Protector Forsikring ASA

OSE:PROT

Earnings Call Transcript 2019-Q2

[Sverre Bjerkeli, Chief Executive Officer]

[Audio Gap]There are fewer, hopefully not related to results only. So what I would like to share with you today is to give you some comment on where are we, and you have obviously seen the figures and they are pretty poor. I will make a few comments on why do we kind of continue to deliver poor technical results. I will share with you some information about what kind of actions has been taken already. And what kind of actions we'll be taking kind of going forward. As always, I'm open for questions through the presentation and obviously, also after the presentation.So I could start to apologize for poor results. We are not delivering profitable growth at the moment, and the question you have is whether we will be back on track, when it comes to the profitability kind of development. And how fast is it realistic to think that we can manage to get back on track. First, just a short update on arbitration with Munich Re. And as you have seen from our message to the market, we lost the arbitration and have booked in this quarter a NOK 75 million loss. And we are surprised. We didn't expect that result. We did also have in our corner one of the biggest reinsurer brokers in the world, which have kind of designed and implemented our contracts with Munich Re. So I think it's fair to say that we -- on our side, we are surprised. But we can't do anything about it. You can't appeal it. Decision is taken. We were not awarded the necessity to pay the legal cost for the other party, obviously then the panel must have considered the case to have 2 sides, and it was reasonable to bring it into court or to arbitration. But now it's history and we will spend resources on other issues. Obviously, there is a commercial dialogue going on with our reinsurance broker on the after play relative to it. Not all the risks in our books today attached to a similar reinsurance agreement or reinsurance wording. So we shouldn't worry about new potential claims coming in future because these kind of contracts do not exist. And then the problem was brought into daylight, we bought additional reinsurance in order to cover for potential losses according to Munich Re's view on that. So we haven't had these kind of risks during the last 18 months. And we will certainly not have it going forward. So that's kind of the arbitration. We expect a dialogue with our broker to take some time. That is hard to predict. And obviously, the communication have started already.Another kind of element to cover before we go into the hard figures is that in -- within the area, where we are exiting the change of ownership area, the Supreme Court denied the grey silverfish case to be brought in front of them, which means that appeal court decision, which is in our favor, is standing as the important decision when it comes to grey silverfish. This means that grey silverfish is history, also seen from a profitable type of point of view. The quarterly result in that area is good. And we have also signed a reinsurance contract with an international player, where 50% of the reserves -- the book of business we have in our reserves, is placed with that external component, which means that a NOK 500 million reserve is transferred to that kind of company. We keep the money in our own management, but however, they carry half of the future risk related to the reserves we have here. So what we think is that it's a good sign that an international player who do these kind of things only has signed a contract. And what you sometimes will see when such a deal is launched is that it comes with a price, which is necessary to book and it does not at that time. It means that this player have basically the same view on the reserves as we do have in that area. So with huge risks and a second view on the reserves in an area where you earlier have seen reserve losses, we don't think it will be more to come, but if it will be reserve losses in future, half of them will be covered by this agreement then.Okay. And then to the -- kind of to the hard facts. The kind of combined ratio we have, which is a very weak point in the presentation today is around 100% exclusive of the Grenfell Tower, or 107% when we include the Grenfell Tower arbitration losses. These figures, they are as you know exclusive of change of ownership. But on the following page, you will see an updated kind of figure, which is the bottom line for Protector. But this is going-forward business. That's the reason why we start here even if the picture on the next page is somewhat better then. At the same time, where we have a poor technical result, where you would point at 99.8% or 107.2%, we had a poor investment result, I will come back and comment on that. As you have seen this morning, we have increased the combined rates of guiding, so that is weakened with 4 percentage points. That figure, 100%, do include the Grenfell Tower arbitration. So the NOK 75 million loss which we have booked now in quarter 2. And the volume guiding is up to 18% from previous we communicated, 14%. And on the next page, you see the same figures inclusive of change of ownership, the kind of runoff business we have here. And you will see a combined ratio sized 97% exclusive of Grenfell Tower, or 104% inclusive of, which means that this segment is delivering some profitability in quarter 2.If you have a look at the growth level, you see a very, very significant growth, which is sized 32%. And the question you may ask is that whether this is good or bad? Because if you have a kind of a technical result on a negative side and are growing very quickly, does it make