Storebrand ASA

OSE:STB

Earnings Call Analysis

Storebrand Showcases Resilience Amid Global Challenges

Amid global uncertainty, inflation, and extreme weather, Storebrand continues to demonstrate robust performance with a cash-based earnings of NOK 983 million for the quarter. The diverse business segments, including asset management and banking, contributed positively with fee and administration income growing 14% year-to-date. Despite severe weather impacting the insurance segment, the company's solvency remains strong at 204%. Anticipating a full-year result of NOK 4 billion, Storebrand is effectively utilizing improved return expectations to benefit shareholders and customers. Price increases across insurance products aim to restore the targeted combined ratio to 90%-92%. The Group's commitment to returning NOK 10 billion of capital to shareholders by 2030 through share buybacks is sustained by a solid performance, cost synergies, and active capital management.

Financial Overview

The company's financial results tell a tale of resilience and adaptation. This quarter, income rose by 12% compared to the same period last year, suggesting a robust upward trend. However, this growth was offset by some weather-related insurance claims and weaker disability results, evidencing the cyclical nature of insurance outcomes. Meanwhile, operational costs were kept lower than expected, a reflection of the season's impact on marketing activities and the fruitful beginning of synergies from the Danica acquisition.

Tax and Amortization Narratives

The current quarter saw a normalization in the tax rate, which was in contrast to the tax income recognized in the preceding quarters. Amortization expenses experienced a spike, mainly due to a write-down of intangibles associated with the Danske Bank distribution agreement's termination. This is anticipated to be a one-time effect, leading to reduced future amortizations and commission expenses.

Growth and Margins in Savings and Asset Management

Savings and asset management reported improvements, backed by strong structural growth in unit-linked premiums and reserves. Albeit margin pressures, volume growth compensated for this squeeze. A significant factor was the 13% year-over-year rise in assets under management, contributing to robust fee income growth, particularly manifested in a 10% uptick in the third quarter.

Banking Segment Leaps

The retail banking division of the company was a star performer, almost doubling its outcome compared to last year's third quarter—signifying the potential in retail financial services.

Pain Points in Insurance

Upon inspection, the insurance segment exhibited weakness due to a barrage of weather-related claims, combined with persistently high disability levels. To mitigate this, major price hikes have been executed, aiming to restore the combined ratio to the desirable range of 90% to 92%, with prices rising on average close to 10% in P&C and 10% to 40% across various disability products.

Real Estate Revaluations and Risks

The narrative took a turn with significant revaluations in the real estate portfolio, an inevitable outcome of a market-to-market approach in response to increased interest rates and yield changes. Norwegian properties saw around a 20% markdown, while Swedish assets faced an 11% devaluation over the past year. On the upside, the running yield from the portfolio is looking up, promising enhanced future returns.

Solvency and Shareholder Returns

The company's solvency remained robust, closing the quarter at a strong 196%, notwithstanding the write-downs—the result of a cautious reduction in equity exposure and a strategic asset-liability mismatch in Norway. Further, the company shared its intent to continue with share buybacks, maintaining shareholder allure as long as solvency stays above 175%.

Looking Towards the Future

Looking ahead, the company sets its sights on 2025 and beyond, where profit sharing in Norway and changes in buffer regulations are expected to benefit both customers and shareholders.

Earnings Call Transcript 2023-Q3

[Johannes Narum, executive]

Good morning, ladies and gentlemen, and welcome to Storebrand's third quarter results presentation. As usual, our CEO, Odd Arild Grefstad, will present the key highlights of the quarter, followed by CFO, Lars Loddesol, who will dive deeper into the numbers. At the end of the presentation, participants in the Teams Webinar will have a chance to ask questions. Details on how to join the webinar are found on the Investor Relations website.But without further ado, I give the word to our CEO, Odd Arild Grefstad.

[Odd Arild Grefstad, executive]

