Gjensidige Forsikring ASA (OTCPK:GJNSF) Q3 2022 Earnings Conference Call October 21, 2022 3:00 AM ET
Company Participants
Mitra Hagen Negard – Head of Investor Relations
Helge Leiro Baastad – Chief Executive Officer
Jostein Amdal – Chief Financial Officer
Conference Call Participants
Operator
Hello, and welcome to the Gjensidige Q3 2022 Presentation. My name is Laura, and I will be your coordinator for today’s event. Please note, this call is being recorded and for the duration of the call, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end of the call. [Operator Instructions]
I will now hand you over to your host, Mitra Hagen Negard, Head of IR, to begin today’s conference. Thank you.
Mitra Hagen Negard
Thank you. Hello, everyone. Good morning, and welcome to Gjensidige’s third quarter presentation. My name is Mitra Hagen Negard, and I am Head of Investor Relations. As always, we will start with our CEO, Helge Leiro Baastad who will give you the highlights of the quarter followed by our CFO, Jostein Amdal, who will go through the numbers in further detail. And as always, we have lots of time for Q&A after that. Helge, please.
Helge Leiro Baastad
Thank you, Mitra. Good morning and welcome everyone. This is the 48th quarter since our IPO. And the last quarter, I have the pleasure to present Gjensidige’s results. As announced earlier, Geir Holmgren will be assuming the position as CEO from January. I’m very confident in handing over the batten to Geir, who will with his confidence and capacity will further cultivate and create – of a great organization and secure continued strong value creation in Gjensidige.
Let’s then move to Page 3 for our comments on the third quarter results. We generated a profit before tax of NOK 1.486 billion. The underwriting result was a very strong 1.909 billion, the highest we have ever had in the quarter when adjusting for the extra runoff gains back in Q4 2018. Earned premiums continued to rise strongly with a healthy 7.1% or 8.2% in local currency. Large losses this quarter were lower than expected level, contributing to the good development in results.
We continued improving our underlying profitability when adjusting for the COVID effects last year. Our combined ratio for the quarter was 7.3%, including a cost ratio of 12.9% for the quarter. Continued heavy turmoil in the financial markets resulted in a negative return on our investments of 328 million this quarter. This impacted our return on equity, which came to 18.4% year to date. Jostein with revert with more detailed comments on the results for the quarter.
So, then turning to Page 4, a few words about our operations. I will start with inflation, which continues to be a global challenge. Claims inflation so far has been in-line with our expectations and we have not had any significant challenges related to supply or materials or labor. Demand for our products and services remains strong and we are able to pass on necessary price increases to stay ahead of the inflation curve.
Global economic and geopolitical uncertainty have reached new highs. Strong government finances, particularly in Norway, mitigate the risk of a grave recession in our region. And historically, [non-life markets] [ph] have proven to be highly resilient to economic downturns. We expect this to be the case going forward too. But of course, a further dramatic escalation of the war in Europe can severely impact our business too.
We continuously monitor the development in close cooperation with our partners as we always do. This is under any circumstances, the most important thing to do for an insurance company and we are well prepared. Based on our latest analysis, we expect claims inflation for private property in Norway to remain in the 5% to 7% range going forward, driven by high energy prices and labor rates.
Pressure on materials prices seems to have peaked because of demand cooling off, lower raw material prices and more stable supply chains. For Motor in Norway, we expect a continued increase in spare part and labor prices. Our claims inflation expectation is unchanged in the range of 4% to 7% at the higher-end in the short-term. For all products, we will continue to put through price increases at least in-line with expected claims inflation, and we are confident that we will be able to pass this through.
The strong development of our Norwegian operations continued in the third quarter. Premium growth in private remained high, despite tough competition. We have managed to continue to put through necessary price increases while maintaining very high customer attention. and profitability is very good. Premiums continue to grow strongly in our commercial segment, as well as the retention remained at a high level.
Profitability climbed further to a very good level. Going forward, we will continue to raise prices to reflect expected claims inflation and we are confident that we will be able to put this through. For certain pockets in the large corporate portfolio and in certain segments, there’s still a need for price increases beyond inflation. Performance in Denmark was somewhat weaker than the same quarter last year.
