Protector Forsikring ASA

OSE:PROT

Earnings Call Transcript 2020-Q3

[Sverre Bjerkeli, Chief Executive Officer]

Okay. Good morning, everybody. You probably know who I am. I'm Sverre Bjerkeli. I'm the Chief Executive in Protector. As always, when we invite to investor presentation on this time through the webcast only, I chitchat for a minute or so before we start the formal presentation in order to get those people on board that are slightly delayed for technical reasons. It happens. So I chitchat a little bit before we start.We have recently been through 2 state of the union presentations in Protector this morning, one at 8:00 and one at 9:00, half an hour. And I think it's fair to say that the atmosphere in the company is very good after delivering the quarter 3 figures to the market this morning. And we have kind of celebrated and shared a lot of good stories then, talking about things like Sweden, the biggest country in Protector, the U.K. as the runner up. And we have a culture of nominating employees of the years. So we have talked about that one and had a good morning session with a lot of people in Protector this morning.So I guess I have given them, the late arrivers, a little bit time to enter and participate in this webcast presentation, and then I kind of start now.So if -- I mean, a warm welcome, everybody. If we go to our DNA slide, Slide #3 of the presentation, you can see circled in a statement called profitable growth. And as you know, we have had kind of results in the quarter and in 2018, '19, and we have been kind of increasing prices and then clean up activities in the portfolio in order to get back on track when it comes to technical profitability.And if we go to the result highlights for this quarter, the conclusion is a good technical result in the quarter. We have a combined ratio sized 93.4%, and at the same time, we have a very, very strong investment result. It means that we, 3 quarters in a row, have delivered a combined ratio in line with communication targets. And I think it's fair to say that the turnaround process in the Nordic sector is kind of finished. And the underlying reality of the business is somewhat better than what you can see in these figures on the slide here and I'll explain that slightly more.You can see on the slide that price increases in the Nordic market has been 14% also in this quarter, meaning that, obviously, if claims inflation is 3%, 3.5%, a bit less than 4%, we continue to improve the underlying realities in -- when it comes to the technical profitability.If you go to the volume update on Slide #5, you can see that we have a negative growth of 8% in this quarter and in local currencies, kind of 14%. I wouldn't worry. I don't worry at all when it comes to that kind of figure. We lost one client, which is north of NOK 100 million in annual premium, the biggest client in Protector's history, actually, in quarter 3. And if you kind of exclude that one, you would have seen some growth also in the quarter 3 here. It was for profitability reasons. We have lost money on it the last couple of years. We couldn't continue to do that. And that's kind of a first type of situation. And I will very soon come back to the kind of -- a bit higher perspective on the volume side and talk a little bit more on the volume side.But first, we go to the claims development on Slide #6. And what you can see is that the claims ratio and the combined ratio is what I would call reasonably good in the quarter despite the fact that large losses are higher than normalized and despite the fact that we have had kind of some reserve losses on previous years, a little bit on the workmen's compensation area in Denmark, one claim lost in court on the liability side, also in Denmark. So some runoff losses in the quarter, 3.5%.Don't worry about it. But it means that -- my opinion is that the underlying reality is better than the communicated claims ratio or combined ratio because losses on the -- large losses are expected to normalize. Runoff should be, give or take, in the long run around 0. And then the underlying realities at the moment, somewhere at least below 90% then in a quarter like we see here now, below 90% with some kind of distance as well.If we go to the next slide, you see that demonstrated a little bit more on the large losses and runoff situation, just telling the story about what is expected to be normalized and the buildup -- in the left -- right corner on this presentation, the buildup of a pretty large number of large losses, around NOK 20 million each, which accumulates up to 12.9% in the quarter compared with a normalized situation around 8%, meaning that there are underlying realities that are pretty strong in many product areas in the quarter.If we go to the Protector combined ratio slide, this is Slide #8 in my presentation, then you can see some variation between the different countries. You can see on the left side here the Norwegian figures that are below 80% for the first time in many, many quarters, I would say. And you can see U.K. doing well. You can see Finland doing well. You can see Sweden doing reasonably well, not great but at least reasonably well. And the country manager in Sweden will talk a bit more a bit later in this presentation.The only thing you may be a bit worried about when you see this slide is Denmark with a quarterly combined ratio size of 125% and a year-to-date combined ratio size 117%. It's not a big issue, actually. And the -- we are in the insurance business. And a large number of the kind of large losses you saw on the previous slide, they happened to be in Denmark this quarter. While Norway didn't have any at all, Denmark had at least more than 3, maybe 4, out of these large losses alone, public sector property, like a couple of examples, this liability claim where we lost in the appeal court after beginning in the first round in the court in that area. So my opinion and my communication to you when it comes to Denmark is that the underlying reality is pretty acceptable.Yes, there are some price increases needed. Yes, we will take down workmen's compensation volumes further, first of all, because of capital reasons. It consumes too much capital in that area. We're not afraid of the remaining volume when it comes to a combined ratio. But with the interest rate level around 0, we weren't -- we will not kind of earn money on float in Denmark and workmen's comp volume will continue to shrink, not