Protector Forsikring ASA

OSE:PROT

Earnings Call Transcript 2019-Q4

[Sverre Bjerkeli, Chief Executive Officer]

[Foreign Language] Then I turn to English, and I will say warm welcome to you, everybody, today. As you know and always have seen, when we do open quarterly investor presentation, we are starting with the DNA of the company, the 12 statements who are -- the guide to who we are and what we do. And I have marked 2 of the values of Protector this morning. One is credible, and the other one is open. I do understand that when delivering poor results to the market again after quarter 4, I do understand that we have a way to go towards you in order to build credibility on -- in you, so that you can trust that Protector will return to what we could call black territory and to a combined ratio in line with the long-term objective, which is 94. And you have seen that we are far away from that kind of target in 2019 and in quarter 4 2019. That is fact. It's history. We can't do anything about it. What we can do is to continue to stay open, be as transparent as possible, explaining to you where we are, where we think we are heading towards in that area. So please challenge me during this presentation with all your questions, difficult questions relative to whatever topic you would like. And I try to be as open as I always have been, or at least try to be. So is that a deal? Someone nodding, so that's fine. As you have seen, the combined ratio ended around 111% in quarter 4. And there are 3 main reasons why to -- there are poor results in Finland and in Norway, and I come back to a couple of other comments slightly later. At the same time, with the poor technical result in quarter 4, we had a good return on investment. So after 5, 6 quarters where we have delivered worse than benchmarks on the equity side, we have kind of had a good quarter in quarter 4, which resulted in a truly [air] investment return close to 0 on the equity side and a healthy return on the bond portfolio. As you can see from the slide, we continue growing in quarter 4 with 16%. And I kind of explain a bit later what kind of growth it is, but you can also see that the growth in local currency is very different because there was significant changes between NOK and other currencies in this quarter. So the growth in local currency, 6%, but in NOK, a lot higher. I'll be back on that one. As you know, we have a certain segment, which is in a runoff situation, the change of [indiscernible] area. And when we include the results from that kind of runoff business, the combined ratio on an annual basis is somewhat better. And the result pre-tax in total on a company level is NOK 23 million, which is kind of in line with what we announced in the message to stock exchange a couple of weeks ago. So these kind of slides are for comparison compared to kind of previous periods. So what happened actually? So if we go to Norway first, what you can see is that Norway delivered a very poor net combined ratio, both in quarter 4, both gross and net, 125% and 139%. And the reason why is because we have some kind of runoff losses in Norway related to the Other Illness product and Workmen's Comp in Norway, and we have a significant large claim on the property side, which increased a lot. So that is not a claim that happened in quarter 4. It happened last year, 2018, but the reserves on that property claim have increased a lot. Luckily enough, a significant part of that loss is transferred to the reinsurance treaty we have with the present reinsurance company. So that's the reason why you can see that the gross combined ratio in the quarter is a lot worse than net because a significant part of that kind of increase is sent to Munich. In general, I would say that there are poor results also kind of outside those 2 elements in Norway. So when entering 2020, Norway have a slightly longer way to go to return to strong figures compared with what we expected a quarter ago. And I'll come back and show you some other figures who can help you bridge between what is happening on an annual level 2019 and what's happening entering the 2020. Finland was a -- had a disastrous quarter. It is a small country. You should expect volatility, and it's a combination of poor results in many products and 2 fires in the school sector where 2 schools were put on fire by arsonists in the same municipality in Finland. This is more like what we would call a bad luck type of situation, but it happens. The thing is that we should have enough premium to cover, obviously, for the unexpected because this is not really unexpected on a company level. But if you look at Finland only, obviously, that will hit Finland in a quarter and in a full year. So the poor results in quarter 4 are linked to 2 countries, it's Norway and it's Finland, and I help you to understand slightly better on the next slide as well, or the next couple of slides arriving. In Sweden, Denmark and in U.K., quarter 4 was kind of as expected, meaning they delivered figures in line with kind of guiding that existed heading up towards quarter 4. If anything, they delivered accumulated slightly better than expectation. But also, we have some kind of runoff losses in Norway, but we have some kind of minor, I would say, runoff gains in Sweden, around NOK 20 million. So that supports Sweden a little bit. So I try to take a bigger picture on the reserve side, but what you should expect is what I would call minor reserve changes in certain countries every quarter. It's normal. But on a totality level, where do we go on the reserve side, that is a question some of you asked and which we have received from investors also up until this investor meeting here. So I prepared another slide, which is on the next page, in order to try to explain the reserve situation in the company as a total. If you're looking at the bottom part of the page here, you can see that the kind of things happening in quarter 4, it's not really very special is what you should expect. Volatility is a part of the insurance business, and we are in the commercial market. We have bigger clients. We will normally be slightly more volatile than a consumer-based company, like you can see there, or if [indiscernible] even if they have business in other segments