I’m very pleased with the premium development in the commercial portfolio. Growth in the private portfolio was impacted by competition and lower Danish motor and property sales. We continue to move forward with the new core IT system. The private products are being migrated over to the new platform and the system is providing increasing support for our distribution activities.
The acquisition of the dental insurance company, Dansk Tandforsikring is now complete and we are very eager to further develop the business in Denmark and later on in our other Nordic markets. I’m pleased to see that our turnaround efforts in Sweden continue to show results with improvement in underlying profitability quarter-over-quarter.
Operations are becoming increasingly efficient. We have good risk selection and pricing execution, resulting in more healthy portfolios and good growth in the commercial portfolio. But of course, given the size of our operations in Sweden, we are prepared for potential volatility in the results. Our transformation in the Baltics continues with full force.
Profitability has improved considerably both quarter-over-quarter and compared with the same quarter last year. Thanks to better tariffs, price increases, pruning and cost saving initiatives, and we are well underway to reach a combined ratio below 100% from Q4 this year, although also for this segment, we must be prepared for volatility, not lost because of macro uncertainty.
Turn over to Page 5. We continue to make progress on sustainability. We have a number of initiatives, as you can see on this slide, taking important steps towards delivering on our ambitious targets. I’m particularly pleased with having launched our first taxonomy aligned product and there is more to come. We have got a strong recognition this quarter too with top ranking in PVC’s climate index.
And with that, I will leave the word to Jostein to present the third quarter results in more detail.
Jostein Amdal
Thank you, again, and good morning, everybody. I’ll start on Page 7. We delivered a profit before tax of NOK 1.486 billion in the third quarter. Premium growth was the main driver behind the increase in the underwriting results. We saw good growth in all segments and improvement in the underlying profitability for the group when adjusting for the COVID-19 impact on claims in the same quarter of last year.
I’m particularly pleased with development and commercial and I find good progress in Sweden and the Baltics very encouraging. Private maintained a very high level of underlying profitability confirming our strong market position and efficient operations. Our investment portfolio generated negative returns this quarter reflecting the tough market conditions. Our pension business generated lower results. I’ll revert on both of these in a moment.
Turning to Page 8. The strong development in premiums continued in the third quarter, up 8.2% adjusted for currency effects. We saw a strong increase in premiums for the private segment, driven by price increases for motor, property, and [excellent health insurance] [ph] as well as higher volumes for motor and travel insurance. I’m very happy that we maintained our strong competitiveness and continue to hold our superior market position.
The significant rise in premium to the Commercial segment followed effective pricing measures and solid renewals for all the main product lines, involving growth for motor and [indiscernible]. Premiums in Denmark increased by 5.4% measured in local currency, driven by growth in the Commercial segment and the contribution from them. Premiums in this private segment, excluding the contribution from them, were somewhat lower impacted by a 2.7 percentage point decrease in customer retention.
Premiums in Sweden, measured in local currency, increased by 9.2% driven by volume growth in both the private and the commercial portfolio. Customer retention increased by 2.5 percentage points with improvements in both portfolios. Earned premiums in the Baltics increased by 6.7% measured in local currency, driven by growth in most [extra insurance] [ph] lines except for motor. The increase in premiums was a result of pricing measures. The customer retention rate decreased as a result of the implementation of higher prices. This is something we have been prepared for on the path to improve profitability.
Turning over to Page 9. Underlying frequency loss ratio remained stable. However, when we adjusted the absence of COVID-19 impacts and claims this year, the underlying frequency loss ratio improved by 7.8 percentage points. This strong development was driven primarily by commercial, based on effective pricing measures, [solid renewals] [ph], and good risk selection.
The Baltics also showed a significant improvement. Large losses were slightly higher than last year, but still well below average expected levels. To get this slightly lower run-off gains, this brought the loss ratio for the quarter up to 63.3%.
Let’s turn to Page 10. We recorded [1.040 billion] [ph] in operating expenses in the quarter. Our cost ratio moved further down by 7.7 percentage points to 12.9%. And if we exclude the Baltics, the cost ratio was 12.3% for the quarter. The main drivers of this improvement are premium growth and strong cost discipline across the group. Our cost ratio in Norway improved by 7.7 percentage points to 10.2%, thanks to premium growth and continued focus across efficiency.
