Protector Forsikring ASA

OSE:PROT

Earnings Call Transcript 2018-Q4

[Sverre Bjerkeli, Chief Executive Officer]

A warm welcome to everybody to our presentation of the 2018 annual result. Some of you know, we are, in these days, kind of celebrating our 15th birthday. So the company now has grown to be 15 years old. And as you have seen during the latest months, we have done one change in what kind of market we target for future, since we have decided to leave the change of ownership niche area in Norway. We entered that market segment July 1, 2004, and it has been an important part of Protector's history, however, it has been unprofitable, as you know, during the last at least 3 years: 2016, 2018 and this small bug called silver -- gray silverfish appeared and worsened the results rather much during the autumn and winter. So it's kind of a first change ever in the history of Protector moving out from a kind of -- some kind of a significant segment. However, this segment would have been around 7% to 8% only of our business in 2019. So the volume drop related to this withdrawal from this market is very limited. Actually, what we have communicated to the market is that we -- on a company level, we'll grow and exclusive of that business we still -- we'll see a double-digit growth going forward.We will look upon the further accounting and do the figures based on discontinued basis. So in the coming quarters, we will give you an update on this exit area on 1 line and redo the key figures of the Protector. Also historically, and we have started to do that today so that you better can understand who we are and where we go in future.So there are, kind of, double set of slides here in this presentation. I will skip them, manual them when I walk through and the presentation will focus on the commercial and public sector in the presentations to arrive after quarter 1 and quarter 2.So to start with the summary, it has been a poor year for Protector with a combined ratio high as 107%. This figure is, as you know, more or less exactly what we anticipated when we guided the market before Christmas here. So in this figure, a very important technical figure here, around 107%, is basically exactly what we estimated before Christmas. So no surprises in today's presentation when we are looking at the figure here. The company growth has been 15%, somewhat lower than guided at beginning of the year in 2018 due to 2 reasons: one, we started to reduce our exposure in change of ownership during 2018; and secondly, when profitability issues arrived in certain markets, our risk appetite was slightly reduced, price increases did go up, and a consequence of that is a higher client churn, we lose more clients and the hit ratio for new business will slightly go down. But again, even in such a situation, obviously, obviously 15% growth is still a pretty good growth figure.Our Solvency ratio today is around 175%, which is based on the standard formula as always and it is probably a very strong figure also relative to peers, some of them has been out in the market already and communicated their Solvency situation. So we have a solid balance sheet despite the fact that we have a poor 2018 behind us. As always, you are more than welcome to ask questions. That's possible to do also during the presentation. Of course, could be easier if we take it at the end of the presentation. There will be questions -- it is open for questions through the webcast also so feel free to pop questions to us or do it too now or save it for Q&A session at the end of the presentation here. You see, kind of, a symbol here in the right corner. This is a falcon, the fastest moving animal on earth, which can potentially fly up to 390 kilometers an hour. It's a symbol internally in Protector for the very important strategy #1 project in Protector related to claims handling. And as you will see, during this walk-through, I will comment on the development on these 4 projects, which is running below this symbol, the falcon symbol here. Understating here that claims handling efficiency has increased with around 15% during 2018. The question is whether it is possible to increase efficiency that quickly without losing quality. That's the key question and throwing money out in the market and I'll come back and comment more on that one later in the presentation. But it's an important area, this is who we are, it is the moment of truth, it's when we meet reclaims whether they are small and many or very, very big and complex. And as you know, we have both types of our claims in Protector. And best kind of rating on Protector is maintained and we -- I have got questions this morning, but also earlier the last 2, 3 weeks whether we have any kind of issues relative to our Solvency