Protector Forsikring ASA

OSE:PROT

Earnings Call Transcript 2018-Q1

[Sverre Bjerkeli, Chief Executive Officer]

A warm welcome to everybody. As always, I would like to start with the DNA of the company. As you know we call ourselves the challenger. And if you're looking on the slide on the screen here, you can see that we have 4 main targets, Cost and quality leadership should lead to profitable growth, which again will put Protector into a top 3 position in any market we enter. I'm fully aware of that you, today, question the profitable growth statement here because of our profits in quarter 1, the technical result is on, obviously, on the weaker side. I'm happy to share with you not only the figures, but also my thoughts around the figures. How much is underlying reality, how much is more like normal insurance volatility. That’s the big question. And as always, when we discuss insurance matters, it could be difficult to give precise answers on all these kind of questions. But I try to address as good as I can and when I'm not absolutely sure whether this is an underlying reality or a coincidence in the quarter, I'll be open about that as well.However, in my opinion, the longer story is not at all changed. So that's kind of an opening statement from my side. There are absolutely no doubt in Protector that the underlying reality and the long story remains strong. So when we have had meetings this morning with all employees in Protector, obviously, margin management is a key word. But the growth level is also kind of extremely important for Protector. I would say that I do have a focused team of people on board in Protector, understanding this quarter is a poor quarter, and we are, in my opinion, competent and committed to go forward and to fix those elements to our underlying realities. And then volatility, we can't do anything about it, but that will go in our favor and sometimes against us.So to the highlights. In quarter 1, 2018, we are very satisfied with the growth level over the quarter, which is 15% in local currency and 18%, which is -- this is kind of twice the size of last year's first quarter and slightly better than what I expected 2 months ago when we met last time. So first quarter volume on schedule. There are no questions about the guiding for the full year in my opinion, which is 20% growth. And you know that when entering new markets like U.K., this is more a market where a bigger proportion of the new volume arrives during the different quarters. So U.K. is different from Nordic, it's not about January the first, it's about April the first, and the full second quarter and the third quarter and the fourth quarter. So the visibility on volume guiding is not as good as in earlier years. But 18% growth the first quarter is fine, I'm happy it's good. And the challenge here is the net combined ratio and I come back to that, because that's basically driven by a high claims ratio in that matter. You have seen investment result is 0 in the quarter, doesn't really worry Protector at all. There will be volatility. It is the long-term return on investment, which you focus on and we focus on. And I will shut the window because there are some children outside having fun, and they should continue doing that.Okay. So then back again, 0% return on investments. It's -- if you don't have us come back to see these kind of figures, don't invest in Protector or in anything else. So that's kind of we are rather relaxed about what we see here. Assets under management continues to grow, which is obviously a very important part of the future of our company. You can see here on the guiding and I think I will come back to that element of the guiding and the combined ratio. Last guiding has said a combined ratio size 92% to 94% and obviously higher than 94%. And I have discussed a little bit with myself whether I should say higher than 94% or a bit more precise. And to be very very honest with you, I don't want to give a precise estimate at the moment, because I'm not absolutely sure how much of the weakened technical result is linked to normal insurance volatility and how much is underlying realities. So instead of giving another fixed figure, I -- we are only giving the kind of feedback at the moment that it will be higher than 94%. So there is a slightly higher risk related to what type of figure where we actually will end. But I'll explain as good as I can when I'm discussing with you the claims ratio and the cost ratio of the company, and then you can, obviously, ask questions at the later stage again, but you won't get a fixed figure from me during this presentation.The premium development is good. Here you can see the split between the different segments. You can see that U.K. is not growing a lot in quarter 1, which is not unexpected. We have said to you that we would expect the volume in U.K. to double from NOK 250 million to another NOK 50 million to around NOK 500 million or above NOK 500 million, and that remains to be the target and there are 3 more quarters to come. But on a company level, what we expect going forward is a quarter 2, which is