to 0 but a lot less than we have today. That is kind of a process, which you are aware of, have happened for the last 2 years. So it's not a new thing in that area.So don't worry too much about Denmark. And I enjoy the fact that U.K., Norway and Finland are doing very well on the combined ratio year-to-date. And be aware of the fact that Sweden is doing kind of okay year-to-date, combined ratio size 94.9%, but they have also had kind of above normal when it comes to large losses. So the underlying reality in Sweden is slightly better, and the underlying reality in Norway is slightly poorer, and the underlying reality in Finland is slightly poorer. So here was kind of my comments to the different countries.In summary, I'm happy with the combined ratio on a company level, both in quarter 3 and year-to-date. And the underlying reality is stronger.If we go to that kind of wider perspective, and if you move to the volume slide, which is Slide #10, you know our history, which is shown on the picture here. And you know that we have a tradition to deliver very aggressive growth. We also kind of communicated, stating in the first bullet here, to the market a year ago that this year will be more challenging when it comes to volume because it is a necessity that increased prices so much and we clean our portfolios so much that the churn, the number of lost clients, will be a lot higher than normal. At the same time, U.K. will continue to grow. That may end up in some kind of low single-digit growth, stated to be potentially 5%. And I guess we are there today, but that is in Norwegian kroner [ widen ] in local currency. We have a very small negative growth year-to-date. But I'm not worried.Price increases in the Nordics will be more modest going forward. The level of cleanup situations are fewer. We have only one significant left. That is related to workmen's comp Denmark and workmen's compensation in certain areas in Norway, where the authorities have allowed COVID-19 to be a part of the workmen's comp product, which means that in the health sector in Norway, hospitals, people are taking care of the elderly people, that's a kind of a segment we will not stay in and we will exit that next year. So there are one remaining kind of portfolio cleanup situation left.Outside that, price increases will be more limited than what you have seen so far. Prices are going up in the market, and there are very good signs now to see that in many Nordic countries, our competitors are increasing prices more than Protector, which leads us to a market situation where they obviously have some kind of profitability issues on their side, many of our competitors. They are increasing prices. It has been communicated to the market and now wait for effect. So the market is disciplined, and that will lead to a reduced churn in the Nordic market going forward for Protector. I'm absolutely convinced. You can see the picture. It's about generally first renewal. So the underlying reality on the volume side is not on the negative side.So we will be back on track with growth in the future. U.K. will continue to deliver. And in the short run, we are talking about 5%, which is kind of communicated to the market. I wouldn't be surprised if we go north of that in a relatively short horizon going forward, not necessary already in 2021 but at a slightly later stage.If I move to the higher perspective on the profitability side, Slide #11, my -- I guess I've given my comment already. We have increased prices so far with 14% in the Nordic market. There is a tail of earned premium coming from the high [ state ], not a huge one but something that will influence positively quarter 4, quarter 1 next year. And then there will be new price increases in the Nordic market, above claims inflation that will support the development of our figures in 2021.We can't be exactly sure about what is a normalized large loss ratio. That's difficult to understand. We don't have 100 years of history to calculate that. We are growing fast as a company. But I think that normalized large loss ratio may be still around 8%. And it's meaning that we, today, are a couple of percentage points higher per quarter 3 basis, and we are probably -- a little bit of a luck on the large loss side so far. That's difficult to judge in that area.But that may improve our position entering 2021, where we had small runoff losses so far this year. Our historic to-date performance on runoff is good, so we shouldn't expect that to continue. And with the kind of product mix changes you see happening in Protector, you can see that we are growing more short-term products and more products that are -- at least historically, have demonstrated to be more profitable than those areas where we are leading in that area. So product mix development is in our favor. That takes time, but it has been improving during many, many years, which you will see on the next slide.Before going to the next slide, I would say just that some negative surprises will arrive. So it's not everything. It looks beautiful. There will be situations, we are an insurance company. So even if it's 1, 2, 3, 4 reasons why underlying reality is better, it will occur something, which will be challenging. So we need to have a margin of safety in our business when it comes to the technical result.If you have a look at Slide 12, and before leaving the word to the country manager in Sweden, you can see a product mix development, which is incredibly interesting if you're taking the longer perspective. So what you can see is that from 2008, on the left side here, to 2014, in the middle, and 2020, today, the level of short-tail business has gone from 34% to 74%. So today, we are a company dominated by motor and property products. Motor is by far the #1 product in size, by far, 35% versus 31% property, but this is a pretty beautiful mix. And these products consume less capital. So we consume less capital per million in premium and it's normally looked upon as less risky. So that gradual transfer that we have shared with you investors for a few years, that continues. It continues.So then I'm giving the word to the country manager in Sweden. You have, for a couple of quarters or something like that in the biggest country in the Protector portfolio, Hans. So you joined us in 2011 when we started the company, which is -- celebrate 10 years in the company. And I look forward to listening to your story, Hans. So you're welcome.

