Tryg A/S (TRYG) Earnings Call Transcript

Good morning, everybody. My name is Gianandrea Roberti. I'm Head of Financial Reporting at Tryg. We published our Q2 figures earlier this morning. And I'm here with me, Johan Brammer, our Group CEO; Allan Thaysen, our Group CFO; and Mikael Karrsten, our Group CTO, to present the numbers. And with these few words, over to you, Johan.

Thanks a lot, Gian, and good morning from me as well. Today, we report our Q2 earnings. And I will, as usual, begin with the financial highlights. So revenue grew by 3.3%, with a good solid growth of 5% in the private segment, partly offset by a small revenue drop in the Commercial segment, which I'll come back to later in this presentation. The insurance service result totaled DKK 2.39 billion when adjusting for the well-known one-off charge of DKK 1.2 billion disclosed on April 28 linked to the workers' comp. Including this charge, the reported insurance service result is DKK 1.19 billion for the quarter. The combined ratio based on the adjusted insurance service result was an excellent 77.4% boosted by a very strong rock solid Norwegian performance. Please note that this quarter recorded last claims significantly above quarterly guidance. We're pleased -- very pleased to see the underlying claims ratio developing positively, improving 50 bps, thanks to the profitability actions taken in the last few years to fight off the inflationary pressures. The private segment improved 60 bps. The overall investment result was a robust DKK 262 million with both the match and the free portfolio contributing strongly and our property exposure was reduced by approximately DKK 200 million in the quarter. And on top of that, we are also flagging today an additional DKK 250 million reduction that materialized at the beginning of Q3. In total, that gives us a reduction of SEK 450 million, which pro forma brings our property exposure down to around DKK 1.9 billion at the beginning of Q3, in line with our intended strategy. As you all know, the property reduction is freeing up solvency capital and helps us fully refocus our investment activities on low-risk Scandinavian covered and government bonds. [indiscernible] 51%, both adjusted for the workers' compensation charge. And we are, of course, paying a DPS of 2.15 in line with the first quarter and we report a very robust solvency ratio of 196%. All in all, a strong quarter we're reporting today. With that, we are now turning to the next slide on customer satisfaction. The customer satisfaction score for Q2 was at 83%, up from 81% at the end of 2024, the beginning of our strategy period. That essentially means that we're already reaching the targeted level for 2027 and to achieve this improvement, we have indeed launched a number of new initiatives towards our customers. For instance, our new contact center platform Puzzel has now been deployed in large parts of our business positively impacting the customer experience as process and handling time has improved by 6%. Additionally, the Storm Dave in April allowed us the opportunity to assist more than 5,000 customers in Denmark and Sweden with immediate support. And obviously, relatively large events like this and the support that we can swiftly offer to our customers, remind them about who we are and what we stand for. And that also supports our strong customer satisfaction for this quarter. With that, let's move to the next slide where I'll comment on the insurance service results split between our 2 segments, private and commercial. So the insurance services result in the Private segment was just shy of DKK 1.6 billion, driven by a combined ratio of 78.2%, good top line growth and improved underlying performance as well as higher runoff, which also helped the numbers. If we take a country over flight, Norway produced a very strong performance. Sweden continues to show a positive commercial development and the Danish business posted a strong performance considering that a not insignificant part of the large claims in this quarter were, in fact, Danish. As for the insurance services results in the Commercial segment, it was impacted fully by the DKK 1.2 billion charge linked to workers' comp. Adjusting for this one-off, the insurance service result was at DKK 795 million, which is still a tad below the corresponding quarter in 2025, primarily driven by a high large claims experience, but also a top line reduction primarily driven by a somewhat weak first of January renewal on the corporate customer side. On the positive side, we are seeing retention stabilizing, which I'll come back to later on. In addition to that and on a more general note, I'll come back to our expectations for the revenue development for the remainder of 2026 as well as 2027 later on in this presentation. With that, let's turn to the next slide where I'll comment on the insurance services revenue by geography and also the normalized ISR walk on the right-hand side. As always, please remember that the reported ISR and combined ratio can be impacted by different factors such as large and weather claims, run-off results and also the overall level of interest rates. In Q2, we noted strong performance across the board. I'm particularly pleased to see the best reported combined ratio in the last 10 years in Norway and a Swedish performance that remains stellar while the Danish combined ratio is impacted by less favorable large and weather claims experienced compared to last year. The ISR walk of the adjusted Q2 level versus last year. The chart on the right-hand side shows a lot of positives and only one single negative, which is the large and weather claims experience, with an emphasis on the large claims as mentioned previously. I'd like to stress that we deemed the last claims experienced in Q2 and half 1 taken as a whole as entirely stochastic. We've had a thorough review of the commercial and corporate exposures and remain very comfortable with our exposures, very comfortable indeed. With that, I'm turning to the next slide on the financial performance of our Norwegian business, a topic for the last few years that is coming through in a very good way now. We are reporting a combined ratio of 77.3% in Norway the best reported figure of the last 10 years. And from the chart on the left-hand side, the improvement is very visible also when you look at the first half of the year, illustrated on the bottom left. As a reminder, we put in place significant profitability initiatives in the last 2 years, and these are now paying off as expected. And also, I guess this is important. It's important to remember that price increases are tapering off and therefore, the pace of improvement will slow down going forward. In general, our Norwegian business has reached a very satisfactory profitability level and our key focus now and onwards is to avoid some of the large swings we've seen in the past. With that, I guess it's time to turn to the revenue growth section. On the first slide in this section, we show that revenue grew 3.3% in Q2 with the growth at a satisfactory level of 5% in the private segment, up from 4.4% last year. The commercial segment developed negatively following the losses during the first of Jan renewal of selected corporate customers as well as general retention pressure in that segment. We do expect the revenue growth to be lower in the second half of the year and have updated the outlook to a revenue growth of around 3% for the full year. At the same time, this is important. At the same time, we do expect a pickup in 2027, and we should be able to exceed current market expectations. With all I'm seeing on commercial traction across the board, I'm confident we will. We have a very strong focus currently on both retention and on commercial developments and many internal indicators are pointing in that direction. That makes us very positive for what's ahead of us, very positive indeed. And at the same time, it is important to remember that staying discipline is key to continue to run a profitable and stable business. With that, let's turn to the next slide on customer retention. In general, the overall picture is improving. Retention is moving up primarily in Private Norway and Private Sweden, while it remained stable in Private Denmark. We also see signs of stabilization and slight improvements in the commercial segment, which is very important. As mentioned previously, past experience tells us, and we've looked through all the books that it takes a little while for retention to stabilize and improve again after a prolonged period of price increases to offset inflation. This will come back. And with this, I'll turn it over to you, Mika.

