Storebrand ASA

OSE:STB

Earnings Call Transcript 2021-Q2

[Kjetil Ramberg Krokje, Head of Investor Relations]

Good morning, ladies and gentlemen, and welcome to Storebrand's first half call presentation. My name is Kjetil Ramberg Krøkje, and I'm Head of Strategy and Finance of Storebrand. As usual, CEO, Odd Arild Grefstad, will start with the presentation of the main points of the quarter. And afterwards, CFO, Lars Loddesol, will go deeper into the numbers. After the presentation, the operator will open up for questions. To ask questions, you need to be dialed into the meeting. Dial-in numbers are to be found on the invitation and on the Storebrand Investor Relations website. With that short introduction, I leave the word to group CEO, Odd Arild Grefstad.

[Odd Arild Grefstad, Group Chief Executive Officer]

Thank you, Kjetil, and welcome this morning to this presentation. I'm very pleased today to present for you a historical strong result for Storebrand for the second quarter 2021 of NOK 1,353 million. This is driven by a continued underlying growth within Savings and Insurance combined with disciplined cost control and increased profitability within the Insurance segment. Reserves in Unit Linked grew by 26% compared to last year driven by growth in premium income and also a market return and very strong new sales. A milestone is passed this quarter as Storebrand now exceeds NOK 1,000 billion in assets under management. This represents an 18% growth in assets under management from the last -- during this last year. Within Insurance, the annual portfolio premium also grew by 18% compared to last year. Storebrand's solvency ratio weakened by 4 percentage points from last quarter to 172%. The decrease is due to falling long-term interest rates in the quarter and increased regulatory countercyclical stress factors. This is offset by a strong group profit after tax. The overall customer buffer capital level strengthened to more than 12% of the guaranteed customer reserves. The financial result is positively affected by a gain of NOK 546 million in the quarter due to the divestment of the shares in AS Værdalsbruket. Given strong investment performance in Skagen and Delphi in the first and the second quarter, the performance-related cost is already booked while the matching NOK 230 million in performance fees is not recognized under IFRS. These performance fees will be booked at year-end. So this means if we have closed the books after the second quarter, we would have NOK 230 million higher results year-to-date. Moving to Storebrand's strategy. Storebrand follows a twofold strategy with a compelling combination of self-funded growth in the front book and capital return from a maturing back book of Guaranteed Pension. Storebrand aims to be the leader -- leading provider of occupational pensions in both Norway and Sweden to build a powerhouse in asset management, a Nordic powerhouse, and continued fast growth as a challenger in the Norwegian retail market for financial services. The combined synergies stemming from capital, customer base, cost and data across the group provide a solid platform for profitable growth and value creation. The ambition is to deliver a profit of about NOK 4 billion in 2023. Storebrand also continues to manage capital and back book with guaranteed products for capital release. This leads to our dividend policy of growing ordinary dividend from earnings as well as an estimated capital release of NOK 10 billion towards 2030.Moving to the strong growth across the future Storebrand. Unit Linked reserves grew by 26% compared to the second quarter in 2020. The growth in Unit Linked Savings is driven by premiums from existing contracts, new sales, investment returns and increased savings rate. Within retail Unit Linked, we recognized a 42% premium growth year-by-year. Assets under management in Storebrand Asset Management increased by NOK 157 billion or 18% compared to last year. The growth is driven by positive net flows from new sales as well as market returns. Within Insurance, the annual portfolio premium grew by 18% compared to last year. The premium growth is primarily attributed to retail P&C Insurance due to the strong contribution from sales agents, distribution partnerships and the acquisition of the customer portfolios from Insr. Growth in P&C and individual life portfolio premiums amounted to a strong number of 48% compared to last year. The bank lending portfolio increased by NOK 2.7 billion or 5% to NOK 54 billion during the second quarter. Compared to the same quarter last year, the growth was 15%. The portfolio consists of low-risk home mortgages with an average loan-to-value of 55%. Moving to Asset Management. The positive flow continues for Storebrand Asset Management from an increasingly share of external clients. In the quarter -- in the second quarter 2021, Storebrand for the first time exceeds NOK 1,000 billion in assets under management. The growth in 2021 has been NOK 75 billion, NOK 36 billion stems from external institutional clients. And we also recognized strong growth from retail customers. In total, now 44% of the assets under management is coming from external clients. Noncaptive assets now it's more than 44% of the assets under management is coming from external noncaptive assets. And this is a radical difference from 2016, where there was only 24% of the assets stemming from the external noncaptive assets. This transformation in business model has led to growth with stable fee margins. The fee margins in 2021 is 18 basis points, which could be compared to 17 basis points in 2016. In the second quarter, Storebrand finished a successful transition to cloud for Storebrand Asset Management. This has been a 14-month large-scale transformation project. It has included full consolidation of existing data centers for asset management and implies a shift from traditional infrastructure to fully automated cloud services. The purpose of this transformation has been to build a cost-effective and scalable platform for further growth and development. Storebrand continues to hold the #1 position in sustainability in the industry and the region. We continue to push the agenda forward. In 2021, we have continued engagement in nature and biodiversity issues as part of the working group for task force of nature-related financial disclosures. We are also continuing our growth of sustainable tonnes internationally. And the Central Bank of Ireland has approved Storebrand ESG Plus to be launched on AMX in August. In the 2021 Prospera surveys, Storebrand strengthened the position as the #1 sustainable brand. 100% of our investment undergoes rich sustainability screening. And in more than 10% of the assets under management is in green solution company. Last but not least. Coming from a challenger position in the Norwegian P&C market, Storebrand has grown steadily over the past 8 years, with high single-digit organic growth in portfolio premiums and increased market share in the prior period. The performance is due to our strong position in the market, where we are able to leverage a strong brand name with significant customer product and capital synergies. Over the past couple of years, we have increased the focus on cost sales and since December 2020, we have transferred approximately NOK 550 million from the Insr transaction. In total, we expect NOK 700 million to be the converted volume during 2021 from Insr. It is satisfactory to see the strong growth in Retail P&C with a steady growth in market share, now increased to 5.2% by the end of the first quarter. And with that, I leave the word to our CFO, Lars Loddesol.

