Protector Forsikring ASA

OSE:PROT

Earnings Call Analysis

Protector Forsikring Q2 Results and Future Outlook

Protector Forsikring reported a challenging Q2, with a combined ratio of 94.5% largely due to an increase in large losses. Despite this, growth was robust, particularly in the UK with a 16% increase. Earnings per share were NOK 3.1. The company announced a dividend of NOK 2 per share. Moving forward, the France project is on track to quote business in Q3. On the investment side, results were mixed, with weaker equity performance but strong bond performance. Management remains optimistic about profitability, emphasizing future growth opportunities and corrective actions to address inflation and claims issues.

Overview of Financial Results

In the second quarter, Protector Forsikring reported a notable earnings per share of NOK 3.1. However, the highlight for investors should focus on the combined ratio of 94.5%. While this may seem high, an underlying analysis reveals significant insights, especially concerning large losses, which accounted for 12.5% of the total. This marks a stark rise from 4.7% in the same quarter last year, suggesting increased volatility in this area.

Growth Through Renewals and New Sales

A key driver of the growth was the impressive renewal rate of 101%, indicative of strong customer retention. Despite some churn, it was relatively low compared to historical figures, suggesting that the company is maintaining its client base effectively. The revenue growth was especially strong in the U.K., which experienced a remarkable 16% expansion. Additionally, there was good new sales performance in Norway and improved conditions in Sweden, despite some market adjustments.

Claims Assessment and Market Adjustments

The earnings call provided an in-depth view of claims management. The increase in large motor loss claims contributed significantly to the overall claims experience. This necessitated timely adjustments in pricing to mitigate inflation impacts. For instance, the correction for inflationary trends took longer than anticipated. Nevertheless, management indicated confidence that favorable market conditions would allow the company to remedy profitability issues in several regions.

Investment Performance and Equity Insights

In terms of investment performance, the equity results lagged behind general indices, which is crucial for investor evaluation. Conversely, the bond market showed resilience, particularly in high yield segments. The running yield experienced a slight dip of 0.4 percentage points due to a reduction in spreads. Notably, the weakness on the equity side translates into a widening discount to intrinsic value, making future prospects appear more attractive in the long term.

Strategic Focus and Future Projections

Looking ahead, the management emphasized the significance of client relationships and ongoing strategic initiatives, notably in France, where quoting business is expected to commence in the third quarter. With a solid dividend policy in place, the announced payout of NOK 2 per share reflects confidence in the company’s financial health. Even with existing challenges, Protector Forsikring appears well-positioned for future growth as adjustments in the business model take effect.

Conclusion and Investor Takeaways

In summary, while Protector Forsikring faces volatility and a challenging claim environment, the underlying growth metrics appear strong. Renewals exceeding 100% coupled with regional growth bear promise for sustainable profitability. Investors should keep an eye on the progress in the French market and adjust expectations to account for recent performance dips in the investment landscape. The outlook remains cautiously optimistic with a clear plan for navigating challenges ahead.

Earnings Call Transcript 2024-Q2

[Henrik Høye, executive]

Hello, and welcome to the presentation of quarter 2 results for Protector Forsikring.

I will start with our culture and what we focus on. So today, this morning, we are focused on unique relationships. When we have an ambition of being cost and quality leader, that needs to be reflected in what we follow up. The quality side, external has to do with the brokers who are our only partners, so we have talked about unique relationships and how we improve that sustainable over time.

And to the results for the second quarter, the weak part of the actual number is on the combined ratio side at 94.5%. I will come back to adjusting that and showing you our view of what the underlying reality is on the claims side later. And then on the growth side, we have a large quarter with -- especially in the U.K., with 16% growth. And the result in total gives an earnings per share at NOK 3.1.

In addition to actual results, we will pay out a dividend of NOK 2 based on last year's results. But the more interesting and important other highlight here is on the France project, where we have an ambition and an outlook to quote business in quarter 3. So it's becoming more and more specific and concrete, what we are doing in the French markets. We'll continue to give you updates on that side, but no red flags so far.

Then to the claims update. And as I started out with, there is something underneath these figures. And the biggest thing is the amount of large losses or the share of large losses in the quarter, where that number is 12.5%. Whereas, the same number in quarter 2 2023, was 4.7%. So 7.8 percentage points difference.

And under these claims numbers, the motor side is what is weak. But as we have said previously, we have been late in correcting for high inflation and a high increased inflation. And when we do the right actions to improve profitability as well, it takes some time to earn the premium with the higher rates, which is the lagged effect that we mentioned in writing here.