[Hans Didring, Country Manager of Sweden]

Thank you. Please go to Slide 14 now, [ Luke ]. Could you please go to slide -- yes, thank you.So it's very nice to look back on the past 10 years. When I was approached by Protector, I was working in one of the large insurers as responsible for brokered business. And as I understood, what we mean by the winning formula, our business idea to do business through brokers with best-in-class decision-making and cost-efficient solutions in order to provide a competitive price and still have profitability was the best way to succeed in the insurance market as a start-up.Also, I was very attracted by the values and how Henrik and Sverre presented them. And I thought that was the best way to -- can get us people to really live the business idea.In Protector, as probably some of you know, we compete on being the cultural lead, which is basically the combination of delivering strong results and doing that by living our culture, our DNA. And we -- since I started, we are 3-time winners. I'm very proud of the team and that we have been able to do that. And you can see the 3 -- the trophies from that period. And what's important to understand from these trophies is that the cultural lead actually involves more and more people in Sweden. So in 2014, we were a few, and I was pretty central in both external and internal activities. In 2018, all of the management team and other key people are central in kind of creating and maintaining the culture. So it's built around more and more people.Next slide, please. If we look on the results, so for Sweden, it's very natural to be the largest country in the Nordics and, of course, also in Protector. But trying to be a bit modest, I would say that we -- Protector's business idea has worked very well in the Swedish market. It's based on the fact that we have a lot of available volume on motor insurance, it's a big market, and the fact that quality and the cost is extremely important in order to succeed in motor. We need to have a low cost in order to offer a competitive price over time and our money. And we need to have quality well defined in processes, both in administration with the brokers but also in claims service. So the combination of these 2 has helped us achieve profitable growth over time.Next slide, please. We have had some issues, as many of you know. And then on motor, basically, the issues were -- the profitability issues was a result of taking 2 little premium increases, both on poor customers and so-called index compensation for claims inflation on good customers.So the past year, we have made a lot of premium increases on motor in relation to the history. We are very happy with the result. We have a great improvement on cost, as you can see the dotted line and we have a good renewal selection. And by that, I mean that we are keeping the customers that we want. The way to succeed in that is to basically try to always make individual premium changes. So we calculate for each customer what their renewal premium should be. And then we are able to keep the best ones by increasing them less and either get the large increase on a poorer customer or to lose it basically if someone else quotes it at the lower price. Then we have had a big issue on property, and that is mainly relating to real estate, commercial and affinity, not the public sector. And as a result of these profitability issues, we have a decreasing volume on property. So it's basically self-made errors. We have priced too low. We have been too poor on risk selection. We have had too little data to be able to understand exactly what customers to choose and not.Also, we have similar -- as I explained on motor, historically, we have done 2 little increases on customers with a higher risk or poor result. And we have also had poor claims cost control, which means if we are poor in settling claims, in making efficient restorations, rebuilding house after fire, for example, then the claims cost will be much higher than if we have an efficient organization.So the past year, we have been doing a lot of actions on all these factors, both improving models, pricing, doing a lot of individual premium increases. The average premium increase now for 1st of January 2021 on real estate is 40%. And we see already that we come through with a lot of these price increases. That is partly because we do individual increases, so they are reasonable. But it is also because the market is hardening, as Sverre described, for the whole Nordics. All insurers have some profitability issues on property and everyone is increasing. And then we are able to get to the right price.Then the last thing I wanted to comment on basically is that we have very good KPI results in general. Broker service has improved a lot from a setback when we handled profitability issues. And we have very good customer satisfaction in claims handling. So we are kind of very happy about being able to improve claims cost control and at the same time, get the customers even more happy.Thank you for listening.