Thanks, Johan, and good morning from me as well. We are pleased to report an improvement in the group underlying claims ratio of 50 basis points, up 10 basis points from the Q1 level. Looking at the segments, one can notice that private improved 60 basis points, while commercial improved 30 basis points. The uptick in Personal Lines is driven by continued improvements in Norway while commercial continued to see improvements, although slightly lower as earnings effect of previous actions decrease. As mentioned multiple times before, the underlying loss ratio is expected to be stable to slightly improving during the strategy period, and Q2 is yet another confirmation of that. It's also important to repeat that going into 2027, as Johan mentioned, we are likely to see a revenue acceleration, and this will likely slightly dampen the improvement in the underlying. This is a natural consequence of the business dynamics and our way to achieve a balanced earnings growth. Turning to Slide 14. In this slide, I will, as usual, comment on the large and weather claims experience, the general level of discounting and the runoff development. Weather claims were more or less in line with our Q2 guidance at DKK 91 million primarily impacted by Storm Dave. Large claims were significantly above the quarterly expectations with large commercial claims seen in Sweden and Denmark. Large and weather claims are stochastic by nature. And it's important to note that although higher than last year, the large and weather claims combined for the first half year are broadly in line with our expectations. The level of rates used to discount the claims reserves have moved upwards by 30 basis points, primarily as a function of short-term rate movements. And finally, the runoff result, excluding the one-off related to workers' compensation ruling, it was 3.5% in the quarter with high large claims and many moving parts. The result in Q2 is above our Capital Markets Day guidance, which remains unchanged at around 2%. And with this, I hand it over to you, Gian.

Thanks, Mika. We are now moving into the investment section. Invested assets stood at DKK 60 billion at the end of the quarter with a match portfolio making up DKK 46 billion and the free portfolio of DKK 14 billion. The asset mix is largely unchanged, leaving aside to DKK 100 million of less properties. This money has been reinvested already in covered bonds. I think you heard previously that Johan was flagging that we sold additional property sale of DKK 250 million at the beginning of Q3. And this will impact the Q3 figures and reduce capital accordingly. Our asset mix remains very conservative in line with the strategy launch in November 2024. In the following slides, we show the specification of the investment result in the quarter. In general, we're very pleased about the numbers, especially considering the chosen asset mix. The free portfolio benefit from falling interest rates and also a good return on properties. The match portfolio benefit from a good interest on the premium provision and slightly narrowing covered bond spreads. Other financials was also a little bit better than normal, helping the overall results. And with this, over to you, Allan.

