Protector Forsikring ASA

OSE:PROT

Earnings Call Transcript 2018-Q2

[Sverre Bjerkeli, Chief Executive Officer]

Welcome, everybody, to quarter 2 presentation. To those of you who are not Present in Oslo today, it's a hot summer day, which it has been for a period of time. So Oslo is possibly one of the warmest capitals in Europe at the moment. As always, when I introduce our quarterly figures, I start with the DNA of the company. Our vision statement is the challenger. Obviously today, you could argue that we are challenged, because the combined ratio of Protector, which we have delivered to the market today, is what we would call very poor, and, obviously, it's our job to turn that kind of situation around. Our long-term targets, which we have had for the last 13 years, is based on an idea that cost and quality leadership should lead to profitable growth, which again, should lead to a top 3 positions in all segments we are present.Today, I think it's fair to say that when it comes to cost and quality leadership, our competitive position is unchanged. We are very, very strong on cost. We are probably cost leader in the world. And on the quality side, we have no news today, which means that our position is still extremely strong when it comes to deliver quality to the market. But when we're looking on third kind of main target, which is stated profitable growth. What you see today is growth only without technical profits. And I will obviously stay around, and we would like welcome questions on the profitability side since this quarterly growth is not linked to an acceptable profitability.So let's have a look at the highlights. There are 4 elements, if you have your long-term view on Protector, which is important. One is our competitive position. I've given a comment on that already. Cost and quality -- our cost and quality position remains stable and strong. So it's nothing wrong with the competitive position of the company. The second element is obviously growth, and we are happy with the kind of growth level you see in quarter 2, which is 14%, slightly higher in local currencies in that area. The third element to look for is the combined ratio, obviously, which is poor this quarter after also a poor quarter 1. So the combined ratio, the technical profitability of the company is not at all good, and you should not expect that to turn around during 2018. In insurance business, as you know, it takes longer time before price increases are implemented to their full effect, so I am sorry to say that combined ratio for the full year will remain poor. Obviously, we have activities already implemented and more to come in order to improve that position going forward in that area. The fourth element is investment income. As you know, we do have an investment portfolio sized a bit more than NOK 10 billion. It's growing. A part of that money is free of charge. It's what we call float. Investment results in the quarter is what you could call good. So competitive position, strong; growth, strong; investment return,, good; technical result, however, what we would call, very poor. So the question is, whether we can solve the fourth element and continue on the route towards future today. So let's talk a little bit about it.The investment result, historical to date, has been around 70% of the accumulated profitability of the company after tax. So return on investment is, as you know, a very significant part of both the history and potential also or rather, obviously, also in future.Our guiding is changed based on 2 quarters, which have not been good at all on the technical profitability side. So since we are putting more focus on the profitability issues in the company, we do expect that turnover in our customer portfolio will increase. We will price up and potentially out a higher level outlines than normally, which means that at the end of the year, you will see a reduced growth development and that will continue, at least, in the first half year of 2019.So what we say today is that you should expect a volume not to end up close to 20%, but more around 16%. The present level today is 16.8%, so we do not expect a kind of growth pickup in quarter 3 and quarter 4 like we saw last year in that area. But still, we do have clients arriving and price increases that will be booked in quarter 3 and quarter 4 supporting the volume growth. So we do not expect any figure lower than 16% at the end of the year. That's about the area where we will probably end up. It's -- the probability to be on the north side of that figure is slightly higher than below that figure.After 2 poor quarters in a row on the technical side, we are changing the guiding then to significantly higher than 94%, but last -- like last quarter, we will not explicitly state what we think about the kind of figure here. So you are welcome to ask for a interval or a specific target, but I won't comment exactly on that one. The cost ratio is not changed, and as you probably know, we have been giving a statement for a period of time that you should consider Protector to be a strong growth candidate for future with around 15% long-term growth. We have not changed that today, but we do expect that growth level to be lower, potential also, a lot lower in 2019 but then, today we would expect that figure to pick up again entering into 2020. And the reason why is that we obviously think that our U.K. presence will continue to grow during 2019 and 2020 and that, that growth level will kind of offset the increased turnover rate in the Scandinavian portfolio in that area. I'll be back to comment a bit more on U.K. at a later stage but a short comment now is that U.K. is on track also after quarter 2. So, obviously, it's a poorer guiding than when we met last time based on the 2 last quarters you have seen here. You're warmly welcome to ask questions along the presentations and we have the first one here.

