Gjensidige Forsikring ASA

OSE:GJF

Earnings Call Transcript 2017-Q4

[Operator]

Good day and welcome to the Gjensidige Q4 2017 results presentation. Today's conference is being recorded. At this time, I'd like to turn the conference over to Janne Flessum, Head of IR. Please go ahead.

[Janne Merethe Flessum]

Good morning and welcome to this fourth quarter presentation of Gjensidige. My name is Janne Flessum and I'm Head of Investor Relations, M&A and Capital Management. As always, we will start with our CEO, Helge Leiro Baastad, giving you the highlights from the quarter, before our CFO, Jostein Amdal, runs you through the numbers in more detail. And of course, we will have plenty of time for Q&A at the end. So Helge, please.

[Helge Leiro Baastad, Chief Executive Officer]

Thank you, Janne. Good morning and welcome from me as well. Starting with the fourth quarter on Page 2, we deliver a satisfactory result. The profit before tax expense amounted to NOK 1.2 billion and the underwriting result was NOK 555 million, while the financial results was NOK 489 million. The combined ratio was 90.7% in the quarter. Growth in premiums was 5%. We see a higher claims level in Norway, in particular to this quarter, which can partly be explained by variations in winter weather, but also an underlying increase in the loss ratio for motor Norway, as seen and discussed over the past quarters.When it comes to weather-related issues, Q4 and Q1 are, as you know, winter quarters in our region, which normally leads to higher claims ratios, as seen also in the past. Q4 2017 was a quite typical winter quarter in our region overall, but there will always be variances from year-to-year with regards to temperature and the frequency of snow falls, et cetera. This can lead to variations in frequency level. For instance, we experienced more slippery roads this quarter, especially around Christmas time, leading to higher motor claims frequency. In addition, we had 2 larger natural peril events in Norway in the quarter affecting large losses with NOK 199 million.As for the underlying development in motor in Norway, we see the same trend as before, but we also experienced a somewhat higher competition this quarter related to bonus initiatives from some players. Motor insurance profitability is still high, though, which allows us to have a balanced approach to price measures to stay competitive in this important market. This means price increases on average are currently somewhat below expected claims inflation. Outside Norway, the profitability development was positive and according to plan.Then, turning to Page 3 and looking at the year as a whole. We once again reported a solid pretax profit of NOK 5.8 billion. We met our financial targets on all metrics, as shown in the -- to the right. Return on equity was 21.3%, well above our above 15% target. Remember that this includes the bank and the pension operations, and the isolated return from our general insurance operations was close to 25%. The combined ratio was 85.4%, better than our target range of 86% to 89%, or 90% to 93% [ exclusive ] runoff. Based on the new actuarial review, annual run-off gains are now expected to be around NOK 1 billion on average over the next 3 to 5 years, still related mainly to motor TPL and workers comp in Norway and the same vintages as before. But also workers' comp in Denmark is contributing to the increased release expectation. Based on this, the targeted 86% to 89% combined ratio corridor is reconfirmed for a slightly longer period. The full year cost ratio was 15.3% and this is around the area where we would like to see it. Adjusted for the Baltic segment, it was 14.5%.As for the dividend, let's turn to the next page. Based on the full year results, the board has proposed a dividend of NOK 3.55 billion, corresponding to NOK 7.10 per share. This is in line with our dividend policy of distributing high and stable normal dividends and at least 70% of profits after tax. A dividend of NOK 7.10 per share corresponds to an increase in the normal dividend of 4.4% from 2016 and the payout ratio of almost 79%. For our customers, this bodes for a solid customer dividend once more. Including the proposed dividend, total dividends from Gjensidige since the IPO in 2010 has been NOK 32.5 billion and total shareholder return has been around 360%.Then moving to Page 5. Standing at the beginning of the new year, I would like to spend a few minutes summarizing our operational performance in 2017 and our priorities moving into 2018. No doubt, digitalization and innovation will still be high on the agenda. At the CMD in 2014, we listed a set of KPIs, which we have regularly given status updates on. You can see from the overview that we have already delivered on most KPIs. And I'm particularly proud to see that customer satisfaction once again reached a record high level. Further, it is worth mentioning that we have outpaced several other targets, both in magnitude and time.One of the reasons we stay competitive in the Norwegian market is our ability to constantly take down underlying costs, to give room for modern digital solutions representing win-wins for our customers and for us. We will define new and updated operational targets, which will be communicated on the Capital Markets Day on 28th of November this year.Overall, our 3 strategic priorities are still valid. We need to provide the best digital customer experiences, we need to develop our analytical use of data in all parts of the operations and we need to continuously develop the organization to meet the future in an optimal way. To achieve this, we will continue to take down our underlying cost base and create room for investments.Then turning to Page 6. Looking closer at our operations, both in Norway and abroad, we are confident we are well positioned. In Norway, we hold our position as the #1 player. Our customers are increasingly satisfied and they are loyal. Retention among our loyalty and affinity group customers is 92%, which is very strong. This is supported by our unique customer dividend model, which is well known among 90% of our customers. Competition is fierce and profitability is high, allowing us to have a balanced approach to price measures. In the Private segment, we are continuously working on improving our motor products and tariff to be even more competitive in the right segments going forward. As communicated last quarter, we see signs of improvement in the Commercial segment and we are satisfied with the renewal season so far.The operations outside Norway developed according to plan. We start to see effects on measures taken and more is expected. We are continuously working on cost reductions, price adjustments through new tariffs and re-underwriting our Commercial business. We transfer our best practices to streamline the operations and we are still working on merging some of the latest acquired companies and portfolios.In the Baltic segment, there is also a large initiative with regards to distribution. This level of agent distribution has traditionally been high in this area, which is reflected in the high cost ratio. We are now insourcing more of the distribution, which we -- which will have a positive effect on the cost side going forward. In the upper-right chart, we have illustrated the development outside Norway through the 12-month rolling combined ratio for Denmark, Sweden and the Baltics. Denmark is profitable and improving, and considering the ongoing re-underwriting in the commercial lines, we are satisfied with the renewals in Denmark also so far. You can also see a clear trend in the Baltics throughout 2017 and a positive development in Sweden towards the end of the year. Both the Baltics segments and Sweden contributed positively in Q4. We expect to be profitable in both these areas for the full year 2018, as previously communicated. Starting next quarter, we will report Denmark and Sweden as separate segment.So to summarize, we are confident with our position in Norway and our ability to utilize our insights and competitiveness to secure and develop this position further. The operation outside Norway is gradually improving and is expected to increasingly support to dividend capacity from 2018.I will now then let Jostein take you through the figures in more detail.