[Lars Aasulv Loddesol, Group Chief Financial Officer]

Thank you, Odd Arild. Good morning, ladies and gentlemen. Storebrand delivers a solid set of figures for the second quarter and first half of 2021. All business areas are performing well, financial markets have been generally good and our risk management performance, according to plan. This means strong results and a solid balance sheet. Let me start with the key figures. The underlying operating profit adjusted for performance-related expenses of NOK 68 million is at an all-time high of NOK 754 million. In addition, the financial result is strong at NOK 667 million, including profits from the announced sale of Værdalsbruket of NOK 546 million. The solvency numbers are slightly down to 172%, following falling interest rates and higher regulatory stress factors. The regulatory solvency does not contain any transitional capital. Importantly, the customer buffers are at all-time highs which leads to stronger risk capacity for customers and better protection for shareholders and customers for potential future financial market volatility. The solvency position ends the quarter at 172%, down by 4 percentage points. Model and assumption changes are neutral. The fall in Norwegian interest rates caused a reduction in solvency of 5 percentage points. This is slightly higher than what can be read from the Q1 sensitivities due to a twist in the interest rate curve. Lower volatility adjustments by 3 basis points in Norway and 1 basis point in Sweden had a negative impact of 2 percentage points while the higher equity stress, now at 45%, caused another negative 2 percentage points. Importantly, this also leads to higher solvency protection on the downside to the equity markets rate. Strong asset returns and strong quarterly results gave a positive contribution of 6 percentage points. As usual, we set aside for future dividends quarterly for a final solvency at 172%. This falls slightly behind market consensus, which may be a result of the interest rate fall at the end of the quarter and reduced volatility adjustment led by EIOPA after the end of the quarter. The sensitivities described here show strong resilience in different scenarios. I would like to emphasize that Storebrand aims to reach a solvency above 180% during 2022. Lower interest rates make this more challenging but we will continue to strive to close the gap through measures that we have at our own disposal. Fee and administration income continues to grow strongly at double-digit levels. The Insurance results are picking up after a period of weakness with no extraordinary claims in the quarter and a positive development from growth and price adjustments. Importantly, we see that the employment market has started to recuperate towards the end of the second quarter, which leads to expected improvements in reactivation and disability results going forward. This is in line with previous communications. Despite including NOK 68 million in performance-related expenses in the quarter, overall reported cost remains well under control and below the run rate of our guided NOK 4.4 billion for the year as a whole, excluding performance-related expenses. We do expect the cost level in the second half to go up in line with increased economic activity but within the previously guided -- guiding of NOK 4.4 billion. Financial items are particularly strong, including a gain of NOK 546 million from the sale of Værdalsbruket. The profit from the sale of shares in Værdalsbruket is tax-free. Combined with lower taxes from our Swedish operation, this leads to a very low tax charge of only NOK 52 million for the quarter. Our normalized tax rate remains at 19% to 22%. This picture shows the same results as the previous page, now broken into the profit area, Savings, Insurance and guaranteed. As you can see, there is a positive development in all areas. The Savings area shows continued good growth in earnings despite margin pressure. The reported cost is up primarily due to higher reported costs related to good performance in our funds with performance fees. The corresponding profit from good performance will be booked in the fourth quarter according to the IFRS accounting rules. All business lines show satisfactory growth and profitability. The earned but not booked performance fees in Asset Management year-to-date are NOK 230 million. This means the best half year value creation in the Asset Management section on record. The growth is further illustrated here. But since Odd Arild has already commented on some of the important parts, I will move on to Insurance. Insurance continues its strong growth, partly driven by the acquisition of customers from Insr but also from price adjustments and partnerships as well as on sales. We have increased the number of people to handle the growth, as previously announced. Still, there is good cost control and a stable cost ratio. There are no significant extraordinary claims in the quarter. The disability results, which have been weak since the beginning of the COVID-19 situation, show signs of improvement towards the end of the second quarter, and we hope to be able to report a gradual improvements from here on. The combined ratio of -- at 91% is within the targeted level in the quarter. The growth is particularly strong within P&C and individual life. At the end of the second quarter, we had signed up NOK 553 million from Insr clients, and we now expect a total acquisition of around NOK 700 million in portfolio premiums, somewhat ahead of the original business case. The portfolio shows satisfactory profitability and relatively low turnover. The guaranteed area delivers strong results. The operational results continue to be stable. The inclusion of new customers in the public sector in the beginning of the year as well as a takeover of a small private closed pension fund with solid buffers drive fee and administration income. There is strong cost control. High buffer levels across the different products combined with continued good financial return leads to profit-sharing in some portfolios as well as reduce the capital contribution in Sweden. The guaranteed reserves have now reached just below 50% of total pension reserves, continuing the long-term transition journey in Storebrand. The remaining liabilities have gradually lower guaranteed rates of return, lower duration and better asset-liability matching through long-term investments in long-dated fixed-income instruments. The buffer capital is at all-time highs, ensuring the guaranteed rate of return to policyholders and protecting shareholders. And the high buffer capital level, as we have seen this quarter, is gradually lifting expectations of profit-sharing in the guaranteed products, which may make them more profitable in the coming years. Under Other, the financial results is primarily driven by the profit from sale of shares in Værdalsbruket, as communicated. And with that, I leave the word to Kjetil.