with a lot of volatility as well. That is kind of drowned in the big figures from the consumer sector. So somewhat more volatility than Nordic companies, that's normal. However, the situation in 2019 and entering quarter 4 is that we have had too low margin of safety in pricing. And we have been too late to do enough on the pricing side, which I told you after quarter 1, quarter 2 and quarter 3, it can repeat again. And then I kind of comment on the situation now entering 2020. So when margin of safety gradually disappears through the year, you are more kind of challenged by what you could call pretty normal quarter 4 situation. But you don't have enough margin of safety, and it destroys a quarter. If you accumulate the results up to a annual level, we had a combined ratio of 103.8% and a growth size 19% and 18% in local currency. We have a solvency capital ratio of 168%. We had 164% after quarter 3. I think that some of you might expect that to go slightly downwards after a poor technical result in quarter 4. However, it went up slightly. I'll explain a little bit why. But the solvency capital ratio is very strong, and it's even stronger after quarter 4 compared with quarter 3. So it's absolutely nonissue at all around the solvency capital ratio. If you add on the discontinued business in Protector, we have done a profit before tax, which is close to 0 at the count of NOK 23.5 million, as mentioned, which is in line with communication 2 weeks ago. And including the change of ownership runoff business of a combined ratio, the formal figure of the company ends up at 101%. So you might remember both 101% and 103.8%, then looking towards 2020. And then I kind of start telling you the story, which hopefully builds some kind of credibility that 2020 will end up with a pretty good result. That's my expectation, and I try to kind of explain to you why that is my opinion, even if quarter 4 was disappointing. Before going into a bit more of a detail, I'm trying to take a slightly higher perspective, not look into the figures as such to try to explain to you what really happened on an overall level. And I think it's fair to say that the rate pressure, which we have seen and communicated for 3 to 5 years, even longer in Norway, has led to a -- in other segments, a rather poor overall profitability. You have seen and heard that other big companies in other market segments like Tryg do communicate that they are fighting through significant price increases during the second half year of 2019 and entering 2020. You can see that gives the same message. The daughter companies of RSA in the Nordic markets do communicate the same thing if a bit more kind of relaxed type of communication, like the big competitors of Protector in our market. As you have heard before, we have then, entering 2019, underestimated motor claims inflation. And I share a bit more of information how we view motor claims inflation entering then 2020. We have had poor management deliveries in Norway and Finland in 2018 and through 2019, and we have taken necessary actions on that area. So there has been management changes in Norway, where 3 out of 5 of managers running that business segment with NOK 1.5 billion annual premium, they have left their positions, and 2 of them have left the company, and the country manager in Finland left last summer. So it has been kind of necessary in order to take management actions in order to build credibility in that area, which we think can be strong enough in order to get back on track, deliver profitable volumes and continue to develop a healthy type of organization and healthy figures in these 2 markets. It hasn't been non such issue or situations, neither in Sweden, nor in Denmark, nor in U.K. in that area. So there, we have kind of stability. And the new team's up and running in Norway and Finland, which is not really a new team in Finland, it's more like 1, 2 persons here, but the new team is up and running in Norway. And the kind of -- most of these positions are filled with people who have a long background from Protector, and some of them have been transferred from the change of ownership area, where they have done a good job, but they have also been working in the commercial sector before. So the kind of new team in Norway is not new in the meaning that all people are from the outside world. Most of the kind of new people in Norway, they are well-known Protector managers, which I feel kind of more confident in that situation because there is always a question if you have too many new people on board, what will actually happen. It's good to say that the Grenfell Tower arbitration was closed during last summer. You have heard us telling the story that it has kind of consumed a hell of a lot of resources on key personnel that we will have preferred to spend on other activities. We have passed NOK 5 billion in premium, which means that if you compare with 4 years ago, we had half the size. So the only thing we have to do is to turn that NOK 5 billion into good technical results, and then we will deliver very good return on equity and shareholder return again. A small comment on the exit business. We won't talk too much about it and less and less in future. As you have heard in previous communication, the runoff takes slightly longer time. That's positive because the legislation, which will change the law in Norway, is postponed, and some real estate brokers would like to stay with Protector for a somewhat longer period of time to what we expect is a profit because prices have gone up a lot in that market. So volume ended up around 350 million, somewhat higher than expected, and it will end up slightly below 200 million this year, and we will then gradually go down to 0 during 2021. Half the tail has been sold basically without any cost from Protector side to a professional runoff player, supported by our investment bank in setting up a deal. I have the investment bank, on the left side here, helped us to kind of negotiate that deal with [indiscernible] who has taken off half the tail. So the good story here is that another professional party have looked into that kind of reserve. [indiscernible] the kind of reserves are around NOK 1 billion. It's meaning that another professional partner