[Sverre Bjerkeli, Chief Executive Officer]

Okay. Thank you a lot, Hans. And for you, shareholders and investors that kind of have followed Protector for many, many years, you know we have a DNA. This is who we are. We are different. And that is based on a certain number of statements, on 4 values. One of the values is to be open. And hopefully, you appreciate the fact that the country manager in Sweden, Hans, is pretty open about kind of our self-made mistakes. Like we have in earlier phases done in Norway and in our other areas, we do mistakes. And when we do mistakes, let's share them, let's be open, let's talk about it and do that both externally and internally. That creates a culture that are constantly looking for improvements instead of kind of hiding off your issues, so to speak.So I hope you appreciate that kind of openness coming from the country manager in Sweden in a situation where Sweden is delivering a reasonably good combined ratio, below 95%, 94.9% to be precise, year-to-date. So it's not that bad. But we are talking about issues we have had and, to a certain extent, have and then we try to challenge and to improve. This is who we are. That's what we do. So thanks a lot for a good walk-through of Sweden as the #1 company in Protector and Hans.If we go to U.K., and you can see a picture here of Henrik Høye that kind of established the U.K. organization together with me back in 2016, preparing in 2014 and '15 and started off in 2016. And you can see Stuart Winter, Country Manager in U.K., have a long history in insurance business, also on top management positions in the broker kind of society.So we -- in quarter 3, Henrik, we passed NOK 1 billion in annual premium, not in pounds but in Norwegian kroner. And we know for a fact that the first billion is the most difficult one. So we would like to share a few thoughts and ideas with you on the business side as such but also on the COVID-19 property and business interruption area because there are huge losses worldwide on this kind of situation. And then a bit of an update from you, Stuart, on that one will be appreciated, I'm sure. So I leave it to you, Henrik, and then you leave the word to Stuart.

