analyst]

Okay. And then on the corporate side, there are some runoff losses there, but still the claims are very low in the quarter. And in the report you referred this to a continued focus on pricing and risk selection. Is this the new level of claims and profitability for commercial in Norway? Or is there any other special impacts that are not mentioned in the report there?

[Jostein Amdal, executive]

If you look away from the runoff gains and look at excluding runoff, I think the level we're talking about is representative for the situation where we are. I mean if you look at quarter-by-quarter, there will be some volatility more in the commercial side than on the private side. But say if we combine the 2 first quarters, we also have a fairly normal level of large losses. So there is nothing in particular if you look at the 2 first quarters taken in combination.

I think this level of profitability is a reflection of the competitive position that Helge described, that we are actually in direct relationship, that we provide the customers with valuable risk management advice, so that they can help both themselves and ourselves to get to low losses and that we have a good risk selection, as I say, that we have the best tariffs and the best underwriting expertise in the business in Norway and then that we profit from that. And then of course, fairly low costs as well, I would say, on the -- especially on the commercial segment.

[Helge Baastad, executive]

Vegard, you have seen the commercial division now since 2018. It has been improvement quarter-by-quarter. And we are really pleased. And sustainability is absolutely as Jostein said. What you're looking at now, it's at the moment a sustainable and very comfortable situation.

[Vegard Toverud, analyst]

Yes. It's really impressive. Then just 2 quick questions. What is the reinvestment rate now currently for your bond portfolio? And also for this interesting Boligblikk, what are your expected volumes for that product?

[Jostein Amdal, executive]

I'll start on the reinvestment rate, and Helge will do the Boligblikk. But the reinvestment rate now is 4.2% in the second quarter, if we look at that.

[Helge Baastad, executive]

Volume, Boligblikk.

[Jostein Amdal, executive]

Yes, what is the expected volume for Boligblikk?

[Helge Baastad, executive]

I don't -- this is early phase, Vegard. I do not have that business case with me. But we can come back and give more insight into that later on if you want.

[Vegard Toverud, analyst]

Yes. That would be very interesting to hear more about. I think it's a very interesting product.

[Operator]

We will now take our next question.

[Thomas Svendsen, analyst]

This is Thomas Svendsen from SEB. Actually I have 2 questions. First, if you look at the traffic statistics here in Norway, the number of fatal accidents was almost 3x higher in the second quarter this year than last year. What do you see in your books? And also, is this an indication of sort of increased frequency of claims in the traffic? And the second question about this new regulation of natural perils fund that may come in effect from '23 or '24. I guess you was heavily against this new regulation during the process. So how do you think this will impact your solvency when it gets in effect?

[Jostein Amdal, executive]

Yes. I mean, of course, the statistics of deaths in traffic is worrying more from a society perspective than from our loss perspective. So far, we think it's too short to call it a trend, and that it is probably volatility, but it's of course something that is worrying us also from our response to provide good statistics towards traffic safety in Norway. But in our loss there is kind of no sign of it, no loss ratios or forecasts going forward. We do believe it's short-term volatility. Natural perils, yes, it's either '23 or '24. I think maybe more likely 1st of January, 2024, when this will come into effect. And the details of the regulation is still to be written out.

And that's why I think it will be delayed because there are no detailed regulation around, just overarching law. It will not have a direct solvency effect in the short term. It's more that it will be a reduction of profits from natural perils business going forward for all companies there. But no, there is no direct solvency effect, there is no reclassification of previously accumulated profits in natural repairs, the so-called natural perils capital or anything like that. And as you can read from my answer, yes, we were against the regulation as most insurance companies in Norway were.

[Operator]

We will now take our next question.

[Blair Stewart, analyst]

It's Blair Stewart from Bank of America. I've got a couple of questions. Just coming back to one point that was made a moment ago. You said a 4.2% reinvestment rate. I just wonder what you're investing in to achieve that? I think 5-year swaps are about 3%. Interested to see how you get to 4.2%. And then on the inflation question, it's great that you're pricing for expected claims inflation. I just wonder, we've seen some evidence across the world of companies having to go back and increase claims reserves to reflect higher inflation expectations.

Just wonder where you are on that issue in terms of what inflation assumptions you have in your claims reserve assumptions at the moment and how that might change? And then I wonder if you, Jostein you talked a while back about IFRS 17, and I realize it's just not a call to give guidance on IFRS 17, but I think previously you said, maybe 2 or 3 quarters ago, that you expected there to be a small negative impact on opening equity. And that was, I think, a combination of claims reserves discounting plus the risk margin net-net being a small negative. I just wonder with interest rates materially higher now than they were when you made that comment, whether your broad expectations around IFRS 17 may have changed a little?