[Kjetil Ramberg Krokje, Head of Investor Relations]

The operator will now open up for questions. Remember that you need to be dialed into the conference to ask your questions at this time.

[Operator]

[Operator Instructions] And the first question comes from the line of Peter Eliot from Kepler Chevreux.

[Peter Eliot, Head of Insurance Sector Research]

Three questions as normal, please. Okay. The first one, you hinted just now that you might have some tools or you might think about using some tools to boost the solvency ratio to reach 180% next year. Could you maybe just remind us how you're thinking about those tools at the moment and what you have available? I guess you've -- you obviously mentioned the various ones before, debt reinsurance, ALM, internal model, et cetera. I'm sort of thinking that the debt lever, I guess, you've already pulled to an extent, and I don't know if there's any more you think you can do there. The internal model, I guess, will take some time to come into effect. So yes, it'd just be useful to think about how you're thinking about those various levers. The second question was on net flows. The NOK 24 billion year-to-date, I think, is the same number that you showed at Q1. So I guess Q2 was 0 in aggregate. But I was just wondering, could you just maybe -- is it possible to break down and especially the NOK 14 billion of noncaptive net flows, break it down by segment, where they're coming from and maybe give some hints on Q2 as well? And then finally, just looking at the solvency sensitivities. I was a little bit surprised by the equity sensitivity, which basically seems to say that if equities fall by 25%, then the without transitionals ratio increases by 2 percentage points. So I just wonder if you could confirm what's happening there and exactly what your net equity exposure is.

[Odd Arild Grefstad, Group Chief Executive Officer]

Peter, with respect to the solvency tools, we talked about that at some length at our Capital Markets Day, and you comment on all the right things. So we will continue to work with the toolbox that we have. And you already mentioned the available tools for us. So we don't want to go into any further detail, but we still have availability to work with those tools. In terms of net flows, we have had good sales, both in alternatives in the Nordic as well as a good sale of -- in retail funds and institutional funds across the Nordic and Norway. So I don't know...

[Lars Aasulv Loddesol, Group Chief Financial Officer]

I think just one point to add there is that there is a positive net flow also in the second quarter in isolation. The last growth came in Q1, whilst I think, in my memory, it's roughly NOK 2 billion positive in net flows as also in the second quarter.

[Odd Arild Grefstad, Group Chief Executive Officer]

And in terms of solvency sensitivities, I guess that shows some of the weakness of the solvency model that you have some technicalities that makes this happen. And it happens with respect to the Norwegian rules, where there is a limit as to how much solvency capital you have from the back book and the front book. And if you have a strong fall in the equity markets, a cap is listed in terms of the balance between the front book and the back book, which lifts the actual solvency level, which doesn't really make a whole lot of sense but that's the way the solvency model is set up with the Norwegian capping of the solvency capping from the front book. Really, now we have a very high level of stress of the equity in the model. And with all of 25% in the equities, we will also have a corresponding reduced stress in equities and that reduced equity stress is even higher than the effect of the fall in equities. So that is what you see with the countercyclic element really kicking in.

