Protector Forsikring ASA (PROT) Earnings Call Transcript

Hello, and welcome to the presentation of Second Quarter 2026 Results for Protector. If you have any questions, please ask them through e-mail address ir@protectorforsikring.no during the presentation, and we will answer at the end. As always, we have started the day with all employees, which in the Oslo office were very few. But what we then speak about is our culture related to targets and performance. And with Protector changing, with the world changing, we have been focusing on defining the challenge -- what the Challenger means in 2030 for some time. Today, one of the focus areas was to link our values to that vision, which is about data, people and innovation. And we have one value that is different from the others and that it is something we say we are, and it is committed. And one thing it is important that we are committed to and that will not change is our performance culture. And our performance culture is something, one of the reasons why we are different. This goes every day, but also in recruitment. So if you don't like our performance culture, then you probably shouldn't start in Protector. So we have linked that especially to data and AI, which will be a part of our performance support structure, which is a monthly run-through in the teams where we look at results and performance on an individual and a team level and give each other feedback so that we can learn from what is done well and what mistakes we've done. So it's a structure where we can add on elements that are changing around us. And data is obviously a part of it, but technology is a bit more difficult to quantify, but we will add that to the structure for all employees. Then to the results. So it is -- quarter 2 is a very strong profitability quarter, 81.5% combined ratio. The growth is on the weaker side, but we have communicated most of the growth, which is related to the 1st of April, inception date in the U.K. previously. And the strong insurance service result, together with the investment result gives a NOK 9 per share result. The other highlights here is we have confirmed or AM Best has confirmed our credit ratings with a stable outlook. And the dividend, I can get back to through the capital side. When it comes to the growth, so most of it is U.K. and most of it is 1st of April, and we look at the local currency growth because that's what says something about what is going on in the different markets. And we've always done that. So we grow in all markets. In the U.K., we have a situation where public sector, especially the local authorities, municipalities, are not out in the market due to a waiting game for the LGR, the local government reorganization or reform. So we don't see as much business there. And in addition to that, it is the softening market that I have talked about previously and that is well known. So rates are going down. And -- so it's a similar situation in the biggest markets in the quarter, U.K. and Sweden, where we lose some existing clients. And one part of it is about discipline. So we can even know what rate we need to go to, so get a chance to get to that rate, but competitors are too far below the price that we think is profitable, and then we have to let it go. So that's one part of it. On the rest of the portfolio, we managed to get price increases at least to counter claims inflation. So the renewal process is running well. And obviously, there are some unprofitable clients that go out. So our renewal rate in the quarter is 88%, and it's mostly driven by the factors that I have mentioned in the U.K. and Sweden. On the new sales side, we have the reduced volume in U.K. public sector. We see more in the commercial sector. We have quoted quite a lot of real estate business, but not with inception dates in quarter 2. So that's more for quarter 4 and potentially some quarter 3 clients. And we see quite a lot of volume in the commercial sector. In the Scandinavian countries, Sweden has come further on the facilities with the brokers where brokers put together larger groups of clients. And that has been longer in Sweden than it has in Norway and Denmark. So Sweden is having success, especially on the motor side in these facilities and is back on a growth path after being a slower growth in that market. In Norway and Denmark, we are lagging on seeing the volume that we should see from the facilities that we already have access to and have won previously. But that is also something that we believe will come, but there is work to do in order to make it work, both on our side and on the broker side. And then, we have won the biggest client that we have ever won in the U.K. It's motor clients. It is won because it is large enough that it is difficult to be irrational. Most competitors and us will come to the same conclusion when it comes to calculating the claims forecast. So this is a margin game, but mostly a cost game. So a client like this should be Protector territory, and we should win it. And especially when it is possible to have a good long-term agreement that is transparent always, then the cost leader should win. So we're happy to win that client. And we will also use a client like this, which is a large fleet of homogenous drivers and cars to work on how we can reduce the average claim size and make claims handling better. It's easier when you have a large client like that. So we have some good projects on making that client a success. Obviously, we can be wrong in what we have calculated and there is risk in getting that type of a client on board, but we're very happy that we won that client. That's quarter 3 effect. When it comes to the claims, as I said, it is a very strong quarter, but we have lower than normal level of large losses in the quarter. So 4.6% is comparable to the 8% normalized level that we usually do. In addition to that, we have run-off gains in the quarter at 4%. So adjusting for those on a total level gives you a slightly improved loss ratio compared to quarter 2, 2025. And in a market that is softening, rates are going down, it is not necessarily an improvement that you're looking for more like a stable situation. So we have a portfolio we are very comfortable with. It is property that has the best loss ratio in all countries, except for Denmark, where we have some large losses, and motor, where we have had some profitability issues previously is improving in Norway and Sweden, where Denmark is still experiencing some issues. So we need to make adjustments. There are some medium-sized losses in that portfolio as well, but it is necessary to make some price adjustments there. And the same in Norway, but not to the same -- U.K., sorry. So the same in U.K., where we have had poor profitability over some time on the motor product. So we still need to increase prices and make adjustments to get back to profitability -- a good profitability level there. On a longer level, you can see that we have not changed our view on what a normalized level of large losses is. 8% is still our view and runoff should be stable. But as I've mentioned previously, when there is more uncertainty in inflation and extraordinary inflation, which we've had historically, then uncertainty creates a bit more volatility and most likely on the side that we see now that there will be some runoff gains. But it is best estimate always, both for the case reserving and for our other reserving practice. So we need to expect volatility on a quarterly level and even on an annual level. But the last thing that I haven't talked about is cost is very stable. And this is a conscious choice that we use the excess capacity we have from efficiency improvements to develop and use that capacity in projects to look at new markets and to make our work smarter, so better processes, and obviously, data and technology, that is our main focus. going forward. So the cost compared to last year is -- if you correct for or normalize for the long-term bonus plan, which we have done for some time now, which is connected to the share price, there is a slight reduction for the second quarter on the cost side, but it's very flat on the first half year. On the investment side, there is not a lot going on. There's a lot going on in the world, but not here. So the bond portfolio is slightly down on yield due to spread tightening. And our companies in the equity portfolio have had an okay to good reporting quarter, quarter 1. So -- and no large changes here. For the income statement, I think that there's one figure here that can catch someone's eyes. That is the reinsurance ratio. And as we've said previously, that will be volatile. We have some reinsurance that is commission-based, and we don't book a commission in the first 2 quarters. And if it continues to run well, we will start booking that in quarter 3 and quarter 4. And then the other thing is that we have not had basically any recoveries from reinsurance in the quarter. Previous reinsurance contracts, including workers' comp Denmark have given some recoveries continues because they are more on an attritional basis than the excess of loss contracts we have now. So that's the reason. I should expect that to be lower in quarter 3 and quarter 4, but this is normal practice and the right practice. And on the capital side, obviously, the capital increases with the result for the quarter and the requirement increases with the growth in the balance sheet. And then we're back to the summary. So it's a short run-through of results now. And the question is, did we get any questions Amund?

