INSR INSURANCE GROUP ASA INTERIM REPORT FIRST HALF AND SECOND QUARTER 2018

Transcription

1 INSR INSURANCE GROUP ASA INTERIM REPORT FIRST HALF AND SECOND QUARTER 2018

2 HIGHLIGHTS Insurance result impacted by long and hard winter Q2 Annualized volume growth 12.4% - low double digit growth target ahead of plan Strong new sales activity and pipeline in Wholesale Significant price measures and migration activities not adversely affecting own brand portfolio retention Step change in operations confirmed: Costs on lower trajectory and developing according to plan Insr Capital Structure well functioning Reinsurance programme working well - reinsurers take around half the loss Stable solvency margin of 161% (162% ) Net result loss of NOK 17.4 million CONSOLIDATED KEY FIGURES Pro forma (MNOK except otherwise stated) Q Q Q YTD 2018 Pro forma Pro forma YTD FY 2017 FY Gross premium earned Gross claims incurred (291.9) (103.6) (185.3) (587.3) (444.3) (499.6) (946.7) Sales costs (41.5) (26.7) (41.1) (81.9) (76.3) (136.0) (194.3) Administration costs (46.6) (21.4) (46.4) (98.3) (109.4) (230.8) (353.7) Gross underwriting result (36.7) (83.4) 37.0 (149.9) (153.6) Gross to net adjustment Reinsurance share of premium (186.0) (102.5) (229.5) (376.1) (484.3) (461.0) (922.6) Reinsurance share of claims Commissions received Reinsurers result (19.8) (40.9) Net underwriting result (16.9) (16.8) 1.4 (42.5) (27.1) (209.5) (245.6) Investment return Other items 2 (2.4) (0.0) (0.0) (3.4) (2.4) 0.5 (36.8) Net result (17.4) (14.4) 4.3 (42.2) (24.8) (205.8) (277.4) Solvency ratio 161% 211% 185% 1) Includes other insurance related income 2) Includes interest paid, currency effects, unexpired risk, other income and costs 3) Pro forma figures calculated as the sum of reported figures for Nemi Forsikring AS and Insr for the given period. Nemi s 2017 financial reports are available here: Compared to the published quarterly reports for Nemi, sales cost figures and deferred tax treatment have been updated to reflect Insr s accounting principles used at year-end. 2

3 GROUP PERFORMANCE (Figures in brackets in this section are pro forma figures for same period prior year unless otherwise stated.) Results Second quarter 2018 Insr Insurance Group ASA (Insr) reported a gross loss ratio for the second quarter of 85.3% compared to a pro forma loss ratio same quarter last year of (56.5%). The disappointing result reflects a prolonged winter. Winter spilling over into Q2 and continued impact of claims inflation for motor appears to also have affected the Norwegian market. We consider a significant part of this quarter s loss ratio to be temporary, and the effect of our significant ongoing pricing measures will gradually improve claims ratios into, and throughout, Last year, both Nemi and Insr had fewer large losses than this year, and run-off gains are around NOK 30 million below same quarter last year. The balance sheet is stronger; claims reserves including IBNR are now 52% of premium compared to 51% after Q1 and 48% at 1 the start of the year. Gross cost ratio was 25.8%, compared to pro forma 26.7% for the second quarter last year, corresponding to gross operating expenses of NOK 88.2 million (NOK 87.5 million). Costs remain higher than they will be post migration, as substantial extra efforts are required to migrate and still run two business processes in many areas. Gross combined ratio was 111.1% (83.2%). Combined ratio for own account was, like last quarter, similar to the gross ratio at 111.7% (100.6%), demonstrating the well-functioning 1 Claims reserves + IBNR reserves divided by rolling 12-month earned premium 3

