November Topdanmark Q1-Q results

Transcription

1 November 2011 Topdanmark Q1-Q results 1

2 Highlights Q1-Q Post-tax profit of DKK 673m (Q1-Q3 2010: DKK 680m) CR of 90.5 (Q1-Q3 2010: 94.7) CR of 90.7 excl. run-off profits and extraordinary weather-related claims (Q1-Q3 2010: 92.2) Investment return: DKK 399m (Q1-Q3 2010: DKK 623m) Growth in premiums: 1.1% in non-life and 8.9% decline in life Q Post-tax loss of DKK 53m (Q3 2010: DKK 318m profit) CR of 91.8 (Q3 2010: 93.7) CR of 89.9 excl. run-off profits and extraordinary weather-related claims (Q3 2010: 92.0) Investment return: DKK 139m loss (Q3 2010: DKK 257m profit) Growth in premiums: 0.4% in non-life and 18.7% decline in life Profit forecast model for 2011 The assumed growth in non-life premiums remains unchanged at 1-2% The assumed CR remains unchanged at 91-92, excluding run-off in Q4 Profit forecast model has been downgraded by DKK 50m to DKK 900-1,000m Share buy-back programme Buy-back programme remains unchanged at DKK 1.2bn Buy-back yield of 9.8% Assumptions for non-life in 2012 Premium growth of 1-2% and CR of 91-92, excluding run-off 2

3 Trend in pre-tax results Q1-Q Q1-Q Q Q (287) (75) Life Q Q1-Q Q1-Q Teknisk resultat Technical result Investeringsafkast (skade) Investment return (non-life) Liv Life Moderselskab Parent company Q1-Q Q1-Q Q Q Technical (470) result Investment Investeringsafkast return (skade) (non-life) (119) Parent company Moderselskabet 57 (73) 3

4 Claims trend Q1-Q Q1-Q Q1-Q Vejrligs-relaterede skader Pris-forhøjelser Bilforsikring Privatsegment Erhverv Sul Præmiereguleringer Diskontering Afløb Brand (brutto) Arbejdsskade Andet inkl. Genforsikring på brand Q1-Q Weatherrelated claims Price increases Motor insurance Other Personal Other SME and Agricultural IA before run-off Premium adjustments Discounting Runoff Fire Workers comp Q1-Q3 2011

5 Claims trend Q Q Q Other Q Q Afløb Privat i øvrigt Erhverv og Landbrug i øvrigt Prisforhøjelser Diskontering Bilforsikring Vejrlig Brand Arbejdsskade Andet Q Run-off Other Personal Other SME and Agricultural Price increases Discounting Motor insurance Weatherrelated claims Fire Workers comp

6 Topdanmark - Examples of trend in claims paid Fire claims (DKKm) Theft claims (DKKm) Q1 Q2 Q3 Q Q1 Q2 Q3 Q Motor claims (DKKm) Q1 Q2 Q3 Q4 6

7 Weather-related claims in Q1-Q Weather-related claims in Q1-Q2 No reinsurance cover Cloudburst claims 2-3 July: DKK 660m Retention: DKK 50m Reinstatement: DKK 65m Net expenses: Other weather-related claims in Q3: Total weather-related claims: Assumed normal weather-related claims in Q1-Q3 Extraordinary weather-related claims: DKK 76m DKK 115m DKK 25m DKK 216m DKK(120m) DKK 96m 7

8 Topdanmark s share of cloudburst claims relatively low Topdanmark s share of estimated claims on the cloudburst on 2-3 July is lower than its market share Estimated gross claims for entire sector DKK 5bn Topdanmark s estimated gross claims DKK 660m Topdanmark s share of gross cloudburst claims 13% Topdanmark s market share 18% Estimated cloudburst claims for entire sector, net of reinsurance Topdanmark s estimated cloudburst claims, net of reinsurance DKK 1bn DKK 115m Reasons for Topdanmark s relatively limited share of cloudburst claims Strong reinsurance programme Lower exposure in Central Copenhagen Few large-scale claims Quick and efficient emergency programme 8

9 Consequences of cloudburst on 2-3 July Topdanmark has introduced measures to reduce the effect of similar future cloudbursts New requirements on protection against water damage Limited cover for water damage in basements Selective price increases Cloudburst claims of this size are extremely rare Consequences 2012: Modest increase expected in reinsurance expenses in 2012 Catastrophe programme runs from 1 July 2011 to 30 June 2012 Therefore only 6 months impact felt in 2012 Assumption of unchanged cloudburst claims of DKK 70m and overall weather-related claims of DKK 170m 9