Yes, we have some questions. You've talked a bit about some -- answered some of them already. But could you kind of add some color on the expected profitability on this large new client in U.K.?

So our target, long-term target is 91%, below 91% combined ratio. And all clients should be there. But what we have to do in a situation like this is to include the long-term view, meaning that the first year profitability is above the long-term target. But over time, it should be close to the long-term targets. Obviously, we can make mistakes here, and it's a large client. So -- but...

So you're talking about the softening on soft U.K. market. What should kind of be a reasonable expectation on premium growth going forward in existing markets? I have a separate question on real estate.

I think that the important thing that we work on is that we have enough opportunities so that we can see as much business in relevant segments as possible. So we have the broker partners that are important to us that we have chosen and that have chosen us, and we have our segments and to see as much as possible in them, to quote as much as possible is what we can do anything about because the issue is that we don't know where that market will go. And the market has been softening in the U.K. for a long time. In certain segments, we don't really see that it can do that forever because it's at unprofitable levels. And if it is for us when we quote, then it must be for many others also with higher cost levels. So -- but how long it takes, I don't know. And then in the Scandinavian market, it's about the facilities at the moment. That's the large opportunities. And that's a partnership that needs to work before it comes. France is very stable from what we have seen before, and it's a lot about 1st of January, nothing we know about that date right now. Obviously, it's very interesting to see if housing changes from last year where we didn't win any or very little. But we don't know, I can't really do anything about it.

Thank you. And then on the real estate in U.K., you mentioned that we have quoted some this quarter for Q3 and Q4. Can you say something more about the momentum there?

Yes. So we did say that it would be towards the end of this year that we're ready to quote -- to really quote. We obviously have recruited some experience into that team, which will be in place after summer. And we have received a good amount of data. We are not at all seeing everything from the brokers that we are working at the moment and we're not quoting all of what we're seeing, but we are gradually working towards that situation. So I expect that in quarter 4, we will see -- maybe we will see 50% of what we -- so then we'll start really getting some traction. And then we will quote a share of that. What we will win, we don't know. The first impression of the market is that rates are quite soft at the moment, just like the Property segment in the U.K. in general, but not at unprofitable levels everywhere. So we are winning some clients.

So we have had a couple of quarters with higher runoff gains. Could you say something about which vintages they come from or products some more?

So it's -- they basically come from our biggest, largest -- our largest products, property and motor. And parts of it on property can be from larger claims that end up being smaller than what we reserve them at from the beginning, sometimes for good solutions or cash settlements rather than rebuilding. So this quarter, there is some of that. And the rest is most likely more on that inflation comment that I mentioned previously that when you have high uncertainty on inflation, then we need to add uncertainty. And then it's slightly higher probability that we're on the upside than on the downside in our best estimates.

A question on the cost ratio linked to the growth in Sweden, seeing that the commission share has trended upwards recent years in Sweden, can you just say something about what's driving that?