Thanks, Gian, and good morning from me as well. We're now moving into the solvency and expenses section. The first slide shows the development of the solvency position as per -- we report a solvency ratio of 196, which is a higher level compared to Q1. Own funds are always primarily impacted by the movement in operating earnings and dividends. The operating earnings in Q2 include a net negative impact of DKK 202 million, which is the sum of the after-tax impact of the Danish Workers' compensation case, offset by the increased future profit margin. This impact is shown separately in the slide and as mentioned previously, the net impact of those two is 4 percentage points on our total solvency position. The SCR in the quarter includes a reduction of around DKK 20 million from the sale of approximately DKK 200 million of properties. We are also flagging that we have sold an additional DKK 250 million of properties in the beginning of July, which will benefit the SCR in Q3. Turning to the next slide, where we show the historical development of the solvency ratio. We are pleased to report a robust solvency ratio of 196% in a quarter where we booked an extraordinary DKK 1.2 billion charge for the Danish workers' compensation case. The outlook for future capital repatriation is largely unchanged. We expect the solvency ratio to gravitate towards a less conservative level long term, and we will continue to assess our solvency position at year-end. We are now turning to the solvency sensitivities. Sensitivities are virtually unchanged from the last quarter, which should not be a surprise as the asset mix is largely unchanged leaving aside the DKK 200 million properties reduction in the quarter. The biggest sensitivity remains towards common bank spreads movements as this is our chosen asset class and represent the vast majority of our investments. The low solvency sensitivities are a key feature of Trucks investment case. We remain focused on running a profitable and stable insurance business, while we are actually taking the lowest asset risk in the sector. Now let's take a look at the expense development in the quarter. We are reporting an expense ratio of 13.3%, in line with the same level reported at Q1 and fully in line with our 2027 guidance for the expense ratio to be stable to slightly improving. Investments in additional commercial activities are funded internally by improvements in our operational efficiency. And with this, I will hand it over to you, Johan.

Thanks a lot, Allan. And we are now entering the final part of this presentation. This final part will focus on strategy and financial targets. And as a reminder, we aim to grow the insurance services result by DKK 1 billion during the strategy period from 2027 -- from 2024 to 2027. The strategy is, as you all know, based on the 3 strategic pillars, scale and simplicity that should add DKK 500 million, technical excellence that should add DKK 300 million and customer and commercial excellence that should add DKK 200 million. And a number of strategic initiatives are being implemented as we speak, and we remain confident and pleased with the progress being made. As per customer and commercial actions, I'd like to highlight a few new partnerships one being with SaaS Eurobonus and another being with the organization in Denmark called Lederne. And I'd like to on the next slide just to elaborate a little bit further on these 2 partnerships. So these 2 new partnerships that we have recently signed are commercially very important for us. The first one is with SaaS Eurobonus, the Scandinavian Airlines loyalty program, which has a member base of more than 6 million members in our markets, while the second one is with Lederne, Denmark's largest professional organization with around 130,000 members. Partnerships are in general very important for us as they provide us high-quality leads and the possibility to penetrate certain attractive customer segments. And both of these 2 particular partnerships are targeting middle to high-income segments, where customers are loyal and are likely to cover all their insurance needs with one single provider. We are keen to build on these partnerships to further develop our business. With that, let's turn to the next slide because in addition to the new partnerships I've just mentioned, I'd like to stress that we are in parallel also increasing our efforts and focus on our direct channels. We have previously mentioned how we've launched more than 20 commercial initiatives across the business to reignite the organic growth engines across Tryg. Amongst other things, we are seeing good developments in Alka, where a number of specific initiatives have already been launched and executed. In Alga be specific, the focus has been on accelerating new sales, expanding our outbound sales teams as well as increasing the focus on retention, adding selected employees dedicated to this particular effort. We believe these efforts in Alga will result in premiums in excess of DKK 100 million in 2028, and they are just a few of the initiatives in our commercial initiative catalog across the group. So altogether, and this is very important. We are very pleased with the commercial progress across all geographies, and this links back to my optimism earlier on this call that we should be able to exceed market expectations on revenue development in 2027. With that, let's turn to the next slide, recapping our well-known financial and strategic targets towards 2027. And I'll just briefly repeat that we target an ISR between 8% and 8.4%, driven by a combined ratio of around 81% and a roof between 35 and 40 all targets are completely unchanged, and we work relentlessly to deliver on these, of course. That brings me to the final slide. with the Rockefeller chest on the slide and his word reiterating our commitment to being a healthy dividend stock, underpinned by strong and stable earnings and a healthy solvency position. And with this, over to you, operator.