position and this rating relative to clients and markets because we have earlier discussed the fact that we have to be there in the market as a solid long-term alternative for big, big clients in the U.K. market. And the message on that is that it has absolutely no kind of interest to Protector whether the Solvency ratio is 190% or 175% or 160%, relative to that client question. As long as we have an investment grade type of rating, we are in a position to win any bread-and-butter client in the U.K. market. It was a certain segment that previously had a formal A rating requirement. When we come back to that kind of segment in the market, put an investment grade type of rating on the table and discussed it with that segment, representatives from that segment, they said, this is kind of accepted, we will change the requirements we normally have on insurance in this market and you are invited to compete in this segment in future. And we have done during the second half year of 2018 after struggling slightly in the U.K. market in 1 segment in the first half year of 2018, lost some volume opportunities, not a lot, but some. These issues are solved easily, and entering 2019, we can beat any client structure within that type of segment. So this is nothing new from us. We have communicated this earlier, but the questions have, kind of, kept coming up and that's the reason why I spent a little bit of time to make a comment on that kind of situation.So this slide here, #6 here, it's exactly the same slide, however, the figures are recalibrated to talk about growing business only. And what you'll see is that we, in 2018, had a 19% growth and a combined ratio size 98.6%. Some of you potentially saw the presentation and the results from a Nordic competitor called, Tryg, the Danes with the presence in Scandinavia. And if you should compare Tryg with Protector, you should have a look at corporate segment Tryg. And what you could see is that their combined ratio in this segment, which is basically equal to Protector's was slightly north over 100%, before runoff gains and then, I think, I remember right when we had the kind of accumulated runoff gains slide 7 or something like that, during 2018, which made them deliver a figure in line with what we see here, slightly, slightly better. So what we can see is that in our segment in the Nordic market, we and competitors are struggling at the moment with the profitability because 98.6% is absolutely too high. We are not satisfied with that kind of figure and the same goes for at least 1 competitor and a second competitor will deliver figures slightly later, that is If and -- then you should look at industrial segment.After quarter 3, they had a better position than Protector so my expectation is that they will do better, but at the moment, I don't really know. And what you should do is to have a look in the longer-term the last -- how did we do in same segments the last 5, 10 years and what we previously have shown you when we compared apples to apple -- apple to apple in that kind of areas, same segment. You have seen that we're growing and we are profitable at least on a equal good profitability level or even depending on the period you're looking at slightly better on the profitability situation. Not happy with the figure. It must and will be improved and I'll come back to the story again. Kind of guiding here is nothing new about it, this 96% figure was communicated in December to the market and this was communicated 10 days ago or something like that to the market so there are no changes in this area.When it comes to written premiums then in Protector, exclusive of the change of ownership segment has been 19%, driven by Sweden and U.K. So Sweden and U.K. in 2018, as earlier communicated has been kind of driving force behind that very, very solid type of growth situation. And you see the figures down here both in Norwegian Krone and in local currency.And I have some smaller comments here on the growth situation or the lack of growth in some segments and I comment slightly more on each business area a bit later in the presentation. U.K. is, according to plan, we said higher than NOK 500 million, entering 2018. The result is 1% higher so higher is higher. So we had a bit of luck on that one possibly, after, as you know, struggling slightly in the beginning of the year with volume development in U.K. but that picked up during the year. That 1 single very big client, which we have talked about with you is not a part of 2018. That has a new renewal date, January 1, 2019, so that belongs to quarter 1, 2019. So this growth is not based on a single very, very large client. It's based on a large number of new clients in the 3 main segments we are targeting in the U.K. market.