Sweden and the Baltics showed an improvement as you can see from the chart on this slide, thanks to effective cost cutting measures and higher premiums. The increase in Denmark’s cost ratio was a consequence of a strengthened sales force and higher IT costs related to the ongoing transition to the new core IT system.
A few comments on our pension operations on Slide 11. The pretax profit came to 46 million, down year-on-year, reflecting the expected decline in margins with the new individual pension accounts and the lower financial income. The negative impact following the introduction of individual pension account was partly offset by growth in a number of pension members, contributing to an increase in insurance income.
We continue to grow our business and have a strong focus on being a cost efficient player. We expect profitability to increase again in the medium-term, driven by further growth. Assets under management decreased by 3.5% from year-end last year to 50 billion, reflecting development in the financial markets. Annualised return on equity was 13.1%. The solvency ratio at the end of the quarter was 170%.
Moving on to the investment portfolio on Page 12. Our investment portfolio generated a return of minus 0.6% in the third quarter, reflecting the significant market [saw more in this quarter too] [ph]. The market portfolio returned minus 0.2% and the free portfolio returned minus 1.2%. The result for the quarter was negatively impacted by higher interest rates, a decline in equity markets and higher credit spreads.
All asset classes except fixed income measurements with a short duration and PE funds show negative returns. We have continued to reduce risk somewhat in our portfolio in response to the market conditions. It is worth mentioning that our equity risk exposure was NOL 1.2 billion lower than the 2.8 billion recorded as a carrying amount at the end of the quarter, due to derivative positions.
We are prepared for further market turbulence for quite some time. Although we cannot avoid the impact, we have a balanced portfolio and solid fixed income investments with the large majority having investment grade rating. Our investment strategy remains firm. The increase, as you know, in interest rates, will increase future investment income. Over to Page 13, our capital position is very strong. With a solvency ratio of 190% at the end of the quarter, down 2 percentage points from Q2.
Eligible own funds were slightly down with the solvency to operating earnings offset by loss in the free portfolio and the subtraction of the [indiscernible] dividend. We had a minor increase in the capital requirement with premium growth and changes in currency rates more or less offset by a lower market risk as a result of lower equity exposures.
Few words on the latest development of our operational asset targets on Slide 14. Customer satisfaction continues to be at a very high level. Retention in Norway is slightly down from second quarter, but still on a very high level. Retention in Denmark and the Baltics came somewhat down, but we’re satisfied with the improvement in Sweden. We have delivered on our annual goal of 10% increase in our digitalization index, which measures progress in our digitalization service interaction with our customers.
On the claims handling side, both our digital claims reporting for the group and automated claims processing in Norway [have risen further] [ph] to 77% and 68%, respectively. We’ll continue to develop these digital services further going forward. Before handing the word back to Helge, I take the opportunity to announce that on the 22 of November, we will be holding a webinar on the implications of IFRS 17 and IFRS 9 on our accounts. We will also publish a guide a few days before. We will send out a release with further details shortly, but in the meantime, save this date.
Helge, over to you.
Helge Leiro Baastad
Thank you, Jostein. Before concluding today, I would like to take the opportunity to have a quick look at Gjensidige’s strong track record for creating value for our shareholders, illustrated here on Page 16. We have delivered on our ambitious targets almost every year since the IPO back in 2010. Gjensidige has generated a total shareholder return of more than 600% during this period.
Average return on equity has been 19% and we have paid out 53 billion in dividends. We have achieved solid top line growth while demonstrating strong underwriting and cost discipline and at the same time, we have received the strongest vote of confidence from our customers with customer satisfaction and retention climbing to very high levels. This is all thanks to our superior brands, loyal customers, our unique customer dividend model, our technology platform and strong analytical capabilities, all parts of the solid fundamentals necessary to continue delivering on our attractive value proposition. But of course, the most important drivers are our people and our culture.