sense? And in my opinion, the answer is obviously yes. It is a fact that the kind of margin requirement and the margin of safety we have now, where we are in unprofitable territories, these kind of margins are higher than kind of normally. So we are slightly more careful than earlier to take new risks onboard. And why do we grow them at this rate? First, the quarter is not very big, it's not small either, so this is not quarter 1 where the renewal portfolio is very, very big. So a high percentage in a kind of medium-sized quarter is obviously easy to see than in a very big quarter here. It's a fact that in U.K., quarter 2 is normally the quarter because public sector renewal is very much related to quarter 2, it's April 1. In Scandinavia, it's January 1. In U.K., it's April 1. So normally, you will see a lot of growth coming out from U.K. in quarter 2. And then by kind of accident, we have had some big wins in Sweden, one of the biggest wins in history and a couple of medium-sized large wins, so not very, very large but large wins in Norway as well. Sometimes you win them, sometimes you lose them, and they are taken onboard to somewhat better margins than normally. Normally, we would underwrite risks to a combined ratio around 92%. And the anticipated margins on that kind of new business is better than that kind of figure. You also have a situation now where price increases are kind of growing every quarter. So price increases quarter 2, they are higher than quarter 1 in percentage or renewed portfolio, and that support the growth rate as well with around NOK 45 million in this quarter. So my, kind of, message to the market is that even if I do understand that you might worry about that kind of growth level, you should see it as a positive sign that we, one, still continue to take business onboard. And secondly, that we have a slightly higher margin requirement and requirement on margin of safety here. What you can see here is that the year-to-date growth relative to the 2018 book of business is 14.7 percentage points. And we are guiding on 18% for the full year, which means that expected growth for the second half year is around 3.3%. So this is kind of an expected development. We will not have quarter 2, kind of, U.K. size coming up in quarter 3 and 4. And we do expect to lose more clients when new price increases are kicking in, which are higher than price increases in quarter 1 and quarter 2 in that area. So the exit ratio for certain top clients will go up. New sales is not at all expected to be on the kind of quarter 2 level. And we do see a modest volume development in the second half year. However, we think that, that kind of situation will change around second half year of 2020. I also think that growth level, January 1, 2020, might be in the lower end because more price increases will kick in. However, price increases do support growth. So it's a bit early to say when it comes to next year. But you might see a slowdown in the growth rate going forward in the next 2 to 4 quarters, and then the competitive position of Protector, cost and quality leader in the world, remains the same. And we have a good position to see continued growth in future. But okay, in the near future, a modest ambition on the growth level.If you see on the claims development, there are a couple of issues here. We could have a look. There are runoff losses around NOK 100 million relative to quarter 2. And some of them are related to big property claims in Sweden. And to be Protector, it's pretty unusual to see runoff losses in the property side because normally, we have runoff gains on the property side. That is a fact that was kind of presented to you investors in the last Capital Market Day in November last year here. And there are some smaller other elements around workers' comp and you have, obviously, Grenfell Tower. The combination of the runoff losses, they are slightly different, whether they are gross or net. Net is arbitration, gross is property Sweden, this is net. But gross property Sweden is higher. However, they are linked to previous reinsurance contracts. These are claims from 2017 and 2019. And they are linked over a surplus contract with Munich Re in that area. So there are enough losses, some of them are kind of minor volatility, which you should expect in any quarter. However, the arbitration, kind of, losses and the property runoff losses in Sweden on gross level, they are not likely to happen again, at least not arbitration, in that area. So you could take a somewhat more positive look on our claims ratio and combined ratio if you are looking into the reserve changes in quarter 1 versus quarter 2 in that area, it's pretty easy to do that judgment. We -- also we have some -- we are on the upside when it comes to large claims in quarter 2, that is linked to property Sweden. They are runoff losses. So if you increase a certain claim from SEK 20 million to SEK 45 million, there are normally good reasons why. And that will be, one, a runoff loss. And two, it's about the large claims threshold and it kicks in as a reported large claim in the future. So we are somewhat higher here. Remember, this is gross. So it doesn't mean that the underlying reality is 5 percentage points better than what you see because the net large loss ratio is a lot lower since these Swedish property claims are linked to a certain reinsurance contract in that area. But okay, slightly on the higher side when it comes to large claims in quarter 2. We do see on the claims inflation side that we have been too late and done too little on motor profitability. And we are kind of giving the same message to the market like Tryg and Gjensidige and other players who are