10 Underlying CR in Q1-Q % CR for Q1-Q Run-off profits in Q1-Q Extraordinary weather-related claims Q1-Q Underlying CR in Q1-Q CR for Q1-Q Afløb Vejrligsrelaterede skader Forudsat CR 10

11 Comparison CR incl. and excl. run-off (Danish insurance) ) H Q1-Q ) Scandinavian business 11

12 Growth measures Effect on growth 2012 From 2013 New decentralised sales concept in personal market + New distribution agreement with Danske Bank + Other strengthening of distribution efficiency More certified insurance representatives + + Improved sales efficiency Customer retention activities + + No general price increases + Activities improving profitability for less profitable customers + 12

13 Change in decentralised sales organisation in personal market Previous decentralised sales concept 4 sales centres 26 insurance outlets New decentralised sales concept All insurance outlets closed Number of sales centres increased from 4 to 9 Changes expected to be completed during H Background Ambition to increase market pressure Fewer visitors to outlets Further decline in number of visitors due to Danish Digital Motor Register Increased focus on outbound sales outside business hours Outbound sales from sales centres strengthen sales environment Achieving economies of scale Effect of change Loss of momentum expected in 2012 Increased market pressure and efficiency gains expected from

14 New distribution concept with Danske Bank Premium growth through Danske Bank co-operation has declined over recent years Previous concept The bank was responsible for advisory services and sales But Non-life insurance not within the core competency of the bank s financial advisors New concept Advisory services and sale of non-life policies continue to be strategically important for Danske Bank Responsibility for advisory services and sales taken over by Topdanmark (Danske Forsikring) In future, Danske Bank to refer its non-life customers to Topdanmark Agreement on referral commission and level of referrals Implementation of new concept initiated in September 2011; expected to be completed in Q Two new sales channels for Danske Bank Danske Forsikring Line (advice and sales over the phone) Danske Forsikring certified personal sales representatives (sales through representatives) Effect of new concept New concept expected to incur loss of momentum in 2012 Full implementation in

15 Examples of measures improving profitability Individual price increases Higher deductibles Lower sums insured Loss prevention 15

16 Effect of general price increases vs profitability improving measures General price increases Short-term effect Price increases for both profitable and non-profitable customers Premium growth and lower CR Long-term effect Loss of competitiveness on profitable customers Loss of profitable customers Higher CR Profitability improving measures Profitability improving measures for less profitable customers Short-term effect Long-term effect Lower growth and lower CR Improved competitiveness on profitable customers not necessarily higher premium growth but lower CR 16

17 Assumed premium growth of 1-2% in 2012 Effect of automatic price indexation 1.3% - New distribution agreement with Danske Bank - New decentralised sales concept in personal market - Loss of health insurance polices due to the Government s Budget - Profitability improving measures + Customer retention activities + Other improved distribution efficiency Overall expected premium growth 1-2% 17

18 Premium growth in non-life 8 % (2) (1.3) (4) (3.2) Q1-Q E 2012E 18

19 Assumed CR of for 2011 excl. run-off in Q4 100 % Assumed CR in Q2-report Run-off profits Q Additional weather-related claims Forudsat CR i Q2-rapporten Afløbsgevinster Q Akk. Vejrligsskader <10 mio. kr. Fire at KB Hall Discounting Brand i KB Hallen Diskontering Q CR excl. run-off in Q

20 Assumed underlying CR of for 2011 excl. run-off 100 % Forudsat CR i Q2-rapporten Afløbsgevinster Q vejrligsskader Forudsat underliggende Assumed CR for 2011 excl. run-off in Q Run-off profits Q1-Q Extraordinary weather-related claims in Q1-Q Assumed underlying CR in

21 Assumed CR of for 2012 excl. run-off Assumed underlying CR of for 2011 Key forecast assumptions for 2012: No run-off profits No extraordinary weather-related claims No changes in reinsurance programme No effect of changes in interest rates Effect of profitability improving measures not included Assumed CR of for 2012 excl. run-off 21

22 Results Life insurance Q1-Q3 Q1-Q (DKKm) Life I Life V Group Life I Life V Group Investment return Risk allowance Transferred, shadow account (85) (9) (94) Other 12 (1) Profit on life insurance Shadow account end of period

