Topdanmark Livsforsikring (life and pensions) Capital Markets Day SAMPO

Transcription

1 Topdanmark Livsforsikring (life and pensions) Capital Markets Day SAMPO

2 Agenda 1. The Danish market 2. Business model 3. Strategic challenges 4. Future development 2

3 1. The Danish market 3

4 The Danish pension system the three pillars Public pensions ATP Pillar 1 Pillar 2 Pillar 3 Compulsory occupational pensions Individual pension schemes Free savings ATP 22% Union pension funds 17% Non-commercial pension companies 17% Commercial life insurance including bank pension savings 44% Total pension savings: Around DKK 3½ trillion 4

5 Products on the commercial market COMMERCIAL MARKET Classical with profits scheme Unit-linked and life cycle products Insurance cover (Illness and accident and group life insurance) Customer On the commercial market, savings schemes and insurance cover are marketed and sold as an overall package. Classical with profits scheme PERSONAL MARKET Unit-linked and life cycle products Group life insurance Illness and accident cover (individual cover) Customer On the personal market, savings schemes, insurance cover and illness/assident products are marketed and sold individually 5

6 Market conditions 1. Saturated market a market in transition Competition continues from large commercial customers to smaller companies and personal customers also impacted by brokers 2. Fierce competition on expenses and risk premiums (Illness/Accident (I/A)) Often sold at loss making levels 3. Increased focus on asset management Generation of return becomes increasingly important 4. Some market participants use customer capital/special bonus provisions 5. Digitalisation/online offers used to generate customer value and efficiency improvement 6. Claims prevention and health initiatives larger part of the value offer 7. Non-commercial pension companies attempt to enter the commercial market 6

7 2. Business model Customers Products Channels Revenue 7

8 Customers Commercial/Personal Premium distribution H1 2017: Regular premiums DKKm % Corporate % Personal % Group life % % Single premiums Corporate % Personal % % Topdanmark Livsforsikring is primarily targeting corporate customers 8

9 Sales Channels Sales channels: Business areas in Topdanmark Forsikring * FO Privat (personal) * FO Landbrug (agricultural) * FO Erhverv (SME) Distribution sales regular premiums and 1/10 single premiums Business partners Brokers Own pension sales force 9

10 Synergies between Life and Non-life Synergies estimated at approximately DKK 50m p.a. gain for Non-life from owning Life from the following sources: IT fees Mainframe and network Joint staff functions administration, HR, communication, etc. Joint procurement Joint offices Joint sales force Add to this earnings from Topdanmark Kapitalforvaltning (Asset Management) due to AUM from Life 10

11 Earnings Life Shareholders Customers Profit forecast model DKKm Average interest rate etc. Investment result Bonus rate + 0 Risk return High SCR Risk result Risk premiums fluctuates with interest rate Expense result Fees - 10 Unit-link Investment result Market return + 0 Low SCR Risk result Risk premiums stable Expense result Fees - 20 Shareholders equity Return on shareholders' equity DKKm I/A Investment result + 4 Risk result Risk premiums + 12 Topdanmark Asset Management + 75 Other Unemployment product + 10 Synergies Top DKKm Diversification SCR DKKm = Group earnings 11

12 3. Strategic challenges 12

13 Development recent years Historical pros and cons Historically, Topdanmark Livsforsikring has been a small player in the market lacking scale What to do/what have we done Grow the business Old administration system and heavy IT debt due to many tailored customer solutions throughout the ages Experience from risk selection in the non-life Group has not been utilized sufficiently. High CR on illness and accident Large expense deficit is as expenses have been chosen as competitive factor High customer satisfaction Get access to a modern life system Improve risk selection and profitability Kill complexity and improve efficiency Focus on customer satisfaction Good investment results Focus on investment returns 13