[Sverre Bjerkeli, Chief Executive Officer]

Okay. So this is, kind of, a slightly some development still on the combination. What kind of product mix do we have and how does it develop? And what we're saying on the product mix side is that we're going to a slightly lower risk seeing from a product point of view. That's the good story. The bad story of that is that lower risk is normally less float. That's the bad part of the story. So whether you should be happy or not with that kind of development, it's a matter of risk appetite and how you consider the value of float versus the value of reduced risk in insurance portfolio in that area. If you listen to Mr. Buffett, he would prefer these figures to go the opposite way. I would like to take lot more long term higher risk to get more float to invest that to our profit in the market in that area. So I wouldn't say that it's a deliberate development. It's not really a target for Protector to reduce risk in the portfolio. It's not. We will seek profitability wherever it is. And that could change in the future, however, in the market segments, we have a strong competitive position at the moment. It is -- we do consider this development to continue because we're more competitive in short-tail areas at the moment than in long-tail business areas at the moment. Workmen's comp in Denmark is not on the top of the risk appetite list in Protector. Why? It's unprofitable at the moment. Workmen's comp Norway is not on the top of risk appetite list of Protector. Why? Prices have gone down, very much the last 6 to 8 years, which has been communicated to you several times and prices can't go deeper down in our opinion because then, it will turn unprofitable. It's not unprofitable as far as we can understand it today. This is difficult to calculate. We have still what we could call a very small margin, but a very small margin in that area, prices must up in that segment. On the contrary, when we are looking at property business in U.K., we are pretty competitive in that area. When it comes to motor business U.K., which is, to a large extent, a short-tail product with some liability elements inside, which is long tail, these figure has been recalibrated slightly compared with previous figures to divide motor business in short and long because there are elements on the both sides in that area. So reduced long tail from 36% here to 16% is not necessary good and it's not a target, however, it is a reflection of our risk appetite within certain segment in certain markets. But you should expect that to go slightly down and that to go slightly up, that's our expectation in the next at least 3 years to comeBe aware of the fact that there are -- you could argue that product mix development and geographical diversification reduces risk at least in theory whether it's true or not, it's not that easy. But you could argue it reduces risk. There is an element, which is increased risk that is to change of the property reinsurance structure. So we go from a quarter share type of contract surplus, we discussed that with you in the Capital Market Day, in October, to a normal Risk XL contract with a retention sized NOK 100 million, however, we do have some cover so if there are many big, big clients arriving in 2019, we have a protection below NOK 100 million, which is also kind of a normal reinsurance structure in the market. What you should expect on the property side is more volatility quarter-by-quarter and you shouldn't worry about it or you shouldn't be too happy when a quarter on the property side looks very, very good. So you could see property results very good or very bad in a quarter, don't be too excited or worry too much, you will see more volatility. In the longer run, it's our expectation that, that increased risk and increased volatility will lead to increased profitability. That's the reason why we do it, okay.So in the longer run, which means 3 to 5 years, it will be -- we are better off doing it in that way. And since Protector have a very solid balance sheet, it's not a balance issue what we are talking about. So you could pay a price to smoothen out the technical result of the company but at the moment, we are not willing to pay that price in that area so expect slightly more volatility than what you have seen historically especially in the property area, and the property area is around at least the 12% - 25% of the business of Protector at the moment going forward, something like that I think. The acting CFO is behind here, he has been the COO for 10 years before, so you know him from before so Ditlev is here.Claims development poor, as we have communicated to you already a small reserve gain in these areas, size 2 during the year. What we would call rather normal. So it shouldn't be difficult to see that, that kind of figure could continue, however, we are not like Gjensidige with a fat reserve situation with a lot of reserves ready to be released and I think they released NOK 1.4 billion or something like that just before Christmas. Had nothing to do with dividend I understand, obviously, not. It's an actuarial area we are talking about. But they have a historical buildup reserve situation which is very, very strong. We don't have that kind of history and you should consider this to be around 0 going forward possibly a bit north of 0 there.When it comes of cost development I think it's important to say that the real thing is not an official cost ratio of neither Protector nor competitors. What you should look at is cost the real way, which is gross cost ratio inclusive of claims handling cost exclusive of broker commission. Why? Broker commissions are neutral seeing from a competitive point of view and they are paid in Sweden and U.K. They are illegal in Norway and Denmark. And when looking at the figures of Protector, and when looking at gross cost ratio going up from 8% to 8.4%, why this curve is going down? You must be aware of the fact that this is driven by increased commissions in U.K. and Sweden and where are we growing, U.K. and Sweden. So we grow where commissions exist and we don't grow where commissions do not exist. Obviously, the cost ratio is going up, is it a bad thing? No, it's not. Is it a problem? No, it's not. Not at all. So what you should do is to try to wipe all commissions from Protector and all competitors and then have a look at real thing which is this one. The problem with this one is that claims handling cost is normally not communicated to the market, there are only 2 companies in the Nordic market who are explicitly giving that figure to the market, it is If the market leader and Protector. So you can compare that If and Protector, however, you -- actually I think you can