slightly weaker than quarter 1 despite the fact that U.K. normally is a good quarter 2. That is basically linked to Norway where we have one of the biggest client losses in the history in quarter 2 which we knew a year ago, which we knew when we gave guiding to the market. So it doesn't really influence the total company guiding towards the market, but it is a fact that there will be a negative growth in Norway in quarter 2, that will be offset by growth in U.K. and Sweden and some minor growth in the 2 other countries as well in quarter 2, but in my opinion at the moment we expect a lower growth rate than 18% in quarter 2, then pick up and be bigger in quarter 3 and quarter 4, like you saw last year in that area.Please free to ask any volume questions now. Obviously, there will be a questions and answers at the end of the presentation as well. So here is the kind of the bad news today. We have a poor claims quarter, basically driven by Norway here. Motor claims are -- I think I have to go back to 2010 to see equally high figures on the motor claims side, which is obviously linked to the winter conditions in Norway. It doesn't influence a lot on our figures. So I won't kind of blame the figures on the winter in Norway, because that's not correct, but obviously it does influence. We had some medium-sized hits on liability side, in my opinion, that's normal volatility.However on the health insurance side and also license areas, it's more like an underlying reality, but these 2 products are performing poor and they will continue to do that for most of this year, 2018. So when we entered the health insurance market in Norway, 2, 3 years ago, we didn't manage to get in as good as we should. The first year, we had on the claims ratio size to 180%, the second year 140%. I would expect today that this year will end around 120% to 125% and my expectation for next year is that that product, which is not at all a big product, will go below 100% in that area. So this is what you could call not a significant volume product, but an unsuccessful entry in a new product area, Norway. Welcome to the insurance road. Sometimes when we enter new product segments, we go in, we are successful at once, we earn money very quickly and we continue to earn money. Sometimes when we enter certain segments, we are getting involved. It takes a bit time to learn, we educate ourselves, we increase prices and/or take other actions and then gradually or quickly you can see a claims ratio improvement in these areas.When it comes to property hits in Denmark and in one of the segments in Norway, in my opinion, it's a volatility issue. We don't have an underlying problem with the property portfolio of Protector. Changes of ownership not very bad, but not profitable in this quarter, but there are bigger quarters to arrive, and my expectation is that we will be profitable in that area for the full year of 2018. But there is a -- but it has been, as you know and as we had communicated for 5, 6, 7 years, that it has been rate pressure in the Norwegian market, the broker base market that we live in. So rates go down in group life, in other illness, in workmen's comp, in property, basically in all areas.So we do have an underlying reality, where the technical result going forward in commercial segment Norway will be worse than what you have seen in the last 2, 3, 4, 5 years. The question is home much worse in that area. At the moment, I would prefer to have a look at 1 or 2 more quarters in order to give a firm statement on how that rate pressure have influenced on the underlying reality on these type of products. I'm absolutely sure that my competitors in the Norwegian market, they are bleeding at the moment because I think that it's difficult to evaluate who is the best underwriter. So let's assume that we are basically equally good or bad, if you prefer, but let's say equally good. Obviously, our cost ratio advance means that in such a price environment that we have in that market segment in Norway today, they will lose more than what we do.I'm not saying we will lose money in the segment for the full year, but we do lose money in this segment for the first quarter. They are resolved, I'm absolutely sure. But as you know, we do not have access to precise information from competitors in these areas. We only have indications when reading their annual reports. Denmark, slightly on the poor side; Sweden, on the good side; U.K. and Finland, too early to say, when it comes to claims ratio and profitability. Finland, slightly high, but very low volumes; U.K. okay, when it comes to profitability in this first quarter. So no issues in England. And I think that we agree that U.K. profitability is 10x more important than the Finland, because of the size of the market and future growth opportunities we do have in U.K. But I can't say that we can communicate and I think about future profitability in U.K. it's far too early to say, obviously it is, but okay quarter. No other really issues in U.K.So here is kind of the key elements of today's weak point in the story, so feel free to ask questions. Yes?