[Jostein Amdal, Executive VP & CFO]

Thank you, Helge, and good morning, everybody. I will start on Page 8. [ Hope you ] see that we report a solid profit before tax of NOK 1.2 billion in the quarter. All-in-all, we continue to see a high level of profitability in Norway, but the development outside Norway is more positive this quarter. The Private segment was affected by higher frequency losses, which are partly due to variations in the winter weather. The underlying claims ratio in motor has also continued to increase, as we have seen for a period now. This combined with lower run-off gains than the corresponding quarter in 2016 and a [ positive ] development in premiums resulted in a contribution of NOK 393 million from the Private segment in the quarter.Commercial also reported a slightly lower underwriting result than the corresponding quarter of 2016. Increased premiums and significantly lower large losses were more than offset by increased underlying frequency claims and lower run-off gains. The increase in frequency claims was mainly driven by accident and health and motor. The increase in motor insurance can partly be explained by variations in winter weather.The Nordic segment showed a positive development and contributed NOK 73 million to the underwriting result. This is mainly driven by a significantly more favorable underlying frequency claims development in Sweden and a reduction in operating expenses in Denmark. The underwriting result was positive both in Sweden and Denmark. The Baltic segment also contributed positively, and in total we reported underwriting result of NOK 555 million, which is satisfactory for our winter quarter.The bank contributed the NOK 248 million to the results and it's positively affected by the NOK 117 million one-off due to the sale of a non-performing loan portfolio, which was announced in November. The financial result was satisfactory, given the interest rate regime we operated in.On Page 9, you'll see 2 waterfalls illustrating the development in the underwriting result from Q4 '16 to Q4 '17. I have already talked through the development in each segment in the right-hand chart. Looking at the left-hand chart, in fourth quarter of 2016, we had 2 one-off provisions, which took NOK 67 million of the underwriting result. Taking this into account, development is a result of NOK 77 million higher large losses and NOK 121 million higher frequency claims impact.Now turning to Page 10. We report a premium growth of 5% in the quarter compared to the corresponding quarter in 2016. Adjusted for currency effects, the growth was 3.6%. In the Private segment, premiums development was relatively flat. The growth was negatively affected by 1 large contract that was not renewed January 1, 2017. Adjusted for this, growth was 3.3%. In Commercial, property insurance, in particular, contributed positively to the premium development. The main part of the premium growth was due to the Molholm acquisition, which is part of Nordic segment. Molholm contributed NOK 133 million. Underlying premium development was positive in Sweden, while in Denmark it was negative, mainly due to ongoing re-underwriting of the Commercial portfolio.The development in the loss ratio is shown on Page 11. Large losses were 1.1 percentage points higher than in Q4 '16. Frequency claims loss ratio was 2.6 percentage points higher than in the corresponding period last year. This was mainly driven by variations due to winter weather in Norway, affecting motor and property and a lower profitability in Norwegian motor insurance. We still expect motor claims inflation around 5%, but it is uncertain what the impact of changes in the bonus system will have on this estimate. We are increasing prices to mitigate the effect from claims inflation. And keep in mind that there is a delay from increasing prices and this is fully reflected in the accounts. Through an analytical approach, we are balancing price and volume. The development in the loss ratio is partly contracted by a positive development in Nordic and Baltic segments where we particularly saw favorable underlying frequency claims development in Sweden. We are confident that the positive development in these segments will continue in 2018.On Page 12. You can see that large losses amounted to NOK 259 million. This corresponds to 4.3 percentage points on the combined ratio. This is somewhat lower than the expected level, but higher than the corresponding quarter in 2016. The large losses are impacted by 2 natural perils claims, a flood in Southern Norway in October and a storm in Norway in November. They had a combined impact of NOK 199 