on a segment level as well, yes, yes, you can. So if you'd like to have a look at cost ratios, you could look at this one, you could, but that could be either wrong or very wrong you should try to look into that one. I can give a couple of more comments on cost share. Someone asked the question, are you losing your competitive advantage relative to the Nordic market? Not at all. On the contrary, we are improving the cost position of Protector faster than competitors. Even if Tryg is good, they are good, but they are not even close to Protector. And Tryg is not average, they are better than average in that area. So we can challenge anyone to sit down and discuss this for a few hours and you will see we are -- this is correct communication from our side, but it's not very easy because portfolios are different, broker penetration is different, commissions level are different, definition of cost is different, is headquarter cost allocated or is it not allocated in that area. You can see they do not allocate headquarter cost out to business units while as far as we understand, If and Tryg do as far as we understand, they do, not Gjensidige that and I don't think they have changed the last quarters in that area. So okay, our cost position is best in the world and it's improving and we have target to continue to go down, and what you will see is that the real way is down from 10.1% to 9.4% and it will continue up and it will go down faster than competitors.We are good on quality in all markets, in fact, normally #1 so the cost and quality position of Protector is not weakened through 2018, it is maintained or improved entering 2019. If you have a look at our strategy, this slide is exactly the same like 1, 2, 3 quarters ago. This slide changes once a year after a strategy process with the board, which normally closes in June. And what you will see looking at these kind of communications during the last year is that normally, many of these top 8, kind of, strategic areas to consider improved, they stay the same. So the Falcon has been there for a while and you will see it for a while. You will see it during 2019, I guess during 2020, and possibly even longer in that area. But obviously, there could be other things coming up and something with slightly reduced interest from the company. The most important strategic initiatives from 2017, but now, from one year later, 2018, and looking forward, it is the Falcon. The Falcon consists of 4 different areas. CleanDesk, never ever be late, okay. Very easy. Never ever be late. That's not difficult, is it? It's efficiency, fly faster, it's reduced and recourse, take care of the client's money and the company's money, and it is customer quality -- perceived customer quality, measured at -- on the client side. You could measure quality asking brokers or you can measure quality asking clients, I mean both. And the robot here is working, not for free, but close to for free and is testing out the way that you are asked questions through the net every day so nothing special about the small robot you see here.Rolls-Royce, ahead of target, CleanDesk, on target. And here is the exact figures, you can see how many days have you been delayed according to the quality standards of Protector. That can be, and it is monitored on a daily basis. So I can enter the management information system or see whether we are clean today in Finland or in multiple claims handling in Denmark or wherever in that area. And in Protector, it's kind of crisis if you are not clean up to a level of 85% or 90%. That measure must be taken at once.Instant customer feedback, good scores, efficiency up 13% in this area. So it's delivering, I would say, in total comment on the Falcon is that it's delivering better than target and very, very good actually in 2018. Norway, price increases will continue in 2019. On average, they're up slightly above 8%, January 1, and January 1 is a big renewal date, as you know.Net combined ratio around 96.5%, gross around 5%, cost ratio, and this figure in Tryg is around 10%, ours is around 5%, off give or take, it's not cost the real way, which I showed you a bit earlier in that area, a very, very big property claim. The reserves have increased during quarter 4, gives a very poor gross combined ratio. It's obviously done, most of that kind of claim belongs to the reinsurance world, that's the reason -- because we have a big difference in these areas. Sometimes you pay money to the reinsurance world, sometimes you get back and this is, kind of, getting back in Norway after many, many years, where we have paid for insurance without taking too much benefit out of it in the Norwegian market.Sweden, profitable growth continues, however, at a slightly poor level than what we normally see in Sweden. So we would normally see and are targeting a better figure than 95.4%, however, price increases and further improvement in other areas, Rolls-Royce areas claims handling will, in our opinion, bring that figure further -- not further down, but down again in that area, that's our expectation. Denmark, back in black but with some elements of good luck or a little bit of luck in 2018, a little bit of tailwind here. But I'm very happy with the kind of turnaround you have seen in Denmark the last 18 to 24 months. And the renewal situation January 1 was better than expected. So we only lost around 250 clients when we introduced the highest price increases ever in Protector actually in that area.The result here is below target, however, what is happening when we increase prices very quickly and in some situation a lot. Let's say you increase some clients with 40% or 60%. If they stay, that average figure would be pretty high. If they walk away, that kind of potential price increase do disappear. So when you compare these 2 figures, bear in mind that this was an estimate based on different assumptions, real life is different, and it's not necessarily poor, that is 9.4%, which also goes all the way around. It's not obvious that 5 is better than 4 if you are not penetrating the right clients are losing. In theory, you shouldn't really -- it doesn't really matter if someone is priced up 5%, 10%, 15%, 20%, 40%, 60%, because we think that individually, it doesn't really matter but the average price increase will differ in different situations in that area. So my comment is that I'm happy with that figure. It's not really 2.6% lower. Even if it is, this means that the quality of the portfolio has slightly improved also in Denmark. So I think we will improve in Denmark. However, not necessarily from 98%, because 98% is a bit of good luck. So you should think that you are starting slightly higher and then you improve in Denmark. Yes, a question?