These are key to our success. We are very happy to see that our employee engagement scores continue to be very high and we succeed in attracting [competence] [ph]. Our excellent ranking in Ipsos reputation survey is a pleasant reminder of how we are viewed among Norwegian customers and an effective marketing [indiscernible] employer. In this year’s survey, Gjensidige once again ranked highest among all companies in the finance sector and number five among all Norwegian companies in the survey. This is indeed a strong vote of confidence.
Over to Page 19. Gjensidige’s priorities towards 2025 remain firm. The group will build on the strong and unique position in Norway. Profitability for operations outside Norway will be improved with a particular focus on Sweden and the Baltics, as well as tapping further into the attractive opportunities in Denmark, not the least driven by the new core IP system. And lastly, the group is committed to continue capital discipline with a rational approach to M&A and capital distribution back to shareholders.
To sum up the quarter on Page 20, we have delivered a very strong quarterly underwriting results. We are confident that we will continue to stay ahead of claims inflation. Unless the current geopolitical situation becomes dramatically worse, we do not expect to see any significant spillover to our underwriting results. We expect to deliver on our combined cost and solvency ratio targets this year.
Our financial results and return on equity are of course highly dependent on the development in the financial markets. Our good underwriting results, outlook and strong capital position provide us with a solid pace to deliver a continued steady and nice regular dividend curve. Special dividends have been and will still be utilized from time-to-time to ensure an efficient capital structure.
And with that, thank you very much. We will now open for Q&A session.
Question-and-Answer Session
Operator
Thank you very. [Operator Instructions] We’ll now take our first question from [Heikin] [ph] of DNB. Your line is open. Please go ahead.
Unidentified Analyst
Good morning. Two questions for me, and the first one on cost, you had delivered a strong quarter in terms of cost ratio below [30%] [ph] sort of just wondering how you see this development going forward? Should we expect to see similar kind of cost structures as you’ve been able to reprice the premium base quite good recently? And that was the first question. The second question on inflation continued to be quite high. And it’s just wondering if you have to look for the pricing in-line or above claims [indiscernible] you expect to continue to do that also in the shorter-term based on the recent re-pricings you have done? Thank you.
Helge Leiro Baastad
Good morning. I can start to comment on the cost ratio and Jostein will start up with the inflation question. I can see if we want to do that. Our cost ratio in Norway as you saw and as you have seen improved by 0.7% in the quarter. Thanks to premium growth and continued focus on cost efficiency. And as you know very well and as we have commented, we continue to work on enhanced cost efficiency in making room for investment.
So, the target is unchanged before IFRS 17, it’s below 14%. But as you know, good operation and cost efficiency never go out to fashion. So, this is extremely important for organizations. So, we are working with all kind of efficiency measurements quarter-by-quarter, but the target is unchanged. And together with IFRS 17, we will comment in more detail the consequences of IFRS 17.
Jostein Amdal
On the [indiscernible] side, is that okay.
Unidentified Analyst
Yes, I’ll just say thanks for taking the – answering the questions.
Jostein Amdal
On the inflation side, we – as is kind of – I guess, the main point of the question is, do we manage the price according to at least in-line with the inflation going forward? I think the answer to that is, yes. They still continue to price at least in-line with inflation for the main product lines in Norway. I said this [indiscernible] his remarks, could you see a fairly stable inflation picture now from last quarter rates and very pricing in-line with that. And then there are some pockets that still we need to be re-priced in the commercial or they aim to reprice in the commercial lines.
As you have seen from the fairly large improvement in the Baltics, they have a price more than the current transaction. And the same goes really for Sweden and Denmark [indiscernible] integration. And kind of – the question is kind of do we manage to get these two? And of course, that’s the forecast, but so far we have managed to do that and our expectation is that this is actually achievable within today’s competitive environment.
Helge Leiro Baastad
Just to add a comment, you remember we came behind the [curve] [ph] in 2018 for motor insurance and we were quite alone. These price increases were above 10% and we almost managed to get that through without losing any volume. And hopefully today, we have – our peers are also pricing in-line with claims inflation or above claims inflation. And the level is below actually what we experienced in 2018. So, we managed to get this through and other peers are acting more or less in-line with what we do.
Unidentified Analyst
Perfect. That was very clear. Thank you so much.
Operator
Thank you. We’ll now take our next question from [Alexander] [ph] of Credit Suisse. Your line is open. Please go ahead.