[Operator]

The next question comes from the line of Ashik Musaddi from JPMorgan.

[Ashik Musaddi, Executive Director and Co]

Just a couple of questions I have, mainly with respect to the Unit Linked margin. Now Unit Linked margin in the quarter declined quite a lot for both Norway as well as for Sweden. Now I agree that you have given some guidance that the Unit Linked margin will gradually decline. But I think the decline quarter-on-quarter was, say, 7, 8 basis point, which sounds a bit higher than what I would have assumed. So I mean was there anything funny in this quarter that the margins declined? Or would you say that this is what is reasonable, we should be expecting going forward as well? And especially how do we think about like year-on-year basically from a full year basis? Like I think last year, you did 80, 81 basis point in Unit Linked Norway, and you did about similar 80 basis point in Unit Linked Sweden. So are we talking about 5 basis point decline every year for next 3, 4 years? Or are we talking about 1 or 2 basis point decline a year over the next 3, 4 years? So I think some clarity on that would be very helpful because that was a big driver today. Secondly is how do you think about this asset management-related margin? I mean, clearly, Asset Management AUM has been going up pretty rapidly. I mean it is up, say, quite a lot this year only. So does that put any pressure on margin? Because I mean, is there any shift business -- business shift mix, et cetera, that drives it? And third question I have is a simple one is -- I mean you have lots of tools to address the solvency concern, and you can move towards 180%. But how -- is there anything you can do to reduce the interest rate volatility? Because the reason I'm asking this is interest rate is one of the biggest drivers of your solvency up and down, and it just moves in a wild way. I mean this quarter, it just minus 5%. So clearly, that creates a lot of noise in your solvency ratio like one quarter, you are like very closer to 180; next quarter, you'll be closer to 170. So anything you can do on reducing the interest rate sensitivity?

[Lars Aasulv Loddesol, Group Chief Financial Officer]

So if we start with the Unit Linked margin for Norway and Sweden, there are no particular extraordinary items this quarter. As we have mentioned, we own the -- or the individual pension accounts in Norway will put pressure on margins for Unit Linked Norway this year, and we've already made some adjustments in the pricing to -- and we have transferred customers into the individual pension accounts, which leads to gradually lower margins. In Sweden, there was also a big difference between last quarter and this quarter, but that's primarily related to a one-off gain in the last quarter. So if you if you adjust the last quarter by NOK 36 million, you will get a much more straight line in terms of the development in Sweden.On our Capital Markets Day in December last year, we guided that we expect the Unit Linked premiums overall to remain in the 60 to 80 basis point level in the next -- or to 2023 and we maintain that guiding on the overall. In terms of details for each individual product, that's too early to say exactly.

[Odd Arild Grefstad, Group Chief Executive Officer]

When it comes to Asset Management, as you see, we see strong growth. We also see that a large part of the growth comes from alternatives, private equity, infrastructure, real estate, has been very successful also for external sales. And that keeps up the fee margin, the top line margin. And we also have kept our cost level very steadily nominally over this growth period. That means that we have seen reduced cost margin over the last quarter. So actually, we have seen increased margins over the last years due to a falling level of the cost margin. And as I talked about, being now into an even more scalable platform means that we believe we should be able to keep this margin also going forward due to the shift in the business mix and a very scalable platform.

[Lars Aasulv Loddesol, Group Chief Financial Officer]

In terms of sensitivities for interest rates and the solvency calculation, we have, this year, increased our holding of bonds at amortized cost, we have got some NOK 14 billion of long-dated fixed-income instruments with an average duration of 13 years, longer than the past, which means that we reduce the sensitivity to interest rate swings. As you are well aware of, we have this dilemma where we have to manage the risk on a 1-year horizon due to Norwegian guaranteed product rules. And at the same time, we have to hedge the long-term risk. So in the balance between the 2, we have increased duration in the investment portfolio so far this year, which will lead to a lower sensitivity on swings in the interest rates and the solvency. However, it's impossible to lock this all together due to Norwegian product rules as they force us to also look at the 1-year horizon in terms of our risk management.

[Ashik Musaddi, Executive Director and Co]

That's very clear. I just have one follow-up question, again, going back to the retail margins, basically. I mean I agree that 60 to 80 basis point is the margin guidance you have given. But I mean is it possible at some point, not now, but at some point in the future to just narrow it down? Because the reason is I mean, 60 to 80 basis point is a big gap. I mean 20 basis points is basically 1/3 of your revenues in the retail business, which could be NOK 1 billion and NOK 1 billion is basically 1/3 of your group profits. So if we can get a bit more narrowing down of this number, that would help a lot because it's just a very wide revenue margin number. So I agree that you have your limitations, how the book will evolve in IPA book will evolve over time, I agree. But any thoughts at a later stage would be very, very helpful.