million, of which most is recognized in the corporate center.On Page 13. I'd like to comment the run-off gains. We had run-off gains of NOK 301 million in the quarter, which is somewhat higher than the current expected level. This had a positive effect of 5.0 percentage points on the combined ratio.Moving to Page 14. The cost ratio was 15.8% in the quarter, showing a continued good cost control. Cost ratio excluding the Baltics segment was 15.1%. The nominal cost reduction is due to the mentioned one-off provisions in Q4 '16, which affected the corporate center with NOK 64 million.Page 15 shows some highlights from bank and pension operations, which continued to serve their purpose as important retention tools in relation to our Norwegian general insurance customers. Gross lending in the bank was NOK 46 billion at the end of the year, and measured by lending volume, 75% of the bank's customers are also customers with the general insurance operation, with a higher share of [ mortgages ] and a significantly lower share for consumer finance.The bank reported a pretax profit of NOK 248 million in the quarter, as mentioned, affected by the sale of a non-performing loan portfolio. Return on equity for 2017 was 14.2%. The pension company recorded a profit before tax of NOK 28 million. Assets under management in the pension operations amounted to NOK 29 billion. The share of shared commercial customers with the general insurance operation is close to 70% and the return on equity was 11.0% for 2017.Now turning to the investment portfolio on Page 16. The investment portfolio of NOK 55 billion yielded a satisfactory return of 0.9% in the quarter. The match portfolio continued to make a stable contribution to the financial result with a return of 0.6%, which is similar to the previous quarter.The portfolio amounted to NOK 36 billion. A large part of the match portfolio consist of bonds at amortized cost, which yielded a return of 1%. There is a running yield in this portfolio, was 4% at the end of the quarter and the average reinvestment rate so far this year has been 2.95%.Unrealized excess value amounted to approximately NOK 1.2 billion.The free portfolio, which amounts to NOK 19 billion, yielded a return of 1.4% in the quarter. The positive return was primarily driven by the development in equities and property.Last, but not least, on Page 17, our solid capital position is presented. The rating model is still the most binding perspective. And taking into account the proposed dividend for 2017, the excess capital was NOK 800 million. The group's solvency margins, according to the partial internal model and standard formula were 169% and 137%, respectively. The solvency margins do not reflect the communicated reserve releases, which will increase the margin significantly. Eligible capital decreases, mainly as a result of the proposed dividend.Throughout the year, we adjusted eligible capital for our dividend payout ratio of 70%, and hence in Q4, we adjust for the actual proposed dividend and as the proposed payout ratio is higher than 70%, we do see a reduction in eligible capital. In addition, an increase in the pension liability due to updated longevity assumptions reduced the eligible capital by NOK 300 million. The capital requirement increases in the standard formula and rating perspective. In the internal model, it is stable. The increase is mainly due to market risk as a result of an increased balance. Due to updated model parameters, market risk is unchanged in internal model. And for a better comparison versus our Nordic peers, the solvency margin was 194% for the general insurance operation based on the internal model.Going forward, we will on a quarterly basis present the capital position, based on a standard formula and partial internal model only. This does not mean that we have revised our rating target, but rather we like to emphasize the capital position in the legal perspective. The A-rating is still important for the group and will still be prioritized. Through 2018, we'll be looking at further initiatives to optimize our balance sheet and capital structure. This means that we'll look into all our parts of operation to make sure we optimize the use of capital in the perspective of our growth ambition and financial targets. Currently, we still have capacity to issue Tier 1 capital in the range of NOK 1.5 billion to NOK 1.9 billion, the amount depending on the use of proceeds. We've still not received any clarification around the guarantee scheme and we'll make a new evaluation on this during 2018.And with that, I give the word back to Helge for some concluding remarks.