Thank you, Johannes, and good morning, everyone. Increased global uncertainty, rising inflation and interest rates, combined with extreme weather events are affecting society and our customers in various ways.In uncertain times, we are aware of our responsibility and role and we gain trust from an increasing number of customers by giving advice and support. During the third quarter, we have had more than 30,000 customer dialogues regarding P&C related topics.And I would like to express my gratitude to all the employees who have done an exceptional job for our customers during the quarter. It is in these challenging times we build trust and customer loyalty.Let me look at the quarter's highlights. Despite challenging times, Storebrand continues to deliver strong results in the third quarter. Storebrand's cash-based earnings amounted to NOK 983 million in the quarter, whereof the operating result was NOK 605 million. We delivered strongly in defined contribution pensions, asset management and banking with the fee and administration income in the Savings segment growing 14% year-to-date.We also delivered a strong financial result. We are enroute to deliver NOK 1 billion annually in financial results, as mentioned in our last capital update. Insurance was weaker in the quarter, mainly due to rain storms during the summer. Storebrand reports a record strong 204% solvency ratio, up from 196% last quarter and 30 percentage points from the same quarter last year.The solvency margin is well above the threshold for our capitalization of 175%. In September, Storebrand's Board of Directors initiated a new tranche of NOK 500 million in the share buyback program. As previously communicated, the Board intends to continue with share buybacks when the solvency ratio exceeds 175%.The ambition is to return NOK 10 billion in excess capital to shareholders by the end of 2030. Storebrand has entered into an agreement with ERGO International to sell its 50% stake in Storebrand Helseforsikring AS, and I will revert to this later in the presentation. As you are very well familiar with, Storebrand aims to take 3 commercial positions in the markets we operate: A, to be the leading provider of occupational pension in both Norway and Sweden; and B, to be a Nordic powerhouse in asset management; and C, to be a fast-growing challenger in the Norwegian retail market for financial services.The combined capital, customer, cost and data synergies across the Group provide a solid platform for profitable growth and value creation. The commercial success is enabled by 2 strategic differentiators, leadership in sustainability and digital frontrunner. Storebrand continues to manage capital and the back book of guaranteed products for increased shareholder return and good pensions for our customers.Combined, this gives a compelling combination of yield and growth for shareholders with self-funded growth and capital release. This results in our dividend policy of growing ordinary dividends from earnings and an ambition to return NOK 10 billion of excess capital by the end of 2030, primarily in the form of share buybacks while generating additional excess capital, which might fund further growth or could be returned to shareholder.Storebrand continues a long track record of growth. We are active in structurally growing markets. Growth in unit-linked and asset management has been somewhat dampened by the mark-to-market effect from the historically steep interest rate increase over the last year. But let me now dive into the different growth areas.Firstly, our unit-linked results grew by 20% from third quarter last year, with a corresponding 17% growth in unit-linked reserves. Secondly, total asset under management have increased to record high levels this year, ending at NOK 1,131 billion in the quarter. This is an increase of NOK 130 billion compared to last year.Soft equity markets led to a slight decline for the quarter in isolation. Net inflow was NOK 15 billion in the quarter and amounts to NOK 42 billion for the full year. This flow is best in class in the Nordics and we continue to see strong fundraising in alternatives. This quarter, we closed Cubera X with a NOK 7.5 billion in committed capital.Thirdly, Storebrand's retail operation remains on a robust growth track, exemplified by the strong performance of our retail bank with 15% growth in the lending volume year-on-year. For the Insurance segment, we were negatively impacted by the storm Hans and the torrential rain in Oslo.Storebrand have a resilient organization with highly competent and engaged employees, and we take great pride in developing our people. It is, therefore, great to see our employee engagement score increase from an already high level, well above the industry average.Storebrand has significantly lower sick leave rates, both compared to workforce by country and compared to our industry, measuring 2.7% in Norway and 2% in Sweden. This also shows an engaged and productive workforce. As one important step in developing our employees and increase personnel productivity, we are encouraging all our employees to utilize AI-powered tools. Our goal is to democratize the use of AI and mobilize the whole workforce and further develop AI-driven use cases across the whole Group.Moving to changes in the executive management team. After 11 years in the top Group management and the last 4 years as Head of Retail, Heidi Skaaret has decided to step down. Under her leadership, we have achieved strong profitable growth in the retail segment in Norway. Heidi will continue as Chair of the Board in the Bank and Storebrand Forsikring.From the 1st of November, Camilla Leikvoll will enter the role as Executive Vice President, Retail Market, and continue as CEO in Storebrand Bank. Camilla has excelled through several years in various leadership roles in Group. She has been Strategy and Finance Director in the Group before, she in last 4 years, has led the growth of Storebrand Bank. I am confident that Camilla has the qualities and competencies needed to continue the strong growth in the retail market.Now, turning to M&A. Let me first report on the progress of the Danica acquisition. We paid NOK 2 billion for the company and we have now realized NOK 1 billion in hard capital synergies. Furthermore, we expect more than NOK 250 million in [ reserve ] contribution from the pension and insurance business annually. I am extremely happy with both the strategic aspects of the transaction and the financial performance.Second, on M&A, we have had a successful history of developing Storebrand Helseforsikring together with ERGO for many years. After a strategic review, we believe that it is in the company's best interest to be further developed under the ownership of 1 owner. We are, therefore, pleased to have reached an agreement with our long-term partner, ERGO, that enable us to continue as distributor of health insurance in the Norwegian and Swedish market.The divestment has a positive financial impact on Storebrand's Group result by NOK 1.1 billion, expected to be booked in the first quarter 2024, and we also expect a 4% positive solvency ratio effect in the same quarter.And with that, I give the word back to you, Johannes.

[Johannes Narum, executive]

Thank you, Odd Arild. Now, let's take a closer look at the numbers. Lars, please go ahead.