[Lars Aasulv Loddesol, Group Chief Financial Officer]

Ashik, as you know, the individual pension account is one of the largest changes in the Norwegian pension market that has taken place for a very, very long period of time. And it's impossible to say at this point exactly how that plays out in terms of margins. But we will obviously come back to you with more guiding as this market is finding a new balance.

[Odd Arild Grefstad, Group Chief Executive Officer]

The guiding we gave in our Capital Markets Day showing quite well. The results from this area should be in line with what we saw in 2020, you would expect around NOK 100 million in decline in 2022. But due to the growth in the business and also cost measures, we expect to be at the same level as we have seen in 2020 already in 2023 again. So there will be a dip due to this margin squeeze in 2022, but it's limited to around NOK 100 million.

[Operator]

The next question comes from the line of Håkon Astrup from DNB Markets.

[Håkon Astrup, Analyst]

So I have 2 questions. First one, just a clarification with regard to solvency and dividend. So in order to start to pay out the excess capital next year, do you need to have a Solvency II ratio were above 180%? That is the first question. And the second question is regarding the inflation and the uptake that we are seeing. And I was wondering if you can share some thoughts on how this is expected to impact your Insurance results and the measures that you are doing in order to limit claims inflation?

[Odd Arild Grefstad, Group Chief Executive Officer]

Well, the 180%, of course, is an internally set target for us while we measure ourselves to be overcapitalized when we are above this level. Of course, there is a gradual shift in the balance sheet that we also have to take into account, but that is our best estimate today to where we set the targets to being overcapitalized and to start doing share buybacks. And as Lars said, we are very committed as a team to work towards reaching this goal during 2022.

[Håkon Astrup, Analyst]

Just to follow up...

[Lars Aasulv Loddesol, Group Chief Financial Officer]

In terms of inflation impact, obviously the Insurance results, the P&C Insurance result, is a smaller impact on the overall results for us than for some of the large competitors. However, we, as everyone else, put our inflation expectations into the price adjustments we do. And in terms of the results this first half year, we saw a particularly strong increase in the [ G ], in the base number, for -- in Norway, which means that we have increased reserves by some NOK 50 million to strengthen expected costs related to the related expenses. So that's something that we've taken into the accounts right way.

[Odd Arild Grefstad, Group Chief Executive Officer]

It also drives the growth of the business because very much of premiums and so on is also regulated by these same inflation-based numbers. So we see strong growth coming out of inflation. And of course, if it also leads to higher interest rates, that is the absolutely positive for Storebrand.

[Håkon Astrup, Analyst]

And just a quick follow-up here on the solvency. So in the past, you have been sort of talking about that you can, say, down the road, to adjust 180% target in order to be more in line with the new business that you are -- or the new Storebrand. Could that be as early as next year? Or is this more sort of a 5-years-down-the-road type of adjustment?

[Odd Arild Grefstad, Group Chief Executive Officer]

We are following, of course, this very closely, but we are not ready to change any target for our capitalization at this stage. It's still the 180% that we've used to be the limit for us to reach to start doing share buybacks.

[Operator]

The next question comes from the line of Ulrik Zürcher from Nordea.

[Ulrik Årdal Zürcher, Research Analyst]

I have 3. I think this was asked about previously, but I didn't quite hear it because I think the AUM inflow was 0% net in the quarter. And I was just wondering if there was -- if this is a sales issue or an outflow issue or a situation. And color on that would be nice. And then I was wondering on the sensitivity, is it so that the increased duration of the bonds that have a big impact on your sensitivity to higher rates because I think it's fallen a bit this year, it was 4 percentage point last quarter, and now I think it's 7, so it's a bit up. So I'm wondering what's driving that. And the last one, since you now had a positive sensitivity to the equity markets falling, does that mean you have a negative impact to equity markets, for example, going up 25%?

[Odd Arild Grefstad, Group Chief Executive Officer]

First on the net flow number, I think that the correct number for the second quarter is roughly NOK 2 billion positive net flow. I think in the -- I looked into it now and important, I think we have forgot to include company capital in the numbers here. So we need to do a little -- small correction there. But there's -- but besides that point, there's normal outflows and good sales in Asset Management in the quarter.

[Lars Aasulv Loddesol, Group Chief Financial Officer]

And you are correct in assuming that when we have increased the duration of the investments and the interest rate sensitivity on the upside and the downside will go down. And in terms of the equity sensitivities, it's, as I've mentioned, the technicality that makes it a strong -- or the positive development in solvency as a consequence of falling equities don't see the opposite happening if equities continues to go up. That will generate more returns and will be positive.

[Odd Arild Grefstad, Group Chief Executive Officer]

We now have currently high stress factors on equities. It's on 45%. It cannot be higher than 49%. That will be the highest level you can have on these stresses. So we are not pushing this limit. So our higher equity will be positive for us also in the solvency calculations going forward.