[Helge Leiro Baastad, Chief Executive Officer]

Thank you, Jostein. Then to sum up, we delivered solid growth and profitability in 2017, well within our financial targets and with the return on equity well above target. Over time, we still expect growth in line with nominal GDP growth and the combined ratio target corridor is unchanged. We experienced overall good competitiveness and good progress in our operations overall and balancing cost efficiency measures with strategic investments its high on the agenda, also into 2018.As for our dividend capacity, going forward, we are confident our operation outside Norway will contribute in absolute terms to higher degree than before. Our capital position is strong, and as Jostein just said, during 2018, we will look at opportunities to optimize our capital structure and balance sheet further.So thank you very much. We will now open for the Q&A session.

[Operator]

[Operator Instructions] We'll take our first question by Vinit Malhotra from Mediobanca.

[Vinit Malhotra, Research Analyst]

So 2 topics for me, please. First one is the comments around the motor claims persisting from previous 1.5 years. Just going back to your annual report of last year, I can see a comment that a 1 point frequency -- permanent frequency change is 3 to 4 loss ratio points in Norwegian motor. I mean, what's your view about this persistence in motor frequency that we are witnessing at the moment? Is it still a view that it is temporary, will go away in 1 or 2 years, or if you could just enlighten us as to the causes of the frequency, I'd be very grateful. And second thing is just on the fact that there is no special dividend which the market had expected. Could you just help us understand the walk from the S&P NOK 1.4 billion excess capital to NOK 800 million now, so NOK 1.4 billion was in September. And I appreciate you would have taken -- you do pro rata the dividend, so that should not have been such a big surprise. And then there is obviously the NOK 300 million pension, but was that the main driver as well of this decision to not pay a special dividend?

[Helge Leiro Baastad, Chief Executive Officer]

It's Helge. First, regarding frequency and motor in Norway. And just to remind you, we have been through a journey where we came from -- as you said 1% to 3% to 4% and now the claims inflation expectation is around 5%. And it's extremely difficult actually to be very concrete regarding the future. I will not repeat the background for the development, but as you know, it's a combination of flattening out regarding MTPL, the decreased curve from before. And we have also seen increased frequency regarding more frequency claims, less severity drivers and more horsepower, more technology in bumpers et cetera, et cetera. What we also experienced in Q4, I commented the bonus system, we saw some more competition related to the product itself. And it has been changed bonus from some competitors and it has been a common industry system in Norway for decades, incentivizing customers not to use their insurance for smaller damages by gaining bonus after x-years or claim free driving. And when the insurance is used, it has implied loss of bonus at given terms and level. And as I said throughout Q4, a new dynamic has evolved in the market, probably resulting in the whole bonus system disappearing at the end of the year. That's our hypothesis and this is actually -- this will gain the large players long term with high amount of data. But short term, this can also affect the frequency situation in the market. But our best estimate now is around 5% going forward. And as you also know, we have some volatility regarding fourth quarter and first quarter.