Unidentified Analyst
Hi, everyone. Thanks for taking my questions. So, the first one would just be on inflation in general and thanks for giving the color around some of the Norwegian markets out there. But I think you previously gave claims inflation guidance of about 5% in Denmark. Just eager to hear how you think claims inflation guidance right now is for that. And if you could give any comments around Sweden as well? I know you have a relatively sizable underlying frequency loss ratio deterioration there.
So, if you could, sort of give some details on what’s really been driving that trend? Is that sort of a Gjensidige issue or more of a market issue? And then just on some of the wider commercial improvements, is it possible to attribute all of this to rate or what proportion of this is actually better risk selection and how sustainable is this 4 percentage points? And then finally, just around private. Obviously, that’s largely flat in the quarter year-over-year. Is it the expectation now that you’re, sort of pricing in line and actually you’re just targeting cost synergies or sorry costs cost reductions going forward? Thanks.
Helge Leiro Baastad
Yes. I give the word to you, Jostein, and he can comment claims inflation in more detail for Denmark and Sweden.
Jostein Amdal
Yes. starting with Denmark. The integration picture in Denmark is very similar to what we see in Norway. Total [about 4% to 7%] [ph] [Technical Difficulty].
Operator
One moment please while I reconnect the speaker. Thank you.
Jostein Amdal
Are we back online? Hello?
Unidentified Analyst
Yes, we can hear you.
Jostein Amdal
Sorry. Actually, problems on our side there on the [indiscernible]. I’s start again, the inflation in Denmark [indiscernible], same range as we talked about as in Norway 4% to 7% for property, about 5% to 8% mid-percentage points higher than in Norway. So, it’s a fairly similar claims inflation [indiscernible] in Denmark and Norway and they’ve been by the same factors underlying high increase in energy prices, and expectations about wage or labor cost development.
So, in Sweden, we actually see a bit slightly lower inflation picture, almost 3% to 5%, [Metro Property] [ph] it’s more or less the same as in Denmark and Norway at around 5% to 7%. Big difference I don’t see that commercial properties has a slightly higher expected claims inflation on private property due to the – it’s a little bit higher material content in the commercial properties that we fixed on the private properties.
The second part was on the underlying frequency loss ratio in Sweden. I think that we also talked about this in the previous quarter that the quarterly losses in Sweden are somewhat more volatile due to the portfolio size and composition. So, I think the kind of the correct view on Sweden in my mind is, if you look at the actual combined ratios or loss ratio, we are actually quite happy with the combined ratio for [indiscernible] in Sweden for the quarter.
And I think that we’re looking for a combined ratio of very low 90s. If you look at year to date, we have a 92.9 combined ratio in Sweden and we expect that to continue downwards going forward. Yes. So, rather than Q3 last year was exceptionally good. I think we have a [indiscernible] more in-line with what we do expect. I don’t have …
Unidentified Analyst
Just to clarify on Sweden. So, you’re happy you’re pricing in-line with claims inflation in Sweden, is that a bit sort of take away?
Jostein Amdal
Yes, absolutely. But I think it’s – and then actually we talked about also, I guess remarks on the call that there is some volatility to be expected in both Sweden and Baltics due to the [indiscernible] portfolio quarter-by-quarter. But the long-term trend is obviously or definitely good.
Commercial improvement, I’m not able to quantify how much is, kind of improved risk selection, how much is pricing. But there it’s absolutely true that we have improved or continuously improved risk selection and improving the portfolio all the way towards what we think is the best parts of the portfolio as at the same time as you price at least in line with the expected densification. There’s a combination of the two factors.
Private, we continue to price at least in-line with [indiscernible] there. And if you take away the COVID-19 impact from – that we have been in 2021, various underlying improvement also in private. So, I think that is – and you need to look from what level we’re talking about improvement, which is a very high profitability level starting point.
Helge Leiro Baastad
If I may add a couple of comments regarding the commercial segment, Jostein, I would say that I’m extremely satisfied with the development in commercial business. And you have to remember that a large chunk of that portfolio is SME, and it’s also our position in the agricultural sector in Norway. So, what we see is both regarding the combination of volume and price driven growth.