out there observing the same thing that on average in the Nordic market, the motor claims inflation is pretty high and much higher than you intuitively would think because inflation rates in Nordic, they are on the very lower side too, give or take, depending on what kind of country we are talking about, while claims inflation in motor driven, as you know, by technical improvements, et cetera, in the car portfolios, they are on a much high level. So prices must go up and we are saying that very explicitly to the market here. The cost ratio development is good. The cost of [ relay ] continues to drop down. So we go down from a very, very strong position to an even better position. And here you can see a kind of a small presentation on the combined ratio development. So what you can see exclusive of Grenfell Tower within the kind of business, which is going forward, quarter 1 with some runoff gains is around 106% and quarter 2 with some runoff losses is 99.8%, and our expectation is that quarter 3 and quarter 4 will be better, and it must be if we are able to reach the guiding on a combined ratio, sized 100%. Obviously, our expectation is that when we are starting quarter 1 2020 then 12 months of price hikes will kick in. Profitability, everything else equal, will improve a lot. However, new price increases, which we decide today will not have full effect from quarter 1 next year. But a very good proportion of the total price increase penetration will take place from quarter 1 next year. So a question you have is, kind of, yes, you say, you are too late on the new price increases, you have done too little, and the question is why? Why is it? Why didn't you see? Why didn't you act before? And I'm not trying to do too many excuses. We were too late, we did too little. However, we have obviously spent a lot of resources on the Grenfell Tower claim situation on the arbitration with Munich Re on the grey silverfish crisis, and obviously with setting up U.K. The only element out of these 4, which was planned was the U.K. sector, while the other were more kind of grey silverfish and kind of act of God in that area. So some of us have been kind of forced into a corner where we have spent a huge amount of resources in order to focus on these kind of very important situations. And I think we have lost something on the profitability side because we -- some of us who have been working a lot on these things might have seen and acted somewhat earlier when it comes to at least so many cities. We have had profitability, which hadn't been good enough anyway but I think that at least it's a positive situation now, where we have a very good capacity to continue to develop U.K., and we don't spend resources on grey silverfish or arbitration or we also spend pretty limited resources on the Grenfell Tower claim as such. And we have recruited new people in U.K., who are capable of handling the remaining part of the Grenfell Tower claims on the liability side and on the recovery side. So what you see here is then a quarter 1, quarter 2 development, where Norway is improving with 10 percentage points. Sweden is stable and pretty poor. So that's kind of the negative surprise of today is on the Swedish figures here. However, the team we have in Sweden have demonstrated the capability to earn money before and in my opinion, it's the same people. They are taking all necessary action in order to get on track and that will happen from quarter 1 2020. Denmark, no big issues. I could say that a couple of countries have had some good luck, a couple of other countries, some bad luck. And I'm not really worried about the Denmark figures here. Finland is obviously too high, it's a small country. And do I think we will have a combined ratio development below 100% next year? My answer is, yes. Will it be a lot lower? No, it won't. But I think that -- pretty small country and Protector will come back with what we could call at least acceptable figure in the near future. But in the long run we have to work more on it. While U.K. in this quarter is developing very well. So Norway, improving; U.K., good; Sweden, on the weak side; Denmark, not worried; and Finland, a small country, volatility must be expected. Yes, there's a property claim. Yes, it's big. Yes, without it the figure will have been a lot better in that area. As you know, the price increases, they take time in insurance industry, but we haven't really started today. So I will shortly then give you an update on actions that we have taken so far and then give a guiding on what we will do going forward. So what you can see is that the first half year price increases pretty precisely is presented on this slide, varying between 7% in Sweden and Finland, up to 10%, 11% in Norway and 14% in Denmark. And if you are looking forward -- if you do look forward, my comment is that it will go higher in Norway, a lot higher in Sweden, lower in Denmark, a lot higher in Finland and U.K. is not really on this agenda. My visibility here is pretty good, I will say. Because July 1 renewal is history, August 1 renewal is history and most of September 1 renewal is history today. Because information has been sent out to market. We can't know for sure whether clients do accept or not. But we have a kind of acceptable methodology in order to predict price improvements going forward. So it's not like you can't see September. Yes, we can. So absolutely all renewals related to September is sent out to market already, it's done, it's history. And only thing we are waiting for is the market acceptance. And what we have seen in the last couple of quarters is that market acceptance is pretty high. Obviously, we lose clients, that's okay. But we