[Unknown Analyst]

With the [ significantly ] below 15%, could it be close to 0 or even below 0 as well?

[Sverre Bjerkeli, Chief Executive Officer]

No. We don't expect that at all. So I don't think that we will be even close to 0 in that area. It's too early to say, but I would think maybe single-digit on the higher end, could be slightly higher than what I'm saying now. Let's say that we price out a portfolio size NOK 300 million to NOK 400 million, which is possible to do if you are close to, what, NOK 4.8 billion at the end of year. Still our growth situation in many markets, especially in U.K., but also in Sweden and all the parts of the Nordic market, it should be possible. Not in Denmark, we don't expect any growth the next year. It could be negative or you should expect negative growth in Denmark, but others can -- other Nordic markets, we still think that it is more realistic to see some kind of positive growth coming out of the other Nordic markets, even though we are pricing out a lot of clients. So we are saying, yes, definitely below 15%, but I wouldn't say not even close to 0. No.

[Unknown Analyst]

Is it also then -- just to understand the growth [indiscernible] here. This is on the gross growth level? And is it then also fair to assume that both for 2018 and '19 that net earned growth will be lower?

[Sverre Bjerkeli, Chief Executive Officer]

The net earned growth will be lower in 2018 since parts of the volume development in 2018 and a bit more than average is linked to the property product, where we see more volume to the reinsurance world. While we do expect that the property reinsurance contracts will change in 2019, which means that we gradually will increase the earned premium for [indiscernible] account a lot more than the written premium level. So -- because we are changing potentially from -- as we have communicated a couple of times before, from a quarter share contract on the property side to a normal XL contract, which basically all competitors in the Nordic market is buying. So in the short term 2018, earned premium for [ own ] account, slightly lower than what you see here, while on the contrary the next year because it's a change in the reinsurance structure.

[Unknown Analyst]

Maybe [indiscernible] not sure, but is it possible for them to have slight indication on how much more that would be on the growth side? If you're standing at 10% growth for the next year on the gross level, how much would that be on earned level?

[Sverre Bjerkeli, Chief Executive Officer]