[Lars Aasulv Løddesøl, executive]

Thank you, Johannes. From the beginning of this year, the Storebrand Group reports our financial IFRS -- financial statements in accordance with IFRS 17 and IFRS 9. This replaced IFRS 4 and IAS 39 from January 1. The IFRS statement includes net present value, profit and loss effects of updated estimates and assumptions about the timing of future cash flows and insurance services provided. A short comment on the financial performance under IFRS is given in the quarterly report and detailed disclosure is available under the financial statements of Storebrand Group section.For the remaining part of this presentation, I will report and comment on the familiar alternative income statement in line with what we have been doing for a number of years. This alternative income statement is based on the statutory accounts of all the main subsidiaries and is an approximation of the cash generated in the period.This quarter, we are back on the trajectory towards NOK 4 billion in result for the full year, with a cash equivalent Group result of NOK 983 million, despite the weather-related claims in the quarter and high performance-related expenses. We have currently accrued NOK 219 million in performance-related fees that will be booked at the end of the fourth quarter.Furthermore, NOK 171 million in integration cost will be deducted from the ordinary results as special effects. The solvency continues to strengthen with lower SCR following higher rates and reduced equity exposure in the guaranteed books. More on this in a moment.Cash earnings per share came in at NOK 1.73 in the quarter. The fall from Q1 and Q2 is due to normal tax rate this quarter, whilst we had tax income in the 2 previous quarters. We have chosen to change the last graph on this slide to show the development in expected return versus average guarantees in the Norwegian guaranteed portfolios.As we've had an asset liability mismatch in Norway due to Norwegian product rules, we now benefit from a significant improvement in expected return over guarantees, which will lead to higher pensions for our customers and profit split for our shareholders in the coming years. In Sweden, assets and liabilities are close to 100% matched and everything is mark-to-market, so this is less relevant for our subsidiary SPP.The second quarter solvency ended at 196%. The 10-year swap in Norway was up 36 basis points in the third quarter and 40 basis points in Sweden, contributing 2 percentage points to the solvency. Short rates were practically flat. The biggest move is in market returns and business mix. Write-down of real estate and negative international stock markets contributed negatively, but was more than made up for by active risk management and reduced equity exposure in guaranteed portfolios.The reduction in equity investments comes as part of our normal risk management, following the fast rise in interest rates and the corresponding effect on buffers available for the current year. This is linked to the Norwegian product rules and a need to protect the P&L rather than to protect solvency. In order to increase long-term customer returns, we expect to increase the risk exposure again as we enter into 2024. Hence, a part of solvency improvement should be viewed as temporary. The symmetrical equity stress gives a slightly better support than usual due to technicalities in the way it is derived and contributes about 4 percentage points.Finally, good cash earnings give us in excess of 3 percentage points before we deduct ordinary dividends and the share buyback programs for a total solvency for the quarter at NOK 204 million. This sensitivity table shows that our solvency is robust in all the illustrated market scenarios. Fee and administration income is up 12% from the third quarter last year. Insurance results are weak following weather-related claims in the third quarter, and a generally weak disability results.Operational cost is below analyst expectations. Due to summer, sales and marketing activity is lower in the third quarter. Furthermore, we have started to realize the synergies from the Danica acquisition. With higher rates, the financial results are significantly up from last year, in line with our guiding. Let me also repeat that accrued performance fees year-to-date of NOK 219 million will be added at year-end if the outperformance is maintained.Amortizations make a jump in this quarter caused by a write-down of intangibles related to the distribution agreement with Danske Bank and their closure of the retail operation in Norway. This is more of a [ prioritization ] effect and will lead to reduced amortizations in the coming quarters as well as lower cost as Storebrand will discontinue commission payments to Danske Bank for the retail portfolio.Breaking the same figures into our reporting format with savings, insurance and guaranteed, you see improvements in savings, guaranteed and other versus last year, whilst insurance is weak. All 4 areas, however, show their best quarter so far this year. In the interest of time, I will not go through all the numbers but concentrate on the most important parts.We see continued good structural growth in premiums and reserves for unit-linked. The margins show some decline, but volume growth compensates. Assets under management is slightly down in the quarter due to financial markets, but we continue to show positive flow and we are winning market shares.The third quarter saw an increase in asset management transaction fees compared to the first half. The private equity fund Cubera IX is now fully invested, which means that Cubera X will start to generate fees from now on. To get the full picture on the valuation creation and savings, you also need to add back the accrued performance fees.The retail bank continues to grow with improved margins. The result from the bank is almost double of what it was in the third quarter last year. In line with the rest of the insurance industry in Norway, the results both in the quarter and year-to-date are impacted by extraordinary weather-related claims. Furthermore, the higher disability levels continues to weigh negatively on the results.Importantly, significant price increases are implemented across the different products with an aim to bring back the combined ratio to the targeted 90% to 92% level. In P&C, price increases are close to 10% on average, whilst the different disability products faced price increases of 10% to [ 40%]. So far, the price increases seem to be accepted by the market, but this is obviously something we follow very closely.The main message in Guaranteed is that the operating result is stable, the risk results are good and profit sharing is increasing. This trend should continue. With higher rates, we get immediate mark-to-market losses in the bond portfolios and a corresponding reduction in buffers. But the reinvestment rates improve and the net present value of the liabilities fall even more. Next year's focus will be on rebuilding buffers in the Norwegian business. From 2025, '26, we should see significant improvements from profit sharing in Norway in particular.Under Other, we see how the higher rates comes through in terms of improved returns on company portfolios.And with that, I pass the word back to you Johannes. Thank you.