will try to fight to hold them in the company, if terms and conditions are good enough. And market acceptance is pretty good because all competitors basically is also driving prices upwards, when we speak.So what I would like to share with you is our follow-up model. So how do we follow up? How can I trust what you say? What you do? First, we have to take a decision, price increases up, then we have to implement September renewal policies and terms and conditions is sent out. So it's kind of tick, it's done. We have to measure, we have to learn, and we have to loop in that area. So step one is volume. Quarter one, April, May, June; quarter 2, year-to-date. And then, what will happen in September and August and July, I know pretty much about what will happen in quarter 3. I have more limited information about quarter 4, but I have some. And we have already started to send out some kind of renewal information to January 1 renewal 2020. Some big contracts in Denmark and in Sweden, they are already out there in the market.So what kind of volume do we have to renewal? How many clients which has been profitable in future do we lose? How many clients that have been unprofitable do we use? The balance between the 2 is very important. So when I say to you, I'm losing 12 percentage points of my clients, then you say, okay, 12, is it high or low? It's medium. Do I expect higher than 12 now? Yes, I do. But the question is, what type of clients it is? Is it the right ones or the wrong ones? Do you get positive selection? Or do you get anti-selection out of the situation? So that's the first thing. That leads to volume to renewal, exclusive of lost clients. And then you go to, what about profitability? First, we add on a profitability-neutral index. In Norway, when it comes to employee benefit products, group life, et cetera, it's called G. It's decided by government, and it is expected claims inflation on a life in Norway. So if you die before G is increasing, you get 100%. And if you die a day after, it's pretty brutal, you multiply with G, which is -- I'm not quite sure, 3 percentage points or something like that -- 3.2% or Ditlev, do you got it? It's around 3% in that area. So we always add on profitable-neutral indexes on top of last year's prices. Then we could decide to do a general price increase on top of that. And we do in Norway. And then we have clients where we are losing a lot of money. And it could be obviously very significant price increases. So we see a large number of clients now, where it is a necessity to do individual price increases between 20% and probably 60% or 80% or 100% in certain situations in that area. So you add on potential individual increases. Then on the motor side but also on the other products like liability and property, you may increase deductible, your -- what you pay yourself if you have a claim, you crash the car, is your deductible 10,000, 50,000, 100,000? We are talking about companies now, not talking about consumers, that obviously influences on the claims' cost at a later stage. And then you have other profitability improvements, which is loss prevention, risk management initiatives, reduced terms and conditions, other wording in a policy document. So this is what we do. And what we do follow up as a part of our follow-up model is to follow up on all these kind of different type of profitability improvements. And then you will have -- you send it out to the market.You need some resistance from the broker. There could be a deviation from what you send out. I say 12, the client says, "no, no, no." I walk back, and I say, "okay, 10 is okay." So then it measures the difference. It's not shown on the picture. It's there in that area. So if you send out 12, we will normally not get 12. We might get 10 or 10.5 or 11 or something like that, but the penetration is pretty high. And if you're not getting anything, we walk away. We say, "okay, fine, find yourself another insurance company."So then they are coming to realized price increases, and then you have claims inflation, and then you take A minus B equal to rate improvement, and then you measure towards the target and then you see what kind of volume do we have. So this is kind of the methodology we are using in order to follow up, and I think it's pretty precise and it's -- the good thing is that the more we can look into future. However, if you are too late to increase prices, it takes time. So September is gone. So if I say something today, at earliest, that will influence on October and then it will only gradually influence because we earn premium per month after that. So it takes 1.5 years in order to get through with price increases or potentially then 2 years to get through benefit from our price decision taken in any insurance company in that area. We started last year with price increases, so they do happen today. However, if you are late and then -- and we are late, you are lagging behind and you will suffer before you are kind of back in black. We have obviously guided on being back in black in quarter 3 and quarter 4. It's -- the implication of the guiding is that we do earn money in quarter 3 and quarter 4. And what we say is that what we'll do, we'll improve profitability entering in 2020. These kind of figures for future will obviously not be shared by the market, so that's for internal use. But what we will do is to continue to give you an update on a country-by-country level on how development is, but that is kind of historical figures. But in the next coming quarter, you will see the quarter 3 and quarter 4 kind of price increase development versus expected claims inflation. Expected claims inflation today in the Nordic market, all