4 reinsurance programme, particularly in comparison to last year s programme. The overall loss YTD is evenly split between Insr and the reinsurance panel. Technical result for the quarter was a loss of NOK 16.9 million (gain of NOK 1.4 million). Net income from financial assets amounted to NOK 1.9 million (NOK 2.9 million) and net interest paid was NOK 1.1 million. Net result for the quarter was a loss of NOK 17.4 million (gain of NOK 4.3 million), a loss per share of NOK Year to date 2018 Technical result for the first half of 2018 was a loss of NOK 42.5 million (loss of NOK 27.1 million). The deterioration has two main components, both related to insurance results; the harsh and long winter this year, and significant run-off gains in Nemi same period last year. Result from operations was a loss of NOK 42.2 million (loss of NOK 24.8 million). Premium income (MNOK except otherwise stated) Q Q Pro forma Q YTD 2018 Pro forma YTD 2017 Gross premium written Norway Denmark Premium earned f.o.a Norway Denmark Portfolio Norway Denmark Second quarter 2018 Gross premium written amounted to NOK million (NOK million) during the second quarter. Premium earned for own account grew significantly from second quarter last year, to NOK million, compared to pro forma NOK 98.3 million second quarter Gross premium written is 2% lower than previous quarter, due to the renewal structure on Nemi s commercial insurance, whilst gross premium earned is up 0.5% 4

5 from last quarter. The portfolio as of June 30 th, 2018 was NOK million (NOK million). This was the fourth consecutive quarter with organic growth. Growth from previous quarter was 3.1%, corresponding to an annualized growth rate of 12.4%. Annualised growth rate since was 10.6%. This growth is driven by wholesale partnerships. In addition, churn in the direct portfolio is under control, despite ongoing migration efforts and steep price increases. Year to date 2018 Gross premium written year to date was NOK million (NOK million), gross premium earned NOK million (NOK million), and premium earned for own account NOK million (NOK million). The portfolio growth over the past year is now starting to show in the gross earned premium, and the reduced reinsurance cession allows keeping a much higher premium for own account. Investment income Net income from financial assets amounted to NOK 1.9 million (NOK 2.9 million); an annualised return of 1.3% in the quarter. The investment portfolio growth continues. Year to date investment income was NOK 3.7 million. Financial position and liquidity (Figures in brackets in this section are figures for Insr only for same period prior year unless otherwise stated.) Consolidated cash flow Second quarter 2018 Cash inflow from operations was NOK 76.2 million, NOK 93.7 million above the net result. This compares to an operational cash flow for the same period last year for Insr, not including Nemi, of NOK 12.0 million. 5

6 NOK 35.9 million was invested in money market funds. Cash flow from financing activities was zero. The Group recorded cash and cash equivalents of NOK million as of June 30 th, 2018 (NOK million). Year to date 2018 The operational cash flow year to date is NOK million, of which NOK 98.7 million have been invested, the remaining NOK 15.2 million accumulating in the bank. Consolidated financial position and solvency capital As of June 30 th, 2018, total assets amounted to NOK million (NOK million). Total equity amounted to NOK million (NOK million). The solvency ratio at the end of the quarter was 161%, stable from last quarter s 162%, well above the regulatory requirement of 100%. A common solvency model for the merged company, not deviating much from the model used for last quarter, is now established. Parameter assumptions are regularly revised, however, we do not foresee additional large model revisions near term. The Solvency Capital Requirement (SCR) as of June 30 th was NOK 255 million (previous quarter NOK 232 million). The majority of the increase is related to increased insurance risk, as expected with reduced quota cession and growth. The Available Capital is NOK 410 million (Q1 18: NOK 376 million), a surplus of NOK 155 million above the SCR. The Available Capital has increased NOK 34 million since last quarter despite the loss in the quarter. The main reason is a somewhat conservative assumption on quota cession last quarter. SOLVENCY CAPITAL (MNOK) Tier Tier 2 98 Tier 3 29 Available capital 410 The solvency figures are those reported to the Norwegian FSA, which, after the merger, reverted to being for Insr Insurance Group ASA, not the Group. 6