have kind of ticked off and said that reserves looks credible. I trust it and I signed a deal. Normally, you pay a lot to get such a deal signed. We did not. Their expectation is that they will earn on potential reserve earnings and/or return on investments. So if that develops good in [ May 2 ], then we share the kind of profits, and they will take care of their own return on investment, the other part of it on our side in that area. So it's kind of a risk reduction initiative, and I think it's kind of a credibility initiatives as well there. So that's the change of ownership. I think that the first statement on this slide entering 2020 is extremely important is that we know for a fact today that the rate pressure we have seen the last 5 years, give or take, a bit different in different Nordic countries, has during 2019, gradually turned to be stronger and stronger price increases, and that kind of price increase situation continue in 2020. And we know for a fact what the result is on price increases on the very big renewal date, January 1, 2020. So the market are drawing prices upwards in our business segments, communicated, as I said earlier, by more than one of the big competitors of Protector. Other price increases January 1, they were exactly 13.4%. And I kind of illustrate how we build up that kind of figure on a slide here just to give you example how do we build that figure, because it's not kind of taken from the air. It's a lot of work in order to get to that kind of pretty precise figure. As you have seen, AM Best have kind of not changed the rating on Protector. So that is the same as it was kind of 1.5, 2 years ago, when they last issued a rating statement on Protector, and U.K. is according to plan. U.K. is growing closer to NOK 1 billion annual premium. We'll pass that NOK 1 billion this year, and it's playing a more and more important role in the Protector totality. So U.K. is kind of on schedule. So what about the kind of price increases because we all know that aggressive growth in the insurance market is risky. Protector do have a history managing that growth in a very good way. We manage to balance. But what you have seen in the last couple of years is that we haven't managed to balance properly the growth and the technical profitability development, which you pretty often see when insurance companies are growing quickly. So what you can see now is that a pretty significant part of the growth is actually price increases on exactly the same clients. So price increases in 2019 is around 330 million out of NOK 466 million, which is the rough figure in the Nordic market. So -- which meaning that there are a more limited number of new clients arriving compared with history, even if growth is higher. Our expectation going forward is that the relationship between the 2 will continue to grow closer, so more or less, all expected growth in the rest of the full year in the Nordic market in 2020 will arrive from price increases, not from new clients in that area, which obviously must mean improved profitability, obviously. At the same time, U.K. continue on the growth rate even if in quarter 1, we had negative growth in U.K. due to one client, not lost, but increased deductible. We said a year ago that we got the biggest client in history of Protector out from U.K., and that client have increased deductible with a lot, and reduced premium to the half. That's not really an issue. We think we will have an acceptable margin on our client going forward, and that's up to the client to decide where the deductible level should be. But our expectation when it comes to growth in U.K. in the next quarters is obviously on the positive side. Very few clients leave because they have been there only 1, 2, at maximum possibly 3 years, and they tend to stay 4 years on average. So very few leave, and new clients is obviously arriving every month in the U.K. So when we have kind of guided on a more conservative growth path going forward, at the moment, we expect that price increases in Nordic is an element and U.K. is another in that area. The renewal rate here is a bit of a surprise, higher than expected, I would say. That figure, 93.4 (sic) [ 93.8% ], the definition of it is exactly as it always has been. So actually, it looks like the renewal rate is going up. But the only reason why it's going up is because of price increases. In previous years, prices have gone down. Rates have gone down. Now it's up. And that supports renewal rate. So if you are looking at the churn or the renewal rate on number of clients, obviously, we are losing clients. So we are losing some market share in the Nordic market at the moment, which is okay in that area. It goes to different companies in the Nordics, one more aggressive than any other in Norway, and a couple of them in Sweden. But in -- on the Nordic level, it's not really anyone sticking out very aggressively on a Nordic level in that area. But I -- as far as we understand, in other segments, companies like DNB in Norway, Allianz Forsikring Sweden are picking up market share at the moment, while others are losing clients and increasing prices like us. I think communication from Tryg is lost number of clients, strong price increases, same we say. But I think both Tryg and we lose some kind of market share in the segment, which is okay. We don't live our kind of market share. We have an acceptable market share in this market. It must turn into a profitable type of situation here. So growth now, U.K. and price increases, expect that also kind of going forward. Claims development. So on an annual level, we had the situation in Finland and Norway, which I've talked about. We have a runoff loss size, 1.2%. So I come back on next slide, and I'll comment on that one. That is not a significant figure. You shouldn't be worried about the reserves. It is only minus 1.2%. And it shouldn't be a big issue to be nervous about. The large loss element is around 500 million on an accumulated gross in 2019, which possibly is somewhat higher than normal. But to estimate a normalized large loss ratio is not very easy for a fast driving company with different products in different segments and countries. So we said to you 1 year ago that we may reconsider whether 7% is somewhat