[Henrik Wold-Golfetto Høye]

Thank you. And then I think we can move to Slide 18, where we have the volume history of Protector in the U.K. And it has not really been a race to NOK 1 billion, but it is a milestone. And obviously, when the market is so large, probably 10x the size of the Swedish market, it would almost be a bit embarrassing if we didn't reach that milestone before Sweden. But we did, and it's obviously some currency elements or factors in that milestone as well. It is not important compared to profitability, which, I think, is the important message here because the whole team in the U.K., we know that we could have grown a lot faster than what we have. And one example is in the public sector where we see hit ratio or conversion rates on the tenders being 1/3 of what we have seen in the Nordic countries.The competitive landscape is very similar, few competitors with one very large one. So the competitive landscape is not very different, but I think that we have behaved disciplined and had profitability before growth, which is why we haven't grown more than we have. The same goes for the housing sector then. We are patient. And in a sector like the housing sector with low deductibles, it is, over time, almost inevitable that the price will be right, which means that we will be disciplined and consistent in our underwriting and win when others have problems.Another point to make is that despite COVID-19, which has made some clients and brokers hesitant in marketing their insurance programs, we have seen more opportunities in 2020 than what we saw in 2019. So the opportunities are growing.And I think what we see for now is just to be -- if we move to Slide 19, to be disciplined, continue to be disciplined in the commercial sector but act on opportunities that we see. For now, that is mostly on the property side. So we grow more on property than on liability and motor, and be strict in selecting the right clients. It's about client underwriting. We've talked about that previously.Public and housing is also a similar story. We've said it previously to this forum that the consistent and disciplined underwriting is important, and we currently have a small market share compared to what our appetite is. So there's lots of green and white clients that we don't have in our portfolio.If we move to Slide 20. We just have a few thoughts. And this is not very important. I won't spend too much time on it. But obviously, for us in the Nordics, we see that there are fiscal factors in the U.K. that could influence on our results. And some of them are COVID, inflation, low inflation rates, Brexit. And our observation so far is that there are more positives than negatives for us as an insurance company in this. An interesting element is that we could see higher default rates for the companies that we insure, but we do financial underwriting of our clients. So we believe that at the end of this, when we see the result, we will see less of our clients going bankrupt than what the average is.And then I think that I will leave the word to Stuart because we have been through a situation with COVID-19, which impacts the insurance side. And in total, we've said previously that the impact is neutral, less cars on the road, but some business interruption claims, put very simply. But there has been a lot of uncertainty for everyone, and no one really knows what this is -- what the result of this is. And to have Stuart in the company, together with other experts that we have, and working together as a team has been very useful and I think we learned a lot from it.So I'd like to give the word now to Stuart and move to Slide 21 to say something about how we've handled the COVID situation.

[Stuart Winter, Country Manager UK]

Thank you, Henrik. Could we start with Slide 23, please? COVID really needs no introduction and it will be some time before we find out the true cost. Very recent reports have suggested that global losses could exceed $4 trillion, and a significant amount of those costs would be potentially met by business interruption insurers where global premiums are around $30 billion.In terms of coverage under the business interruption policy itself, COVID, generally speaking, hasn't resulted in damage. So most of the questions have been around the extent to which non-damage expenses those policies will provide cover.If we can move to Slide 25, please. In the U.K., the FCA has taken the position of progressing a test case through the courts. The reason for this is to provide certainty to customers and clarity over what policy response will be achieved. Protector hasn't been a party to those proceedings, although we were involved in some of the policies. So we have worked with and cooperated with the FCA in terms of the understanding analyses.We took legal guidance ourselves at an early stage to understand the extent to which coverage would be provided, and we have considered the application to all of our PD and BI renewal -- policies and renewals. For us, we had a relatively low exposure compared to our market share, and we have reserved for any losses that we are likely to be paying in terms of claims payments to clients.If you can move to Slide 26, please. Really, the most important part of the -- this learning exercise for us, and learning is very important for us as a business, is how we've managed to work with our customers, both in terms of managing the risk and exposure and also helping them through this difficult period. We've issued lots of information to our clients in relation to risk management bulletins and guidance, both in terms of things like having occupied property and how they manage to return to workplace following government lockdown. We work with clients around how policies may respond and how we can adjust to the circumstances. And even with our local authority clients, public sector is a big part of our business in relation to how they could manage significant additional responsibilities that they have incurred in order to manage the crisis in the U.K.It's been a great learning experience for us as a group, and we've cooperated right across Scandinavia and the U.K. businesses to gather the collective experience and intelligence in order to make the most -- the best informed decisions and support our customers through the process. Thank you.