[Johannes Narum, executive]

Thank you, Lars. Before moving over to Q&A, let me take this opportunity to remind you that we will be hosting a Capital Markets Day at the 13th of December here at Lysaker. The event will be virtual from our studio at Lysaker with a focus on the company's growth strategy and ambitions going forward. An update on the implications from higher interest rates and the capital side of the business will also be provided.With that said, we're now happy to take questions from the audience.

[Johannes Narum, executive]

Please use the "raise hand" function in the Teams Webinar to be placed in line to ask a question. To give everyone an opportunity to ask questions, we kindly ask you to limit yourself to 2 questions at a time.And the first question comes from Tryfonas Spyrou in Berenberg.

[Tryfonas Spyrou, analyst]

Two questions, please. The first one relates to the property write-down. I guess I was just trying to understand what type of real estate was written down and how much more could we expect to come? And if it does come, would you look to offset the impact by reducing equity exposure again or do you have any constraints here?And I guess related to that, why take more risk in 2024 on guarantee side, given that the spread above the guarantee is now 160 bps? So, it looks like you can get decent return without taking much risk. So that was my first question.And the second one is on the insurance combined ratio. Just trying to understand how realistic is the 90% to 92% ambition for next year, given that you're running, it looks, excluding weather claims, 96% as of Q3, and you could potentially have higher reinsurance costs next year as well. So, it looks like you're aiming for more than 4 to 5 points improvement to come, mainly from pricing. Is that still realistic to expect? So that was my questions.

[Lars Aasulv Løddesøl, executive]

Tryfonas, on your first question, we mark-to-market our real estate portfolio at real value in every quarter, which means that if the market changes, we will have to reevaluate it up or down also in the future. But, with the current yields in the portfolio, if interest rates stabilize, et cetera, then we don't expect any further write-downs.In terms of risk management, this is -- if you have less buffers, we take less risk. When we enter into a new year, we get new buffers according to the Norwegian product rules, which means that we will be able to take more risk to the benefit of both customers and shareholders starting in the new year. It should be said also that the buffer rules are changing next year. So, we will have more long-term buffers, which will be positive starting from January 1.On insurance combined ratio, we are implementing a number of different measures in terms of underwriting, cost and efficiency things, as well as price increases, as I mentioned in my presentation. And our aim is to get back onto the targeted 90% to 92%. And then we'll see if we can reach that next year.

[Odd Arild Grefstad, executive]

And just [ maybe ] add a bit on the real estate side also because we have increased the discount rate now on a very broad range, especially in the Norwegian market, increased the prime yield up to 4.5%, this 0.5 percentage point increase in this quarter. And if you look only on the impact from increased interest rate or increased discount yields in the portfolios, we had actually a write-down in the portfolio in Norway over the last year of around 20% and around 11% in Sweden.Then of course, there has been increase in rents that has mitigated this somewhat. But it's a huge impact when you look at really what is done to change the discount yields in the portfolio. And we feel that we really are on the right place when it comes to the valuation based on the market conditions in the Nordics today.

[Lars Aasulv Løddesøl, executive]

And obviously, the flip side of that is also that the running yield on the real estate portfolios increase as well, which means that the return from real estate will increase significantly going forward.

[Tryfonas Spyrou, analyst]

The quick follow-up on the 20% you mentioned on Norway and 11% in Sweden. Is it the magnitude between the 2 geographies based on the mix? So, Norway is more based on -- because you have more office space there and Sweden is more diversified. Am I right to think that or is there anything you can add there on the magnitude of the write downs in each country?

[Odd Arild Grefstad, executive]

Well, it is different markets. And also, it's a more diversified portfolio in Sweden compared to what we have in Norway. And we have mark-to -market valuation of all the properties in Sweden every quarter. So, this is based on the valuation that we have got this quarter.

[Lars Aasulv Løddesøl, executive]

You will find more information about this in the appendix of the presentation that you may have in front of you.

[Johannes Narum, executive]

Thank you, Tryfonas. We have a next question here from Peter Eliot in Kepler Cheuvreux.

[Peter Eliot, analyst]

Congratulations on the strong results. And when I look -- I mean it was strong growth result across the board. But just looking through the numbers, I guess, there were 3 areas where I saw a particularly positive impact which I'm struggling to explain. So, I was just wondering if you could help me on those.The first one was insurance division had a very strong financial result of NOK 86 million. The second one was Helseforsikring which obviously is now leaving Portfolio, but still it had a very strong quarter after recent weak quarters. So, there was an NOK 86 million swing actually quarter-on-quarter this time around.And thirdly I noticed a big step-up in the fee income for paid-up policies. So just wondering what's happened really in all of those 3 cases. My second one is very, very quick, but on the Danica synergies, just wondering if you could confirm whether that is already included in the solvency ratio and how much that contributed.