Our ability to quarter-by-quarter drive the cost, relatively cost ratio down, and our ability to, I would say, more and more digitalize the whole operation as we have done in the private sector. This is a really digitalized, industrialized, and very advanced business for Gjensidige today, it’s very important. It’s not typically commercial as you think of commercial, it’s lots of SMEs, it’s direct business as you know. So this is really in the heart of the [NCDs] [ph] business model.
Unidentified Analyst
Okay. Perfect. Thank you.
Operator
Thank you. We’ll move on to our next question from [Ulrik] [ph] of Nordea. Your line is open. Please go ahead.
Unidentified Analyst
Thank you for taking my questions. I have two. I was wondering if you could give a bit more flavor on cost element in other items that is not amortization or related to the debt cost. It was very high this quarter, but I understand it’s included settlement with some [fire mutuals]. That’s my first question. And the second one is that if you could give update on the running yield on your different types of bonds would be helpful.
Helge Leiro Baastad
Yes. On the first one, it’s true that the largest – the single largest element of that item in this quarter as a result is the fine settlement of our [core dispute] [ph] we had with the local [fire mutuals] [ph] that left us some time ago. [We’ll not] [ph] agree with between the partitional disclosed amount, but it’s a settlement that both third parties are happy with. So, that’s the single most important part. And as you correctly pointed out, there is interest rates on the hybrids, there is the IFRS 16, kind of lease costs and also ordinary amortization of intangibles and the results from the mobility compound, if you can say [indiscernible] red gold [indiscernible] group company. These are the main [indiscernible].
Unidentified Analyst
But from the mobility space, will that be a negative contribution in some of the next quarters? Would you like – you’re doing investments? You’re putting it all together or…
Helge Leiro Baastad
Yeah. And underlying development within that, kind of the conglomerate or compound that the mobility space is very good. What we have now and in-line with what we talked about earlier. And then what we have now is the start-up costs, integration, rebranding, getting, kind of all the systems up and running. So, this is kind of, in a way part of the investment case underlying. Things are going very well.
Jostein Amdal
And we are on the positive side on the synergies you talked about in June. So, it really works as we communicated in June on the [webinar] [ph].
Unidentified Analyst
Thank you.
Mitra Hagen Negard
In terms of the running yield, Ulrik, for the bond portfolio was 3.4%, that also includes the [whole] [ph] maturity portfolio.
Unidentified Analyst
Okay, great. Thank you so much.
Operator
Thank you. [Operator Instructions] We’ll now move on to our next question by [indiscernible] of Berenberg. Your line is open. Please go ahead.
Unidentified Analyst
Good morning. This is [indiscernible] from Berenberg and congratulations Helge, on your retirement. I just had a question on a broader question on the competitive environment looking and maybe sort of two years out. Obviously, we’ve got your reinvestment rate for bonds, I think it is now 5.5%, I guess this is quite a substantial level, compared to what we’ve seen in prior years. And given that of the margins across the industry and among the listed sort of players and all the [indiscernible] are really, really good. We’re just wondering whether you can – we should expect to see some competition presumably from players that have not listed or any, sort of disruption given you can now earn a decent return on your equity based on your investment portfolio. So, any color on how you view this risk? And we really appreciate it. Thank you.
Helge Leiro Baastad
Yes. I think I commented during my presentation, it’s tough competition. And although we present strong figures quarter-by-quarter, but it’s tough competition. Disruption, we have discussed disruption for years and it’s important to remember that lots of the [indiscernible] initiatives we see around the world is related to the prompt and solutions that we see that the banks and the insurance companies in the Nordics have implemented in their business models.
I do not see an international entrance into these markets for the next couple of years, next three years. The challenge long-term is related to the dynamic in the motor industry markets. And we commented that when we introduced our NCD Mobility Group initiatives earlier this year. At the moment, it’s also interesting to follow [indiscernible] in Norway. They have been loads regarding their ambitions, so growing their business and also trying to enter into the SME market, but as I commented, some minutes ago, it’s extremely industrialized and advanced business model we have in the NCD related to the SME market in Norway.