[Unknown Analyst]

Regarding workers' comp in the market, what kind of problems are you seeing there in the quarter?

[Sverre Bjerkeli, Chief Executive Officer]

Nothing in particular. So what we have said to you for the last kind of 18 months is that we have implemented significant price increases in workmen's comp in Denmark. That has reduced over number of clients and at the same time increased prices on those who have remained, and the accumulated price increases, kind of getting sometimes altered portfolio has obviously improved the profitability of the product a lot. However, the difficulties in analyzing what's happening is linked to the fact that the public entity [indiscernible] that do all the major difficult claims handling, that's by law. It's not we doing claims handling for the complex claims. It's a public entity. They are extremely late in what they are doing, so they have hardly started to work on claims from 2015, which basically blinds the market. And since we have a fresher new portfolio and our competitors do also have a loan portfolio, it is a competitive disadvantage for Protector because we can't read the figures properly because claims handling is delayed, and it's also out of our control in that area. So it's very difficult today, like I said last quarter and the quarter before that, to evaluate what's happening in the market. As long as these kind of problems continues to grow, our risk appetite for that product goes down. And at the same time, when the risk-free rate is on a historical low level, our appetite for that kind of loan sale product will be reduced in that area. So we are carefully considering what to do in this segment. When we enter that segment in Norway back in 2007, the workmen's comp market in Norway, we entered basically in the same situation, we didn't have the big database, but there are data available both in Norway and Denmark, we have that one, but we don't have our own figures. We entered the market, we know today that was a risky, but a very a successful enter. Figures shown to be a lot better than expecting during the years. We have had reserve gains in the product area, not on a very high level , but at least on acceptably good level. So -- but the difficulty in Denmark now is that we can't build our own experience as quickly as we did in Norway, because that public entity is a disaster. They haven't been capable of managing it so far. It actually is even worse, because we got the message from this entity a few weeks ago that they might close down our access to individual claims data linked to individual people, because of GDPR, new rules coming up live May 25 this year. And they are saying to us -- and all competitors in Denmark that we have to go and ask our -- those who are under a claims-handling process to get access to ask for permission to get there inside in that kind of information. This is a insurance company problem related to our [indiscernible] ales in Denmark. That could create a situation where we are even more blinded on what’s happening on the claims side than what we would prefer. So I don't think we will exit that market January 1, 2019. But we consider actually exiting, because if we stay blind for another 3 years, that creates a kind of reserve situation, which we will grow to be more unpredictable, and as an insurance company, we don't like that. So, to be honest, we had some challenges with evaluating these kind of figures, okay?

[Unknown Analyst]

Could you remind then the [indiscernible]?

[Sverre Bjerkeli, Chief Executive Officer]

How much, Rebecca, of the reserves is related to workmen's comp in Denmark. There is another question here while waiting for.

[Unknown Analyst]

[inaudible] would you also be willing to evaluate one step further exiting Denmark as a whole if Denmark doesn't turn out to be more profitable than [inaudible].

[Sverre Bjerkeli, Chief Executive Officer]

Not at all. So in our opinion, Denmark is an attractive market. It is acceptable or good profitability in the market. It's a big broker market and I can't understand why we shouldn't be profitable going forward in Denmark and obviously there are synergies between Denmark, Sweden and Norway. So we are a Nordic company. It is a profitable market. We will find our way. So this is a product-specific statement linked to a consideration where we should accept growing risk in Denmark at the same time when being blinded on claims development. So that's a tricky one, but we are leaning towards and more aggressive approach towards that market either stronger price increases or potentially exiting that market. That will not influence the growth story of Protector, because basically that growth level today is 0, and if you take, let's say, [ NOK 150 million to NOK 200 million ] reduced volume in 2019 and/or 2020, you will hardly see it if we continue to evolve in the main markets. And we have opportunities in Denmark in all the product areas which are interesting and significant. So this kind of statement has absolutely -- obviously it has something to do with volume going forward, but not really about the growth story of the company as such. It's not. Do you have an answer now Rebecca on the reserve side?

[Vibeke Krane, Chief Financial Officer]

Operating side.

[Sverre Bjerkeli, Chief Executive Officer]

So either your computer or you are moving too slow. Obviously that's the computer, Rebecca, I know that. I could have taken a guess on the reserves, but I prefer to have the right figure done. Okay, next question?

[Unknown Analyst]

Yes, since you can't say too much about the underlying reality in Norway in the quarter, could you just give us a hint about the change of ownership in Norway and the new product from the NCD? And because you have reached your sort of 50% market share, and you said [Multiple Speakers] growing any more, but the profitability in that product area, if you take, they have a different product and is it sort of that the competition, is that increasing further.

[Sverre Bjerkeli, Chief Executive Officer]