Yes, so you can -- we can take a note out of that question and we could update you at a later stage. Obviously, there are some uncertainties about exactly what we do with reinsurance contracts. But at the moment, our intention is, and we think we will change structure so there will be some kind of uncertainty in that answer. But, yes, we can come back with an update to you and the market on that question. So our CFO is noting down the question and we can get back shortly after the meeting, if you would like. Okay?On the volume side, it's kind of, I think I've given comments already. What you see is that, as expected, we have a significant, in this quarter, negative growth situation in Norway that has been communicated to the market and is basically linked to a couple of big clients leaving for profitability reasons. One, April 1 and another June 1 in that area. So that kind of volume development here is expected and in line with previous guiding given to the market. Sweden is slightly better than expected, I would say, and U.K. possibly slightly below expectation. However, U.K. seen from a full year is according to plan, volume-wise. So no big surprises, actually, on the distribution of the volume development in quarter 2.The challenge we have at the moment is obviously on the claims ratio side. There is a runoff loss in change of ownership areas size NOK 30 million in the quarter. And if you do have a look at the reserve side in Protector, let's say historical to date. So I think it's fair to remind you once more that historical to date, Protector has been kind of overall spot on, on the reserve side from the beginning and up until today. We -- if you do the calculation, you will see that we are slightly on the conservative side. So we have, from day 1, set aside slightly higher reserves than what was necessary in order to cover claims for future. So seeing from an overall company point of view, I would still say that you shouldn't worry about the reserve situation in Protector. That's obviously a natural question to ask when you have 2 quarters in a row which are on the poor side, claims-wise, but our comment to the reserves is that they have been prudent and they are prudent. However, if you go below that kind of statement, you can see that on the change of ownership side, we have a number of -- in a number of years, been lagging on the reserve side. So we have been basically, not constantly, but very often been on the wrong side reserving change of ownership. While -- and that does mean that in all other product areas in the commercial sector we have been even more on the conservative side since the accumulated figure is on the positive side. If you think through not only the overall reserves statement but the mix of reserves statement, that should be kind of an interesting situation because 90% of volume in Protector, going forward, is linked to the commercial sector, including public, right? While today, around 10% of the volume is linked to the change of ownership area. So if you have a question mark to the reserves of Protector, I do understand. Historical to date, we are spot on, slightly on the conservative side. On the mix, we have been missing out on change of ownership in a number of years while being more on the conservative side in the commercial sector. And as you will see a bit later in the presentation, we are taking measures in order to reduce the portfolio further in change of ownership because part of that portfolio is unprofitable. That will happen during quarter 3 and quarter 4. I'll be back to that part. So, yes, the claims ratio is on the poorer side. And if I should kind of summarize, I would say that in the art of underwriting, how we price clients? You could argue that we in the last 12 to 18 months have been too late and done too little. So too late, too little and now it takes time in order to turn that technical result around in the area. Last time we met, we gave some kind of communication that it's not kind of a total surprise that rates are under pressure. We have seen that for a number of years and communicated that multiple times to U.S. investors during the last 3, 4 years, rate pressure in Norway, rate pressure in Norway, rate pressure in Norway. And now we kind of see that the consequences of these rate pressures are somewhat higher than what we expected in that area. We did, obviously, start out more than a year ago, first in Denmark, then in Norway, in order to increase rates and price up or out clients and we talked a little bit about that in -- after quarter 1, and the communication now is basically the same, however, stronger. Two examples is that in change of ownership area, we have priced out one of the biggest distribution channels we have there, which have an annual premium, sized NOK 120 million, and some other channels, which are on the smaller side. And we do expect a significant reduction in volume from quarter 1 next year on the workmen's comp side in Denmark. The kind of new prices we have given to the market has been communicated already in Denmark, and we do see clients leaving today with an accumulated volume, sized around NOK 250 million. Some clients will obviously accept the price increases and will stay, but at a higher rate level in that area. So we have also seen that some very significant price increases the last 6 months has been successful, and we have seen that clients do follow because other competitors of Protector in the same segment do communicate exactly the same situation like us. You have seen a couple of companies coming out in the market the last few days, one from Denmark and today Gjensidige Norway. And if you read through the different reports and especially the report from Tryg, which are more precise communicating what is happening in the kind of segment Protector is playing, you will see the same message from the market and in all that other competitors also are pricing up our segment as we speak in that era. So price increases do not necessarily need to mean that we are losing the clients. Some will stay but at a higher and an unexpected profitable level. So that's kind of overall statement and I'm ready to give a few more comments on the different segments on a later slide here. Cost ratio is strong as always, and we have a few comments here when it comes to the different markets. We have talked about change of ownership, where our portfolio is expected to be reduced with around 25% from a bit north of NOK 500 million to around NOK 400 million in annual premium. Obviously, that will lead to some kind of a reduction in staff that is basically linked to claims handling and will gradually happen. So it's not kind of an action, which is necessary to take today or tomorrow because claims will be reported gradually during the next 5 years. So that kind of staff reduction will take place basically during the next 12 to 18 months. We wouldn't have any problems to do that with a kind of natural turnover in the company. So there are no difficult situations at all in Protector when it comes to such a small number of [indiscernible], which we need to reduce here. Denmark, nothing is -- not too much to say. We have been through the workmen's comp situation in Denmark a couple of times before. No real changes except from the fact that we can see a slight improvement of the underlying profitability based on actions already taken. But we need to be stronger going forward, and we do expect the portfolio to be reduced a lot from January 1, 2019. When it comes to public and commercial sector Norway, we are a bit surprised on the negative side that some products like motors still is doing a very poor quarter and obviously, price increases must be stronger and in our portfolio, they will be stronger than what Gjensidige communicated this morning. I think they said that what you should expect is around 6% on average increase in motor prices going forward, which according to Gjensidige is line claims inflation in that sector. In Protector portfolio, you should expect a higher average increase than that, which we think clients basically will accept because it's short term, it's easy to read the figures and it's basically rather easy to price up on the motor claims side. Other price increases has been done already and some more will arrive in the Norwegian market. Obviously, when Norway do a poor quarter, not only 1 but 2 poor quarters, when it comes to public & commercial and change of ownership that influences a lot in the profitability situation in the company as such. So it's extremely important to Protector, obviously, that the Norwegian market returns to profits, which we do expect will happen in 2019, but we will still struggle during quarter 3 and quarter 4, even though some pricing increases have happened and will influence slightly during quarter 3 and 4, but there's more to come and the full effect you won't see it before 2019. Finland, it's too early to say; small volumes, not very important at the moment in that area. So we don't have any specific comments on Finland. The Finish figures are integrated in our reporting, as always, for a new company with limited volume in the Norwegian figures. So small volume and too early to say. Sweden is doing well. You have -- you still see a good combination of volume growth and profitability in Sweden. And the volume development in Sweden is obviously catching up all commercial sector in Norway. So when Norway is going slightly down, you can see that with a strong growth level we see in Sweden, Sweden is kind of catching up and are getting closer and closer. There is an internal competition going on, obviously in Protector to be the biggest country. And Sweden is on target. I know that [indiscernible] sitting behind here, our Director in Charge of Public and Commercial sector, will take up the fight, but Sweden are in a hurry obviously, because they should reach #1 position before U.K. takes that position forever. So they must hurry up if they should have an ambition to ever be #1 when it comes to volume.Obviously, there is another competition, which is more important. That is linked to the level of profitability. And as you understand at the moment, Sweden is staying ahead of Norway when it comes to level of profitability in that area. So Sweden is doing well, and I do have a separate slide on U.K., but before that, a question?