So, it’s not only to enter into that market. It’s lots of components, very integrated with people, technology processes, etcetera. Regarding interest level and increased interest level, if that will give us more pressure on combined ratio, I think we commented last quarter that as long as we are below 5% we think the same type of targets will continue for peers and ourselves.
So, all else equal increased interest level up towards 5% will give us over time better EPS, same type of financial targets and same type of competitive dynamics. That’s my best perspective for next couple of years. And it’s not that easy to enter market in – I would say, you know we are talking about claims inflation, and this is dynamic.
We have lots of resources working with claims inflation every day and the price in-line or above claims inflation. So, jump into a market with that, kind of development it’s not that easy either. So, I don’t think that’s the best actually window to enter market if you want to go into the insurance industry. So, more of the same for the next couple of years.
Unidentified Analyst
Perfect. Thank you, Helge.
Operator
Thank you. We’ll now move on to our next question from [indiscernible] of Bank of America. Your line is open. Please go ahead.
Unidentified Analyst
Thank you. Thanks very much. Quite a few of my questions have been answered, including the very last one. So, thank you for that. Just on the investment income side, I think you talked about the running yield today and we know roughly where the new money yields are. Just wonder if you could comment on the impact on the expected investment income and how long that will take to feed through? Is this a one, two year effect? Just to get flavor for how that’s going to evolve? And then secondly, just on the competitive environment in Denmark, specifically you talked about greater levels of competition. Just wonder if you could comment on what’s going on, on the ground there? Thank you.
Helge Leiro Baastad
Well, I expect the income [indiscernible] around between three and four years duration. So, it kind of that gives you the idea of, kind of how fast this will go into the accounting profit. But remember that from a [solvency perspective] [ph], this is all mark-to-market, starting 1 of January, 2023, everything on the book will be mark to market. So, in a way, you will see the actual interest rate level into the accounts when they move over to IFRS 17 in the 1st of January. I guess that’s the more important picture is to be on this fourth quarter.
On the level of competition in Denmark and what’s happening on the ground, I think we seem to be very competitive on the commercial side and gaining volume without sacrificing on the profit side. On the private side, I think there is more aggressive day-to-day competition than what we’ve seen and also we’re suffering a bit from the reduced car and property – private property turnover in Denmark because that’s for us an important sales and maybe relatively to the others are car partnerships and to the real estate brokers future market leader on the exchange of ownership insurance in the [whole property market] [ph].
My thinking around that is that this is a temporary and then we’re going to be back on track here developing markets in-line with market growth in the private part also going forward.
Unidentified Analyst
Okay. I guess on the first point, we’ll hear more about IFRS 17 and how you’d expect to implement that in due course, but your point I guess is that, it will allow us to see the impact of moving to market yields more quickly. Is that the point you’re saying?
Helge Leiro Baastad
Yes. I mean, if we’ve been continuing to the IFRS 4, this would have, kind of moved into accounts as the, kind of old bonds matured and the new bumps were a larger part of the program, but given IFRS 17, we’re going to have mark-to-market on all the whole fixed income book and then the [New York slicker] [ph].
Unidentified Analyst
And just if I may, not really a question, but Helge, I know this is your last results presentation, and I think you are, you were – it was nice to see you to talk about the track record that the company has established over the last decade or so. And I remember, I was fortunate enough to be involved in the IPO process and had many interesting conversations with you around that time. I can’t believe it was 2010, a long time ago, but congratulations on what you’ve achieved over that period of time. The returns have been spectacular and it’s been a pleasure to be involved with you over that time and congratulations and very good luck.
Helge Leiro Baastad
Thank you very much for good words. Yes, it’s actually 12 years since we deal with the IPO, so time flies. So, once again, thank you. Thank you very, very much.
Unidentified Analyst
Congratulations.
Operator
Thank you. We’ll now move on to our next question from [Jana Rakes of ABG] [ph]. Your line is open. Please go ahead.
Unidentified Analyst
Hello. It’s [indiscernible] along from ABG. Just a couple of questions from my side as well. Just on the follow-up on the following question on the interest rate sensitivity, could you give any sense to how much you were hike, you were on the yield from 1st of January to be frank on that question?