Okay. So the question is related to -- those who didn't hear the question, the question is related to the change of ownership area, one, how do we see the profitability going forward, 2, you can see that the market leader in all other consumer sector products in Norway have introduced another product that enters the same market and that's my view on that entry.First like we have told you before the profitability and change of ownership is not as good as in the history. So the profitability margin is going down. And there are 2 ways of solving that situation, one is to deliver a new technical survey to the market with higher quality to reduce claims frequency and average claims size, that moves slowly, okay. And there are some challenges related to that. We are meeting in the market to implement that product. In my opinion, that new technical product will enter the market sooner or later, fortunately possibly slightly later than what we would have wanted to. I've given a message to all chief executives in the real estate broker market this morning to say that you have to support us on getting that product to the market, if not, our common clients those who sale houses and flats in Norway will suffer from higher change of ownership prices in future. So either a better technical report or high prices. It's not a threat, it's a corporation statement given in due time in order to go together with the real estate brokers to get that product to the market, we will. The technical survey type of. It's not a product we sell, but we have handed off to an IT solution, which will help the taxation kind of people in Norway to improve quality and efficiency on the technical side. That's the one way to solve the problem. The second alternative is to get rid of certain parts of that segment to leave some volumes, because there are different areas here, which have an acceptable profitability and someone who is getting close to an unacceptable profitability. Obviously general price increases could also occur. So there are 2, 3 ways to improve profitability going forward and we are capable of navigating towards a future where that product remains profitable possibly on a slightly lower volume level. When it comes to the second part of the question NCD, that that product will fail. It's a stupid idea, it has been tested out in Norway before without success. It is [ de facto ] the standard product in Denmark today. It's unprofitable, it's expensive. It doesn't reduce claims frequency, they will fail. So they got it wrong and good luck. So I don't really care. If they succeed 5 to 10 years from now, we follow in that area and we will do that jointly with the real estate brokers and you can see there, as you probably haven't noticed, I've given a statement that they are open up as a real estate broker. So you can see that it's actually in our real estate broker, that's from me. They come to it. And of course I understand that it's something called technical solutions and the web and the Internet. So I've heard about it for the last 20 years. But that's also been tested out in Norway for the last 5 to 10 years. It's not a reality in that area. So good look, they will not succeed. Do you have the reserve figures? It's accumulated to be workmen's comp reserves in Denmark today is around--

[Vibeke Krane, Chief Financial Officer]

[indiscernible]

[Sverre Bjerkeli, Chief Executive Officer]

What did you say now?

[Vibeke Krane, Chief Financial Officer]

You were talking about the premium, yes, so the premium is year-to-date, it's DKK 222 million out of DKK 536 million.

[Unknown Analyst]

[indiscernible].

[Sverre Bjerkeli, Chief Executive Officer]

So basically, I think that this is a small question, rather detailed one, let's take it afterwards. Basically the relative share of our workmen's comp is the same, because number of clients is going down, prices going up. Rest of the volume is stable -- basically is stable. So the relative share of workmen's comp in Denmark for all the products is relatively stable, possibly a slight decrease, but we have less risk because we have less clients in the segment.

[Unknown Analyst]

Just a follow-up on certain segments that you mentioned that are in the change of ownership which is sort of unprofitable which you would like to leave behind, on those two, would like to keep on, can you just give any in the favor of those two areas [indiscernible]?

[Sverre Bjerkeli, Chief Executive Officer]

Okay, the question is -- I say that there are some segments within change of ownership, which today some closed unprofitable and others who are profitable and would I like to talk about it and the answer is, no. Why would I? So there are something called competitor [indiscernible] I won't talk about it. Here we have better databases than anyone else. So we can navigate that market better than other ones. So I would prefer my competitors to pick up the poor parts and I'll stick to the better parts in that area. Another question?

[Unknown Analyst]

Just on the change of ownership, [indiscernible] NCD has flagged strong ambitions there. Where do you think the clients will distribute their change of ownership's insurance?

[Sverre Bjerkeli, Chief Executive Officer]

Let me probably distribute that through their own sales trends in the consumer market. The problem -- they have lots of problems when entering that market. But the one is that the insurance product is linked to real estate broker services altogether. So they are actually fighting the real estate broker market in Norway. They won't succeed. So the market share in this market will be less than 1%, my guess. So you can see the pores everything they have into that market. They will be back through the market size, good luck. Would you like to ask a question once more or was that clear enough. Okay, another question here.

[Unknown Analyst]

I understand that you don't want to blame the weather this quarter, but you mentioned motor insurance is affected, but is there -- are there any more segments that are affected by weather and also could you quantify a bit more how much worse motor was?