[Kjetil R. Krokje, executive]

Yes. So, basically, on the insurance division and financial results, and the next question on the health insurance division, it kind of goes into each other because the health insurance division is reported after tax in the financial line. So that result has contributed to the higher financial result in the Insurance division.And the health insurance company had a better third quarter than it has had year-to-date. There's been a lot of volatility in the numbers. So, I think it's -- yes, it's driven by lower claims for the business than we have had earlier and also price increases. And then, of course, we expect this business to go out of the Group in the first quarter.And then quickly on paid-ups. This is mainly that we have taken aboard new loan guaranteed business that is reported under that line, which has increased the margin somewhat in this quarter.

[Peter Eliot, analyst]

Okay. So that NOK 150 million that we saw this quarter, that's a sustainable number going forward?

[Kjetil R. Krokje, executive]

On the fee line?

[Peter Eliot, analyst]

On the paid-up?

[Kjetil R. Krokje, executive]

Yes, on the fee line, it should be a sustainable number on the fee line, but with some variation because of these closed pension funds we have taken over is short tailed, so they won't stay in the results forever. But yes, it's sustainable as of now.

[Lars Aasulv Løddesøl, executive]

With respect to the Danica synergies, obviously, when we take out cost both in terms of double systems as well as personnel, then we will get the synergies into the solvency and the P&L as well. In terms of the capital synergies, that capital has already been incorporated.

[Johannes Narum, executive]

Thank you, Peter. It seems like we lost connection with you here, Peter, but we'll -- get back to us if you have any follow-up. It seems like the next question comes from Ulrik Zurcher in Nordea Markets.

[Ulrik Zürcher, analyst]

Two questions from me. I was wondering about repricing of the insurance component for pensions in Norway. Is this mainly towards large clients so that we will see a significant improvement already in Q1 '24, given the 1st of January renewal date? And secondly, you increased prices in non-life with 10%. Is this the same for motor and are you increasing prices above claims inflation for motor in Norway?

[Lars Aasulv Løddesøl, executive]

With respect to price increases, they happen individually based on the risk of both the different industry lines as well as on the customer basis. So, there's not like one number that will hit everyone, but it will reflect the development in claims inflation. And as I said, the average number is high-single-digit on average in P&C and in different products with disability, it's higher than that.In the regular insurance -- sorry, the disability insurance linked to the pension contracts in Norway and Sweden, you see that the results are fairly robust this year. So, there is less need for repricing there. It's more within the Group life products that there are -- has been weak results and corresponding price increases.

[Ulrik Zürcher, analyst]

But will these be renewed 1st of January, the majority or...

[Lars Aasulv Løddesøl, executive]

Most of them are renewed at year-end, yes.

[Johannes Narum, executive]

Thank you Ulrik. We have a next question from David Barma in Bank of America.

[David Barma, analyst]

Firstly, on solvency. So, if the real estate devaluations were 6% in the quarter, it's just about 8% hit on solvency. So, excluding that from the market return bucket, it seems like there's a plus 13%, which sounds like it's coming mostly from the derisking. How much of that 13% should we expect to be reversed next -- at the start of next year as you put on more asset risk.And then secondly, on leverage. So, I saw your separate release on the RT1 issuance from the Life unit. You have eligibility constraints and a lot of excess in the Group, at least from a solvency perspective. So, why are you reducing your leverage in the Life business at this point?

[Lars Aasulv Løddesøl, executive]

With respect to the real estate, the impact from derisking is 7 percentage points, 8 percentage points. So, there are some other elements in there as well. And with respect to when we risk again in the beginning of next year, we will have new buffers, and because we have new buffers, the impact will be less than the [ 7%, 8% ] even if we were to go up to the same risk level, all else equal.

[Odd Arild Grefstad, executive]

Yes. And I think we have talked about before also. Next year, we will have the legislation in place, so we can utilize all the buffer capital, not limited to 1 year's result in the life insurance company. And that means that we will have additional buffers that we can account for in the solvency calculation, mitigated with somewhat higher exposure -- risk exposure. So, it's a combination of this that will impact the solvency ratios, start from next year's.

[Kjetil R. Krokje, executive]

Yes, and on the Tier 1 contemplated issuance, it's part of normal refinancing, 2 loans have comes to call next year. And I think it's fair to say that we overtime will not be having Tier 2 capital. That is not counted in the solvent calculation. I think that's, point one. And of course, we will also do a thorough assessment of the level of debt in the Group as we do on a continued basis. That being said, the leverage of the group of 20% is still in the lower end in the sector.

[Johannes Narum, executive]

Thank you, David. The next question comes from Hakon Astrup in DNB Markets.

[Håkon Astrup, analyst]

Two questions from me as well. The first on solvency and share buybacks. You mentioned that if you have a solvency ratio above 175%, you will continue with share buybacks, should we expect a new share buyback program right after the current one is finished or you need some -- or how should we think there? That was the first question.And the second question on the insurance result and on the financial result in Insurance segment, what is the normalized result there given the current interest environment? Looking at the asset mix, it seems to be mainly fixed income. So, I was thinking around 4.5%, 5%. Is that okay estimate?