[Operator]

The next question comes from the line of Blair Stewart from Bank of America.

[Blair Thomson Stewart, Head of the UK and European Insurance]

Just 2 questions from me. The developments in the defined contribution markets that you mentioned in the report, it seems to have been expanded to more people, albeit at a lower level. Just wondering, is that a positive? Or is it a negative for you? It seems to be opening up to more people but possibly not the right types of people. I don't know if that's the correct interpretation. And secondly, could you comment on what -- how much debt capacity you think you have, whether you're measuring that on a solvency basis or something else? But just interested in how much debt capacity you think you have in the business.

[Odd Arild Grefstad, Group Chief Executive Officer]

Yes. Let me start on the question on expanding defined contribution pensions. So this is a proposal that is now going through parliament to expand it to people who previously didn't have a right to earn pension. This is a positive for us. It's an expectation if it goes through, it will increase premium volumes in the market with roughly NOK 3 billion annually. And we will then take whatever market share we get from that as premiums in Storebrand. And I don't know, Lars, if you want to start on...

[Lars Aasulv Loddesol, Group Chief Financial Officer]

On debt capacity, I think that -- we look at it on a Solvency II basis, first and foremost, of course, also, we look at it in terms of rating and IFRS measures. We think that as of now, we are still in the lower end of the leverage scale compared to the sector. And we think that we can have -- be somewhere in the area of 20% to 25% of leverage in terms of own funds, that is reasonable. So we have -- we still have room to do more debt if we should wish to do so.

[Blair Thomson Stewart, Head of the UK and European Insurance]

Are you able to quantify the debt number? I can do it myself, but I just wondered if you've got a number in mind to take you to 20% to 25% of own funds.

[Lars Aasulv Loddesol, Group Chief Financial Officer]

Well, I think when you look at the SCR now, you could increase it with a couple of billions. A little bit -- it's a little bit of fluctuations in the numbers here and we also, of course, need to be within the limit of how much we can have in Tier 2 capital and in Tier 1 capital as a percent of the SCR. But again, there are -- in addition to that threshold, we need to, of course, look at rating and other measures before we make a decision to change the absolute level of leverage compared to what we have today.

[Blair Thomson Stewart, Head of the UK and European Insurance]

Is that about 5 to 10 points then sort of capital could come from debt to futures to do so?

[Odd Arild Grefstad, Group Chief Executive Officer]

So you can think that with a capital requirement of around NOK 30 billion, it's -- 10 percentage points is NOK 3 billion.

[Blair Thomson Stewart, Head of the UK and European Insurance]

Yes. Conceptually -- sorry to go on, guys, but conceptually, would the management or the Board consider utilizing that debt capacity, say, 10 points in order to push you above the 180% and trigger equity capital returns?

[Odd Arild Grefstad, Group Chief Executive Officer]

Well, as Lars said, we have a toolbox, and it's a lot of tools in that toolbox. You are talking about the debt and debt capacity. That is one. We also have reassurance agreements that is possible to do that we have done in more depth earlier on that can be used. And as you remember, we see what can get most solvency capital for us at lowest cost. So that is the trade-off we are doing and discussing with our Board. What is very important to say is that the management team and the Board is very committed to reach this 180% solvency threshold as soon as possible and working with the toolbox actively to do so.

[Blair Thomson Stewart, Head of the UK and European Insurance]

Okay. That's interesting. I think -- sorry, again apologies. Just on my first question, I think is it also the case that people with disabilities can also be eligible for a cheaper pension as well? Is that part of the proposal from the government?

[Odd Arild Grefstad, Group Chief Executive Officer]

This is quite simple, actually, because before, pension was earned from a threshold, you needed to earn well, NOK 30,000 before you started to earn pension on your salary. The largest shift now is that everyone earns from the first krone. So it's people that's already in the schemes that now get more pension out of their wages and their savings. So it's not like new element -- people coming into this higher savings rates. This is a...

[Lars Aasulv Loddesol, Group Chief Financial Officer]

And part-time employees as well as young people.

[Odd Arild Grefstad, Group Chief Executive Officer]

Yes, for-hire employees is also now included. So everyone from 13 year in Norway that has work today will also have savings into pension based on this new regulation. And that will have more than NOK 3 billion in annual increased saving into the markets.

[Operator]

The next question comes from the line of Johan Ström from Carnegie.

[Johan Ström, Analyst of Financials]

So I was wondering if you have any further comments on profit-sharing in this quarter. Is all of this related to Sweden? Or have you started to take anything out of the Norwegian book? And then secondly, on the Insr premiums, has the level that you have kind of reached now been better than expected? And if so, do you think you will be able to transfer more than initially thought? Or is the NOK 700 million still base case?