[Unknown Analyst]

While you mentioned yourself [ motor ] in the run-through in Norway, and your competitors are also focused on much of [ motor, ] whereas in the communication you had -- when you released report you said that there is poor claim performance across motor, liability, group life, health and loss of license.

[Sverre Bjerkeli, Chief Executive Officer]

Yes.

[Unknown Analyst]

So it seems like a much broader range of products where you have claim issues. Could you talk a little to that? And also what you're doing on price initiatives or other initiatives for the other products?

[Sverre Bjerkeli, Chief Executive Officer]

Yes, okay. So the reason why I mentioned motor and not the other ones, the other ones are in the written report, is that last time when we met, we talked about other type of products in that area. And I will say that in quarter 2, those other products ended up basically according to expectation, while motor was the very negative, very negative kind of surprising quarter 2 in that area. When it comes to health insurance, price increases has been implemented already and we'll continue to be strong. You will gradually see effect out of that with a full effect from 2019. When it comes to loss of license, there is a situation where you should expect a more rapid development because one loss of license client is out will affect from June this quarter, and another one has been priced up a lot from July 1. So on the loss of license area, I can't guarantee you that it will turn to profitability during quarter 3 and 4, but it's basically a very shorttail product. And you will see positive consequences on that product quickly. So on health and loss of license, it's okay. On group life, it's a bit more of a challenge. Group life this quarter was very poor; however, has been acceptable the last 2, 3 quarters. But I think we [ have had ] bit of a luck in the last couple of quarters, possibly slightly on the other side now, but on group life, other illness, and workmen's comp, 3 important products which normally is bought together. The situation is a bit more complex. You can't price products only. You have to price clients and you have to take initiatives in order to make sure that you have a sufficient client profitability, which doesn't necessarily mean that all products is profitable. But what you have seen the last, at least 6 months, possibly a bit more, is that we have been very disciplined when it comes to renewal and new sales in what we accumulative call personalized business: Group life, other illness, workmen's comp, and accident in that area. The very big client leaving our portfolio April 1, is such a client, with a combination of these type of products. So it's a bit more complicated totality. The rate level in these areas are now -- it couldn't or shouldn't go any further down, that's not possible. And that's one of the reasons why we are saying that you should expect lower level of growth going forward because we will obviously keep the discipline and take stronger actions in these areas as well. But again, in summary, I would say that we have been too late, done too little on the pricing side. That's what we see today and it will take another at least 6 months in order to make the profitability return. Obviously, there is also an element of, what you could call, normal insurance volatility, but I wouldn't say that we have been hit by a lot of large accidents in quarter 2, we have not. But the level of medium sized in some areas, you could argue, is slightly on the higher side, and that could possibly be slightly better going forward. It's a bit early to say on that. So not a very easy answer. Rates will not go down in these market areas, group life, workmen's comp, other illness. They must up again and we are costly in the market. It means that in these product areas, we are absolutely sure that competitors are -- they do see the same picture.Okay? Thanks a lot. When it comes to U.K., my summary today on U.K. is we are on track. We have an acceptable growth level according to the 2018 guiding. That's combined with a poor new sales situation in public sector, good in commercial sector and a small quarter in the housing sector, but a good hit ratio in that area. Obviously, that segment here, the commercial sector is huge. It's, what, it's 10x the size of the public sector. So in future, commercial sector is obviously more important than public sector. But you know that we do specialize on public sector. That is including housing sector. So at the moment, the volume is located here, but what you will see gradually in quarter 3 and quarter 4 and then going forward is that commercial sector will be more important. It's more a matter of kind of picking your targets, your brokers and segments in the market and then start moving in that area. Both net and gross claims ratio are good. This is the 2 -- quarter 2 figures last year is obviously related to Grenfell Tower. And if you are in the 60s or the 70s here, that's kind of a good quarter in U.K., but again remember, figures are not big, they will be volatile. So I wouldn't add those 2 and divide in 2 and say that will be the claims ratio going forward. That's not our expectation in that area. These figures are obviously but are volatile and will fluctuate during quarters. But at least in a quarter where Scandinavia is doing poorly on the technical side, it's kind of good to see that U.K. is doing well. But I wouldn't say very well, even if the figures, you could argue. It's a quarter, too little. We have to wait and see what's happening at the moment. As we have communicated earlier, based on the Grenfell Tower situation, we do have a claims handling situation to take care of. There are no news about it. The claim develops in a good way, but will take