Goldman Sachs European Financials Conference 3 June 2009

Transcription

1 Goldman Sachs European Financials Conference 3 June 2009 The outlook for returns in Nordic (Danish) P&C Opportunities vs. Threats by Christian Sagild CEO, Topdanmark 1

2 Markedspladsen Trend in gross profit Skade margin - Rekord i overskudsgrad i 2006 All companies Topdanmark Estimate (5.0) (3.9) (3.3) (3.3) (10.0) 1) 12% korrigeret for afløbsgevinster i Codan 2

3 Crisis equals change Level of recession Options for action Consequence - Short-term Changes Consequence - Long-term Time Before During After Mid-2008 Mid-2009 Mid

4 Changes - Impact on financial ratios - examples Personal market Cars Fraud Travels Examples Professional market Liquidations Fraud Fewer in employment Repair area Tradesmen Garages - hourly price Materials Growth - % p.a. Earnings - CR 4

5 Growth changes - Summary of most significant factors Growth - % p.a. Mass market Cars, lower car and housing sales Professional market Liquidations, fewer in employment and fewer valuables to insure Estimated adverse effect: 2-3% on growth in 2009 Few options for action!!! Instead significant need for focusing on retaining earnings 5

6 Growth changes - Professional market - examples Number 2,110,000 2,100,000 2,090,000 2,080,000 2,070,000 2,060,000 2,050,000 Number of cars in Denmark End 2007 Jan 08 Feb 08 M ar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09 Number 30,000 25,000 20,000 15,000 10,000 5,000 0 Number 6,000 5,000 4,000 3,000 2,000 1,000 0 Motor proposals > (40)% Q Q Proposals from "home" 5361 > (60)% 2080 Q Q

7 Growth changes - Professional market - examples Number Liquidations Jan to Apr Number 530, , , , , , ,000 Number of delivery vans / trucks in Denmark End 2007 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 M ar 09 Apr 09 2,000 1,800 1,600 1,400 1,200 1, Number 160, , , ,000 80,000 60,000 40,000 20, Unemployed people 50,000 92,000 apr. 08 apr. 09 7

8 Earnings changes - Summary of most significant factors Interest rates Earnings - CR "Fraud" Increase in fire claims Increase in theft claims Claims inflation Decline in motor claims frequency Trend in hourly prices and materials Need to know the consequence of all three factors in order to assess the effect on earnings 8

9 Earnings changes - Interest rates: Changes in short and long-term interest rates - impact on technical interest rate % p.a. % p.a End 03 End 04 Short-term interest rates End 05 End 06 End 07 End 08 May End 03 Long-term interest rates - impact on discounting of claims reserves End 04 End year bond 10-year bond End 06 End 07 End 08 May 09 Change in interest rates of plus / minus 1 pp causes a change in profit margin of plus / minus 0.6 pp Change in interest rates of plus / minus 1 pp causes a change in CR of minus / plus 1.1 pp 9

10 Earnings changes - "Fraud": Increase in fire and theft claims Q1 Q1 DKKm Property / Buildings Fire Theft Effect on CR Fire 1-2 pp Thefts approx 2 pp DKKm DKKm Mass market Fire Theft Professional market Fire Theft

11 Earnings changes - Claims inflation: Motor insurance Claims frequency for passenger cars - Excl. glass claims Number of burned cars Q Q Q January Januar Februar February March Marts April April May Maj June Juni July Juli August August September September October Oktober November November December December Number of disappeared cars Effect on CR 100 Frequency approx (1) pp 50 "Fraud" approx 0 pp 0 Q Q Q

12 Earnings changes - Claims inflation - average claim: Motor and house / contents Motor House / Contents Spare parts Painting Labour charges Wage index Theft Bicycle theft Glass Burst pipes Wage index Premiums indexed by the wage index Shows improved trend in motor and deteriorated trends in house / contents over the period Up to the crisis (particularly in 2008) significant increases in average claims Difficult to get tradesmen - more expensive materials New collective agreements with effect from 2008 ensure continued high wage index in future years Undoubtedly claims inflation will be significantly lower than wage index Easier to get manpower - relatively cheaper materials Improvement in CR Average claim minus ½ to minus 1 pp 12

13 Earnings changes - Summary of financial consequences Factors affecting earnings Interest rates Short-term: 1 pp decline Long-term: 1 pp decline Fraud Fire claims Theft claims Claims inflation Claims inflation in motor Average claim in property / buildings Estimate - earnings Minus 0.6 pp profit margin 1.1 pp on CR 1-2 pp on CR 2 pp on CR Minus 1 pp on CR Minus ½ to minus 1 pp on CR Important: Estimates connected with uncertainty and are regularly changed Own options for action 13