[Sverre Bjerkeli, Chief Executive Officer]

Okay. Then I am back again. And thank you, Henrik, for your update from the U.K.; and, Stuart, on the COVID-19 property business interruption kind of update you gave.If we look deep into the quarter 3 report in Protector, you can see that we have had some smaller losses relative to this COVID-19 business interruption side booked in the quarter. So we have reserved some cases, but it is kind of less than 1% on the combined ratio side in quarter 3.And if you go back to quarter 2, you'll remember that we updated you on the fact that we were 2 percentage points, give or take, on the positive side because of a reduced frequency of claims in the motor side because of the lockdown situations in April and May. But the kind of traffic situation in the Nordics and in U.K. have kind of normalized with some variation between the different countries during the end of quarter 2 and into quarter 3, so there are kind of positive claims elements we can see and slightly on the negative cycle with '19 in quarter 3, however, like very, very at a manageable level.So if we then continue to the investment side and we move to Slide 28. The conclusion on the investment side is a very strong quarter with an investment result sized NOK 334 million. At the same time, it's -- I think it's fair to say that the capital consumption we have on the -- on what it's formally called the market side, but -- which is related to this investment portfolio, is that we are pretty good in managing the capital consumption on the investment side. There are certain rules and regulation relative to that in the insurance industry, but we are very pleased with the strong quarter we can see.If we move to Slide 29. You can see that the bond portfolio yielded very well in quarter 3 as well. But obviously then, the running yield now is moving south to 2.1% because spreads have continued to develop in kind of our favor during the quarter 3.Cost of risk expectation has improved slightly in quarter 3. So there are no kind of major incident on the bond side hurting Protector. On an accumulated level, you could say, slightly improved cost of risk position after quarter 3 on the bond side.And if we move to Slide 30, on the equity side. After a couple of years, where the kind of portfolio we have had, had performed worst of market, we have seen now a kind of -- at least a very strong quarter 3 with a 17.6% return in that quarter. It will be volatility, but we think that even with that kind of good result on the equity side, we are still under the opinion that there is a tremendously strong or at least very strong discount to intrinsic value in the way we calculate intrinsic value of our equity investments.The DNA slide is kind of reminding you about who we are. And if you go to the profit and loss statement on Page 32, you will see the best result ever after 9 months. And you can see a profit after tax sized NOK million in this quarter.The balance sheet on Page 33 is solid. Solvency capital ratio based on the standard formula sized 171%. It's meaning that we have kind of excess capital at the moment that we will kind of consider what to do with. And that kind of consideration will take place after quarter 4 when we have a full year behind us. And let's see what kind of the situation we have then when we meet again in, I can't remember, late January or beginning of February or something like that. The strong balance sheet is good to see.We go then to Page 36. My summary is more like good combined ratio in this quarter. So we are kind of happy to see that we kind of deliver a good combined ratio. It is the best, as stated in the subtitle, the best ever 9 months results. And we have a profit after tax sized NOK 539 million year-to-date.Our competitive position is remaining very strong. You have seen a slide showing the picture that short- and medium-tail business is -- continue to dominate our portfolio, especially the short side of the picture, the property product and the motor product. So more than 75% of the portfolio today is kind of short-tail, slightly lower risk and lower capital consumption. So strong competitive position. Profitability is, in my opinion, back on track. Yes, we are in insurance business. There will be volatility, but it looks pretty good at the moment. And congratulations to Sweden, the biggest country in Protector, the U.K. as a runner-up in that area.And I also would like to share a bit of an information with you relative to the information given in the last annual report that my retirement age is 62. That is September 4 next year. So it's another small year to go. And just to update you on the fact that the kind of succession process is moving on and I look forward to that kind of next year here. My ambition and the company's ambition is to continue to be a -- to build a company that is not at all dependent on any individual but strong enough to continue to develop. And our inspiration on that issue arise from Jim Collins' very well-written management book, Good to Great, which I guess I read in 2008 or something like that. And we have had a full management development program building around that book.So succession planning has been on the agenda for at least 2 or 3 years. There are incredibly strong candidates we have internally in order to continue to build that company, to be bigger and more beautiful in the future. So I certainly look forward to taking part of that transition period, and I look forward to see you after quarter 4 and still some quarters to go then.So thanks a lot for your kind attention.