[Sverre Bjerkeli, Chief Executive Officer]

So there is one element around the motor portfolio, which is valuable to comment on. It's one that obviously winter was hard and it influenced our portfolio. The other element is that the relative size of the motor portfolio in Protector is increasing. You have seen [indiscernible] dividing in long tail products and medium long and short tail products, and you have seen that short-term parts of our product portfolio has increased in the last 5 years. So gradually our motor portfolio is increasing. And gradually our property portfolio is increasing and both will be influenced by bad weather during winter. So, one thing is that obviously we have a hit on the winter in the motor portfolio in quarter 1, but the relative size of the motor portfolio has gradually increased last year. So we will be slightly closer to other company since motor business increases. However, the seasonality in Norway and Sweden are different. So, when weather hits Norway a lot, it does not in Sweden and the reason why is because new Volvo in Sweden is sold with an insurance package which in the Sweden is called [foreign language], so it's called Volvo insurance. We don't ensure that Volvo, but we have the liability insurance for that Volvo. And seasonality is different when it comes to a normal crash in the market, 2 cars crashing, the liability element of it. So it's just kind of my study to understand how Protector's portfolio is influenced by volatility and seasonality when it comes to motor business. Motor business is growing, more seasonality effects but not as much as in Norway, because Sweden is less influenced by that kind of volatility, because it's a 2 product market and we are only paying basically in 1. Because companies are buying new cars every third or fifth year and we are a lot old to that market. You could say that motor whether winter 2 percentage points, give or take, this quarter, maybe a half percentage point one or the other way in that area in total. And then kind of volatility, a couple of percentage points possibly. And then last year we have a combined [indiscernible] and no one more on the cost side. We had higher reinsurance profit commissions from previous years getting in quarter 1, 2 percentage points difference with quarter 1 this year. So if you calculate a percent, a point or 2, or 1 or 2 and add up you will see that this was my point when I comment to the cost ratio for [ Elan ], but they are interlinked here. So it's not really about 87 and 95. So the real underlying difference is not at all close to 8. So you shouldn't take last year profitability combined ratio 93 on that date. That's a very wrong statement, because it's not the fact, not at all in that area. So what I'm talking about now is this one. The seasonality gradually changes to more -- say, less favorable quarter 1, and that has also something to do with the cost ratio here. So the net cost ratio is 4 percentage points, poorer than last year. You shouldn't really worry about that, because that is linked to that we had some higher profitability elements in the reinsurance contracts last year, around NOK 20 million, 3 percentage points or something like that and the commissions to brokers gradually increased in quarter 1, because we have more Swedish business on board, commissions are allowed, more U.K. So the underlying reality here is not close to the 4 percentage point you see here. And I do apologize that understanding the counting in an insurance company is slightly difficult. I can't do too much about it, just try to explain what's really happening here. So when you see a combined ratio, 8 percentage points poorer than last year. It's 4 from the cost side and 4 from the claims side. That actually [indiscernible] to 8, it looks very bad, it's not at all that bad. But it is a reality that the claims rate is high in quarter 1, obviously it is. And the next question is how do we improve? So okay, volatility and bad luck or whatever you would like to call it, that [Audio Gap] there are someone else, in my opinion that will bleed from those 10 clients, not necessarily all of them, obviously not. We could be wrong and too conservative in some areas. But there is a rate pressure still. They are nonprudent in some areas, but at the same time Protector communicates a volume growth for the full year of 20%. Welcome to the real world. This is what we see in certain segment for certain period of times, but we have many segments in many countries. So our job is to navigate the market and never ever blame the market, because we shouldn't. We should only concentrate on what we can do, which is navigate in this kind of market. The hosting sector in Denmark has had unsustainable rates for 6 years in a row, every year. Too low, too low, too low, too low, too low, too low. January 1, 2018, acceptable. One player walked away, one increased rates, We are back taking on board more property volume in that segment, as we speak. So we stayed disciplined for 6 years and started to move. Maybe in their older time we had [ quartered ]and collected data and quartered and collected data and quartered and collect the data, because we know that that segment is ours. We will take that segment in future. I know the segment's cost ratio does matter, quality and claims handling does matter, it's our market. We will take that market in future. But we have zero market share after 6 years, but we start to move in that area. So this is how we should navigate. The question is that whether you'd kind of trust the underwriting competence in Protector after a poor quarter? In my opinion, you should, they are the same people who are on board, who has delivered brilliant profitability for 10 years. So it's like kind of a good [ football ] manager, isn't it. So brilliant for 5 years and suddenly he is totally stupid and you have to kick him out, that's not normally the situation. So we have good continuity and competent people and I think we are capable of navigating, but it is the fact that a significant part of the Norwegian market have had a great pressure for a number of years and we have to stay disciplined. That could mean reduced volume growth in future, but we would prefer that kind of volume to be profitable, not only preferred, but it's a requirement in that area. Of course after a poor quarter, we will use that quarter to learn to continue to improve what we're doing in that area. High renewal prices in certain segments, we could walk away from some areas, which is not a new story. We constantly consider where to go. And since margins are under pressure and since risk-free rate is historical low, obviously we have to look more carefully into capital allocation and we have to go in the market. And we have also many segments to go. So to optimizing where we put capital in an environment where margins are in the pressure and where risk-free interest rate is low is obviously something that we always have done, but it's more important as we speak, which again goes against workmen's comp in Denmark. High capital allocation blinded by authorities, and low risk-free interest rate, it's kind of not really tick, tick, tick, is it. At the same time we are greedy. It could be a very profitable market like workmen's comp in Norway demonstrated to be. So it's fair and greed at the same time. You have heard about the 2, have you? That's what we're [ abolishing ] at the moment. But my expectation all is that there will be consequences in that market with either further price hikes or limited volume going forward. That's kind of prudent, I would say.Okay, can I continue now?