on the lower side or not entering a new year. And we are doing our calculations now as we speak in order to check out. My expectation is that the estimated large loss element will be slightly higher than 7% going forward, potentially 1 to 3 percentage points higher than today. It's not really an issue relative to the expected profitability. It is only kind of a volatility element in that area. We have had a gross large loss situation in last year, which is around 10%. That accumulates to a combined ratio around 103.8%, or 101% if you are getting into the change of ownership and adding that kind of business as well. So if the large loss normalized element is going up to 9%, that's in line with last year then. So it is not really kind of important. But in order to help you to understand what we should expect from that element and what kind of volatility we should expect, and where we have had bad luck or positive luck or being on the lucky side, it's a bit more easier to see that yet, because obviously, if you have 7 out of 8 quarters, which is above 7%, you start to think that you are not estimating the large loss rate properly, which is absolutely possible that we haven't. So expect that to be 8%, 9%, potentially 10%. I will be surprised if you come back and say that, that large loss element is anything above that. But we have to do the mathematics first. That type of mathematics is normally to do in the insurance business when you negotiate reinsurance contracts. So it's nothing extremely sophisticated about it. It's pretty straightforward, but we are not straightforward because we are fast growing in many countries with many products. So calculation is easy. Company is developing. That makes it a bit more unpredictable on oversight. When it comes to the reserve situation, I say you shouldn't really worry on the reserve situation in Protector. We have around 2% on the positive side in 2017, around 2% in '18, and around minus 1.2% in '19. None of them are very significant. If you go back in history in Protector, when we were smaller, the volatility was bigger. This is not what you should expect in a strange year going forward. We were smaller in 2006 a lot, and we were obviously a lot smaller in 2013, more like NOK 2 billion in annual premium, not NOK 5 billion in that area. What we have discussed with you before, on the Capital Markets Day in November 2018 and what we share with you today is that we have been, historical to date, pretty prudent on the reserve side. So if history repeats itself, you shouldn't worry. And for the first time, we will deliver runoff reserves on a company level accumulated into different product groups and make that available Monday, the 17th of February. So if you don't trust the message I'm giving here today, feel free to enter the spreadsheet available figures and do your own mathematics on the reserve side for -- in history of Protector. So back to 2005, that's history. Started in 2004 and had basically nonbusiness in 2004. So on the research side, I'm relaxed. Yes, in Norway, quarter 4, we had some losses. In a bigger picture, it's not really an issue. Do you trust me on that? So would you like to pop in a question on the reserve side? I got them in advance. Made this slide in order to try to respond to questions right before this investor top of meeting. Nothing to say about the cost development. We are #1 in the world. Continue to be. I saw Tryg give a good statement in their figures that they said that -- they didn't say that they're a cost leader in the world. They just indicated it. They said that look to Scandinavia and you will find the most efficient insurance companies in the world. And I do agree. I think they talked about themselves and Protector. That's kind of why I've read the statement from Tryg, but you can probably then ask them on that. I do agree that Tryg is very, very good on the cost side and that many other Nordic companies are as well. So we are better in the Nordics in order to run an efficient kind of setup. And I think it has something to do with the challenge in the Nordic market that we, relatively speaking, have small markets. And we have to get our hands into all insurance policies from each and every client. So we have to because we don't have a kind of critical mass to go product by product towards the market. So for historical reasons, we have been forced into a corner to develop a different value chain and establish a different market situation in Scandinavia. So it's not because Scandinavian people are better people, it's because there are differences in the market that we understand. And if you are living as an insurance company in London, you can act very differently. But that is added cost. That's their way of doing the business. And that's the reason why our competitive advantage arriving from Scandinavia to U.K. is very, very significant because we are up against very high cost ratios in the U.K. market. So cost is not really an issue. And this is kind of the profitability picture entering 2020. Poor in Norway, very poor in Finland, kind of not good enough in Sweden, but not really a big issue. Some smaller runoff losses, Workmen's Comp Denmark, a couple of property losses, not big issues in Denmark. I think Denmark will have an underlying situation continuing to improve. So what we are doing is fixing up Finland and Norway and are kind of continue our development in Denmark, which is now is close to NOK 1 billion annual premium. Sweden, which is 1.5, and have passed commercial sector Norway with NOK 10 million for the first time in history. So Sweden is bigger than Norway. Made a point this morning when I had state of the union to the employees about that, and we'll obviously congratulate the Swedish when I go to Stockholm then next weekend. So if we start here and go towards 2020, this is what we -- this is what is kind of is important. So what you have heard and what you have seen is that we have kind of demonstrated that prices are going up after quarter 3 with 10.8%, 13.5%, 7% and 10% on an accumulated level in different Nordic markets. Quarter 4, 11.2% accumulated. That did end up in 10.5% on average in 2019. You can see 13.4% arriving on January 1. You who know insurance business, you know that to get the