[Operator Instructions] Our first question comes from the line of Asbjorn Mork from Danske Bank.

Thanks for taking my question and congratulations on the solid underlying Q2 result. So my question basically goes to the underlying moment we're seeing here in Q2, 60 basis points for private, 50% for the group. I guess that's quite a sustainable improvement, we should continue, at least if I heard you correctly, Mika, we should continue to see improvement also going into next year. And then your guidance on the growth of, I guess, at least it seems to me to be above 4% for next year. If I do the math, and maybe my calculator is different than yours. But if I do the math, if you deliver on those 2, you will also exceed your guidance for next year. So which one has to give? Is it the growth that you're maybe is a bit wishful thinking because we haven't seen the January renewals? Or is it the underlying that might start to deteriorate because of the growth? Or is it the guidance that needs to give at some point? That is actually my question.

I'll start on the first part of that question with your query into the underlying. And I mean, very rightly, as you mentioned, we are very happy about the improvement in the underlying. Like we said, the 50 basis points and then a little bit higher in private, somewhat lower in the commercial segment, but still improving. And I mean, as we said before, we see that to be -- continue to be on the stable side to slightly improving. And that's very much sort of underpinned by the rate increases and other actions that we're doing where we are pricing on inflation or slightly ahead of inflation. So we see very strong momentum on the underlying improvement.

And then I guess, as Ben to your growth comment, right, I don't recall saying a number. But I do recall coming across, I hope, very confident that all the commercial momentum we are seeing is going to show up in the financials next year. So we do see an output where we will exceed the current consensus expectations on the top line. And you're rightly saying also that, that is, of course, linked somewhat to the underlying. There is no doubt that as we start growing, it will have an impact also on the underlying improvement, of course. I don't think necessarily something has to give in that sense. I can do math where it all holds together with a continued underlying improvement with a growth that is beating and exceeding market expectations and still being exactly where we told the market we would be in 2027. I think just it's very important for me to clearly state that with all the conventional momentum we are seeing, it will show up in the top line next year.

But on the growth side, Johan, I guess you also mentioned somewhat higher growth rates going into 26 than what you're printing right now. And I guess the January renewal has softer than you expected. I guess it's a little bit the same here. You might be confident for next year, but we haven't seen a January renewal for '27 for obvious reasons. So what makes you so confident that we won't have another January renewal that will set you back in 6 months?

I think that's a fair push, spend. But I think, first of all, if you look at the private lines in Q2, we are up from 4.4% to 5%. So something is actually moving. And I can see now that the commercial momentum is changing across all the initiatives we've launched if you look at the retention chart I went through earlier, you can also see that retention rates are stabilizing and slightly improving. So there's a lot of components that we're now seeing. And you're rightly saying, first of Jan next year, anything can happen, right? But with all we are seeing right now, we are very confident that we'll have a better journey in 2027. And I think right now, what you're seeing in Q2 is simple math and something we're dragging along from the first of Jan renewal this year. That will drag with us the rest of the year. That's also why we are highlighting a growth for the year of around 3%.

Next up is Vash Gosalia from Goldman Sachs.

One on the commercial segment. Just trying to understand a little bit more over there, you've printed a decline of 0.5%. And obviously, you've explained it's a little to do with the January renewals. But could you give us a sense of what the market environment is like. I mean what I'm trying to understand is, the fact that you have declined a little bit in the commercial segment, is that driven by the usual trig conservatism where you prefer profitability over volume? Or is there sort of -- are you seeing increased competition in the market, which is sort of driving different behavior at your competitors as well? That will be my only question for now.