[Jostein Amdal, Executive VP & CFO]

Jostein, for the second part of the question. I'll start in the latter half of the question, the walk from Q3 to Q4, that is kind of more technical. And as we try to explain there, from Q3 to Q4, there is a slight increase in capital requirements, due to increased market balances in the S&P perspective. And then also there is a reduction in eligible capital, because, yes, formulaic we have 70% dividend ratio throughout the year. And then we do the actual ordinary dividend for 2017, we end up at 79% dividend payout ratio. And then we have this one-time effect on the pension liabilities. So that explains the change from NOK 1.4 billion to NOK 0.8 billion. On the first part, one-off extras. It's important to emphasize that our dividend policy remains firm. Over time excess capital will be paid out to the shareholders and that is over time. Our current capital position is within all our stated targets or bands, so that we're completely fine with that. And as we also said, we are in 2018 looking at kind of all parts of the business to optimize the capital position. And remind you that we still have not used the capacity for subordinated or Tier 1 debt and that is something that might happen going forward. We are -- we think that the dividend capacity of this business is unchanged and that means that even as we grow in -- grow in profits over time, we will also grow in dividends.

[Operator]

We will take our next question from Youdish Chicooree from Autonomous Research.

[Youdish Chicooree, Research Analyst]

I've got 2 questions, please. Firstly, on capital. I mean you mentioned you've got NOK 1.5 billion to NOK 2 billion in Tier 1 debt capacity, and you would look to optimize in the future. I was wondering whether there were any reasons why you have not done this so far? Hello?[Technical Difficulty]

[Janne Merethe Flessum]

There seems we have some technical problems, sorry about that. Let's just double-check and keep holding on the lines, if you can hear me.

[Youdish Chicooree, Research Analyst]

Yes, I can hear you.

[Operator]

We can hear you Janne. Can you -- you can proceed.

[Janne Merethe Flessum]

I get some messages here that you can hear us. Unfortunately we cannot hear you. But [indiscernible] I please ask you to post questions on my email and we will try to take the questions from there. Give you a few minutes.

[Jostein Amdal, Executive VP & CFO]

[Audio Gap]all kinds of areas where we can optimize the capital position and we have to balance. When we're looking into this, we have to look what kind of purpose do the different kind of areas give us and can we have that purpose in a different way without the same capital by me. And I won't continue on that any further.

[Janne Merethe Flessum]

Okay. Then, we have a couple of questions from Iain in Berenberg. The first one, what is the impact on capital from the updated reserve release guidance?

[Helge Leiro Baastad, Chief Executive Officer]

We have not included any effect of the stated reserve release guidance in our capital calculations.

[Janne Merethe Flessum]

Which means that it could be significantly higher than if we included that?

[Jostein Amdal, Executive VP & CFO]

If we're including it, then of course it would increase the capital surplus.

[Janne Merethe Flessum]

And the second question, could you give us some more detail on the issues in Danish commercial? I thought the problems in commercial were mainly related to Norway.

[Jostein Amdal, Executive VP & CFO]

No. I think we communicated earlier also that within commercial property in Denmark, we've seen challenges in terms of profitability and as a result of that, we have toughened our criteria for taking on new business. And as a result of that we have lost some customers, deliberately I would say. So that is in line with what we've previously tried to communicate at least.

[Helge Leiro Baastad, Chief Executive Officer]

And regarding commercial Norway, as I said, we are satisfied with the renewals, and it signs also that it's less soft markets at the moment and going forward. So we are actually -- we have a positive view regarding commercial Norway going forward.

[Janne Merethe Flessum]

And then we have some questions from Youdish in Autonomous. The first one, you still have around NOK 1.5 billion to NOK 2 billion in Tier 1 debt capacity and you mentioned you would look into capital optimization in the future. I was wondering whether there were any reasons why you had delayed this decision, especially considering there was an expectation for a special?

[Jostein Amdal, Executive VP & CFO]

I don't want to comment specifically on kind of filing of any -- our Tier 1 issuance. I think we'll do that when we think the timing is right. The effect on the capital position will be the same and how we use the process will then -- we'll just wait [ to be seen ].