14 Crisis equals change Level of recession Options for action Consequence - Short-term Changes Consequence - Long-term Time Before During After Mid-2008 Mid-2009 Mid

15 Options for action - The three most significant on earnings Extraordinary focus on expenses Intelligent employment freeze Goal: To reduce number of employees > 5% Lean General restraint Improved utilisation of purchasing power Focus on savings on claims paid to customers within motor, building and property insurance Goal: To reduce CR by approx 1 pp Price increases Mass market Price increases implemented for new customers in contents and house insurance Considering when to increase prices for existing customers Professional market If the trend in theft and fire claims continues, prices will also be increased in building and property insurance 15

16 Options for action: Price increases - Breakdown of profit margin in 2008 excl. gains on / strengthening of claims provisions , ,1 (5) (0.7) (15) (9.7) (25) Motor Illness / accident (18.6) Workers comp Fire and property Personal Fire and property SME Other 16

17 Probable scenario - Growth and earnings Level of recession Changes Interest rates Fraud Claims inflation (plus / minus) Options for action: Extraordinary focus on expenses Price increases / micro rating Utilisation of purchasing power Fewer valuables to insure Goal: Same earnings as before crisis Consequence short-term Earnings intact approx one year later Growth being stimulated by price increases Consequence - long-term Natural return of growth Earnings favourably impacted by mainly Increase in interest rates Less fraud Before During After Time Mid-2008 Mid-2009 Mid

18 Probable scenario - Investment return Level of recession Learning: New authority requirements New risk models Options for action: Reduced risks New risk model Changes Substantial losses on practically, everything! Consequence short-term High probability that operating result plus investment return will always be decently positive Lower risk appetite generates expectation of higher investment return Higher equity return Higher return on credits Gradually followed by increasing interest rates Consequence - long-term Normalised return Time Before During After Mid-2008 Mid-2009 Mid

19 Markedspladsen Trend in gross profit Skade margin - Rekord i overskudsgrad i probable scenario 20.0 All companies Estimate Estimate Estimate Estimate (5.0) (3.9) (3.3) (3.3) ' 00 ' 01 ' 02 ' 03 ' 04 ' 05 ' 06 ' 07 ' 08 ' 09 ' 10 ' 11 1) 12% korrigeret for afløbsgevinster i Codan 19

20 Appendix - a source of up-to-date information on Topdanmark 20

21 Summary Growth and earnings Recession means fewer valuables to insure Estimated adverse effect: 2-3% on growth in 2009 Adverse effect on earnings in 2008 which will undoubtedly increase in 2009 Recession has both favourable and adverse effect Developments require action in order to meet earnings goal The following actions have been implemented and the effect will continue to increase Extraordinary focus on expenses Improved utilisation of purchasing power Increase in earnings necessary to ensure that earnings goal in 2010 will be in the form of price increases Mass market: Contents and house insurance Professional market: Buildings and property insurance Subsequently, all other things being equal, earnings and growth will increase in step with the recession coming to an end 21

22 Summary Investment return Due to recession substantial losses in 2008 but also in Q Topdanmark has reduced its risks and implement new risk model High probability that future operating results plus investment returns will always be decently positive In the short term lower risk appetite in market generates expectation of higher investment return In the long term a normalised return is expected 22

23 Options for action - The two most significant on investment return Reduced risks Investment risk reduced by 50% In the event of another 2008, maximum loss will be ¾ of technical result New risk model Risk indicators introduced New and lower limits for equity exposure No more purchases of structured products 23

24 Topdanmark - a case of focused strategy Solely Danish player - non-life and life insurance Risk segmentation / micro rating Expense ratio Multi distribution / sales power Low earnings volatility in insurance business More exposed to personal market Less exposed to industrial market High level of reinsurance cover Investment risk reduced by 50% In the event of another 2008, maximum loss will be ¾ of technical result High cash flow Large cash distribution programme Normalised yield of 7-8% No limitations set in the Articles of Association 24

25 Topdanmark's financial goals Earnings CR in current year: excl. gains on / strengthening of claims provision but incl. buffer of 1 pp CR in the long term: 92 excl. gains on / strengthening of claims provision but incl. buffer of 1 pp Growth 1% p.a. excl. wage inflation in non-life gross premiums earned incl. illness / accident adjusted for any price adjustments 5-10% p.a. in regular premiums in life insurance Expense ratio No specific goal is set but we continue to have a goal of an expense ratio lower than the general market level 25

26 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 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 trend in reinsurance market. Also see Risk management on our website Risk management. The above description of potential risks 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 Q interim report. This publication is a translation. In case of any divergence, the original Danish text shall prevail. 26