[Jostein Amdal, executive]

Okay, I'll start with the last question. You're absolutely right that their opening balance negative effect net of these 2 things you mentioned, the discounting effect and the risk margin is dependent on the interest rate level. And that interest rate level has come up since we made that statement first in relation to the year-end accounts of 2021. So where we are now, whether it's a net negative or positive, I think that is fairly -- I haven't taken calculation, but it has changed in a positive direction since we made that statement, Blair. And so it's…

[Blair Stewart, analyst]

Sorry, please, sorry, I didn't quite hear that comment. Could you -- obviously rates have increased since you made that statement. And what did you say…

[Jostein Amdal, executive]

So the negative -- it has changed in a positive direction, the -- yes, obviously, I guess, you're stating the obvious, yes. Your first question on what are we investing in to get to 4.2%. I think this is basically the same type of insurance that we have invested in all the time for the hold to maturity portfolio. It's solid credit names. Typically, Norwegian savings banks, some property-backed loans, yes, solid issuers, mainly in the financial sector in the second quarter. Yes, a couple of well-known international banks as well.

Then the inflation in the reserves. The long -- the most difficult part of the researched estimates are the personal injury related losses because they are -- have the longest time to pay out, the longest tail. And our long-term estimates of inflation hasn't really changed due to this short-term issues that we have on supply chains and effects of pandemics and war and so on. So I mean, if you go more than 3, 4 years ahead, we have more of the same estimates as we had a couple of years ago, which is a form of normalization of inflation rates in the long term.

In the short term, we are confident that we have the right reserves, and we have reflected these elevated inflation numbers that we have -- are seeing at the moment and have given you forecast of every quarter now for a number of quarters. So I don't see any specific inflation risk in the reserves. I think if I were to point to one thing, it would rather be the effect of the next 1 and 2 years, if we kind of miss some of the inflation figures that we give you. There is higher claims inflation somehow in the short term. But longer term, if there is a moderation of economic growth or even a recession, that is typically not -- would typically not drive long-term inflation figures upwards.

[Blair Stewart, analyst]

Yes, yes. Great, great, great. And maybe just if I could add one, ask one other follow-up question. You talked about your procurement agreements that you have in place. And I'm assuming there's dozens, if not hundreds of those within the group, so they're renewing all the time. I just wonder, the conversations you're having with your suppliers now versus, say, 12 to 18 months ago, are you seeing pressures coming in and an ability perhaps to secure the level of prices that you were 12 months' ago. I just wonder if there's a rolling inflationary effect that will come through as you renew these agreements over time?

[Jostein Amdal, executive]

Yes, you're right to point out that these -- there is not kind of one date where all agreements renew. It's spread all through the year. And there's a large number of agreements with suppliers. I think the suppliers also feel the pressure on wages, electricity and overall inflation, and that is reflected in inflation forecasts that we give you. What we have secured is typically a 12-month forward agreed-upon hourly rates for the wage or for the labor we get.

And then, as we talked about several times, generally follow kind of spot prices in materials, but with some variations around that, of course. It's not daily regulation of prices of materials in the -- in our suppliers, but it's, yes, regular changes in the prices. But as we talked about, the property, 75% of that is related to labor. And there we have fixed for 12 months ahead the change in the hourly rates that we are paying our suppliers for that work, for that labor. I think that's fairly important when we felt we have control over of the inflationary picture going forward.

[Blair Stewart, analyst]

And you don't expect that to change in 12 months' time when you renew these agreements, you don't expect labor inflation to go up? Obviously not judging by your comments earlier.

[Jostein Amdal, executive]

And also, I mean, if you look at overall wage inflation in, salary increases in Norway, they are around this 4% that we have been talking about. This is the wage negotiation model in Norway, so that is kind of fairly contained at around 4%. And we don't see any much higher kind of -- or different picture in Sweden or Denmark either.

[Operator]

We will now take our next question.

[Jan Gjerland, analyst]

It's Jan Erik Gjerland from ABG Sundal Collier. I have also a couple of questions. The first one is on discounting. Could you please tell us what you have discounted so far in your combined ratio? And if you had done the whole book, what would it have been changed to? Secondly, on properties. We saw one of the buyers of your large property last year did some revaluation negatively on their properties this quarter. Have you considered any revaluation on back of higher interest rate and levels like that? Finally, on the implementation of higher prices, what do you expect now for private versus commercial? Is it easier to get commercial through and less easy on the private side?