products is around 4%. In motor, it's more like 7%, 8%. But motor is only a very big product in Sweden, it's not in Denmark, not at all in Finland and Norway. There are some sizable clients on the motor side. But in Norway, we have worker's comp group life disability, et cetera. That is 60% of the business. These are products that basically do not exist in Sweden. So the portfolio composition and the claims inflation per country and per product is very different, which leads to that we obviously also follow up on the exact time price increase developments per product, per country. And we will also follow up on other elements like segments, broker houses or people. So this follow-up mobile will tell Protector, which -- who on an individual basis is capable of getting acceptance from the market on his or hers price increases. So we can take it down to an individual level, see the account manager in Sweden, Denmark and Norway, do you have a high success rate or not when it comes to price increases. And if someone do not have, we have either to educate or to do something else, change of role, leave the company because, obviously, we need people who can deliver in real life. So the follow-up methodology is on volume, on different profitability, implementing actions. Its versus claims inflation and target is per product, per segment, per brokers, et cetera. So I will say that the follow-up model that has kind of being developed gradually during the next -- in the last 2, 3 quarters to be more precise than earlier is pretty accurate. And it is very limited of garbage in a garbage shoot at the moment in that kind of follow-up model. Here are some examples of other profitability. I won't go through the list, but this is what the insurance company is doing now. So if you ask yourself what do you mean about other profitability improvements, then here is the kind of list. And it varies between different clients, different product areas and different countries, what we are doing. And this is kind of what we as an insurance company is doing. Have we been good enough in it? No, we're having -- not been good enough at least in Norway, to certain extent in Finland, better in Denmark the last couple of years. So we have to look through and see whether we have the right competences onboard in order to do the necessary other profitability improvements in a close relationship with our broker and with old clients. Okay. And the last but not least is only to deliver it to the market. So people must, through a structured way, deliver to the market. And these kind of people here is not really indicating clients, it's brokers who is getting our message. And we'll turn around towards the clients and say, "here's some kind of initiatives, which are either reasonable or not" and that will be sent out to the market again then. So trying to visualize how do we implement these kind of activities. These people through these processes to that market, and then learn and loop. That's what we do. Okay. Any questions so far? Profitability issues? Everything is clear. Do you trust me? Nodding. You are an employee in Protector, that doesn't really help. You are not. That helped. Thanks a lot. Okay. So what about U.K.? London offers is open. We have kind of 8 people or something like that working every day out from London hub. The first couple of clients have arrived. Stuart Winter, the new Country Manager U.K. is onboard, and he's traveling to and from Manchester and London and after -- to the market the background from JLT/Marsh. So we are moving and getting people onboard. So this is 100-people capacity. It's not linked to London. So you should read it like this then. So we're not opening up a London office with a room for 100 people, that's Manchester. And there will be 10, 15 more claims handling people coming in to Manchester during the next 6 months to serve the kind of clients we have at the moment. So my comment is that I think we are on track in U.K. The Board had a Board meeting in Manchester a few weeks ago. It was very useful to have the Board meeting all the employees and listen to the story and also putting kind of energy into the local organization we have in U.K. So on track, and what you saw is that we have, what you could call, an acceptable growth rate in quarter 2 in U.K. and a healthy combined ratio. Remember, volatility must be expected. So this was slightly better than expected at this early stage, and there will be other quarters which are on other side here. But U.K., growing on track. However, they are still on a low level when it comes to hit ratio. So the hit ratio in public sector quarter 2 is around 11 to 12 percentage points, which means that some competitors like the true market leaders, they are a lot more aggressive than us on price, which indicates that we have the necessary discipline in order not to price too low, in order to enter the market too quickly. So we have lower hit ratios in U.K. in public sector than what we historically have seen when we entered public sector in Norway, in Sweden and in Denmark, which is okay. We have a lot of time. We are not in a hurry. And 11, 12 as hit ratio in public sector, that is fine. Not very significant clients in quarter 2 in U.K. We had a very big one in quarter 1, non-various sizable clients in quarter 2. That will vary through the quarters though. Wholesale sector is not that big. The competitive situation is more limited, and a part of that business is kind of taking over another company's position. So it's a combination of what you could call a renewal type of situation and a very competitive kind of normal quotation process. So this figure is not expected to continue 38% on that level, that