14 Grow the business Topdanmark Liv Group Acutal Gross premiums With profits 888,3 917, ,0 502,9 Unit-link incl. investment contracts 3.529, , , ,0 Group life 404,5 533,4 534,4 380,6 Life premiums 4.821, , , ,5 I/A premiums 530,2 540,3 571,9 310,0 Total contributions 5.351, , , ,5 Trend: Gross premiums With profits -27,5% 3,3% 23,9% -0,7% Unit-link incl. investment contracts 75,1% 57,4% 18,8% 0,8% Group life 0,1% 31,9% 0,2% -0,7% Life premiums 32,3% 45,3% 18,1% 0,5% I/A premiums 5,4% 1,9% 5,8% 3,5% Total contributions 29,0% 41,0% 17,2% 0,7% 14

15 Market share 2014: 2015: Measured by premiums incl. investment contracts 2016: 15

16 Net growth in savings In 2016 Topdanmark had a positive exchange ratio vis-a-vis all competitors 16

17 Get access to a modern life system In 2012, Topdanmark Life started working on replacing the Life system. The three main reasons were: 1. The life expectancy of the current system was estimated to max. 7 years 2. A standard solution is expected to improve efficiency based on best practice. The improvements will impact efficiency, data quality and business functionality. The new system will ensure flexibility externally and standardisation internally 3. The new system is prepared for a digital future The new life system will be implemented from October The investment has had an impact on the p/l in the years from 2012 till now, and will have an impact during the coming years until the depreciation is finalised, presumably in It is expected that the new system will lead to a substantial reduction in headcount. 17

18 Improve risk selection and profitability on I/A Focus on price differentiation Cost-benefit analysis via new tools used for offers and annual renewal Prices are stressed on the non-life part of the pension package Trend in Combined ratio (gross) for I/A Topdanmark PFA Danica Pension SEB Pension AP Pension Nordea Liv & Pension Gross premiums 2016 DKKm: Alm. Brand Liv og Pension Skandia Link

19 Kill complexity and improve efficiency Focus on growth resulting in negative cost result High acquisition costs (commission) Fee levels used as competitive factor instead of reduction of Illness and accident premiums A certain improvement has been made through efficiency gains and by increasing fees Topdanmark Liv Group Actual Forecast DKKm H Expense result

20 Focus on customer satisfaction Aalund index Topdanmark experienced a slight increase in the latest rating (after a decline last year) Customer satisfaction Index Topdanmark is at the top of the list as usual 20

21 Q Life cycle - medium risk 30 years to retirement - Trailing Returns 21

22 Solvency Capital Requirement - SCR 22

23 4. Future development 23

24 Loss of two partners Discontinued co-operation with two business partners Nykredit (1 July 2018) Sydbank (1 January 2018) Effect: Loss of income from reinsurance of illness and accident Marginal loss of asset management income Topdanmark only managed a small part of the assets Premiums written declines by approximately 14% Avoidable expenses in Topdanmark smaller than loss of compensation 24

25 ..but continued growth leads to further economies of scale 25

26 Negative expense result in the years to come Higher expense deficit expected for 2018 and 2019, primarily due to the implementation of the new life system. The system will improve efficiency and thereby improve the expense result in the long run. It is expected that the new life system will provide scope for much better service, quicker product development and significant administrative relief. 26

27 Change in product mix Movement from with profit products to Link products reduces profitability and SCR Earnings from deposits are currently highest in the with-profits environment due to the fees Topdanmark charges for the guarantees. A guaranteed product will be developed in unit-link as well but implementation awaits launch of the new life system The capital requirement in the with-profits environment is volatile depending on the interest rate level and on the size of buffers generated The capital requirement for unit-link is low and quite stable Deposits (retrospective provisions) With profits Unit-link H SCR in DKKm Percentage of deposits 6,0% 0,2% 3,5% 0,2% 27

28 High CR on illness and accident If the intense competion within risk products (illness and accident) continues, CR will increase further: 28

29 Future development Continued growth despite loss of two business partners in 2018 Income from asset management will grow Negative cost result in years to come, but substantial business improvements and long-term savings with new life system Structural development due to change of product mix profitability falls but SCR falls as well CR on risk products (illness and accident) will stay high 29

30 30 Any questions? 30

31 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 trends in the reinsurance market. See also Investor 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 give their own careful consideration to 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 H This publication is a translation. In case of any divergence, the original Danish text shall prevail. 31