[Unknown Analyst]

Just one question, is there -- are there just few players who are closing these unsustainable rates in Norway. Or is it more in general because it [indiscernible] saying that most are pricing up their products?

[Sverre Bjerkeli, Chief Executive Officer]

So the question is whether that rate pressure in the Norwegian market is one, two companies or whether this is through the market. So I would say that the discipline here may be improving as we speak. There are some indications that again if strengthen the discipline in that area, Protector as well, we -- I'm not saying that we are the only nice guy here, not at all. We have been driving these prices down, because we could and the other earned a hell of a lot of money on that. So obviously we are a part of that game. So my expectation is that this is kind of rational organizations and we see signs that price hikes do enter the market and both [indiscernible] and if I have clearly communicated that at least towards the brokers, which we talk with every day in that area. So I wouldn't say it's a kind of my 1 or 2 pressing ice in the market. It's a more mixed situation, which makes us a bit more difficult to predict what will happen in that area. But again seeing from a kind of a company point of view, okay, are we capable to navigate in this market? Yes, we are. Do you have many segments to go to? Yes, we have. Is it all segments here? No, it's not. So we are talking about personalize the business here, but at the same time I think that with rational pricing, we can continue to take more large clients in that area, not many, but still possible, is not impossible to do that, and in property and casualty area, we win business, it's prudent, I think we earn money on these kind of areas. That's kind of the 40% part of the totality. The rate pressure element is to the 60% part of the totality. Fortunately not all the way around, but okay. Any more questions?Okay. so cost ratio, don't worry, we are leading. That is maintained second slide a bit later, come back to that here. I think you have been through a lot of comments towards the different countries. We have changed kind of structure on the presentation as you can see. So we have talked about countries on volume, on claims and on cost, not cost really, but the two first. This is more like do you have any questions to any country now which we haven't clarified already. So feel free.Okay. So I guess that I have given some comments with the different markets. When it comes to the investment side, 18% of our investment portfolio is linked to equities, which is basically the same size that we had a quarter ago, a slightly poorer result than benchmark, but not a lot and we are not really worried. I think that underlying reality of the companies we are invested in is rather good within our shares in Norwegian airlines could have been good to be there, of course, the last couple of weeks, but we did not have any results. We underperformed a couple of quarters in the longer run. We think we know what we are doing. On the one side, 0.5% return is good with a 90 plus average portfolio. The comment here is different from what you saw 1, 2, 3, 4, 5, 6, 7 quarters ago. So that basically said the same thing many quarters in a row, now we change communications and we're saying we are not expecting for the yield reduction or risk reduction going forward. So I think you will not see A+ go to AA- , and you will not see yield falling, you will see yield picking up and [indiscernible] as you know is [ 1-30 ] basis points higher than January 1, a bit higher at the end of March in that area, that gradually influenced the running yield in our bond portfolio here.So any question to the investment side?

[Unknown Analyst]

The previous slide, there is only if you could you provide any insight in the major changes you made to the equity portfolio?

[Sverre Bjerkeli, Chief Executive Officer]

Say again.

[Unknown Analyst]

Could you provide some insight into any major changes you made to the equity portfolio?