price increase up is fine, but you earn the money 1/12 at a time. And you have to give a statement to the client 2, 3, potentially 6 months before the policy is renewed. So from the session, it takes from 2 to 6 months to increase prices, and then it takes 12 months to get further effect of the price increases. So if an insurance company is in trouble when it comes to the combined ratio, it normally takes around 2 years to solve because of that delay process. We don't sell anything that is booked immediately. It's booked close to -- exactly like the risk will run off, which is 12th every month, give or take, in that area. So if you are late, if you even have discovered you are late than 2 years' period of time in order to fix profitability on the insurance sector is pretty normal. If you are brilliant good, it takes only 18 months. If you are -- if there are more unexpected situations arriving and/or you don't really see what's happening here, it takes more than 2 years. Now we have 2 bad years behind us, to a certain extent, also influenced by the very significant prices last year, but underlying reality was poor last year as well. So you have seen 2 poor years in Protector. If you accumulate 10.5% and 13.4%, let's say go somewhere in between, let's say, 12%, and if you have claims inflation size 4%, which is our best estimate of claims inflation going forward, 7% in the motor area, more like 3% in personal lines of business, 2-point-something on the property side and if you mix our portfolio, you will, give or take, end up at 4%. So we are, give or take, entering a new year with price increases through the year. So it's starting to work. If we have had 0 here and 13 here, it takes time. Those 2 are pretty close, meaning that somewhere in between here, around 12 is the estimated full year effect of 2020. So everything else equal, it's normally not, but everything else equal, your 12 minus 4 is 8. And then you start with what we had last year, you subtract 8, and you will end up with some kind of a view on the combined ratio next year. Bear in mind 2 other elements. One, we have been through 2019 with a change of reinsurance structure from a quota share contract to a normal excel-type of contract. They lose technical profitability in the transition year. This has been explained to you before. If you would like, you can ask questions after the meeting. We can explain it again. You lose the [indiscernible] 1.5 to 2 percentage points. So again, everything else equal, you have potentially 8, potentially 1.5 to 2, and you start from 103.8%. Obviously, everything else is not equal because we lose clients, new clients is going onboard, and something could happen on the positive side or on the negative side. So this is not kind of a guiding, but it is a kind of a back of the envelope, pretty easy to understand calculation of how we might develop. And that is the reason why I'm saying that my expectation is that we pretty quickly will move towards a long-term target, which has been and still is 94 on the combined ratio side. Quarter 1, normally worse because of seasonality effects and earned premium development, that will grow through the year. Why? Quarter 2 and 3 will be better. Quarter 3, normally the best one, and then you are back, not like quarter 1 and quarter 4, but there are seasonality effects in Protector and in most other companies as well in that area. So this is a very, very important slide. I have added some kind of information on the next slide, which is not sent to the market. And that's kind of not a very important slide, but only to tell you a little bit about the granularity, that was a good one, behind. Because to say 13.4% is easy, but we have a very, very thorough reporting system. How much volume to renewal? January 1 in Norway, 753.4 million. How much do we lose? Are they profitable or unprofitable? What is index price increases? [ 700 ]. How much does that accumulate to? What are general price increases? Everybody is getting [ 5 ] up. That is a general price increase. How much individual price increases do we see? And what kind of influence do the increased deductible have on profitability like the client in U.K. I mentioned? And there are other profitability improvements. So what we follow up is all these kind of 5 elements. We communicate a price increase to the market and we are getting acceptance from most clients, but some do not, and then we have a dialogue. We might change slightly. And then we follow-up on exactly what kind of price increase did we get in quarter 1, 11.7%; in quarter 2, 8.0%; first half year, 10.7%; quarter 3, 12.2%; quarter 4, 16.2%; second half year, 13.2%; the full year 2019, 11.4%; January, 13.4%. We have a view today on February and March, and the only thing we expect is that it looks good in that area. But January is good as well. So it's nothing new here. We follow that on 3 different segments: Commercial segment, Public segment and Affinity segment. And we are looking at auto, property, other property and casualty products, Workmen's Comp, group life and other employee benefit type of products. So this kind of follow-up methodology is implemented in Protector and building up to this slide here. And it's a learning exercise, which is important in order to follow-up with that kind of granularity. Sweden, sorry -- so -- and below that level, then we are looking at client number 1, 2, 3, 4, 5, 6, 7, 8, 9 to 20 or deeper down. And these are real clients with last year volume 11% or 4.8% or 3.3%. And what happened with the different elements and what was the kind of result. So what you can see is individual price increases realized from 58.1% to 0.7% at the lowest in that area. So it's not like in consumer sector, where you add 10% or 6% or 4% price increase on everybody, give or take. This is kind of a bottom-up kind of exercise, which you have to monitor and follow-up pretty closely here. So that's what we do. And this is Sweden, and we have Finland and we have Denmark and we follow-up on a monthly basis. So to me, it's important as a follow-up kind of mechanism in order to go deep down, see what's happening, get up again and accumulate type of figures. So that is the most important slide in this presentation looking forward. Questions? Yes?