will be lower in 2020. While in public sector, you should expect that hit ratio to gradually pick up during the next 2, 3 years. That's my expectation. When it comes to commercial sector, it is -- has no meaning to talk about hit ratios at the moment because we qualify out a lot of what is put on the desk. So I will say that at least possibly 70% to 80% of any quotation we are looking at is thrown. We are not bidding, and then we start to work on the rest. So to qualify clients in for further work is important when we enter new market, and that qualification process means that very many opportunities are thrown away. We won't go for it. And then to talk about hit ratio will be kind of pretty artificial type of figure. I would say that some of the U.K. market is hardening at the moment, which means that prices is going up, and some companies are withdrawing from the market. Tokio Marine is an example of a company who are leaving, for their own reasons, the market. So what's happening now in the kind of market segments where we do approach in U.K. is that you will see more opportunities going forward. And we have seen a lot, and it will be even more in the near future. A bit like in Scandinavia. I mean price is going up, and that's what we call a hardening market. While on the other side, the prices are going down, everybody is keen for volume. It's a soft market. So it's a hardening market in U.K., which is to kind of benefit them. Investment performance is poor and what we are showing here is that we have an equity portfolio, which is very different from the different indexes you can find in the Scandinavian market or in Nordic market. So the deviation, we have around 10 percentage points, weaker than a reasonable index. It is obviously high and very poor. However, you should expect some kind of volatility. And these are the 13 biggest deviations from the index since we in-sourced them, the investment department, in quarter 4 2014. And you can see some green, which is kind of -- then we do better done market and a very red one in this quarter. So my message to the market is that volatility should still be expected. Intrinsic value evaluations do show that figures -- there are 2 company downgraded in quarter 2, 2 upgraded in quarter 2. And expected return on investment is a lot higher today compared with 12 to 15 months ago in that area, kind of information we are happy to share with you when we meet in Capital Market day situations. The bond portfolio still conservative. We continue to take money off the table. And based on a linear rating methodology, we go from A+ to AA- with a more conservative portfolio than in previous quarter. So that's the bond side. Here, you see the results. As normally, I won't -- I've been talking to the important figures. These are for including change of ownership where there are then somewhat better than for the commercial sector. And so the capital ratio based on the standard formula is 164%, which is higher than Tryg. So I got a question this morning, are you worried about the solvency capital ratio? No, why would I? So Tryg do have, as you know, a partial internal model. They are in the [indiscernible]. If you have a look at them based on the standard formula, they will be a lot lower. So our solidity is unquestionable and very strong. And we have also kind of long guided on better profitability going forward. It would also reduce volume development then. So we -- when I got the question, it's through the webcast. I've already responded to it because we have 3, 4 questions before I started out. So you shouldn't really pay too much attention on the solvency capital situation in Protector. Share lists and summary and Q&A. So my -- so where are we? We are in a situation where we are fast growing, but unprofitable on a technical side. Second quarter is improving relative to quarter 1. We do expect quarter 3 and quarter 4 to be better. Why do we expect quarter 3 and quarter 4 to be better? One, normal seasonality, quarter 3 is better; two, price increases already implemented; three, 6 months ago do kick in; three (sic) [ four ], change from a surplus property contract to a different type of property reinsurance structure. Excel contracts means a transition year where you lose combined ratio technically through that year, that's another question from -- through the webcast. How much do we lose relative to previous years? Around 2 percentage points, everything else equal. We would have been 2 percentage points better this year. If we have had the same structure like 2018 or '17 or '16, that is history when we enter 2020. And it's gradually developing to be history through the year. So seasonality is better, price increases do kick in and property surplus to excel is the third element kicking in. And decisions has been taken in order to increase prices more. That will take time but will gradually kick in slightly in quarter 4, above today's situation but a lot more in January 1, the very big renewal date. So I think it's fair to say that the kind of the atmosphere in Protector today is that we hate this kind of results. We don't like them. They are poor. And we have done our mistakes ourselves. However, our constant quality position is either unchanged or even improved. The story continues. So we haven't left [ ambitious stuff. ] Whether you trust the story or not, I do understand that we have to show through figures that we are capable of coming back into good territories with a combination of profitability and growth and growth then on a kind of a lower level. And I think on this, we have -- I also have a couple of questions now. So do we have other questions from you people or through the webcast?