[Sverre Bjerkeli, Chief Executive Officer]

We -- normally we don't on a quarterly basis. So when we released the full year report, we gave our view on what we make it a 10 biggest holdings on equity side or was it all of that? Okay. So we gave the most information about all equity holdings. There are no major changes, as we speak. But obviously we are looking at the portfolio, but we don't have a strategy to change very quickly then. So, yes, some changes, but not very significant. Other questions to the investment side?Okay. So that gave us basically zero result. You've heard about the very strong growth in the quarter and a profit after tax size to basically zero and the poor claims ratio. Our solvency capital ratio remains very strong. We are one of the most solid companies in the Nordic market. And a quarter like this doesn't really influence at all, of course slightly since zero profit and increased volume consumes a bit more capital. Compared with history, obviously our balanced structure is very good where a certain part of our balance sheet is Tier 1 and Tier 2 debt which supports Protector's return on equity moving forward in that area. So you know that we have delivered an average return on equity, slightly above 20 in the last 14 years and we have guided on return on equity around 20 going forward, which in the case that a return on solvency capital will be lower, but return on equity will stay high in that area. So the balance sheet structure is in the favor of our shareholders in that area. So that's kind of a point we shouldn't forget when we are putting our eyes into the future on looking 3, 5 years ahead. So a solid balance sheet. It remains very strong. The structure is good. We cannot take a more and more Tier 1 or Tier 2, because we are fully utilized, and in a stress situation, we are slightly too much Tier 1 and Tier 2 which we will take a couple of years possibly before asking for more capital from the Tier 1 and/or Tier 2 market. That's what you should expect going forward. There is 1 new shareholder arriving after the full quarter, it's a Spanish one, which will enter -- has entered a top 5 list here. So that's kind of and there is a small insider by one of the new managers, which you will meet not late to that in our Capital Market Day after the summer, no major changes outside that. The question is starting with the DNA of the company, this is who we are, cost and quality leadership should lead to profitable growth. We are questioning all together the profitable part of the growth story in quarter 1. And my kind of feedback to you is that you shouldn't worry too much. First, if you look at cost and quality, let's start there and see that we are the leader on costs. This is a further kind of communication or education on how to look at cost, okay. So the kind of cost you should pinpoint and what we pinpoint every quarter internally in Protector is gross cost ratio, including claims handling expenses, ex-commissions, okay. Why? Because real cost includes claims-handling cost, that's for sure. Why in our formal book, those are integrated in claims handling -- sorry, in the claims ratio, right. But the real cost story is about all the cost, not only those who authorities have said that you should show to the market, if you are showing both all the time and I think maybe you should kind of come back and start showing both at all time. And that so you could follow the real important part of it here. Commissions doesn't really matter, why? It's neutral seen from a competitive point of view, because if we pay 5 or 10 percentage points commissions to a U.K. broker, which is allowed in U.K., not in Norway or Denmark. That is neutral seeing from a competitive point of view, because we pay the same, if not, they will lose their license. Okay. So if AIG pay 5, we pay 5, RSA pay 5, we pay 5. So if you are seeing from a competitive point of view, it's neutral. And when we calculate prices, we take those money away. So we say, take it away, that's rather simple. So it's neutral seeing from a competitive point of view and it's neutral seeing from a profit point of view. And then you should look at all costs and what's happening, as we speak, is that the real cost figure of Protector is going down from around 13 to today's level around 11 and it will end lower than 10. So, the competitive position of Protector is improving despite the fact that we invest in new countries, right. That's a good story, that's a very good story. And that's kind of half the story about Protector, cost leadership. And we are obviously constantly working on balancing quality with efficiency and cost ratios. Normally in a world can match Protector on the totality. Yes, it's correct that on the claims handling side, we are not the best guy in town or in the Nordic when it comes to efficiency, because lack of critical mass, new countries, we focus first on quality, clean desk, Rolls-Royce and then they take efficiency. So we are about to take that. That's the Falcon project in that area. So cost leadership is strong, remained strong and the reality is that we do improve. At the same time, we are quality leader in all markets, not perfect, we can improve in certain areas, not at all. So when you kind of take your long glasses on and have a look at future, cost and quality leadership is strengthening when we speak. And if you think that Protector is capable to navigating in a lower margin market, you should stay with Protector and not sell your shares today. You should see this as a buying opportunity obviously. So thanks a lot, and before moving to questions, there are some questions from the webcast here.

[Vibeke Krane, Chief Financial Officer]

Yes, some of them we already answered, but one of them is, does Protector plan to keep increase the buyback programs?