[Sverre Bjerkeli, Chief Executive Officer]

On the investment side, if that's okay, this is kind of -- it's -- the portfolio is growing. After a poor year, buyback of shares in 2018, as expected when you grow your balance sheet growth and the investment portfolio is growing. And you have seen the results on the investment side, which sets us up pretty good in quarter 4. And if you're looking at the equity side after 4 quarters, we delivered them finally a good one in quarter 4. And this is kind of a comparison since we sourced in our investment or investments in quarter 4 2014 picking up a little bit here.Yes. So if you have 1 billion invested here to this point and if this is kind of -- this is the different Nordic markets, if you're averaging this to around 70, so we are on 102, and the Nordic market is on 70, the difference is 30. And if you multiply 30 with 1 billion, it's 300 million. So the kind of accumulated equity result above benchmark in this period is plus 300 million. Whether that is on a good luck or skills, it will take another, how many, what would you suggest? 20 years to find out that, or maybe never. But we have a methodology, which I think we have a good team. And the results here is good in quarter 4. On the bond side, we have a very kind of low-risk type of portfolio. And we are happy with the return on the bond portfolio in 2019. And very important is that the capital consumption relative to the portfolio, which we explained for you kind of last quarter, is very low. So to do -- to go to one of you and to pit over bond investments we do is -- could be a good idea, but you are not fully being up, understandably, on the solvency capital requirements, which we as an insurance company have to follow. So if I go to good companies like you and place my bond portfolio with you, that costs more money without any expectation of a better return. That's the reason why I think we will continue to manage the bond portfolio basically in-house forever, unless regulations are changing or you -- some of you are specializing on putting up bond portfolios, which is targeting solvency related companies like us in the insurance business. You may see that happening in the future. It's not to rule out that we could buy us into some of you, more than them, but we are happy it's low-risk portfolio, and it hasn't been any kind of incidents in 2019 to speak about in our bond portfolio. That ends up in a kind of profit and loss statement that you have seen with and without change of ownership. Our balance sheet is strong. And the reason why we went up is that we have an after-tax result, which is slightly better than what you would expect because the equities did good in quarter 4, which is free of tax in our investment portfolio. So the tax is lower than expected, what you normally would expect. That goes all the way around if you have losses on the equity side, and tax is higher than what you would expect in that area. So that's the main reason why we are picking up from 164% to 168%, but there's also a change on discounting rate, which went the opposite direction compared with last summer in that area. Then we went down a little bit because of and not up a little bit, and that is kind of decided why authorities are not buying Protector that area. So we are -- we have a strong solvency capital ratio. And we have kind of said to you that expected growth the next 3 years are more like single digits. I'll come back to a more precise figure. It's not really meant to be that precise. But okay, it is anyway. So capital needed for growth is kind of more limited with the kind of expected growth we have to go forward for the next 2 to 3 years. Top shareholder here. So as you can see Awhilhelmsen Capital Holdings, they are [indiscernible] on -- so congratulations, or the other way around, depending on how you see your investment in Protector. So they are obviously in the room. Thanks for meeting us. We have done one change now on the long-term financial objectives, taking down the expected growth rate to kind of -- we could have said 0 to 10 because what we are finalizing is that profit must be first. It has been our ambition all the time. It's nothing really new, but we must be even more serious about what we're doing on the profitability side, taking down growth expectation looking 3 years ahead in that area. You saw that we were around 5, slightly below in quarter 1. Quarter 1, the very -- or January 1, the very big volume date, half the volume of Protector is slightly below 5. What about the rest of the year? Give or take [indiscernible] in that area. Obviously, 5 is too precise. We can't know, but we are saying that you should expect for a period of time, which is long-term defined around 3 years. That growth expectations are lower than what you normally see. So the good story. It is a signalizing potentially something around discipline and profitability, et cetera, but it will take a longer time to double the size of the company, which we have done in previous years. We will not then give kind of a precise statement on a guiding for 2020 as such. So the previous guiding history of Protector has been kind of saying something pretty precise about the first year and the first year and the first year. So we have NOK 5 billion annual premium, but we prefer not to go to a situation where we only are stating long-term targets. And then I do understand that to rebuild your credibility on the profitability side, we need to deliver 2 or 3 good quarters. We do understand that, starting with the credibility and the openness, which I ended -- started this meeting with this morning. AM Best have confirmed the right thing. And the summary is that we have seen rate pressure in history that has influenced our Nordic profitability. We have done our own mistakes. There have been too many, and we are working to fix the kind of different problems. And I think we haven't finished that. That's too optimistic. But we have delivered a lot, like 13.4 percentage points price increases, both in Norway and on the Nordic level accumulated January 1, 2020 here. We have seen a very strong growth the last 10 years. You should expect lower growth in the next years to come. And my expectation is that Scandinavia will be back on track in 2020. I'm not that optimistic on Finland. But it's only kind of 3.5% of the totality of the company. It may take slightly longer also due to the fact that there are some insurance contracts in the public sector who are long term, which is market standard in that area, where it's not that easy to pick up prices area -- in that area. That's not -- that's a minor issue. But to manage your expectations like when it comes to Finland, don't expect necessary anything below 100% on the combined ratio in 2020. And U.K. is according to plan. Last year volume was NOK 853 million, written premium. Earned premium is now growing quickly. We obviously expect more growth to arrive from the U.K. side. And then feel free to pop your questions.