[Sverre Bjerkeli, Chief Executive Officer]

Finland, not very big net combined. This is kind of okay at this time, underlying reality, slightly worse. So stronger initiatives must be taken, but small business, it's early, cost ratio is high, some trouble opening a new market as always. We'll improve how quickly, let's see, it's not very important at the moment. It's more important over the U.K. The Falcon has hardly arrived. Only 1 of the 4 projects have started in the U.K. It will gradually be 2 and 3 and then 4. Growth is according to target, a very, very strong quality index this year again, which is good, exactly the same net combined ratios in Finland, exactly the same. So it's not a mistake. They are equal. However, the underlying reality in U.K. is better. And there are 3 reasons why we're saying that. It's that one, cost ratio in U.K. -- sorry this one 10.5% is at least 5 to 6 percentage points higher than what you could call a normalized cost ratio when we have reached critical mass so cost will go down 5%. And then reinsurance cost are too high. We pay more for reinsurance in U.K. relative to risk. That's a fact. And after Grenfell Tower, it didn't really improve. We are working on it. It will improve. We will increase retention and we will have better reinsurance prices going forward, however, not during 2019. So that is a subject for 2020. So cost will go down, reinsurance prices will go down and then it's a question whether we gradually are getting up a diversified portfolio with an acceptable risk and unacceptable claims ratio. And what's happening when you normally enter a new market is that you do some mistakes. We did it in Norway in earlier years. Later on, we did it in Sweden, we did it in Denmark and in Finland and in U.K., that's normal. When you are new in a market you do some mistakes. Claims ratio will be higher always. You could call it an investment, a learning investment. So the -- our challenge is to keep the level of learning lessons at a -- as low level as possible and find out as quickly as possible what kind of mistakes have we done in that area. This is normal in that area. So there are 3 reasons why this figure gradually will go down. However, still it's a small country, there will be volatility in the U.K. figures. But you should expect that obviously to be pretty much better. So the Scandinavian totality is moving from profitable, but not at all good enough to improve. That's our expectation, however, you should not expect U.K. or Finland to be below 100% in combined ratio already this year. That will not happen. And since U.K. is growing bigger, U.K. north of 100% in combined ratio will influence more on figures. That's the reason why we will not rapidly go down on a company level when it comes to combined ratio. So what you could call good or very good figures, you must have more patience down 2019, but our guiding towards market it's moving in the right direction even if these relative bigger and bigger areas will not deliver profit in 2019 in that area. Makes sense, doesn't it? Okay, question.

[Sverre Bjerkeli, Chief Executive Officer]

Okay, continuing with U.K. We opened up our London office in March. The first 4 people will be on board, it will grow to 10 during a couple of years. No hurry and we will enter this building here. So this is the Leadenhall building and we will have nice offices as always. We have best locations in Oslo, give or take in Denmark, in Sweden, very good located, very good locations in Finland. And this is the Lloyd's building so it's 50 meters between the 2 and it means that we have walking distance to Aon. Aon is actually in the same building, in the Leadenhall Building, so we have -- we are in the same building as Aon. We have walking distance to Willis, JLT, Marsh, Jelf, Howden, Lockton and any player we would like to do business within that area. So you have to be in city and you have to be well located in city and price per person is obviously very high. It doesn't really matter, not at all. Small spaces as always in city, but a nice good location, easier to take clients and brokers into your offices in that area. But we will go slowly in London. We will go slowly, that's the most important element. Investments. Poor in a turbulent market, minus 0.6%. Normally, we will have hoped for and expected better, but the investment on equity side has been poor, however, you should have a look at the history we have from in-sourcing, which is very good, but at the moment, we're not delivering good on investment side either. You must expect volatility. It's normal. We think it will come back and obviously, there has been some gains in January like you all have had in that area. Bond portfolio done okay or good during 2018. Still, we're not throwing money into the market and taking a lot of risk, even if spreads are slightly better here. Figures, you have seen them, balance sheet strong, some potential how it's build up, more changes in shareholder structure. Long-term target, basically equal 10% to 15% on growth, a bit more on the conservative side than 15% earlier, but you should expect double-digit and a combined ratio size 94% next 3, 4 years, however, higher the first year. So the summary is the Falcon is flying in support here, we really improved. U.K. is the growth story of the future, however, it is the Scandinavian home market which is still the highest priority and below that, it's the claims handling side so please pop a question. Yes?

[Sverre Bjerkeli, Chief Executive Officer]

Yes?

[Unknown Analyst]

Could you say what to expect for U.K. in 2019?