[Janne Merethe Flessum]

And the next one then is, would you prioritize optimization over investment for growth, organic or M&A?

[Jostein Amdal, Executive VP & CFO]

No, I would say that if we see a good M&A opportunity, reasonably priced within our core business area, that is a higher priority than extraordinary dividend. But this all depends on the game here, is to create a good dividend capacity over time. That we'll be prioritizing.

[Janne Merethe Flessum]

And the last one from Youdish. Have you looked into using a less [ onerous ] credit rating agency is in Moody's? One of your peers, Tryg, has done that.

[Jostein Amdal, Executive VP & CFO]

Yes, we're fairly well familiarized with what Tryg has done there and we've talked with -- obviously, this is a question we can get from time-to-time and have done. There are no specific plans of changing credit rating agency.

[Janne Merethe Flessum]

Okay. Then we have a couple of questions from Steven in HSBC. The first one, can you quantify what you mean by fierce competition in motor insurance?

[Jostein Amdal, Executive VP & CFO]

As I've said, we -- just to go back to fourth quarter, we have not seen any significant increase in churn in our portfolio. But as I said, we have seen more competition regarding the product itself, regarding bonus et cetera, et cetera. So what we actually saw during Q4 was a slightly tougher competitive situation regarding new sales and outbound. So the portfolio is stable, the churn and retention level is good and we have seen more dynamic related to the product itself, more advertising related to that and somewhat more competition outbound. I wouldn't say that this is dramatic at all, but it's a very profitable segment, it will be lots of initiatives, and we are on the alert to look at products, tariffs, everything to remain our strong position. And as I also said, and this is important, we did ordinary dividend of NOK 7.10. It will be a very strong customer dividend during this spring.

[Janne Merethe Flessum]

And the second one from Steven, I think is already covered. What opportunities would you look at to optimize the balance sheet or capital structure?

[Helge Leiro Baastad, Chief Executive Officer]

I think we've commented that.

[Janne Merethe Flessum]

Yes, I think we have commented on that.

[Helge Leiro Baastad, Chief Executive Officer]

Combination of [indiscernible].

[Janne Merethe Flessum]

Then we have a question from [ Phillip ] in Berenberg. For the retail bank, the sale of the non-performing loans was obviously a positive for bottom line, but given that the vast majority of customers of the bank are well known, would you not expect to have very low levels of non-performing loans?

[Jostein Amdal, Executive VP & CFO]

I think if you look at the bank's portfolio and kind of divide it into 3 areas that we talk about; mortgages, car loans and consumer finance, you'll see that we have extremely low delinquencies or non-performing loans within the mortgage part, but within the consumer finance there is of course a higher -- more risky loans. And within that portfolio, we do have non-performing loans and that is from the -- it is from the consumer finance portfolio that this non-performing loan portfolio has been sold.

[Janne Merethe Flessum]

And the second one, do you expect any changes to the bank's strategy in future? For example, expanding more into the open market, or will this continue serving mainly the insurance customers?

[Helge Leiro Baastad, Chief Executive Officer]

Just to give a short answer on that, the main purpose of the bank was to secure the insurance operation and I think you also have recognized what we have said regarding all kind of initiatives to balance the capital structure going forward. So we will not look into more expanding of the bank, no.

[Janne Merethe Flessum]

And then from [ Janne Erik ] in ABG. What did you see on new sales on electrical cars versus ordinary cars premiums?

[Jostein Amdal, Executive VP & CFO]

It is a fact that we have had slightly lower market share on the hybrid electrical segment and at least from -- up in 2017. But it's close to, say, around [ 25% ]. And we are aiming to be competitive all through the market and that means we need to be competitive also in this segment, which is the fastest growing segment of the car market.

[Janne Merethe Flessum]

And then from Claudia in Barclays. First comment on no claim bonus. Did I understand it correctly the no claims bonus system completely disappeared for the market as a whole? Is this effectively price competition in [ decrease ] and how do you plan to tackle that?

[Helge Leiro Baastad, Chief Executive Officer]

Our hypothesis is that the bonus system which has been, as I said, a system for the industry for many decades will disappear. And I also said that medium, long term, this will be -- the large payer will gain from that, because we have lots of data, claims data and we can build new systems to secure loyal customers and good risk selection going forward. Short term, it will be lots of dynamic in the market, as I said, and we saw that also late 2017.