[Unknown Analyst]

Go back on slide [indiscernible] we have price increase 16%, [indiscernible] of how you ended up in this pricing so dramatic.

[Sverre Bjerkeli, Chief Executive Officer]

Absolutely. So the question's very relevant. If you have a price increase of size 60, did you do something wrong? When you underwrite it and then you risk evaluated that line 1 or 2 or 3 years ago, probably yes in that area. It's not necessary, but normally, the answer is yes in that area. So to do post-underwriting analysis when these kind of figures appears, obviously, we must not. What -- did we do something wrong or did we not in that area? So post-underwriting exercises is important. And we are obviously -- we know -- I can explain in a lot of detail the reason why we're not there with that client, won't share it with you. I know the client. I know the name. I know why we ended there. I know why we made the mistakes. And I think we learned from it in that area.

[Sverre Bjerkeli, Chief Executive Officer]

Do we -- Armand, we have a new IR kind of responsible, Armand here. So have you received any questions from the webcast side?

[Unknown Executive]

Yes, we've got a couple of questions. So from Mr. [indiscernible], he's talking about pretty bad underwriting results in 2019, and our countermeasures appearing not to be as good as we would hope. And then he asked if our underwriting resources is inadequate? Or if -- how we could strengthen them.

[Sverre Bjerkeli, Chief Executive Officer]

Yes. So whether our underwriting capacities and competencies are good enough. I think I've explained pretty much about what went wrong. And I would say that I'm happy with the underwriting capacity and competence in most countries today, adding some competencies in Oslo. So we are out there in the market looking for kind of 2 new people to add to the competence we have -- are kind of don't have sufficient capacity on. In the meantime, Oslo are asking for support from Stockholm in the kind of areas where we think we lack what is needed. But pretty happy on the situation. It's not really the key issue at the moment. Another one?

[Unknown Executive]

Yes. So the second part of his question is about Protector's ability to keep up with new technology in the insurance business, for example, machine learning and Internet of Things.