years to finally settle. We have, as you know, an arbitration coming up with our reinsurance company on the property side, and we have communicated earlier that we will meet them in court in Oslo at the end of October and now legal documents are exchanged. We don't have any new position. It's nothing new to communicate. I think neither party has been surprised by the statements given by the lawyers and that process is going on. We have said that we will probably change from a quarter share property contract and go to a XL normal contract July -- January 1, 2019, and that reinsurance proposal is -- will be submitted to the market today. So we have kind of prepared our portfolio for presentations towards the reinsurance world, and I am pretty optimistic about my expectations when it comes to terms and conditions related to the change of property reinsurance structure. So I'm not at all afraid of a situation where reinsurance will be too expensive. In my opinion, everything else equal, the change of structure will be in our favor seen from a profitable point of view. So it will, in my expectation, improve the profitability on the property product going forward compared with the alternative, which is to continue with the present quarter share structure in that area. And seen from a pure -- just to illustrate, seen from a pure property point of view, our portfolio is today rather sizable. And in 2020, we can afford a property -- Grenfell Tower loss every year without ending up with a unprofitable product on a yearly basis. So we have a large portfolio. It's well diversified. It's distributed in 3, 4 countries with a mix of risks inside and we do expect to get a good feedback on the property reinsurance submission, which we delivered today, which is a 40 pages document moving out to the market. And we do expect that we, early quarter 4, will have results on this side. Could take slightly more time, but normally we'll see some kind of result out of this in mid-October could be slightly later.As you have seen in the latest days, both in the Norwegian press and other press that Brexit is up for discussion. And I just wanted to give a comment that we are fully prepared for a hard Brexit. So if it's a hard Brexit, it will not influence our plans, neither operationally nor formally. So this is kind of for us, a thing we have to do some work around, but it's basically a nonevent to Protector. We are -- we have a good dialogue with the authorities in U.K. as we speak, and we have been reassured by government in U.K. that they will handle our application for the kind of development we need in U.K. in due time with a good margin before any Brexit situations do erupt. So we have plenty of time and don't expect any challenges at all in that area. If necessary, there will be a dialogue with between FSA in Norway and in U.K., and we will have the half-year annual walk-through with FSA today and we'll talk to the Norwegian FSA later today about the matter. But at the moment, we don't see that we need any support from Norwegian kind of government side in order to be well positioned for a potential hard Brexit.Any questions about U.K.? We do plan to establish a London office, quarter 1 next year. It has been communicated to you earlier. It's -- we are not in a hurry, but yes, we are looking for facilities and we know the names of the first people that will move into that office. There are people working in Protector today in Manchester or in Oslo and obviously we will recruit some people from the London market as well in order to continue to expand to different locations in the U.K. market. Most of the competitors of Protector in U.K., they have a presence in -- from 6 to 10 cities in U.K. That seen from Protector point of view is obviously a very long horizon. I don't think we will end up with many offices in U.K., but what you should expect is first a London office and then in 2020, potentially one more location and then we have to come back and have a look on the further development in the U.K. market. We have NOK 10.5 billion in our investment portfolio at the moment. Equity is around 15% and here you can see the kind of equity development since we insourced our management in quarter 4, 2014. The bond portfolio is basically rather equal like last quarter, slightly taking money off table still and the average rating is exactly the same like last time. We have got some kind of questions about what kind of methodology to use in order to calculate the average? And that is a linear rating like most companies communicate. So we do communicate the A+ as a linear kind of totality. If you do the WARF methodology, that would give a lower rating, meaning that we are, from AAA to high yield, we are not equally spread, we are a bit on both ends in that area, which gives a higher risk seen from a WARF perspective. And we will be back in Capital Market Day during the autumn in order to go through and explain that slightly more. But we have always communicated based on the linear rating position, which we understand most competitors do as well. The investment result in this quarter is 1.1% totality, which we will say is kind of a normal return on the bond portfolio. And as you know very well, the spreads in the Nordic market has been rather stable while you have seen some spread development in the rest of the world, which have given some kind of a smaller hits for those players who have a different distribution of bond -- their bond portfolio, but seen from a kind of Nordic point of view, this should be rather normal, and we have kind of basically delivered according to benchmark or slightly poorer in quarter 2 on the equity side. But in total, we would say kind of a good return on investment in the kind of environment we have at the moment. Yes, a question?