[Sverre Bjerkeli, Chief Executive Officer]

Now we have probably received some questions, and they will go first to the country manager in Sweden, if there are any. And then they will go to U.K. and I will take the final questions. Yes. So Amund, investor relation responsible, feel free to pop the questions you have received through the presentation or before the presentation.

[Amund Skoglund, Executive Assistant & IR]

Thank you, Sverre. We have received some questions, and all of them, I think, will go to you. So others are home-free. So we will start with [ Andreas Oan's ] question on costs. He asks, are you happy with costs? It seems to move against you for some time now. Is it due to cost investments into profitability, i.e., better actual models or pricing structures, et cetera?

[Sverre Bjerkeli, Chief Executive Officer]

Okay. So the cost question is obviously relevant because we are slightly moving north on the cost side. And then I have 2 kind of responses to that. First, it is correct that our cost ratio is moving slightly towards the north side. It has something to do with reduced volume in local currencies in the Nordic market and the necessity to keep the resources in order to clean up that kind of portfolio and to do all these kind of actions in order to improve profitability. So the reality is slightly movement north in the Nordic market.At the same time, there is a situation where more of the volume is arriving out from Sweden and U.K. And there, we pay more commissions to brokers or agents. It's not allowed to pay commissions in Denmark and in Norway to brokers. It is pretty significant commissions in the U.K. and a mixture in Sweden. So when our portfolio is growing towards U.K. and Sweden, you will see that the cost ratio is going north. That's not really an issue, not at all, because that is equal for all competitors. And the internal cost element or cost in the real world is still extremely significant in our favor.And in U.K., it's also like a situation where we have invested in a lot of very qualified resources upfront in order to grow to the first NOK 1 billion in annual premium. And we have underwriting and risk management capacity in U.K. now basically to handle twice the volume of what we have at the moment. So we will continue to grow into an improved cost position in the U.K. market.So the cost perspective is that we are, one, very low on cost; two, moving somewhat more in the Nordic market. We will stabilize that and potentially go slightly down during the 1 to 2 next year in the Nordic market and U.K. will continue to go down in that area.So in my summation, I'm saying that our competitive position is remaining incredibly strong, potentially even improving. And that includes the cost side.[ Andreas ], thanks for your questions and giving me the opportunity to respond to that. Feel free to follow up with figures after the meeting, then we can support you with more concrete information on the lines that we would -- we should consider to share that among everybody, and you have to consider that. Okay. Thank you. Next question.

[Amund Skoglund, Executive Assistant & IR]

Yes. Then Vegard Toverud asked 3 questions in one. So first, could you give some more information about the large customer loss? And number two, could you discuss the tax rate in the quarter and what you expect going forward? And three, there seems to be a change in the ceded level of COI business. Could you provide some details on the quarter and what to expect here going forward?

[Sverre Bjerkeli, Chief Executive Officer]