[Jostein Amdal, Executive VP & CFO]

To elaborate a bit, and that's the bonus system, as they are normally is, is something where the customer actually kind of owns his or her own bonus and takes them -- it with him to the next company and that's [ how the ] information value to the receiving company, because they knew how many years the customer actually has been driving without claims. And that part disappears. Within each company still there will be systems where you give rewards to customers that have been driving without claims, but it won't be exchanged between the companies. So each and every company is now up to itself, to develop its own kind of tailor-made system of no claims bonus, and that's the important change. It's not that there is no bonus system within each company, but it won't be exchanged between the companies.

[Janne Merethe Flessum]

And then a question also from Claudia on capacity for Tier 1. Would rating agencies be happy to see an increase in financial leverage?

[Jostein Amdal, Executive VP & CFO]

Yes, we're happy. I won't speak about their sentiments, but we have the capacity from a financial leverage point, so there is no -- there will be an issue with S&P if you rightly use the capacity that we have told you about.

[Operator]

And then last from Claudia. If I understood it correctly, you no longer will disclose the S&P capital position going forward, but S&P view still remains the binding constraint on capital framework. How is the market supposed to deal with the disconnect between management framework and disclosure?

[Jostein Amdal, Executive VP & CFO]

I think that our -- the reason why we decided to not make public every quarter this one [indiscernible] is that it is [ there are ] several criteria which S&P uses to evaluate whether we continue to deserve the A-rating that we had since 1999 and it's also a bit misleading to focus just on that number. So that's why in the future we [ won't ] make public the legal capital requirements. And whether it will actually be the most binding, it's possible that, that could vary from time-to-time, given that we have set internal targets of a solvency margin which is [ highly on ] just the legal 100% requirement.

[Janne Merethe Flessum]

And then I just got the message, we lost out [ Vi ] in the start of this session. So I just will repeat [ Vi's ] question. Firstly, are we able to quantify the impact of weather on claims? Just a short answer to that. We have a transcript also why it is so -- this is a short answer to this.

[Jostein Amdal, Executive VP & CFO]

As I answered, we are not able to quantify that precisely, but from -- just from casual observation we see that it has a significant impact in the fourth quarter and is worse than in the fourth quarter of '16.

[Helge Leiro Baastad, Chief Executive Officer]

I added also regarding that question the fact that here in Norway during this week actually, we had -- from Wednesday to Thursday, we had 440 motor claims during 24 hours and that was related to the change from good solid winter weather to milder weather and freeze. So we can see rapid changes from one day to another.

[Janne Merethe Flessum]

And also just briefly on the internal model approval process, Jostein.

[Jostein Amdal, Executive VP & CFO]

Yes, it is within the hands of [indiscernible] as they say, and out of our control.

[Janne Merethe Flessum]

And the last question, I believe we have already answered and you heard about that when it comes to optimization of capital and balance sheet. And then let me see. I have also -- [ Janne Erik ] is back with a question. Is the bonus -- is this bonus scrapping agreed upon among the different players?

[Helge Leiro Baastad, Chief Executive Officer]

No, this is something that each and every company has decided for themselves. There has been no -- there is no industry effort in this way.

[Janne Merethe Flessum]

Okay. And then it seems also most of these questions lost out a little bit, I'll just go back to them [indiscernible] very briefly. Helge mentioned that [ Gjensidige may adjust ] the capital during the course of the year. Is this decision dependent on the approval of the internal model?

[Helge Leiro Baastad, Chief Executive Officer]

The short answer was no.

[Janne Merethe Flessum]

No, right. And again, we will put out or there will be a transcript put out, of course. It seems then I have received no more emails. We're sorry about the technical problem. Please come back to Anette and myself if you have any follow-up questions. We will be both on our telephones and the email. Thank you for listening in. I will just remind you also to where we are doing road shows this quarter. We are going to London, Frankfurt, Boston, New York, Montreal and Toronto next week, and also Paris and in Edinburgh later this quarter. And as you saw, we also now announced our Capital Markets Day for 28th of November in London, so save the date. And of course, we hope to see you before that and of course in November. So thank you very much and goodbye.

[Operator]

That concludes today's conference. Thank you all for participating. You may now disconnect.