[Unknown Analyst]

Just on your asset allocation. Now trending just below 15% on bond equities. You still have an ambition to increase that to 20%? Or are you more comfortable with the 15% number? How should we think about that for remainder of the year and also for going into next year?

[Sverre Bjerkeli, Chief Executive Officer]

I think that so far, we haven't had a kind of trouble to get good enough ideas in order to change that position upwards in that area. On the other hand, we haven't had any plan to take money off the table. We still believe in the companies we are invested in. So we will continue to search for good opportunities in the equity side. If we are capable of finding anyone, we will invest. And as you know, the balance sheet is very, very strong, and it can obviously go to 20% if we will like to. But we have been slightly careful now, not because we are afraid of the market situation in the world, we don't know what's going to happen. Yes, the President in the U.S. is starting out some trade initiatives, which could influence the world. But we are, at the moment, rather stable, but we could change position moving forward. So not too precise. If you have a good idea, let's go for it and invest and our balance sheet will support it. But you have seen a rather stable situation. I wouldn't be surprised if you see a situation like this in quarter 3 and quarter 4. I wouldn't be surprised.

[Unknown Analyst]

So just in trying to understand what you're saying, you have no rush to increase a portion of the portfolio?

[Sverre Bjerkeli, Chief Executive Officer]

That's right.

[Thomas Svendsen, Director of Financials]

And also with new premiums now coming into the investment portfolio, you are now putting those into bonds first until you get any good ideas on equity side?