[Odd Arild Grefstad, executive]

Let's start with the solvency question. We're very pleased now to be in the market more or less continuously with share buybacks front-loading the goal for NOK 10 billion with NOK 1.5 billion in share buybacks annually. And our goal is to be in the market constantly. Then of course, it's some issues around [ GMD ] and so on that we have to figure out. But our goal is to be in the market doing share buybacks more or less constantly with this level of capitalization.

[Kjetil R. Krokje, executive]

Yes. On the expected return in the insurance segment, I think on the eligible assets, 4% to 5% seems fair. We gave a guidance last Capital Market Day about -- with about NOK 1 billion in total financial result, and we will be sure to update that we have a new Capital Market Day now in December.

[Johannes Narum, executive]

Thank you Hakon. We have a question here from Roy Tilley in Arctic Securities.

[Roy Tilley, analyst]

Just 2 quick questions from me. First on the insurance segment. Again, looking at premiums for own account, the growth seems to be slowing down a bit in Q3. I think it was up 8% versus the same quarter last year. So, I was just wondering what's the reason for the slowdown? Are you -- the retention level different or is there something else? And how much of that is price driven versus volumes?And then, second question on solvency. At 204%, you're NOK 7 billion, NOK 8 billion about your -- probably your 175% target. Given the liquidity in the share, can you realistically only do buybacks or would you need to do some extraordinary dividends as well? Thank you.

[Kjetil R. Krokje, executive]

Do you want to start on the growth, Johannes?

[Johannes Narum, executive]

I can start on the growth figures. I guess one of the reasons why the growth is slowing down a little bit on top level is that the Danica acquisition is now out of the comparables. So, if you look at the underlying growth numbers, growth is still very strong in most lines. That said, we also commented earlier this year that we had some transfer out of the insurance business at year-end last year. So, growth continues, but we have no M&A in the basis anymore.

[Odd Arild Grefstad, executive]

When it comes to solvency and dividends. We have a very clear policy. We are aiming to grow annually our dividends. And on top of that, doing share buybacks. Now we are a phase, as I said, of NOK 1.5 billion annually, and that is really front loading towards our goal of NOK 10 billion at the end of 2030. So -- but we, of course, have these 2 tools to, over time, meet the right level of capitalization of the company.

[Johannes Narum, executive]

Thank you, Roy. We have a next question here from Thomas Svendsen in SEB. Please go-ahead, Thomas.

[Thomas Svendsen, analyst]

Two questions. First, on the cost side, if I look in the annual report, you state that you have 2,161 number of employees at year-end 2022. So where do you expect to arrive after acquisitions at year-end 2023? And should we expect number of employees to continue to increase organically into 2024?

[Odd Arild Grefstad, executive]

Well, should I answer that? Well, of course, we have increased this year mainly due to acquisitions. So that has added the number of employees. Storebrand is really growing. When you look at the different business lines, maybe more than 10% growth. There is, of course, somewhat increase in also the number of employees. But we are following very closely the relative numbers, cost-to-income ratios, cost ratios and so on and has very high focus on growth, that should be taking out the opportunities for us to be more effective comparable going forward.So, we are aiming very much to make sure that we increase and do better when it comes to these relative numbers going forward. But the main focus is, of course, to grow the results and having high top line growth, somewhat less on the cost line with then a very strong growth in result going forwards.

[Lars Aasulv Løddesøl, executive]

If I may add a comment, there is also some insourcing taking place in order to improve efficiencies, as we have automated some tasks and also, we have had especially in the IT organization, we've depended on consults in the past, which we are reducing the dependence on consults and having full-time employees instead, which is a cost efficient to manage the number of employees.

[Thomas Svendsen, analyst]

And second question on buffer capital. So, if you look at market value adjustment reserve and ASRs combined, a year ago, they were at around 7% and now we're at 5.6%. So, I guess the first question is, why should we take number up, given where the solvency are, and given also the sales gain you are getting in the first quarter and since you have decided, you will take it up, which level should we target of those buffers combined?

[Lars Aasulv Løddesøl, executive]

With the changes in the product rules in Norway, there will be more individualized buffers and more portfolios with guaranteed liabilities. So, there is not a 1 number that will fit all of these portfolios. It will depend on the duration in the portfolios, the guarantees in the portfolio in the portfolios and the buffer levels. But, on general, I would say that we were, in the past, with a lower interest rate level, comfortable 10% to 12%. We are comfortable with a lower level of buffers on average now. But as I said, it will be very dependent on different sub portfolios depending on the risk in those sub portfolios.And, as I mentioned also, earlier today, we are focused on rebuilding buffers in 2024 in Norway. However, there will profit sharing in Norway already next year, and then there will be more profit sharing in '25 and more in '26. And, with the current interest rate level, and the reinvestments rate that we are now generating, you should see quite significant improvement in profit sharing in the years ahead.