[Sverre Bjerkeli, Chief Executive Officer]

Yes, so I can give a comment on U.K., let me do that when we reach the U.K. part of the presentation. So I'll be slightly more precise. We have been more precise at an earlier stage and I come back to that when we talk about U.K. in the presentation a bit later.If you go back and look into history, we recalibrated our figures now based on growing business, and what you can see is that we haven't really grown 20% a year like earlier communicated. The kind of going forward business has actually been growing 25% a year the last 10 years, and that has been done with 10 year accumulated combined ratio of size 92%. So what we have delivered the last 10 years, including what we would call a poor 2018 with the combined ratio size 98.6% is around 92%. 92% will obviously deliver 20% return on equity and growth is good, meaning that you don't only deliver a good and healthy return on equity, you, kind of, multiply the company pretty quickly. We haven't said, and we will not say that we will continue to grow with that speed, but when growing bigger, even 14% is significant. And since we have plenty of room to maneuver in both in the Nordic market but obviously, in the U.K. market, the growth story could continue for many, many years. There are no market reasons why you can see double-digit growth the next 10 years in Protector only staying where we are, that's possible. The Nordic market is half the size of U.K. So U.K. is twice the size of Nordic accumulated in that area. So it's obviously that the growth potential do exist so today we are not at all close to think that we are coming closer to the end of the growth story here, however, profitability goes first, obviously. Yes?

[Unknown Analyst]

If you have 14%, how much is price and how much is volume there?

[Sverre Bjerkeli, Chief Executive Officer]

It's -- sorry the question is if we have guided on around 14% growth, how much is price? It's depending a little bit on how we calculate the figures here because you can do it in slightly different ways. Give or take 5%, possibly slightly more, but, let's say, give or take 5% is price increases on average. And the reason why the figure is not high it's because we are growing a lot in U.K. where, obviously, one, all new business doesn't have any price increase; and secondly, the very new and fresh clients in U.K. will tend not to have price increases very quickly in that area. One, because it's difficult to judge whether the client is profitable or not after only 1 or 2 years; and secondly, it's not very good idea to go in and start banging prices just almost before we enter it. Of course, if it's a big client with a lot of frequency claims, we'll price up at once. However, if you could consider a client to have some bad luck, you could say price increases will be according to index or gross national product development or according to claims inflation in the market being more careful in that area. So dependable a little bit on how we calculate guided 14%, give or take 5%, as a price increase element of that, while the rest of it will be new business there.

[Unknown Analyst]

So if you exclude the U.K. and try and break down the price and volume for the Nordics, what would that look like?

[Sverre Bjerkeli, Chief Executive Officer]

Either you could -- do a simple calculation yourself on the back of an envelope if you are following with my presentation where I took 15 minutes? If you can't do it, ask the question again after the meeting so I'll help you out on this. So okay -- so what I'm really saying is that we won't exactly break down these kind of figures per segment, we won't, but there are some very clear figures what happened January 1 in this presentation. And if you say, basically, what happened in January 1, will continue to happen, that's a good starting point for your analysis in that area. But we won't go into details on exactly how that is distributed between countries and segments, but a good try and keep popping questions.

[Unknown Analyst]

How many clients do you have in Denmark? What is 250?

[Sverre Bjerkeli, Chief Executive Officer]

How many do I have? We have 700 million. So they clearly got a figure here, let's say, 2,500, something like that. If you multiply with 300,000, it's around 750 million. So but -- so give or take something like that. But the real figure is higher because we have a large -- some affinity type of deals with a large number of clients grouped into 1 deal. So it's a matter of definition as well whether a 100 bakeries, is that small? Are they 1 or 100? It's a matter of definition. So let's say, we are losing in real life 5%, 6% more. But again, small, big, et cetera. So this is around NOK 45 million to NOK 50 million, which is 6%, 7% of total volume in that area. Okay?

[Unknown Analyst]

On the Swedish business, you have some strength in new reserves you have write in the report unless you -- also you have some motor claims inflation which is sort of high. Could you just mention to me what you're seeing and what type of reserves extracting you have done in Sweden?

[Sverre Bjerkeli, Chief Executive Officer]

Okay, so it's a reserve questions about Sweden, I don't see anything, it's minor, it's normal volatility, don't bother. There are too much detailed interests in smaller reserve changes in different market segment. You should take a bigger picture, the company picture and it's not really an issue in that area. Normally, we have seen some reserve gains in Sweden, obviously, some smaller reserve losses, it's normal, fast driving company bit difficult to set down. We demonstrated very clearly in the Capital Market Day, in October, that our historic-to-date reserve practice has been prudent, you should expect that to go. Yes, on the second part of the question, it has been a lot of claims inflation in the motor area in Scandinavia and definitely in Sweden. Claims inflation, 8%, a little bit depending on how we look at it in that area. So price increases Sweden are on the lower side when you look at 6% here and more motor business will be priced harder going forward. We have picked up some price increases during 2018, so some of the claims inflation issues on motor area in Sweden and in Norway and I think also in Denmark even if we have a small portfolio down there, has been picked up in 2018. So gradually, you will see an improvement better than this one in that area, but you -- we should be bit worried about whether this figure is good enough or not. However, claims inflation in the property area is more like 1% or 2%. So obviously, this figure consists of different product areas and price increases in motor in Sweden are higher than this average figure here, while other areas liability and property is with low inflation situation as a basis. So this is slightly better than it looks like, however, somewhat at a lower end here. So the next, yes?