7 STRATEGIC UPDATE The focus in 2018 remains integration and profitable growth. The adverse claims development in H1 has resulted in significant pricing measures. An unusually harsh winter has, together with an uptick in motor claims inflation, put its mark on the Norwegian insurance market. To quickly address this situation, Insr is in the process of implementing significant pricing measures. As the entire Norwegian market is currently repricing, no material uptick in customer churn is expected Insr is well positioned to do so, being the insurance player in Norway with the most recent experience implementing extensive such measures. Prices in the Vardia portfolio have been continuously increased since the fall of 2016, as seen in the graph below.. Similar measures for Nemi and wholesale partners started reaching end customers during the second quarter of of this year, and will gradually flow into earned premium over the next 24 months. Integration efforts following the acquisition of Nemi are progressing according to plan, with the entire company being on one accounting and ERP solution from ultimo June. With this in place, Insr has started to gradually migrate commercial Vardia-customers to the Nemi-platform. A full migration of all private Vardia-customers will take place in the fourth quarter. When this migration completes, Insr will be positioned to realize the remaining 13 MNOK of communicated synergies. The organizational integration is also on schedule. As communicated in the first quarter, the Porsgrunn office was closed ultimo June. After this closure, Insr now runs the Nemi and Insr operations from only one location in Norway. 7

8 OUTLOOK Migration to one core IT system and joint work processes is on track, and will be completed in the fourth quarter of Insr expects continued organic portfolio growth in the rest of The medium term target of low double digit growth is within reach already for The quality of the insurance portfolio is expected to improve as a result of pricing and pruning measures. Cost synergies will materialize in the financials post migration. Insr targets a gross combined ratio in the medium term of 90-92%, and aims for low double digit portfolio growth. Insr Insurance Group ASA complies with statutory solvency requirements, reporting a solvency ratio of 161% as of June 30 th, The company will optimize capital management with a sustainable solvency margin above 130% going forward. Oslo, August 13 th, 2018 The Board of Directors Insr Insurance Group ASA 8

9 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED FOR THE PERIOD ENDED JUNE 30 TH, 2018 Consolidated Income Statement (NOK 1,000) Note Q Q YTD 2018 YTD 2017 FY Premium income 2 Gross premium earned Reinsurance share ( ) ( ) ( ) ( ) ( ) Premium earned for own account Other insurance-related income Claims 2 Gross claims incurred ( ) ( ) ( ) ( ) ( ) Reinsurance share of gross claims incurred Claims incurred for own account ( ) (41 416) ( ) (74 799) ( ) Operating expenses Sales costs (41 508) (26 727) (81 899) (45 778) ( ) Insurance-related administration costs (46 647) (21 405) (98 270) (51 226) ( ) Commission received Total operating expenses for own account (43 711) (30 522) ( ) (53 669) ( ) Unexpired risk - - (1 041) Technical result (16 889) (16 779) (42 526) (35 822) ( ) Non-technical result Investment income Interest paid (1 135) - (2 424) (1 036) (5 403) Non-technical result (1 036) (2 213) Result before tax (16 136) (14 374) (41 232) (36 858) ( ) Tax - Result before comprehensive income and expenses (16 136) (14 374) (41 232) (36 858) ( ) Comprehensive income and expenses Currency effects (1 288) (40) (948) Total comprehensive income and expenses (1 288) (40) (948) Net result (17 423) (14 414) (42 180) (34 950) ( ) 1 Nemi is included in the figures from 1 December 2017, as the purchase closed 30 November. 9

10 Consolidated Statement of Financial Position (NOK 1,000) ASSETS Note Q Q Intangible assets Goodwill Other intangible assets Total intangible assets Investments Investments in shares Bonds and other fixed-income securities Total investments Reinsurance share of gross technical provisions Reinsurance share of gross premium provisions Reinsurance share of non-adjusted risk Reinsurance share of gross claims provisions Total reinsurance share of gross technical provisions Receivables Receivables in connection with direct insurance and reinsurance Other receivables Total receivables Other assets Plant and equipment Cash and cash equivalents Total other assets Prepaid expenses and earned income not received Prepaid costs and earned income not received Total prepaid expenses and earned income not received Total assets