[Lars Aasulv Loddesol, Group Chief Financial Officer]

profit-sharing, we do have some profit-sharing in certain paid-up policy portfolios as well as a little bit in the individual portfolios in Norway. So as we've had very good booked return in the Norwegian market, there is also some profit split in certain portfolios. This is still at a relatively low level. But as I mentioned previously in the presentation, as -- when we continue to build very, very strong customer buffers, more and more portfolios will be able to get profit-sharing in the future. Also, there was a discussion on inflation here. Inflation usually leads to higher rates. Higher rates, again, will lead to a higher probability for profit-sharing and a possible significant strengthening in the profitability of all the guaranteed products. And then you are correct, we've also had good booked profit in -- or good book results in Sweden, which has led to a reduced need for deferred capital contribution, which is reversed. And furthermore, the indexation fee in Sweden is strong at approximately NOK 140 million per year which is booked into the income on a monthly basis or a quarterly basis, based on strong consolidation in all the relevant product groups. And in terms of the Insr premiums, we have had booked NOK 553 million at the end of the second quarter. And as I mentioned, we expect to be able to finalize this around NOK 700 million, which is slightly above the initial business case that we communicated.

[Odd Arild Grefstad, Group Chief Executive Officer]

One thing on the retail P&C that also if we take Insr and the growth from Insr out of that number, we are still growing that segment with 16% in the retail market.

[Operator]

The next question comes from the line of Vegard Toverud from Pareto.

[Vegard Toverud, Analyst]

Just following up on the paid-up profit-sharing. With the current buffers you have, should we expect at least the current level that you reported in this quarter going forward? That's the first question.

[Lars Aasulv Loddesol, Group Chief Financial Officer]

As I said, the actual profits, this is booked in the fourth quarter, and we make an estimate on a quarterly basis. So we made an estimate based on the booked return so far this year and a normalized return the rest of the year. And then whatever the actual return becomes at the end of the year will impact how much is actually booked as a profit split in the year as a whole.

[Vegard Toverud, Analyst]

Okay. And on Unit Linked in Norway. Could you tell us how much of the reserves that are currently on the new pension accounts and how much are on the pensions that it gets?

[Odd Arild Grefstad, Group Chief Executive Officer]

The paid-up policies that we had at the end of last quarter was NOK 39 billion. Sorry, the pension certificates. Yes, pension certificates was NOK 39 billion. It's currently at NOK 35 billion, and that should go down towards the end of the year as more and more pension certificates are moved into individual pension accounts.

[Vegard Toverud, Analyst]

So how much of those NOK 35 billion or how much of the remaining NOK 115 billion is already on pension accounts?

[Lars Aasulv Loddesol, Group Chief Financial Officer]

As I said, NOK 39 billion in pension certificates has gone down to NOK 35 billion. And we expect approximately half of the NOK 35 billion to be transferred into pension accounts by the end of the year.

[Vegard Toverud, Analyst]

Okay. And if we look at the transfer balance, it's negative NOK 2.5 billion in the quarter. Is that connected to pension accounts and volumes moving away from you?

[Lars Aasulv Loddesol, Group Chief Financial Officer]

Well, there's some volatility in the numbers with a lot of pension certificates being moved to us and being moved away from us. And there may be some periodic effect between the quarters in terms of when things are moved. But we do expect a small leakage in terms -- overall, in terms of the pension certificates overall. And -- but then there in the numbers you look at in the supplemental information, that includes also customers moving to us and from us. So -- but there will be some volatility in these numbers this year due to the fact that we have quite large transfers in the individual pension account market. And then maybe, as I said, some shifts between the different quarters in terms of the actual net numbers for the year.

[Vegard Toverud, Analyst]

Yes. Is it fair to assume that the numbers we see, the net balance now for Unit Linked Norway, it's related to pension accounts?

[Lars Aasulv Loddesol, Group Chief Financial Officer]

Sorry, I didn't get that.

[Vegard Toverud, Analyst]

Is it fair to assume when you look at the transfer balance for Unit Linked Norway that this transfer balance, the net transfer balance is related to pension accounts and not movement of Unit Linked active schemes?

[Lars Aasulv Loddesol, Group Chief Financial Officer]

It's a combination of the 2. So far, 98.2% of all our individual clients have chosen to stay with -- in Storebrand either in their own individual pension accounts or in the corporate schemes that they have with Storebrand.

[Odd Arild Grefstad, Group Chief Executive Officer]

Low activity. Low activities with -- transferred into own choices these days. It's lots of activities at the starting points of the regulation, but it's very low activities as we speak.

[Operator]

The next question comes from the line of Roy Tilley from Arctic Securities.