I think that's a very good question, and let us try to unfold that a bit and I'll take the first step at this. So I think, first of all, what you're seeing -- you're asking me, is the market conditions changed significantly? The answer is no. So the market conditions and the level of competitiveness stays fairly stable across the Nordics. I think what we are seeing is sort of the fumes of a few years of price increases coming off a double-digit inflation in the market. I think we're seeing the last fumes of that when we did the first of general renewal. Coming into 2026, we've seen a significantly less need to do repricing in the commercial segment. we are seeing our retention rates stabilizing and even slightly improving. So I think what we're seeing is just the fumes of a highly inflationary environment where we've been very disciplined and particular margins. So in that sense, you are right in saying it could be linked somewhat to our conservatism, but we are also seeing a different need for repricing. We're seeing retention impacted positively. And when I say for next year, we see good commercial traction. It goes for both private lines and commercial lines. So we are looking into something better. But just from the pure math of this, we are tracking along first of January renewal throughout the rest of the year.

That's really helpful. And now if I can ask my second question. So is it fair to then assume in 2027 will go back to your original sort of guidance? And I don't know if guidance is the right word, but essentially 1/3 volume, 1/3 price and 1/3 upselling. Do you think we'll now shift to that sort of environment in '27?

Also a good point, and you're right, we've normally said that's the kind of growth profile we'd like to have. It was pretty much the growth profile we used to have before inflation kicked in. We are now seeing that our growth profile is changing and price is taking up a smaller amount of the growth. And with prices tapering off this year and most likely also next year, yes, we're going to see us coming closer to that exact balance.

Next question will be from the line of Nadia Claressa from JPMorgan.

My first question is just, I guess, looking ahead to 2027. I mean we hear you loud on clear on the expectation for growth to accelerate. But can you just help us frame this kind of growth pick up a little bit? Should this be more H2 rated than H1? I think I'm just trying to understand how that will develop from the 2-ish percent implied exit rate for '26? And then secondly, just a quick kind of, I guess, follow up on the earlier comments made on the growth into '26 and the mix. I understand that commercial remains cautious for the remainder '26, but that should pick up into '27. So how should we expect, I guess, the relative contribution of growth within the private and commercial mix to be in 2027, it will have an implication on the underlying claims ratio?

Okay. So let's try to answer those questions as I understand. And the first one is related to our expectations for growth next year. And another 1 is how the growth in Commercial Lines will contribute to that growth profile. So I think you should assume that our growth trajectory will improve coming into the new year. So don't expect this to be a buildup that will come at the back end of next year. We're looking into right now commercial traction that gives us confidence that coming into the new year, beginning of the year, we're going to see a different performance, also a different performance that will exceed the current market consensus or expectations. As for the commercial lines, I think there is some math here that the first of January rule will, of course, be washed out as we come into next year. That being said, don't expect any of our business lines to dramatically change their growth profile overnight. So I think with the current growth profile of private and commercial, expect private to be the majority driver of this. But in all fairness, there is some math going into this from the first of January renewal. We expect both segments to contribute positively to exceeding market expectations. Another thing for the latter point, Mika, maybe you can talk to the impact on underlying.

Yes. So with the growth accelerating in 2027, a natural consequence of that is that it will have a slight impact on the underlying. And that comes not least from the fact that we are expecting growth to pick up in Sweden. And Sweden is, as you know, a heavy book on the personal accident part where now growth will come from different sources across the board. So it's a very natural consequence that short term that will have an impact, slight impact, I need to add on the underlying but it's with the same discipline as we always have in how we mix growth and the profitability.

The next question will be from the line of Mathias Nielsen from Nordea.

Thanks a lot, and thanks a lot for taking my questions as well given that it's a pretty undramatic result. It's not because there's many questions to ask. But you just touched upon a bit on Point Sweden and also noted that growth is now above 5% in Sweden. Maybe you could add a bit of flavor of like what about categories in Sweden are driving the growth at the moment and how should we think about that going forward?

Yes, Mathias. So I would say the growth in Sweden is actually coming from across the board. We're seeing good commercial momentum in personal, in commercial and also across the different products. So I would just say that it's nothing new and it's our traditional products and our traditional go-to-market strategy. But as Johan mentioned before, we have launched a number of commercial initiatives, and that goes least for Sweden. So it's very much sort of business as usual, but growth picking up.

And I guess, just to add to that. So just one thing, it just to add to that, we're also seeing -- you remember last year, we talked about our 13 motor partnerships that we have signed. They are now implemented, and we are seeing that also reaping in business from motor and enhancing our exposure spot on, as we told the market back when we had the CMD in 2024, then we would like to increase our motor exposure in Sweden. We're seeing that happening right now. So that's a specific category.

Okay. So we should expect the growth in Sweden to be 5% plus in the coming quarters as well? That would be a fair assumption?