[Sverre Bjerkeli, Chief Executive Officer]

That's correct. So for those of you who didn't hear the question here. So when new money is arriving into Protector, that will probably go to the bond side. However, if we can find good equity IDs, we could and will invest on the equity side. Accumulated, a careful kind of statement from my side, maybe expect that to be rather stable going forward. That could change depending on the situations we have, one, in the market; and two, when it comes to finding good investment opportunities in equity side. Obviously, they are there, obviously. There is a good equity investment you could do today, obviously, it's to buy a certain insurance company in Norway, which is rather cheap today, I have seen, in that area. Okay. So here are the results. I think I have been through it. Just to highlight, a good growth, a good return on investment and a poor combined ratio. The three important elements on this slide you see here. So is the capital ratio, is extremely strong. And according to the standard formula, stronger than what Gjensidige reported this morning, I think, it's fair to say. And here is kind of a new [ file. ] Obviously, it's so important for Protector to constantly allocate capital the best possible way. So this is a new slide. We haven't kind of been very explicit on how we are thinking at the moment. You know that we changed dividend policy a year ago. Obviously, buyback could be an alternative in a situation where we feel we have too much capital. And we haven't really talked about it earlier. So just to put it on the screen and say that if you have a strong balance sheet, that could be considered. We see few attractive equity situations at the moment. That could change. We do have good analysts and a good team looking every day in order to see whether we can find a good idea, please share them with us if you have one, or some, even better, in that area. And since margins are under pressure and interest-free rates are historical low, we are obviously also putting more focus on what kind of return on invested capital we do have on different products in our portfolio. With some longtail, high-capital consuming products, we will be slightly more careful going forward, while on the other hand, very shorttail, low consuming capital (sic) [low-capital consuming] products is even more attractive, relatively speaking, than the other ones at the moment.The first 10, 12 years of the history of Protector, we didn't really need to have a deeper look into it because we had a combined ratio sized 88% or 87% or 90%. In most product areas, they could kind of carry the capital cost, all of them. That's not necessarily the situation now. Margins under pressure. Risk-free interest rate, historical low. We have to dive deeper into it and we do in that area. So obviously what we're looking for is to optimize shareholder value and our long-term return on equity target is unchanged and it is 20% and we have delivered that kind of figure, as you know, historical to date. No significant changes on the shareholder side. Obviously, some -- management had bought shares, today you could argue, too early. So -- but at least I'm obviously happy that there are some people which are, in my management team and insiders that do continue to invest in Protector. In summary, good growth level, strong competitive position, good return on investment, too late too little on the underwriting side in that area. Do we have any questions from the webcast? While waiting for that one, another question here.

[Unknown Analyst]

Yes. I think, as you said yourself, you have a very strong balance sheet and you have significant capital that were, as I've understood it, built up to be able to fund the expansion into U.K., with a significant buffer on top of that. Now that you are done guiding down on growth, taking growth out of -- or capital requirements out of both Denmark and Norway, what could we use all the capital for?

[Sverre Bjerkeli, Chief Executive Officer]

That's a very relevant question, obviously. As stated both today and earlier, we are looking for equity investment opportunities every day. If we can find them, we will invest. Secondly, I think that your -- there is some kind of a buyback indication in your question. That could be considered, going forward. At the same time, even if we are guiding down volume, we still are on 16% this year, and we are not even close to, your question earlier, about 0 next year. So we still see a strong growth situation going forward, even though lower than the earlier expected in that area. So that's kind of the consideration that the board should take, is to balance the profitability development of the company. It's some kind of uncertainty as we speak on the technical side. To predict return on the investment portfolio is rather difficult. There will be growth in future. At the same time, we are very strongly capitalized and in the longer run, we have too much capital, in the long run. I'm a shareholder. I don't like a company with too much capital, so obviously in the long run, we are stronger than needed. And as you know, we do also have a solvency-based reinsurance contract that could be triggered in a certain situation. So the balance sheet situation of Protector is, in real life, even stronger than what you can see here. We can kick in capital if needed in a situation where a war trade (sic) [ trade war ] is escalating, for instance. Another question?

[Unknown Analyst]

Just following up on that. How would you -- 2 follow-ups, if I can? How would you then evaluate a buyback program versus reinstating the dividends? And also, with then the strong capitalization, would it make sense to go out of the solvency-based reinsurance agreement that you have entered into?