11 Consolidated Statement of Financial Position (NOK 1,000) EQUITY AND LIABILITIES Note Q Q Paid-in equity Share capital Share premium Other paid-in-equity Total paid-in equity Provision for Guarantee scheme Provision for Natural perils pool Other equity ( ) ( ) ( ) Total equity Subordinated loan Technical provisions Gross premium reserve Unexpired risk reserve Gross claims reserve Total technical provisions Financial liabilities Pension liabilities Other liabilities Liabilities in connection with direct insurance and reinsurance Total financial liabilities Premium deposits from reinsurance companies Accrued costs and received unearned income Accrued costs and received unearned income Total accrued costs and received unearned income Total liabilities Total equity and liabilities

12 Consolidated statement of cash flow (NOK 1,000) Q Q YTD 2018 YTD 2017 FY 2017 Cash flow from operations Paid-in premium Paid claims ( ) ( ) ( ) ( ) ( ) Received from reinsurers Other paid operating expenses incl. interest (43 327) (74 699) ( ) ( ) ( ) Net cash flow from operations (32 674) Cash flow from investment activities Acquisition of assets - (2 869) Investment in money market funds (35 871) (2 055) (95 871) (2 055) ( ) Acquisition of subsidiaries - - ( ) Investment in shares - - (2 000) Net cash flow from investment activities (35 871) (2 055) (98 740) (2 055) ( ) Cash flow from financing activities Proceeds from issued capital Net cash flow from financing activities Currency effects on cash and cash equivalents Cash and cash equivalents in acquired company per Net cash flow for the period Net cash flow Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Net cash flow for the period Cash in bank

13 Consolidated statement of changes in equity (NOK 1,000) Share Share Other Other earned Natural Guarantee capital premium equity equity Perils Pool scheme Total Equity as at 1 January ( ) Increase in equity Subscribed equity Cost related to capital issue (3 015) (3 015) Changes in provisions in Q (1 534) Result before OCI (19 549) (19 549) Other result components (net after tax) (2 079) (2 079) Option expenses Equity as at 31 March ( ) Equity as at 1 April ( ) Increase in equity Subscribed equity Cost related to capital issue (2 015) (2 015) Changes in provisions in Q (1 391) Result before OCI (14 906) (14 906) Other result components (net after tax) Option expenses Equity as at 30 June ( ) Equity as at 1 July ( ) Changes in provisions (400) Profit before OCI (27 064) (27 064) Other result components (net after tax) Other expenses Equity as at 30 September ( ) Equity as at 1 October ( ) Increase in equity Subscribed equity Cost related to capital issue (10 425) (10 425) Changes in provisions (57 372) Profit before OCI ( ) ( ) Other result components (net after tax) Option Expenses Equity as at 31 December ( ) Equity as at 1 January ( ) Change in Natural Perils Pool capital (7 091) Profit before OCI (24 677) (24 677) Equity as at 31 March ( ) Equity as at 31 March ( ) Change in Natural Perils Pool capital (2 935) Profit before OCI (16 136) (16136) Other result components (net after tax) (1 288) (1 288) Option Expenses Equity as at 30 June ( )

14 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 Accounting principles These interim accounts have been prepared according to IFRS and IAS 34 Interim Reporting, and are in line with the principles described in the annual report for For further information, please see the annual report. NOTE 2 Segment information Norway (NOK 1,000) Q Q YTD 2018 YTD 2017 FY 2017 Gross premium earned Premium earned f.o.a Other income Incurred claims and operating expenses f.o.a. ( ) (67 729) ( ) (90 602) ( ) Technical result (9 193) (15 680) (34 042) (21 936) ( ) Cost Ratio f.o.a. 28% 65% 30% 54% 113% Loss Ratio f.o.a. 79% 89% 83% 83% 72% Net Combined Ratio 107% 154% 113% 137% 185% Denmark (NOK 1,000) Q Q YTD 2018 YTD 2017 FY 2017 Gross premium earned Premium earned f.o.a Other income Incurred claims and operating expenses f.o.a. (14 146) (4 209) (22 589) (8 371) (25 746) Technical result (7 696) (1 099) (8 484) (4 492) (9 714) Cost Ratio f.o.a. 38% 35% 57% 160% 69% Loss Ratio f.o.a. 182% 100% 103% 56% 91% Net Combined Ratio 219% 135% 160% 216% 160% NOTE 3 Intangible assets Goodwill of NOK million relates to the purchase of Vardia Norge and Nemi. Intangible assets of NOK 82.7 are mainly intangible assets added to the Group when purchasing Nemi, such as databases and customer relationships. 14