[Sverre Bjerkeli, Chief Executive Officer]

So the question on the IT side, I think we are well positioned to develop our new -- our own systems, which I think is important, and it gives us better flexibility. I think that most of the sophisticated AI technology that will arrive out in the insurance industry the next 10 to 15 years will arrive targeting the consumer sector and not really the medium to large corporate client segment. My first AI seminar was in 1988 in Brussels with Big Blue. It didn't happen that much between 1988 and 2018. So we are not very worried. We are following up, and we'll be fast followers if anything interesting will appear in our segments. We don't really worry.

[Unknown Executive]

Last question from [ Mr. De Gruber ]. He asked if we expect increased building fires in the Nordic market and if we set enough premium to cover the expected large loss claims.

[Sverre Bjerkeli, Chief Executive Officer]

Okay. So what about the expected large loss element on the property side in the Nordic market, I commented on the fact that we have an estimated large loss scenario around 7 from up until today. We may go up 1, 2 or 3. It's not the biggest. It's not really happening in the Nordic market. The safety -- fire safety situation in the Nordic market is basically equal if you look back. There are some volatility. You saw a big fire in Stavanger a few weeks ago. So that was one of the biggest one in the Nordic the last 12 months. So there will be some, but it's not really an issue. If it will be, it's a reinsurance than the very significant ones. Let's go to the international reinsurance market. So thanks a lot for your patience. Okay. One more, [ Kirsten ].

[Unknown Analyst]

If your gross written premium is expected to go back 5%, and you have 12% premium increase, that means you're expecting 7% loss of existing businesses.

[Sverre Bjerkeli, Chief Executive Officer]

Net. Yes.

[Unknown Analyst]

And if you're going to make 700 million in the U.K., that means you're going to lose that amount in Nordics.

[Sverre Bjerkeli, Chief Executive Officer]

Correct. So the level of lost clients will be higher in the Nordic market and...

[Unknown Analyst]

10% of your [indiscernible] business...

[Sverre Bjerkeli, Chief Executive Officer]

Say again?

[Unknown Analyst]

So 10% of the Scandinavian business you expect to churn.

[Sverre Bjerkeli, Chief Executive Officer]

More. More. Normally, you have seen that closer to 15, and it could be slightly more than 15 as well on that area. So you basically are doing the mathematics correctly and you understand the situation. So to lose clients at the moment, that's acceptable. I think that our cost advantage gives us a very strong position in the long run to compete in the market. So I don't expect to lose market share will continue for many years. It is a rational market. And some of those who are picking up volume at the moment, they will lose money on it. That's our expectation. And that volume will come back in the market 2, 3, 4 years from now in that area. So in the long run, we're very happy with our competitive position. Yes, one more.

[Unknown Analyst]

When you look at the individual review, in the case for the review or the miss that you have, is that ever looking [indiscernible] last year?

[Sverre Bjerkeli, Chief Executive Officer]

Say again, I didn't catch it.

[Unknown Analyst]

If the price is low to win business, do you think you're going to make...

[Sverre Bjerkeli, Chief Executive Officer]

Oh, did we do that?

[Unknown Analyst]

That's the question.

[Sverre Bjerkeli, Chief Executive Officer]

No. So the question is whether we undercut prices in order to increase prices to earn in the long run. The problem in the long run in other segment is it's only 4 years. So that will basically never ever happen. So any new client arriving, we -- and should be profitable year 1. So that's the kind of the underwriting philosophy. Extremely seldom you see a situation where we may accept a small loss in the first year, but then you need to have a hard contract linking the client or the group to you for 3 or 4 years with a price increase mechanism, which you can calculate. So it's theoretically possible. There are a handful of such deals out there in the market every year, 5 out of 500. So the standard underwriting methodology is always profitable year 1. Obviously, you do more mistakes from new clients than on old clients. But that's the underwriting guidance for all employees in Protector.

[Unknown Analyst]

So one of the main reasons for the mispricing on 50%, 60% in general.

[Sverre Bjerkeli, Chief Executive Officer]

That is a question which need to be addressed on a very detailed level. I can't do it in this meeting, it could be various difficulties in order to find the right rate in a portfolio. Something could be even close to fraud, where client and/or broker are delivering full claims history information to us that exists, so it may be up until a fraud situation in diverse situations. And then you have a large range of situations that may end up in a post-underwriting review saying that we did some kind of mistakes in that area. But as you saw on the list, you saw 40, and you saw 3 with very, very significant price increases. So it's not a huge number. It is not in that area. But in such a meeting like this, it's not really -- it's very difficult to be very precise on the question, and we have to go deeper. And we're happy to do that. It's not really any secret, but then it must be outside this kind of meeting. I apologize for being over time. And thanks for your patience, and have a great day. Thank you.