23 Prospects for life insurance 2011 Expected decline of about 10% in regular premiums Expected decline of 5-8% in Q2 report Loss of large customer in Q Portfolios of Life I and Life V split into contribution groups taking effect on 1 January 2011 Interest rate, risk and cost groups The split into contribution groups increases risk of part of profit not being recognised as income but transferred to shadow account Size of risk allowance (interest rate groups) increased from 0.5% to 0.6% in Life I and from 0.65% to 0.75% in Life V Risk allowance will be considered when finalising the 2011 Annual Report Results highly sensitive to fluctuations in investment return Assumed recognition as income of risk allowance of DKK 65m in 2011 Shadow account forecast at 31 December 2011 remains at DKK 125m 23

24 Effect on life insurance of Government s Budget for 2012 Reduction from DKK 100,000 to DKK 55,000 in ceiling on term life insurance payments Continued possibility of unlimited payments into annuity schemes with full deductibility Only possible in life insurance and pension fund companies not banks Removal of tax allowance for asset management in pension schemes Reduces customer returns slightly The expected adverse effect of the ceiling on term life insurance payments expected to be offset by the possibility of continued unlimited payments into annuity schemes in 2012 Expected positive effect on premium growth from 2013 Potential greater value created by long-term customer relationships with annuity schemes than relationships with those with term life schemes 24

25 Solvency II probably postponed to 2014 Unchanged expectation of solvency capital of DKK 4.5bn being sufficient Based on approval of internal model If internal model is not approved and Topdanmark must use standard model, the solvency requirement will be DKK m higher Wish to ensure sufficient solvency capital if, contrary to expectations, the internal model is not approved in time Therefore in Q Topdanmark issued tier 2 capital of DKK 400m Consequently, total tier 2 resources for this purpose are now DKK 500m Implementation of Solvency II expected to be postponed from 2013 to

26 Movements in the adjusted interest rate curve years 3 months 6 months 1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years 11 years 12 years 13 years 14 years 15 years 16 years 17 years 18 years 19 years 20 years 21 years 22 years 23 years 24 years 25 years 26 years 27 years 28 years 29 years 30/12/ /03/ /06/ /08/ /09/ /11/2011

27 Investment return - for Topdanmark Group excl. life insurance Investment return Portfolio 30 Sep (DKKbn) Return Q Return Q Return Q1-Q Return Q1-Q (DKKm) % (DKKm) % (DKKm) % (DKKm) % Danish equities (50) (12.6) (63) (15.4) Foreign equities (125) (14.1) (87) (10.1) Government and mortgage bonds Credit bonds (11) (1.2) CDOs (54) (6.8) Properties Assets rel. to I/A Money market etc Interest-bearing debt (2.4) (5.1) (12) (0.6) (25) (0.6) (33) (1.3) (54) (1.7) (207) (1.2) Asset management Total investment return 257 (139) Transferred return technical provisions Discounting (70) (87) (235) (258) Technical interest (12) (12) (50) (58) The exposure in foreign equities and credit bonds have been adjusted by use of derivatives. The return percentages are calculated as the ratio between the return on financial instruments and the size of the exposure of the underlying asset. The return on government and mortgage bonds and assets related to I/A (illness/accident) includes revaluations of claims provisions. 27

28 Profit forecast model for 2011 (DKKm) 2010 Forecast for August 2011 Forecast for November 2011 Non-life insurance - Technical result Investment return after transfer to technical result etc Profit on non-life insurance 1,092 1,030 1, ,070 Life insurance Parent company etc Pre-tax profit 1,506 1,260 1,400 1,180 1,320 Taxation (338) (310) (350) (280) (320) Profit for the year 1, , ,000 Representing a profit per share of around DKK 69 28

29 Buy-back potential 2011 (DKKm) Estimated necessary solvency capital Before growth 4,500 Subordinated loan capital - Insurance (250) Necessary solvency capital - Holding 4,250 Shareholders' equity 31 Dec ,900 Hybrid capital 404 Intangible assets (787) 4,517 Surplus capital 31 Dec 2010: DKK 267m Expected post-tax profit (average value) 950 Change in intangible assets 54 Movements in shareholders' equity 150 Expected capital cover 31 Dec ,671 Surplus capital / buy-back potential in ,421 Any solvency capital requirement exceeding DKK 4,500m in 2012 will be covered by issuing further supplementary capital. Topdanmark Forsikring has issued subordinated loan capital of DKK 100m with step-up in 2015 and expiry in 2018 and further subordinated loan capital of DKK 400m with step-up in 2016 and expiry in These issues are intended as resources for the change to Solvency II and therefore they will not be included in the share buy-back potential until the actual Solvency II requirement is known. 29