[Jostein Amdal, executive]

Okay. I'll start on the discounting. We have a slide, I think, in the pack, that gives you these numbers. I don't quite remember the number, but it's in the appendix, it's 24, Page 24, where we see that our reported combined ratio of 77.5% would have been 66.0%, so 1.5 percentage points difference if you had discounted all reserves.

In our books, I mean there are some small parts of the reserves that are discounted as we talked about related to annuities payments workers' compensation in Denmark and personal injury in Sweden, Baltics, but these still are very small. So maybe there is an effect of, say, 0.1, 0.2 percentage points on the combined ratio due to interest rates increase for second quarter of 2022 compared to second quarter of 2021. But as we are mainly in nominal reserves, the discounting effect is -- the interest rates do not affect our combined ratio as much as it does -- when we move over to IFRS 17 next year or as the Danish companies do now because they already report on discounted level. Your second question related to [indiscernible] and discounting, Jan Erik.

[Jan Gjerland, analyst]

It was the property's revaluation.

[Jostein Amdal, executive]

We don't have any properties to talk about. I mean we are not invested in properties more or less anymore. We sold everything to the…

[Jan Gjerland, analyst]

Okay, so you sold everything. So you have less property exposure now than we have.

[Jostein Amdal, executive]

Yes, we have 0 more or less. And Helge will comment on that.

[Helge Baastad, executive]

Yes, maybe to start with -- as you have seen, Jan Erik, we have strong growth in Norway. And our commercial segment, it's more -- it's -- as I commented, it's 50-50 volume price driven. So I wouldn't say -- it's not easy, it's tough discussions and tough competition, but the market is rational. Smaller players are less visible. And large players in the commercial market seem to be focused on profitability. So on the commercial side, I'm really pleased with the situation, and we will manage to pass through prices in line with claims inflation and above in some pockets also.

And the competitive situation are, I would say, strong and good. For the private segment in Norway, it's more price-driven than volume driven. So it's typically 90% -- 85% to 90% price-driven, and the rest is volume-driven. It's 25-75 volume price driven from motor. So it's more or less only price-driven for property. Our competitive situation in the private segment, if I look at the status in our call centers, it's better so far this year compared to first half 2021. So it's a really good situation we are in. And as I said, I think this will continue as long as the uncertainty regarding claims inflation is what it is.

[Jan Gjerland, analyst]

You mentioned Fremtind and Storebrand potential of being as a rational as you would like to, so to speak. Has that sort of taken volumes from you lately?

[Helge Baastad, executive]

Fremtind is owned by listed players and Storebrand is a listed player. But if you look at their -- and you may be followed the presentation yesterday from Storebrand. They had different kind of profitability targets compared to what we have, for instance. And so they act rational. They have good competitors, absolutely. And it's not dramatic. But if you look at the main competitors in the private segment now, it's first and foremost Fremtind and Storebrand before Tryg Garanti.

[Jan Gjerland, analyst]

If I can just have a follow-up. Jostein I think mentioned something in Denmark that excluding the NEM insurance, there were some kind of tougher competitive situation in Denmark underlying. Who are the toughest in Denmark? And what is really happening maybe on the private side, maybe less on the commercial side? I don't know if you have any comment to that?

[Jostein Amdal, executive]

Yes, I think we mentioned both the competitive position and the reduction in sales both for houses and cars in Denmark as reasons for why we have a lower growth in the private business in Denmark if you take out the effect of NEM from the figures. On the competitive side, I think, I mean, the main…

[Jan Gjerland, analyst]

So is it new car sales in Denmark. Is it new car sales in Denmark that is lower or…

[Jostein Amdal, executive]

Yes, yes, yes, that's correct. I think but on the competitive side there, I think we see more the largest players as our -- that are taking the most from us. I mean -- or Tryg, Top, Codan, Alm. Brand as on the commercial -- really both on the commercial and the private part in Denmark.

[Operator]

We will now take your next question.

[Håkon Astrup, analyst]

This is Håkon Astrup from DNB Markets. 2 questions for me as well. The first on premium growth. So it's great that you expect premium to grow above nominal GDP in the short term. Is this true for like all your [indiscernible] all lines. So are there some segments where this might be challenging? That was the first question. And the second question on regulation. In Europe we see increased focus from regulators on price walking. Have you picked up anything that increased regulatory focus on this in Norway as well? And have you done anything to prepare for potential shifts?