When it comes to the numbers on country level, you have Norway with very few large losses. So underlying, slightly worse than what we show here in quarter 2. Sweden is slightly worse, but not a lot. And Denmark, a lot better, because 2 of the largest losses happened in Denmark, one we mentioned in the beginning of the quarter, but there was another one of similar size during the quarter. And in the U.K., we've had approximately what we should have of large losses. So -- and on the runoff side, comparing last year to this year, is very similar. I will get back to an adjustment of the first half year when we look at the combined ratio in a couple of slides.

So if we look at then what drives that large loss result, that is those 2 very large losses in Denmark and then 1 in the U.K. So 3 large losses. It's volatile on a quarterly basis, as we always say, also when we have less than the normalized level at approximately 7%. So 3 of them really make up the majority of that 12.5%. And then when you look at the runoff, as I mentioned, very similar to what we had last year, a gain on that side, that is from the Scandinavian countries. Whereas, U.K. has a loss in the quarter. And as always, there is volatility in -- on a quarterly basis, not only on a country level, but also on a company level.

And the growth side, we can spend a bit more time so you understand the underlying realities which are also related to profitability. So all growth needs to be profitable. That's how it works in Protector. And we -- this growth is built up by a strong renewal. So we have a renewal rate above 100%, 101% in the quarter. That is obviously, again, built up by some churn, but fairly low churn compared to history, and then price increases on top of that.

In addition to that, we have good new sales. Obviously, in the U.K., 1st of April, which we mentioned in the quarter 1 report. And public sector, 1st of April in the U.K. is a very large date. So that was a strong result, but we have reported it before. We also have strong new sales in Norway and even underlying in the Swedish market. Because the negative growth in the quarter from Sweden is due to exit of the consumer schemes, which we have mentioned previously. And following quarter 2, there will be very limited effect from the last part of that exit. So now it's basically done. There are some technicalities in Denmark that give us a negative growth there, but it's a very small volume quarter.

So underlying, the market conditions allow us to correct for inflation and correct for poor profitability in the markets and products where that is needed. And we also have opportunities to win business at what we think is profitable levels in most countries.

If we go to the less volatile part of the figures you see here, which is the first half year and adjust for large losses between 2023 and 2024, you will see -- and runoff results, you will see that the 2024 results is 2 percentage points better than what it was in 2023. So if we normalize the large losses, down to 7% for the '24 results, up to 7% for the 2023 results, and then do the small difference in runoff, then you will get 2 percentage points better underlying [ reality ] for the first half of '24 compared to '23.

So that's what we believe. And I have mentioned some of the actions that we are doing, then the renewal situation we have in our book. We also managed to get out of some unprofitable clients. So in that 101%, part of the churn is related to some larger unprofitable clients. So we are comfortable with the profitability situation and the outlook at the moment.

Then over to the investment side, which on the results side, as we always say, a quarter is very short, even a half year is short, but the results here are relatively poor on the equity side if you compare to the general indices. And on the bond side, it is relatively strong, but there is also a strong market on the high yield side.

The more important part here is that due to the reduction in spreads, the running yield is down 0.4 percentage points. And that obviously, also, as you see in the presentation, is a decreased risk on the bond side. So nothing large happening in -- on the equity side other than that when we perform relatively poor, then the discount to intrinsic value increases, so the future in our eyes looks even brighter then. So no other real changes.

Those results, they give you this profit and loss overview, and the capital situation is solid. We have a positive result that contributes on the equity side, and then we have growth that drives the requirement up. But a very unchanged and solid situation, which, including the risk evaluations of all the different risks in the company, makes us believe that it's right to pay out the dividend according to the dividend policy that we have at NOK 2 this quarter.

So with that, we are back to who we are and the unique relationships that we are focusing on now. We will have the annual broker survey in U.K. during this summer and then early autumn in the Nordic countries, and have the results either for the quarter 3 report or the quarter 4 report. We will obviously update you on the situation there. The important thing is that we do the actions that we need to do in order to improve the relationship we have with our brokers.

The summary is the same as the beginning. And then I did forget to mention that you will have to send in questions during the presentation, but I assume that those who have questions have done so, and I'll ask in a short while here.

But just to repeat the summary of the quarter, it is a relatively high combined ratio. You need to look under the numbers in order to understand what it really is. And there are a lot of large losses in the quarter, even when you look at the first half year relative to a normalized situation. And the capital situation is solid. Project France is progressing according to plan, and we expect to quote in quarter 3.

Are there any questions, Elisabeth?

[Elisabeth Krey Helgesen, executive]

No.

[Henrik Høye, executive]

No questions. So then, for me, it's just left to wish you all an inspiring summer. And I will take off to Sardinia tomorrow to see my family there, looking forward to that. But even more, to come back to an energized team and the second half year in Protector. Thank you very much.