[Unknown Analyst]

Yes. I'd figure I have a question. How does Protector's future profit picture look? And when will Protector reach its long-term objective for combined ratio?

[Sverre Bjerkeli, Chief Executive Officer]

So what about future profitability? When will we reach long-term target, which is around 94? So what I said today and what you have seen in the presentation is that with present price increases and guiding on increased prices minus claims inflation, you can see a significant combined ratio development gradually arriving through quarter 3 and 4 and then even more next year. So my feedback is that my expectation at the moment is that we will deliver according to long-term targets in 2020. It's not a formal guiding. We have to wait for that when we are closer to 2020 or normally we do that early in 2020 in that area. But my expectation today is, based on the story I've seen, is 2020.

[Unknown Analyst]

Another question. If you look at your insurance portfolio in general, the quality has deteriorated since late 2017 or the beginning of 2018. What happened in regards to the claims picture relative to competitors and the underwriting discipline?

[Sverre Bjerkeli, Chief Executive Officer]

So it's a question about underwriting discipline. It's about the portfolio quality internally in Protector. I think that the answer varies between the different countries. What we have seen in Norway is that the combined ratio poor development is driven by 2 elements. One, rates going up, which has been communicated to you for kind of 4, 5 years in a row at least. So that leads to reduced profitability; not a surprise. At the same time, we have had a too high level of clients where we haven't had the necessary discipline or competence or structure in order to avoid some clients, which shouldn't have been there. Or they are -- more precisely, they are there with wrong terms and conditions. So what we do in our rate today is basically to re-underwrite every client and go through, in-depth, every client. I have been into 100 to 150 renewal situations the last 6 weeks in order to get in touch and get closer to the real quality of the portfolio. There are issues in that portfolio. It is gradually being cleaned up, and our portfolio in Norway will look better through the quarters. In Denmark, that kind of activity has been done already. So that kind of was finished kind of a year ago. In Sweden, you have a more limited number of these kind of situations. In Finland, it's a bit too early to say in that area. So it's a relevant question, it's a -- it's not very easy to answer, very precisely on it, but I also do expect that kind of portfolio we have today is of acceptable quality. We must turn it into a good quality. Next question?

[Unknown Analyst]

Yes. A question from Daniel. He has never really understood why we exclude broker commission in your cost ratio. Isn't broker commission negotiable? And doesn't the number make peers with more in-house sales look relatively worse compared to you that you use more brokers?

[Sverre Bjerkeli, Chief Executive Officer]

So it's about broker commission. Broker commission are not legal in Norway and Denmark. So they do not exist. We don't pay. Client pay. And you can -- Sweden is on the contrary, especially in the U.K. So broker commission is a market, in fact, [ a standard in ] Sweden and U.K. Especially in U.K., you either pay it or you not. You do not negotiate these kind of commissions. They are agreed between the client and the broker, and they are kind of not an issue when it comes to competition because they are neutral seen from a competitive point of view. In public sector commission in U.K., it's around 3 percentage points; while in commercial sector, it could be 6%, 8%, 10% or in certain situation, up to 20% or 30% in that area. So it varies a lot. It's not a big issue. And as long as we communicate figures with and without commission, you can compare with other ones. But then you have to be careful about comparing because you can't compare a company with a strong rate on volume in U.K. and Sweden with a company with a strong rate in Norway and Denmark, Gjensidige. Norway, Denmark, no commission. Protector Sweden, U.K. and Norway, a lot of commission. So that's not apples-to-apples. You have to have a deeper look into it to understand it.More questions?

[Unknown Analyst]

Yes, last one. What has been the effect of the change of ownership reinsurance deal on your SCR?

[Sverre Bjerkeli, Chief Executive Officer]

3 percentage points. So the CFO, he gave me 3 fingers. It's good it is also 3 fingers, Ditlev. I knew the answer. We know that this is important. But I have to look at you anyway. So the solvency capital improvement relative to that agreement is a small 3 percentage points. So not at all a lot. NOK 500 million in reserves. You might have thought that the solvency relief had been bigger, but it's minor. It's not the reason why we do it. We haven't paid a price. There are no price booked in the P&L at the moment relative to the deal. So it's not a capital issue, it is a quality assurance from a third party on a reserve signed, not in blood, but in hard money with a professional player out there in the market. It creates some kind of a reduced risk situation. It's a second opinion for you. So the insecurity about that kind of reserves should basically be taken away from your shoulders at least then, and from mine in that area. Daniel, thanks a lot for that kind of question. Is there any more questions? So have a great summer then and good full weekend and a great summer for your start, I'll start now. So it's good if you ought to do some swimming and cycling and training and exercising in order to be fit for the renewal season in quarter 3 and quarter 4. Have a nice day.