[Johannes Narum, executive]

Thank you, Thomas. We have a next question here from Jan Erik Gjerland in ABG Sundal Collier. Please go-ahead, Jan Erik. Apologies, it seems like the next question is coming from Hans Rettedal Christiansen in Danske Bank.

[Hans Rettedal Christiansen, analyst]

So, my first question is on the fee income and asset management. And your AUM is up around 13% year-over-year, but the fee income development so far has been quite limited due to the transaction fees. But specifically, in Q3, your fee income has increased now by about 10% year-over-year. So, does that mean that the effect from the lower transaction fees are sort of rolling over in the portfolio and the run rate going forward will be higher?And then my second question is just back to the previous question on share buybacks and specifically on the dynamics of when it ends on the 22nd of December, will you then have to wait for a new approval from the FSA and Board until April 2024? Can you apply before this time and don't need for an AGM?

[Lars Aasulv Løddesøl, executive]

Hans, on income in the asset management business transaction fees, sometimes they will be more in 1 quarter and less in a different quarter. It will be slightly different quarter-to-quarter. What we have seen in general is that with the significant rise in interest rates, there has been less transactions within real estate in the last year, 1.5 years, whilst this has picked up somewhat in the third quarter.And if the real estate market should -- we should see more transactions happening in the real estate market in the quarters ahead, then transaction fees will increase. As I also mentioned earlier, we do expect to see some fees coming out of the Cubera X private equity fund that we have started to -- or we fully invested the Cubera IX fund 1st of October and that therefore we will get fees from the X fund starting from now.In terms of the share buyback details, we will have to apply in order to get -- to be allowed to have a new tranche and we are likely to make that application over the course of this year. But we will probably release the fourth quarter numbers on February 7 before it's relevant to start another share buyback program, and, once again, dependent on FSA approvals.Then you may remember that we also need this AGM approval. So, in the beginning of April, we need to have a new AGM approval in order to continue. So, there will be some stops in the share buyback program over the course of the year-end as well as during the times of the AGM. But our ambition is to have a -- maintain a program that rolls on in a predictable manner, quarter after quarter with some of these technical stops.

[Johannes Narum, executive]

Thank you, Hans. Then the next question is from Jan Erik Gjerland in ABG.

[Jan Gjerland, analyst]

The first one is back to the buffer levels and the individualization of the buffers in the paid-ups portfolio. Could you please clarify a little bit how you have done it with the risks of the highest portfolios to also maybe have 4% or 5% or 6% guarantees? Have you sort of [ closened ] that risk now fully down? Or do you really need to sort of build the buffers again on top of sort of closing down risk in each of these individual levels? Or should we think differently that you haven't closed the full risk with long-term bonds and that you actually then have to build some buffers inside some of these very hard levels to build buffers and you don't have any sort of risk appetite to build anymore, so it will take some years maybe to get there.So, just let us know how you're thinking about these sort of previously 5 portfolios, now we probably will have 10 or 15 or 30 portfolios and how we should think about them in the context of profit sharing, as you had mentioned, Lars starting next year and then the increasing [ and then ] significantly at these interest rate levels. That's my first question.

[Lars Aasulv Løddesøl, executive]

So, as I said, if there is risk capacity in the sub portfolio, we take risk to the benefit of the customers and with the profit split opportunity for our shareholders. If there is no risk capacity in the sub portfolio, then we take no risk. So basically, everything is locked in with long term bond yields. And it's -- there is very little opportunity for profit split, neither for our customers nor for our shareholders.

[Jan Gjerland, analyst]

Could you give us a hint of how much of that 140 plus portfolio, which is sort of in the area of being in satisfactory buffer levels and risk capacity versus those that actually are not?

[Lars Aasulv Løddesøl, executive]

No, I cannot. But we may try to revert on that on the Capital Markets Day in December, we could possibly share some more light on that, but I don't have those numbers in front of me.

[Jan Gjerland, analyst]

Okay. The second question is about the buybacks and dividends as, for sure, someone else asked about. Is it so that the NOK 10 billion is what you want to distribute as a share buyback and that the running earnings could also be more extraordinary dividend or the running earnings increase could be just paid out as dividend and increasing dividends, and that you should actually be patient with the share buyback not only being that NOK 10 billion number? Or should we think about the share buyback being a combination of your increased earnings and the NOK 10 billion in excess capital.

[Odd Arild Grefstad, executive]

Well, I think, as I said before, we use the different tools, ordinary dividends. It might be extraordinary dividends. It will be share buybacks. And of course, we will use these tools to get the right capitalization over time. And we have set a very clear target of the NOK 10 billion of share buybacks at the end of 2030. And we are very well on our way to, as I said, front run that target. And of course, the $10 billion is not a hard stop. We also generate even more capital that can be used for the growth of the business or additional share buybacks or dividends.And we look at this -- and of course, the Board needs to make that decisions based on our dividend policy every year-end and we are doing that. But I can just say that we use these tools to get the right capitalization over time.