[Roy Tilley, Research Analyst]

A couple of questions from me. Just one follow-up on Vegard's question on the transfer balance, I also saw the transfer balance is negative in Sweden again for the third quarter in a row after you had many -- quite a few quarters with a positive transfer balance. So just wondering how the competition looks there. That's the first question. And then secondly, if there are any updates on the outstanding tax cases you have going on. And then lastly, in the bank, you have a very strong growth rate there as well. Just wondering what's driving the growth there. Is it price? Or are you just doing better sales? And also, if you could touch upon how much of your growth there is in fixed-rate mortgages versus floating.

[Odd Arild Grefstad, Group Chief Executive Officer]

Yes. When is -- to start with Sweden, we have, of course, seen a very strong growth in Sweden over number of years now, and we also still see strong growth in overall premiums. There is a strong competition, especially from one player in the Swedish market that has introduced also fees to customers to directly move to them. And that is, of course, quite a costly way of customer acquisition. We have a very good position in the Swedish market. We have a very low cost level compared to our competitors, a very high degree of digitalization. So we, of course, are looking into this situation and following it closely. But so far, we have not chosen to follow this player's introduction of fees to really transfer the balances. So that is what we see as a situation that have occurred over the last half year. We find that the competitive position for SPP in Sweden is extremely strong, both due to sustainability, to digitalization and to the very low relative cost level, we feel that over time, we will be in position for further growth and also further transfer in SPP.

[Lars Aasulv Loddesol, Group Chief Financial Officer]

Yes. On the tax update, as we said before, we will challenge the tax authorities' decision, and that has been done through a formal complaint to the tax authorities. And we expect that to take some time to be handled according to previous communications. So basically, no news. It's just business as we have previously communicated.

[Odd Arild Grefstad, Group Chief Executive Officer]

And in terms of the banking growth, we have changed our sales strategy. We have entered new partnerships, and we have been able to maintain margins while still growing quite strongly. I do not have the mix between fixed and floating, but I don't know if...

[Lars Aasulv Loddesol, Group Chief Financial Officer]

It's mainly floating rate mortgages.

[Odd Arild Grefstad, Group Chief Executive Officer]

Yes.

[Lars Aasulv Loddesol, Group Chief Financial Officer]

There is some interest for fixed rate, but we don't see that as a large part of the total yet.

[Operator]

The next question comes from the line of Thomas Svendsen from SEB.

[Thomas Svendsen, Analyst]

Two questions. You highlight your recognition for sustainable impact. Does that you -- make you optimistic about possible new business, new flow of funds, new asset under management? Or is it so that the competition is also increasing here, that everybody else is getting -- are doing things to getting more sustainable? That's the first question. The second question is on M&A. You have talked about in the past and also comment in the past, of course, add-on acquisitions. How do you see the environment now on pricing and opportunities?

[Odd Arild Grefstad, Group Chief Executive Officer]

The first question about sustainability, but I didn't really. Okay. Within the whole space? That was on sustainability. The line is, sorry, unfortunately a little bit for Thomas, so we got...

[Thomas Svendsen, Analyst]

Okay. The question was just, do you think you can get more business due to your strong ESG profile? Or is the competition increasing for this green business or ESG business? Are you optimistic about offerings?

[Odd Arild Grefstad, Group Chief Executive Officer]

Yes. Just start with that. We feel that we have a very strong position. And when we look at the scoring, like I talked about Prospera here, we see that we actually have a larger or have increased our position towards our competitors during the last year. So everyone is working with sustainability, and that is a good thing for the world. But I think we have been working with this for a very, very long time. We have increased our work also with active management towards our investments. And we feel that we have a very strong position and are recognized for that in the Nordics but also internationally. And we absolutely see growth in sustainable solutions both in the Nordics and in Europe going forward and are looking very closely are -- and are in part of competitions on that as we see it. When it comes to M&A, of course, we are following what is happening in the Nordics very closely. But as I presented today, we have extremely strong growth rates. Both when it comes to Unit Linked, when it comes to Asset Management, when it comes to Insurance, the growth rates are, I would say, fantastic. So we don't need to do any M&A to have the growth coming through. But of course, if there are opportunities to strengthen our positions, I would say, especially as we have done in Asset Management, where we have strengthened our offering in the Nordics towards alternatives, we are looking very closely to that. And we are, of course, also feel that this has been a very success for us with the takeover with Insr. So if there is opportunities in the insurance space, we also look closely to that, also due to the fact that we have a very high capital synergy taking on more Insurance volumes into our balance sheet.

[Operator]

There are no further questions in the queue. So I'll hand the call back to your host for any closing remarks.

[Kjetil Ramberg Krokje, Head of Investor Relations]

All right. Thank you. And thanks to everyone who followed the call. We are, of course, available for questions later if there -- if anything should occur. And other than that, it just remains to wish everyone a nice summer break, and we look forward to see you over the summer as well. So thank you, and goodbye.

[Operator]

Thank you for joining today's call. You may now disconnect your lines.