[Unknown Analyst]

Just a question on this large motor insurance policy that you announced in December. Just when you look from the outside of the U.K. motor insurance market, it has to be rather unprofitable. Could you say something about why you expect good profitable there, it's a different segment?

[Sverre Bjerkeli, Chief Executive Officer]

Yes, so the question is, the U.K. motor segment, in general, it looks unprofitable. I agree it is unprofitable. So why will we earn money on such a big client in this area? Remember that when you look at U.K. motor business in general, you are basically looking at a consumer portfolio which is very, very wholly influenced by consumers. We're not in the consumer market. We are in the commercial market, medium to large clients, and this is the biggest we have ever had in our books. It is also a rather competitive market but the good thing with the big client, they have around 3,500 vehicles moving around in U.K. every day and most of them are not small. They are from medium to big, distributing goods throughout in U.K. The good thing, with such a big client is that if you have 3,500, give or take, vehicles and if you had 10 years of claims history, you have what we call 35,000 risk years. And it's a pretty significant database and it's rather reliable so you can analyze loss frequency and estimated average losses.However, it's a large loss component in U.K. which is bigger down in the Nordic market, which is difficult to consider but you have to set aside the certain kind of premium and/or buy reinsurance and we buy reinsurance to a slightly high price. So how can we win such a business and be profitable? It's easy. We are the cost leader in the world. So if we are equally good on quality and underwriting, risk relation and underwriting -- and risk management, how to take care of such a client, then we will win. But be aware of the fact that when we say that we will earn money on that client, that will be a very small margin at the beginning. Why? Cost ratio is high and reinsurance cost is high but then, we have to price on normalized cost ratios and normalized reinsurance. That's the reason why we have a 115% in combined ratio today and are pretty happy with 115%. We will earn money, but it's a matter of definition. Seeing from normalized point of view, good margin, the first year will be 0 or something like that because still our cost ratio is too high and reinsurance cost is too high in that area. But he who will conquer this world at the end of the day. It's cost leader, that's we. Yes?

[Unknown Analyst]

On the combined ratio guidance, could you give, sort of, expectation throughout the year? How we expect the quarters to develop?

[Sverre Bjerkeli, Chief Executive Officer]

Okay, so the combined ratio guiding throughout the years. It would be very differently distributed this year, compared with last year. Why? We changed reinsurance structure. So the very, very big commissions, reinsurance commissions you normally see in quarter 1, they disappeared. And some of that money will arrive later during the next quarters. But since we changed structure, the first year, you will actually lose out some kind of reinsurance or profitability margins on the property product as such. So your expectation, if we reach guiding on 96% is that in quarter 1, we will start north of 100%, that's expected. And then gradually, you will see improvements. Normally, you will see quarter 2 and 3 as the 2 best ones. This time, you actually could see quarter 4 very strong because the earned premium development will continue to grow every quarter. And the earned premium will be obviously at a highest level in quarter 4 in that area. So quarter 1 will be north of 100%. Then you will see some improvements in quarter 2, better in quarter 3. Normally quarter 4 should be slightly higher. It could be more equal to quarter 4. This is not exact science with reinsurance business, but it's a very good question. Thanks a lot, and we probably should have said it in writing. So declaring on the -- I think that we should follow up the kind of verbal statement in order to manage expectations around quarters in that. It has nothing to do with Protector in 2019, obviously, but how is the combined to distributed through the quarters. Thanks a lot.

[Unknown Analyst]

Could you please remind us about how the accounting is for the bonds portfolio? I mean, you had spreads widening during Q4 and you have quite a good performance there? Is it triggered by something or...?

[Sverre Bjerkeli, Chief Executive Officer]

No, quarter 4 situation is that we are not as much influenced as many others because we have slightly more conservative portfolio in quarter 4. So when spreads went out over A, AA, AAA portfolio was more kind of relaxed, we didn't had the same losses as others has in that 1 quarter there, nothing special at all in it. It's not the structural portfolio and what we have communicated to you that we have less high yield risk in the portfolio at the moment compared with an average for last 5 to 10 years.