15 NOTE 4 Earnings per share Earnings per share Earnings per share is calculated by dividing the result from operations on a weighted average of outstanding ordinary shares through the quarter, own shares deducted. The Group has one category of potential shares that can cause dilution: stock options. The options have dilutive effects if the exercise price is below the market price of the share. As of 30 June 2018, no options had dilutive effect, and diluted earnings per share equal earnings per share. (NOK 1,000) Q Q FY 2017 Result from operations (17 424) (14 414) ( ) Earnings per share (0.13) (0.24) (2.97) NOTE 5 Bonds and other fixed-income securities The value of the portfolio by end of June 2018 was NOK 524 million, the majority invested in Norwegian money market funds and a small portion in Nordic investment grade bond funds with low interest duration. The funds are managed externally. NOTE 6 Transactions with related parties Transactions with companies within the Group have been eliminated in the Group accounts. 15

16 GLOSSARY Available capital: Capital available for solvency purposes, determined under regulatory rules Solvency capital requirement (SCR): The amount of capital the company is required to hold to fulfil regulatory requirements under Solvency II. The Standard formula is used to calculate SCR. Solvency ratio: Available capital / Solvency capital requirement Vintages: Policies written in prior underwriting years. Underwriting year: The year commencing with the effective date of a policy or with the renewal date of that policy. Portfolio: Sum of annualised premium for all insured as of given date Written premium: Total premium on policies issued during a specific period Earned premium: premium recorded during a specific period based on the ratio of the time passed on the policies to their coverage period Technical result: Result before return on investment, other income, other costs and taxes Gross underwriting result: (1 - Gross combined ratio) * Gross premium earned Net underwriting result: (1 - Net combined ratio) * Earned premium f.o.a. Gross loss ratio: Gross claims incurred / Gross premium earned Gross cost ratio: Sales and administration costs / Gross premium earned Gross combined ratio: Gross loss ratio + Gross cost ratio For own account (f.o.a.): Net of reinsurance Loss ratio f.o.a.: Claims incurred f.o.a. / Earned premium f.o.a. Cost ratio f.o.a.: Administration costs f.o.a. / Earned premium f.o.a. Combined ratio f.o.a.: Loss ratio f.o.a. + Cost ratio f.o.a. Unexpired risk (previously termed non-adjusted risk): The excess risk, if expected claims and claims handling costs for future claims related to insurance contracts effective at the reporting date exceed the unearned premium reserves. 16

17 Disclaimer This report may contain forward-looking statements, which are based on our current expectations and projections about future events. The terms anticipates, assumes, believes, can, could, estimates, expects, forecasts, intends, may, might, plans, should, projects, will, would or, in each case, their negative, or other variations or comparable terminology are used to identify forward-looking statements. All statements other than statements of historical facts included in this report, including statements regarding our future financial position, risks and uncertainties related to our business, strategy and our plans and objectives for future operations, may be deemed to be forward-looking statements. By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. You should not place undue reliance on these forward-looking statements. In addition, any forward-looking statements are made only as of the date of this report, and we do not intend and do not assume any obligation to update any statements set forth in this report. FINANCIAL CALENDAR Q Results 13 November 2018 INVESTOR CONTACT Anne B. Knudtzon SVP Business Controlling & Investor Relations T: E: 17