[Sverre Bjerkeli, Chief Executive Officer]

To increase the buyback programs? Okay, we are buying back a few shares if it is linked to employees picking out their bonuses in shares. So that's the reason why we have bought a few handful of shares every year, and we do. So I guess that's the question is we'll consider -- will we consider in future to buy back shares if prices is favorable. And at present, the answer is, probably not, because we have stopped paying dividend and saying that we would prefer to stay very solid in order to prepare for 15% to 20% growth in future, basically U.K., but also in the Nordic market. However, obviously it should be put on the table and we will discuss with the board that alternative obviously going forward in -- when we discuss strategy in June as we always do with the board in that area. And we all know about some companies, who have been rather successful with kind of having a buyback program on the contrary to dividend, but we grow 20% a year and we do expect that growth to continue, so not at present. Yes, another question?

[Unknown Analyst]

[indiscernible]

[Sverre Bjerkeli, Chief Executive Officer]

If we go 2 months back, so what kind of risk do we have when it come to the technical result there. So what I said to you 2 months ago is that I think I said we have slightly increased risk on the competent level when it comes to profitability since the relative share of the new business is higher than the business you know from before. The problem really I'm talking about now is linked to Norway, which is not linked to the new business that's covenant and a new element. A bit of a surprise in the first quarter and what we need a couple of more quarters to wait and see is that how much volatility and how much underlying reality. So it's a difficult question in that area. So -- but it's a fair question whether we would expect a increased combined ratio going forward, then what we have communicated so far? So no statements given. It will be considered and discussed in that area. And I think that, some of the new investors are arriving to Protector, they ask me the question, why do you have such a good combined ratio, why don't you take a more aggressive growth approach? Okay. Because they have put some figures into those spreadsheets, these are competent people and saying that why you do not accept the combined ratio size 96 and grow more, because that will create a stronger earnings per share going forward, because we all know and they have seen the new investors from Europe or the states arriving in the last few months that investment return, profit from investment return after tax in the last 10 years is 70% of the total profitability of the company. So why fight too much on the margin for the 30% compared with making sure that you're getting more back on the 70% of the totality. You must stay prudent on the underwriting side. So I will as a big shareholder in Protector, obviously I have my eye on earning per share in the future and that is more linked to return on investment than the return on technical result. Personally, I would accept a lot higher combined ratio than 92, because I will benefit from it as a shareholder in that area. But as long as we haven't given any formal statements, we haven't given any informal statements. But the question is extremely important, if we have a long-term view on Protector, extremely important. Why not double? The 70% going forward and allow the 30% to be reduced to half. So it's various in mathematics, various in that area. It only becomes a problem if your combined ratio starts moving north of 100 in that area. So capital consumption profitability per product area have the re-balance, because it's not really one answer, is it? Because workmen's comp Denmark and Norway consumes 10x as much capital as group like Norway, 10x. There are 2 ends of the capital consumption scale, okay, 10x capital, 10% of capital. Do we have equal targets on these 2 products, obviously not in that area. So good question, therefore no comment, but we can increase earning per share a lot allowing a higher combined ratio than 92. More questions?

[Vibeke Krane, Chief Financial Officer]

Time is run off, but I can do one more and it's a question about the retention rate, why it has declined so much from --?

[Sverre Bjerkeli, Chief Executive Officer]

Okay, the retention rate. So a part of the retention rate decline is related to the honorary solvency-based reinsurance contract, remember -- which is around 7 percentage points or something like that. Remember, we are not sending cash to honorer, we are sending risk and solvency release and pay a price. So parts of the decrease in retention rate is linked to a solvency-based insurance contract, obviously with some risk transfer. If not, it would not be in legal, but not a lot in that area. The other element is that because the property portfolio is increasing, we deliver more to our insurer, Munich Re. That might change, January 1, 2019. So I think that you will see our retention rate going up January 1, '19. That's kind of feedback I had given to our insurance partner and to the reinsurance world. So we have started to negotiate potential new contracts with effect from January 1, 2019. A final question and then we have to close down, we are 3 minutes late. I apologize for that.

[Vibeke Krane, Chief Financial Officer]

The final question would then be the reasons for the run-off losses in change of ownership?

[Sverre Bjerkeli, Chief Executive Officer]

Minor losses, don't worry. We have been spot-on on reserve setting in the history of Protector. So we can't go spot-on on all products every quarter. So I wouldn't worry too much. However, the underlying reality of the claims on the product as such is more challenging than in the previous years and I kind of commented on that already. But thanks a lot for your patience. Have a great day and a great weekend. Thank you.