Okay. So the first client lost in Norway, I will not give the name, but it is related to some specialized products called loss of license. And you have also licensed products in the airline industry at sea. So there must be kind of clients in these kind of areas or one client in particular. So we have had a combined ratio, I'm not quite sure, let's say, 120%, give or take, the last 2, 3 years from that client, gradually increased prices, it hasn't been enough.And then we had to price so hard that, that client went to our competitors of ours. And the expected risk on the client side here is expected to move in the wrong direction in the next few years, influenced by COVID-19 and the lower level of oil prices in the world market. So client levels from now on can price high enough and maintained risk will increase. Let's be disciplined and exit.And the question on the change -- on the last question. That is kind of a big too detail for me to respond. So I'm not confident to responding on that one. So we will be back after the meeting about how we share our reserves with DARAG, a runoff company, which we are ceding basically 50% of reserves and volume on the change of ownership side here. So we will come back with a bit more detailed information on that one. It's absolutely insignificant but not really important information at all.When it comes to the tax rate, the tax rate in the quarter is, as far as I remember, very low based on the fact that we have a very significant equity gain in quarter 3. And return on equity investments is 0 in the Norwegian market. So when you have profits arriving from that area, you don't have the tax. So that's the reason why our tax rate will vary through quarters depending on what kind of level of profit is arriving from the equity side. So tax rate, exclusive of that, is normally around 25%, slightly below. I mean in the kind of country mix we have now, I'm not quite sure, 22% or something like that, but a lot lower than what we were. The equity gains are significant because of the tax rate in the Norwegian -- in Norway is 0 on that.So then we go to the next one, Amund.

[Amund Skoglund, Executive Assistant & IR]

Yes. More about the equity exposure. Is the equity exposure lower due to worse results last couple of years? Or why have you decreased to around 10% exposure?

[Sverre Bjerkeli, Chief Executive Officer]

We haven't really decreased a lot the last 15 to 18 months for us, I remember. It looks reduced because we have had kind of negative development on the portfolio. Now it's growing up again. Now our equity portfolio is around 10% or getting close to 10% overall investment portfolio. So we have been pretty stable in the last 4, 5, 6 quarters, but have a kind of -- a bit of downs and ups because of return on that kind of portfolio that potentially both slightly more on equity side the last 2 or 3 months, but that's not really significant. I think you should expect us to be around 10%, give or take, depending on the development of the equity portfolio and at least the quarter around.We are a bit nervous in the market, as many are, but not really taking a lot of money off the table, but taking some high-yield exposure off the table as we speak, with some slight reduction of risk at the moment, some money off the table but not very significant.Next question.

[Amund Skoglund, Executive Assistant & IR]

Yes. We have a couple of questions on whether you can tell anything about future prospects of dividends.

[Sverre Bjerkeli, Chief Executive Officer]

Okay. We will be back after quarter 4 with an update to the investors after discussing the full year in the Board. We have a solvency capital ratio at 171% at the moment. It is pretty strong. We have excess capital at the moment. Our first priority will always be profitable growth if you can find a path. But obviously, it's pretty easy to see that if we continue as in the short run on my growth path, as low as 5%. And if these kind of products are consuming less capital than in history, the need for capital to support the growth is pretty limited, not 0 but not a lot away from 0. So that means that our capital flexibility is kind of increasing. We will discuss that with the Board after quarter 4 and come back with a more embedded situation on that one after delivering the full year results to the market.Next question, Amund?

[Amund Skoglund, Executive Assistant & IR]

Yes.

[Sverre Bjerkeli, Chief Executive Officer]

One minute to ago, I guess.

[Amund Skoglund, Executive Assistant & IR]

Yes. That's the last one, I guess. And from [ Thomas Swenson ]. Could you please remind us of how large portion of your insurance reserves are in Denmark?

[Sverre Bjerkeli, Chief Executive Officer]

I have to come back on that one, not very significant. Thomas, congratulations with your new job in Sbanken. And so I have to ask for some support on that one, and maybe we will be back, as you have guessed. When reducing volume in workmen's comp in Denmark, the reserves are stabilizing and then going down, and the reserves in all of the areas are going up. So it must be, I'm not quite sure, a pretty limited number, but we will be back to you, Thomas. I apologize. I didn't have it in my hand.

[Amund Skoglund, Executive Assistant & IR]

Yes. Thank you.

[Sverre Bjerkeli, Chief Executive Officer]

That's fine. Excellent. Thanks a lot, everybody, for staying with us, and thanks for your good questions. And have a great Friday and weekend. Hope I see you again a quarter from now. Bye-bye.