[Unknown Analyst]

Now a lot of new model is coming, how will you invest that? So to be very specific, what do you think will be the share of equity you'll have in your investment portfolio?

[Sverre Bjerkeli, Chief Executive Officer]

Okay, so we are around 10% at the end of the year, and we won't be too sure about what we are doing. We are looking for good ideas. There are more good ideas today than a year ago or a half year ago because it has been more volatility in the market so we can see slightly more companies where we could expect a return on our equity size 20% when investing in that area. We are not taking down the hurdle rate it has been communicated during 2018 to even increase so I would guess that very careful increase from today's situation, but we will be more happy to go further if volatility increases in market and when we see the technical profitability in the company returns, which we gradually expect as you know during the next quarters to come. So you should possibly expect slightly higher than 10% but not a lot higher but we don't really guide on it, as you know. Any questions through the webcast?

[Unknown Analyst]

Yes, Carl has a question. What level of losses do you expect from the discontinued [ coy ] on a quarterly basis in 2019 and going forward?

[Sverre Bjerkeli, Chief Executive Officer]

Okay, so what kind of level of losses on the discontinued? Very limited because if we have reserved correctly, in theory, the losses should be 0. There could be some minor losses on the technical side that is not unlikely to happen, however, there will be some investment income on that running business, which should, kind of, outline a potential smaller technical loss in that area so I would say that you should expect 0 losses accumulated going forward in that area. But then you must also bear in mind that some of the investment income will not be allocated to the growing business in that area. So rounds 0 could be slightly better, could be somewhat lower but shouldn't be a difficult kind of number of targets arriving in that, not at all. More questions from the web?

[Unknown Analyst]

Yes, [ Andreas ] has a question. Do you have any plans for other markets as of now?

[Sverre Bjerkeli, Chief Executive Officer]

No, no other markets as of now. We have said earlier, Netherlands could be the next country could arrive in 2021 or 2022. We are not really moving. However, we are looking to recruit a couple of people from Netherlands to move to London or Manchester in order to potentially prepare for Netherlands in 2021, 2022 or later. But we are not in a hurry, fix the profitability issue in the Scandinavia area, make sure that whole market is strong, have a reasonably good control in what we are doing in the U.K. and then discuss it with the board here or from Norway 18 months from now or something like that. Mark?

[Unknown Analyst]

Peter, is wondering is management suffering from a period of too much growth and too little underwriting discipline?

[Sverre Bjerkeli, Chief Executive Officer]

I would say, no, but it's not an easy question. Remember, most of the weakening of the combined ratio has been expected and has been decided. We have communicated I guess 6, 7 years in a row that rate pressure in Norway do happen and it has happened and we have followed that market down. We are the cost leader so we can follow so that is planned weakening of the combined ratio. It has absolutely nothing to do with lost control of underwriting or losing anything. I think we improved on underwriting quality every quarter. So we don't see actually any issues in that area. I would say, no. That's okay? A final question from the audience, I apologize we are 7 minutes late.

[Unknown Analyst]

There has been one article in the media that a house with the insects has not fallen in price, although, it was norm. And also I've heard there are confirmed poison to kill it. Can you comment on that probably look at -- I'm sorry from...

[Sverre Bjerkeli, Chief Executive Officer]

The changed from almost -- if I understood, the gray silverfish. One, can you kill it? Two, can you re-sale the house without losing money? I would say, on the last question, yes, you can. We haven't only seen 1 house being resold to the same price, we have seen 5. And we haven't seen 5 on the other side. So it's a question about whether you lose any value on the house at all even if you had a small insect in your house. You can have a mosquito or you can have a gray silverfish does it influence on price? It's not proven, it's not at all. Can you kill it? Probably. Permanently? Probably. Can you prove it today? Some argues that they can. It's a bit early to say. We had a test house filled up with this bug, and then we got in and kill, and then we found out whether they are dead or not. At the moment, they are dead, but we have to wait potentially a year before we can be exactly sure in that area. So we are testing a lot of other people and companies are doing it. It's not an issue. It's a small bug. The Swedes are laughing over us, what are you doing in Norway. They say, crazy you, they say. But okay, we will try to fight it, kill it or prove that you don't really lose any money selling your apartment.Okay, thanks a lot for your patience then, have a nice day.