Release Date: July 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gjensidige Forsikring ASA (GJNSF, Financial) reported a profit before tax of NOK1,830 million, up from NOK1,334 million.
- The company saw a strong growth momentum with insurance revenue increasing by almost 10%.
- Investment returns were robust at NOK540 million, with an annualized return on equity of 20.2%.
- Customer retention remains high despite significant pricing measures, indicating strong brand loyalty.
- The company has launched new insurance products and solutions, including cyber insurance for SMEs and bundled insurance concepts in Denmark.
Negative Points
- Higher motor and property insurance claims in Norway negatively impacted the insurance service result.
- Claims inflation is expected to remain in the 5% to 7% range for the next 12 to 18 months, putting pressure on profitability.
- The significant increase in property claims due to fires and water damage is a concern.
- Economic growth and high inflation, partly driven by the weak Norwegian kroner, have also impacted claims.
- The company's combined ratio target for 2024 is challenged due to the high claims in the first half of the year.
Q & A Highlights
Q: Upon your transition to IFRS 17, how has your estimated cost of equity changed, and what is driving this change? Also, can you clarify the impact of the influx of electric vehicles on your market share and claims frequency?
A: The change in the risk adjustment is based on updated models and assessments of solvency targets and cost of equity versus the risk-free rate. The percentile change from 85% to 80% reflects these updates. Regarding electric vehicles, our market share remains stable at around 25%-26% for both EVs and traditional cars. The increase in claims is more due to the types of vehicles and driving behavior rather than the introduction of EVs.
Q: Where has your claims experience year-to-date continued to negatively surprise versus your expectations? Is it more in frequency or severity?
A: The claims experience has been impacted by both frequency and severity, particularly in motor and property insurance. The frequency of motor claims increased slightly from 5% in Q1 to 5.8% in Q2. Property claims have also seen a significant increase in frequency, which we attribute to volatility rather than a long-term trend. We believe our claims inflation outlook remains prudent.
Q: Can you clarify your target for Norwegian private lines' underlying improvement and the impact of the movement in risk adjustment on reserve releases?
A: We are committed to improving profitability over time, but quarterly comparisons may be impacted by volatility. The reserve releases are unrelated to the risk adjustment, and historically, they have been around 1%-2% per year. This quarter, it was 1%, and we do not have a specific target for reserve releases.
Q: Have any components of your claims inflation expectations for motor in Norway changed? Also, can you quantify the surprise in property claims in Private and Commercial Norway?
A: The two-year claims inflation expectation of around 12% remains unchanged. The frequency has increased slightly, and we are taking this into account for future pricing. Property claims have seen an 8% increase in frequency, which we attribute to volatility. The severity of property claims, particularly fires, has also increased, but we refrain from quantifying the exact impact.
Q: How do you expect the significant price increases in motor and property to impact churn in Private Norway?
A: Despite significant price increases, retention levels remain high. We are confident that our strong brand and customer satisfaction will help maintain high retention rates. We prioritize profit over growth and are prepared to accept some churn if necessary to improve profitability.
Q: Can you elaborate on the measures being taken to reduce exposure to fire risk in property insurance?
A: The long-term trend in fires is decreasing due to various prevention measures. We are mainly focusing on pricing to compensate for the claims we have seen. Deductibles in property insurance are more about reducing the average claim size rather than frequency. Our comprehensive risk selection and assessment procedures also help in managing fire exposure.
Q: What are the priorities for your new EVP of claims, and do you see any issues in your systems that need improvement?
A: The new EVP of claims will focus on delivering the claims program and reducing the backlog of claims. Ensuring a high-quality claims process is crucial for customer satisfaction and cost control. We believe the issues seen are more market-wide rather than specific to our systems.
Q: How do you differentiate between customers when implementing price hikes?
A: We group customers based on profitability and apply price increases accordingly. Even more profitable customers are seeing significant price hikes, often above 10%. We are confident that our measures will maintain high retention rates.
Q: How does the increase in your large loss budget affect your combined ratio target?
A: The large loss budget is included in our pricing measures, and we believe we will achieve our combined ratio target. The pricing measures compensate for both the expected development in the underlying frequency loss ratio and the large claims budget.
Q: Are you seeing any changes in customer behavior in terms of coverage due to the price hikes?
A: We have not seen any significant changes in retention levels or customer behavior regarding coverage. Despite the economic situation, our topline development remains strong, and we continue to see high customer satisfaction and loyalty.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