[Sverre Bjerkeli, Chief Executive Officer]

I don't think I should comment more on the dividend or buyback kind of situation. I have given a few comments on that and it's up to the board to decide. If we go either routes, which one to pick potentially then in that area. The second question is, no, we will not go out of that solvency-based reinsurance contract. We could if we would like to, but it's not at all on the agenda. We think that, that is kind of an acceptably priced insurance policy on the solvency side, which could be useful in a certain situation. So we will stick to that agreement for a -- in my opinion, for a large number of years, for many, many years from now. Other questions [indiscernible]?

[Unknown Analyst]

So have your long-term combined ratio targets changed or will it still be the targets after -- or from 2019 and onwards when the price increases have been implemented fully?

[Sverre Bjerkeli, Chief Executive Officer]

Okay. So we haven't done any formal changes on the long-term combined route ratio targets. Obviously, the question is understandable, but we haven't changed so far. And if we do, we will be back and update the market.

[Unknown Analyst]

Is the issue in Norway that you have hit a natural market share beyond, which is difficult to grow without dragging market prices down?

[Sverre Bjerkeli, Chief Executive Officer]

Yes, our market share in Norway is potentially around 25% of the broker premium depending a little bit how we calculate that. It is difficult to go further from that at the moment. It looks totally unrealistic to go further from that and we don't really care because it must be profitable in that area. But you have seen the situations in different market segments where it's possible to go north of 25, so it shouldn't be ruled out for future, but at the moment that looks extremely difficult.

[Unknown Analyst]

It seems like you focus more on income versus growth now. Is it the low financial income returns influencing your decision in growth versus the currency earnings?

[Sverre Bjerkeli, Chief Executive Officer]

Obviously, our expected return on investment going forward is lower than historical to date since the interest rate level is a lot lower than 2, 3, 4, 5, 6 years ago in that area. So that creates a necessary discipline on the underwriting situation. I would say that our long-term target has always been profitable growth with profit first. I -- we do have a situation now where you can question that, I understand that. But I wouldn't say that the attitude of Protector has changed in any significant way. But we have been following down on rates to a level where we expected that the super profit of the history kind of disappeared, not kind of 86%, 88% on the combined ratio anymore, but more like 92% or potentially 94% and then we have delivered a couple of poor quarters, which in hindsight obviously could be characterized as too late, too little on that area. Our attitude is the same, possibly slightly stronger because of lower expected return on investment. Today, absolutely stronger, because we should and have to take stronger actions now.

[Unknown Analyst]

Due to the different strategy in change of ownership and the staff reductions, will we ever see new quarters with 18-plus percentage growth in this segment or are you no longer willing to risk profitability for long-term growth?

[Sverre Bjerkeli, Chief Executive Officer]

To risk profitability, there is a risk being in insurance business. Welcome to the real world. So there is risk in what we are doing and it will be in future. I think that we have managed that risk properly, historical to date. The question to you is whether you believe in that story going forward? I do. I will not sell any shares today. That's a promise. And I think that we have basically the same management team and the same underwriters today like we had 3, 4 years ago. And in addition, we have kind of got some new competent people on board in order to support that management team. I think we're capable to turn technical poor situation we have at the moment going forward. A final question, I guess.

[Unknown Analyst]

Too little and too late in Norway. Couldn't that be translated into lack of underwriting discipline and therefore lack of management quality? So what is the one single most important reason why Norway has lost track?

[Sverre Bjerkeli, Chief Executive Officer]

I think that we have communicated to you investors, I guess, 5 years in a row, rate pressure is developing in commercial sector in Norway. If you didn't expect a reduced profitability in that area, you haven't really listened, okay? So the one single most important factor is an external factor, market prices going down. We follow in that area. Obviously, there are multiple kind of things that we can and will improve and it's not as easy to give a single factor. I can't do it. The world is slightly more complex and the discipline of underwriting is slightly more complex than that one. Okay? Another question?

[Unknown Analyst]

The results clearly caught both the buy side and the sell side by surprise today. Did you discuss issuing a profit warning with the Oslo Stock Exchange or what pros and cons did you see?

[Sverre Bjerkeli, Chief Executive Officer]

Not really. Since also the kind of figures are out very early, the kind of period we have been working on the figures are only a extremely limited number of days in that area. So we have not considered, no.I will obviously think through your questions during the day. Okay? Thanks a lot. Have a great summer.