• Insurance Service Result: DKK410 million.
• Combined Ratio: 86.0% or 88.2% before runoff.
• Insurance Revenue Growth: 13.6% in the quarter.
• Organic Growth: 5.8% in the quarter.
• Investment Result: DKK86 million in the quarter.
• Solvency Cover: Increased to 215% from 210% at the end of Q1.
• Provision for IT Separation Costs: DKK195 million after tax.
• Updated Profit Forecast: DKK1.255 billion to DKK1.46 billion, including runoff.
• Net Profit Forecast: Lowered to DKK950 million to DKK1.175 billion, including one-off costs.

• Warning! GuruFocus has detected 7 Warning Signs with TPDKY.

Release Date: July 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Topdanmark AS (TPDKY) reported a solid 6% profit after tax from continuing operations, outperforming medium consensus.
• Insurance revenue growth was strong at 13.6% in the quarter, with organic growth reaching 5.8%, supported by pricing initiatives and indexation.
• The company achieved a combined ratio of 86.0%, or 88.2% before runoff, indicating efficient underwriting.
• Investment results were robust, with a profit of DKK86 million, driven by positive contributions from both public and private equity markets.
• Topdanmark AS (TPDKY) improved its solvency cover to 215%, reflecting strong financial stability.

Negative Points

• The company incurred a non-operational one-off cost of DKK195 million after tax due to the IT separation agreement with Nordea.
• Topdanmark AS (TPDKY) faced higher claims in the motor insurance segment due to inflation in wages and spare parts.
• The timing of Easter led to an underestimation of the claims ratio in Q1, causing a higher claims ratio in Q2 by approximately 1.1 percentage points.
• The acquisition of Oona Health resulted in seasonally higher claims in H1, adversely impacting the claims ratio in Q2.
• The company provisioned for one-off transaction costs related to Sampo's pending takeover offer, totaling between DKK90 million to DKK110 million, with no assumed tax deductibility.

Q & A Highlights

Q: Can you elaborate on the trends in motor insurance claims, particularly regarding frequency and severity? A: Lars Beck, CFO, explained that while there was an apparent increase in frequency due to weather impacts in early 2024, the underlying frequency has stabilized. Peter Hermann, CEO, added that the severity of claims has risen due to inflation in spare parts and salaries. They have implemented procurement deals and pricing initiatives, including a 15% increase in new business premiums, to counteract these trends.

Q: What level of price increases are being applied to the existing motor insurance book, and how does this compare to inflation? A: Peter Hermann stated that price increases on the existing book are individualized based on customer risk assessments, potentially matching or exceeding the 15% increase on new business. Lars Beck noted that most revenue growth is driven by indexation and price increases, with new customer inflow contributing less significantly.

Q: Why were price increases on motor insurance delayed, and will this affect profitability? A: Lars Beck acknowledged that while they delayed price increases due to the competitive environment, they have since implemented them as the market dynamics have shifted. The delay may impact short-term profitability, but they are now aligned with competitors in raising prices.

Q: How are cost-saving initiatives progressing, and what is the outlook for 2025? A: Lars Beck confirmed that cost-saving plans remain unchanged despite the pending Sampo merger. They aim to return the expense ratio to pre-life and pension business sale levels by 2026-2027. Recent cost reductions have led to a revised expense ratio forecast below 17%.

Q: Could the Nordea contingent liability discussions change with Sampo's acquisition? A: Lars Beck stated it would be speculative to predict changes in these discussions due to the acquisition. There have been no updates since the last quarter, and the business is being run as before the Sampo announcement.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.