30 Unchanged buy-back programme of DKK 1.2bn Unchanged buy-back of DKK 1.2bn for 2011 Buy-back yield of 9.8% To date in 2011 own shares of DKK 915m bought back Balance remaining of the 2011 programme: DKK 285m Since 1998 Topdanmark has cancelled 64.1% of outstanding shares Average price per share: DKK

31 Average yield of 9% since Yield Average E 31

32 Disclaimer This presentation includes statements relating to the future. Such statements are uncertain and involve both general and specific risks. Many factors may cause a significant deviation from the forecasts and assumptions set out in the presentation. Such factors could be, for example, cyclical movements, changes in the financial markets, the financial effect of non-anticipated events like acts of terror or exceptional weather conditions, changes in Danish and EU rules, competitive factors in the insurance industry and the trend in reinsurance market. Also see Risk management. The above description of risk factors is not exhaustive. Investors and others, who may base decisions relating to Topdanmark on statements relating to the future, should make their own careful considerations on these and other factors of uncertainty. Topdanmark s statements relating to the future are solely based on information known at the time of the preparation of the interim report for Q1-Q This publication is a translation. In case of any divergence, the original Danish text shall prevail. 32

33 Appendix 33

34 Share profile Focused strategy Danish player Stable insurance risks Low expense ratio Limited financial risk Efficient capital management Limited top line growth Profitable growth - in that order The Topdanmark share is a value case not a growth case High net result Large share buy-back programme No protection against a take-over in the Articles of Association 34

35 Financial calendar 2011 Annual Report Deadline for submitting items for AGM agenda AGM Q Interim Report 2012 Half-year Report Q1-Q Interim Report 06 Mar Mar Apr May Aug Nov 2012 Share buy-back allowable 23 Nov Feb Mar Apr May Jul Aug Oct 2012 Share buy-back not allowable 25 Oct Nov Feb Mar May May Jul Aug Oct Nov

36 Comparison CR excl. run-off (Danish insurance) ) H Q1-Q ) Scandinavian business 36

37 Comparison CR excl. run-off (group level) H Q1-Q

38 Comparison CR incl. run-off (Danish insurance) ) 2) H Q1-Q ) Scandinavian business 2) The North excl. Norway primarily Denmark. Not discounted except for workers comp 38

39 Comparison expense ratio (group level) ~ H Q1-Q

40 Ratios by segments Personal SME and Industrial Group Q1-Q Q1-Q Q1-Q Q1-Q Q1-Q Q1-Q Premium growth (%) Gross loss ratio (%) Net reinsurance ratio (%) (1.5) (6.4) 5.2 (4.1) 1.5 (5.4) Claims trend (%) Gross expense ratio (%) Combined ratio (%) CR adjusted for run-off (%)

41 Large-scale and weather-related claims Large-scale claims (DKKm) (DKKm) Q1 Q2 Q3 Q4 Full year (3) (1) Large-scale claims are defined as gross claims exceeding DKK 5m Includes property claims in SME and Industrial Weather-related claims (DKKm) (DKKm) Q1 Q2 Q3 Q4 Full year ) ) ) 2) (34) Includes gross claims exceeding DKK 4.5m per event 1) Excl. run-off profits / losses 2) Excl. motor etc. 41

42 Breakdown of run-off profits / losses Run-off profits / losses, net of reinsurance Q1-Q3 Q1-Q3 (DKKm) IIIness / accident (3) Workers' compensation (15) (6) 86 Third party and comprehensive 57 5 (29) Other Total run-off profits, net of reinsurance

43 Sources of premiums Premiums by segment Q1-Q Premiums by product Q1-Q % 54.7% 8.9% 31.6% 45.3% 10.2% 16.1% 26.5% Personal SME and Industrial Personal Motor SME and Industrial Agricultural Workers comp Illness, Accident and Unemployment 43