[Jan Gjerland, analyst]

Okay. Just have a follow-up then on -- and that is on the basis of what you talked about Lars, the next [Indiscernible] date you can start a new buyback program is in your Q4 numbers. Wouldn't the capital markets day be an excellent opportunity to sort of get the approval and then restart just after this 22nd December and then actually be in the market for January and February and March and April? That's up to your AGM, actually. So, you have ample of opportunities to be there, and actually, I ask for a larger mandate and you is NOK 500 million.

[Lars Aasulv Løddesøl, executive]

Thank you for the advice. We will evaluate that together with the other input that we have. Thank you.

[Johannes Narum, executive]

Thank you, Jan Erik. We have a next question from Vegard Toverud in Pareto Securities.

[Vegard Toverud, analyst]

Thank you. I have a few questions. First on cost, it seems like the cost level in Unit Linked Norway and asset management is dropping Q-on-Q. Is it possible for you to give some color on this movement? And if the Q3 level is what we should expect or costs from these areas going forward?

[Lars Aasulv Løddesøl, executive]

As I mentioned, we are now taking out or realizing synergies from the Danica transaction. So, while we've been running the cost of Danica is primarily unit-linked business in Norway, so we have had double cost there for a while. So, we should be able to take out additional synergies from that transaction through the fourth quarter and into next year.

[Vegard Toverud, analyst]

So, there's nothing with the cost levels for those 2 areas in Q3 that is one-offs and this is the level we could expect going forward?

[Kjetil R. Krokje, executive]

I think what we wrote in the quarterly report as a general comment is that the third quarter has somewhat lower activity levels, seasonality and it had so for many years because of the summer vacation. So that is a general comment on cost.

[Vegard Toverud, analyst]

But no more summer vacation this year than previous years.

[Lars Aasulv Løddesøl, executive]

No.

[Vegard Toverud, analyst]

And on the Swedish side, it seems like the indexation fee is quite a lot up. And there are some -- the 30th of September is a special date. So, is there any catch-up in the recognition of fees in the quarter? Or is this a level we could expect also going forward for the indexation fee?

[Lars Aasulv Løddesøl, executive]

There is a little bit of catch-up in the numbers for the third quarter, but we are below what we expect over time when we get full indexation fee. So, it's dependent, as I'm sure you know, of 2 things; the consolidation in the portfolios and the level of inflation. So, with the high inflation, it means that the indexation eats up a lot of consolidation. And if inflation goes down, you can get a full fee on a smaller indexation.So, for those of you who don't follow that, that's bit technical, but it will depend on these 2 factors. And we make an evaluation in the end of each quarter on what is the most likely scenario for the indexation fees as we will take them on, as you said, 30th of September will depend on the consolidation at that time and the inflation at that time.

[Vegard Toverud, analyst]

But is it so that we could expect a level of around NOK 40 million also per quarter going forward?

[Lars Aasulv Løddesøl, executive]

If we get full indexation, it's in the order of NOK 120 million, I think, per annum. So that would be NOK 40 million a quarter, with -- if inflation comes down and returns are maintained at decent levels, that should be achievable this next year and the year thereafter.

[Vegard Toverud, analyst]

Okay. And just finally then on the complete portfolio in Sweden, which seems to have some varying returns over the last quarters. Is it possible to give us an indication of what to expect going forward in the return from the Swedish portfolio?

[Lars Aasulv Løddesøl, executive]

Most of the Swedish portfolio is like the other company portfolios invested in short-term fixed income instruments, and will therefore follow with a little bit of a delay, the interest rate development in the country.

[Vegard Toverud, analyst]

Okay. Is it possible to give some color on the movements from quarter-to-quarter in the portfolio return?

[Lars Aasulv Løddesøl, executive]

It's a mark-to-market short-term fixed income portfolio. So, it will depend on the development in the fixed income markets.

[Kjetil R. Krokje, executive]

We can do a little follow-up on this afterwards Vegard, because I don't have the exact figures straight in front of me here, but we can do a follow-up on that.

[Johannes Narum, executive]

Thank you, Vega. We will also follow up on the outlook on the Capital Markets Day on that area. It seems like we're running out of time, but we'll take a last question from Tryfonas Spyrou in Berenberg.

[Tryfonas Spyrou, analyst]

I just have one quick question on the proceeds from the sale of the health business, the NOK 1.1 billion. You haven't mentioned any -- your thoughts on what you do this. Are these coming back to shareholders or are these allocated to maybe small bolt-on deals in the pension? So, any color on or some early thoughts on capital location will be appreciated.

[Odd Arild Grefstad, executive]

Yes. Well, first of all, of course, that goes into the liquidity of the holding company when the transaction is done. We look at this together with all our proceeds and solvency situation, and it will be a part of the distribution, of course, when it comes to both the share buybacks and dividends going forward. But it's also, of course, a part of the strategy to do bolt-on M&As if we see opportunities for doing that. So, it's a part of the ordinary business as we view it.

[Johannes Narum, executive]

Thank you, Tryfonas. It seems like that was the last question. So, that concludes today's presentation. We, once again, remind you to save the date for our Capital Markets Day on December 13 and look forward to seeing you then. Thank you and goodbye.