[Jostein Amdal, executive]

Yes, I'll talk about the growth, Mitra, and then Helge -- sorry, Håkon. And then Helge will do the price walking. But on the growth side in the short term, we do believe there's a higher growth than normal GDP due to the inflationary pressure that we have talked about, so we will in for motor 4% to 7%, and probably in the short term in the higher end and also property 4% to 7% -- sorry, 5% to 7%, and will price at least in line with that going forward. So that is the driving force behind this expectation of higher growth in the short term. Whereas in the longer term, I think things will normalize back to GDP growth level. So yes, that's the reason there.

[Håkon Astrup, analyst]

And if we look at other lines such as illness and accident and other, not property and motor do you see similar trends there at the moment as well?

[Jostein Amdal, executive]

Accident and health, very much linked to the G-amount in Norway, which is around 5% at the moment, or slightly less than 5%. And that will come down, I guess, over the next couple of years, 4% and then 3%. That will drive there. I think in the longer run, we do see the possibilities of a bit higher growth within accident and health products as we see that especially health insurance will probably grow faster than other more physically-oriented insurance products there as the demand for health care services probably offset the general economic growth. Yes.

[Helge Baastad, executive]

Regarding price walking, and I guess you refer to the Swedish market. And as you know, the Swedish FSA, they have found a certain degree of price walking being coming in the market, primarily in the house insurance. And regulatory response to this would not be a surprise. As you know, we have a minor position in the Swedish market, and we set our prices based on expected claims inflation as we have commented during this call.

And we do this within a framework which is consistent with an ethical pricing framework. It's too early to speculate about what kind of response and regulation. I would say that we are generally positive to constructive and fear proposals which enhance customer protection and maintain the competitiveness of the market. So we follow the situation closely. And we have, as I said, an ethical pricing framework, and of course, some outliers. I guess all companies have to look into their portfolio and secure that they don't have outliers. So we are positive to this discussion actually.

[Håkon Astrup, analyst]

But have you picked up any, say, increased scrutiny on the same topic in Norway or is it…

[Helge Baastad, executive]

Pardon, Håkon, once again.

[Håkon Astrup, analyst]

Have you picked up any, say, increased focus and scrutiny from Norwegian regulators on the same topic as well?

[Helge Baastad, executive]

I would say that, I guess it's fair to say that this is more in our discussions more general with FSA in Norway. This is a trend all over Europe, starting in U.K. and it has been a discussion, specific discussion in Sweden. And FSA in Norway and Denmark follow this situation closely. So I guess for the next years that we will have more discussion regarding, I would say robust and solid ethical pricing framework for all the players. And we are working -- we have been working with this for many, many years, and we have this top of mind.

[Operator]

We will now take our final question.

[Unknown Analyst]

So 2 questions. The first question is on the investment portfolio, the fixed income portfolio and solvency. Are you in any way worried about possible rating migration, so negative rating migration worries? Eventually, if you can say something about the sensitivity of your solvency to this particular factor. And the second question is on the Baltics. Of course, I mean, the profitability there is not at the same level like the rest of the group. So my question is, would you in any way consider an opportunistic move out of these countries? Is it still worth to, let's say, invest management efforts in the Baltics in the current scenario?

[Jostein Amdal, executive]

We measured capital requirement on the asset side using our internal model, which in a way reflects kind of all related, risk related to the bond portfolio, also the risk of rating migration, which is kind of part of the overall modeling of the risk of the bonds. So I would say that, that sensitivity is included in the capital requirement for the fixed income portfolio. If there was somehow a sudden derating of a lot of -- of the whole market in a way, that would probably also influence the capital model. But the sensitivity compared to where we are today is included in the capital requirement. Baltics, I think we've been fairly clear that we are focusing on improving the underlying profitability within the Baltic operations through the transformation program that we have talked about earlier. At the same time, as the Baltics are less integrated with the overall business, we have, I would say, a pragmatic approach to how we can create the most value out of our Baltic position.

[Operator]

As there are no further questions in the queue, I would like to turn the call back to your host for any closing or additional remarks.

[Mitra Negård, executive]

Well, thank you. Thanks for lots of good questions, everyone. We will be participating in a number of roadshow meetings and a conference after the summer holidays. Please see our financial calendar on our website for more details on these places where we will be having meetings. So with that, thank you for your attention. Have a nice summer. Bye.