44 Normal return in life insurance Assumptions: Shareholders equity in Topdanmark Life Holding: DKK 1,632m (DKK 1,407m excl. Nykredit Life and Topdanmark Link) Investment return on shareholders equity: 4.5% Cost result of new business: DKK 10m loss Profit of Topdanmark Link: DKK 8m Profit of Nykredit Life: DKK 3m 44

45 Normal return in life insurance (DKKm) Return on life insurance: Normal return Investment return on shareholders' equity, 4.5% 63 Risk allowance 150 Cost result of new business in Life I and Life V (10) Result of Topdanmark Link 8 Result of Nykredit Life 3 Asset management Life 36 Other life-related result: Life-related non-life (loss of earnings potential, health and critical illness etc.) 27 Other synergies in e.g. distribution

46 CDOs Returns and portfolios Group excl. life insurance (DKKm) Q3 10 Q3 11 Q1-Q3 10 Q1-Q3 11 Return AAA and AA Lower than AA 32 (54) Total return 32 (54) Interest Revaluations 12 (85) Total return 32 (54) Book value 30 June AAA and AA Lower than AA Total book value

47 Effect of increase in interest rates Claims provisions are matched by corresponding assets Changes in interest rates have no effect on overall value of claims provisions and matching investment assets A 1pp increase in the interest rate curve reduces the CR by about 1.2pp corresponding to around DKK 126m before tax The premiums reserve is invested in shortterm interest-bearing assets A 1pp increase in short-term interest rates increases the pre-tax result by about DKK 40m % Three-month and 10-year forward interest rates in DKK / / / / month forward interest rate 10-year forward interest rate 47

48 Distribution channels Non-life 2010 Life % 5% 7% 38% 28% 35% 20% 20% 6% 33% 4% Cert insurance sales reps Danske Bank Telephone sales etc. Car dealers Sales centres Danica Pension Brokers Cert insurance sales reps Other (banks etc.) Brokers Head office 48

49 Market share Other 16.4% Non-life 2010 Tryg 20.8% GF Forsikring 3.1% Alka 3.5% Lærerstanden 3.9% If 5.3% Topdanmark 18.0% Gjensidige 5.8% Alm. Brand 10.0% Codan 13.2% Life 2010 Pension-Danmark 11.2% Other 5.0% AP Pension 5.5% PFA 23.1% Industriens Pension 6.7% Topdanmark 3.7% PenSam 4.8% SEB Pension 4.6% Sampension 8.6% Nordea 10.3% Danica 16.5% 49

50 Topdanmark s criteria of success Distribution efficiency Customer satisfaction Pricing Efficiency 50

51 Financial goals Topdanmark s operational goals in non-life insurance: Premium growth To ensure that growth in gross premiums earned is 1pp higher than ordinary indexation, adjusted for any price changes Expense ratio To ensure that the expense ratio is lower than the general Danish market level Earnings To ensure a profit margin of 10% which, given the current level of interest rates, corresponds to a combined ratio of around 91% excluding run-off profits / losses 51

52 Normal earnings (DKKm) Non-life CR = bn x 9pp 780 Run-off (CR effect 1.5pp) 8.7bn x 1.5pp 130 Technical interest excl. discounting 4bn x 2% 80 Life incl. Asset Management (life) 250 Risk premium assets 5bn x 2% etc. 100 Equities 0.8bn x 7% 60 Pre-tax profit 1,400 Tax (350) Post-tax profit 1,050 52

53 Financial highlights Financial highlights for and consensus for Highlights: Consensus Gross premiums, non-life 8,805 8,883 8,952 8,665 8,548 8,677 8,843 Non-life insurance: Technical result 1,359 1,572 1, Investment return etc (1,705) Profit on non-life insurance 2,047 1, ,592 1,092 1,068 1,199 Life insurance (57) Parent company etc (58) (21) Pre-tax profit / (loss) 2,223 1,657 (24) 1,863 1,506 1,265 1,574 Tax (531) (386) (165) (417) (338) (314) (384) Profit / (loss) for the period 1,692 1,271 (189) 1,446 1, ,188 Buy-back 1,396 2, ,200 1,108 Ratios (%): EPS (12.0) Claims trend Expense ratio Combined ratio

54 Macroeconomics for Denmark % 2012E 2011E GDP growth Private consumption 1.4 (0.6) Public consumption Export Inflation Unemployment rate Gross public debt Current account % of GDP House prices (3.0) (3.6) Source: Danske Research ( 54