Helge Leiro Baastad
I think the running yield on portfolio at the moment is, kind of the best – if you move to IFRS 17 today, [indiscernible] on a portfolio of around 3.4%. I think that is the [rate] [ph]. And then as existing bonds mature and the ones already reinvested a higher rate, that brings gradually increased running yield of the portfolio. So – but as from January 1, it will be mark to market. So – and it will be the rate that is in the market at that time, which determines the interest rate. It’s the market rate, really.
Unidentified Analyst
Yes. Okay. So, we’ll learn more on the – in November, as I said. Secondly, then on retention. I think I heard that yours had some less retention in Norway. What has really happened to that? Is that some customers you wanted to get rid of or is it sort of competition that forced it to happen?
Helge Leiro Baastad
It’s a marginal decline in the retention at a very high level, about [90] [ph]. We haven’t really given that too much consideration. I think it’s – this is very small changes.
Unidentified Analyst
Have you read more into the affordability issue now as we have moved on since we met in late August and seen more of the households struggling to, sort of having the volume portion intact in your business?
Helge Leiro Baastad
Short answer is, no.
Unidentified Analyst
Okay. Then on the Norwegian retail and commercial business, you are up for a renewable now on first of January, how much of the book in the commercial will be renewed roughly?
Helge Leiro Baastad
Around 40% is renewed January 1.
Unidentified Analyst
Okay. And finally on Norwegian retail, could you give any color then on the sort of the [flattishness] [ph] of the curve? Are you happy with the profitability, as you said, this was at a very, very high level. And you will now rather be certain that you are making the clients happy so you can have a decent level of premium growth without actually hurting the profitability a lot. Is that what you’re thinking now? As you mentioned, [indiscernible]?
Helge Leiro Baastad
Yes. First of all, I mean, if you look at numbers and it’s obviously extremely good numbers. So, yes, we’re happy with that, and no we are never totally satisfied. So, we are always trying to improve on what we have built on profitability and volume here. We are still pricing at least in line with [indiscernible] also from a region private segment, and hope to improve, also loss ratio going forward without losing or increasing retention or losing customers. This is an optimization that we do daily, weekly, monthly.
Jostein Amdal
Just to add, as you remember, [indiscernible] for many quarters, we communicated price at least in line with claims inflation for motor and we also communicated above claims inflation for property. We are now really satisfied with the profitability level. So, the communication is pricing above at least in-line with claims and inflation for both these two product groups.
So, we are happy with the level. We see we had strong competitiveness. We had a very strong cross position, but it’s always, as you know, profitability before market shares. So, we are not stressing about competition and trying to increase market shares and things like that. This is same type of ambitious development based on profitability before market shares.
Unidentified Analyst
Very clear.
Jostein Amdal
It’s in line with simplification for both property and [model] [ph].
Unidentified Analyst
Okay. Then I would just step-up as [indiscernible]. Congratulations with your [fantastic track] [ph] record [indiscernible] since you started long before the IPO and hope you will succeed in your next position. So, good luck for the future. Thank you.
Helge Leiro Baastad
Thank you. Thank you very much.
Operator
Thank you. We will move on to our next question from [indiscernible]. Your line is open. Please go ahead.
Unidentified Analyst
Yes. Thank you. Good morning. Just a follow-up here on Denmark. If I read the report shared correctly, it seems that your volumes in Denmark are down year-on-year in private. I wondered if you could give some more details to the competition, why you’re down? And then also, if you can, how much you have increased premiums in Denmark in the same period? Thank you.
Helge Leiro Baastad
It’s correct that if you take away the effect of the NEM business at both premium volume and the private part of Denmark will be down, but overall premiums in private, including NEM is up. And also, of course, you see the positive development within the commercial lines in Denmark compensating for the fall in the private part in for the segment as a whole. Competitor situation is not anything particular that has changed in my view. I mean, this is the same main competitors as we have seen for a long time. You might have seen it as interim changes and some partnerships, large partnership arrangements in the market between other competitors, not involving us.
So there is a competition for the large partnerships. I would say, yes, being the latest one to move harbor. Otherwise, we are still very positive about the future development for the old partnerships for the home real estate brokerage and the car in [indiscernible] car partners. And then temporary, I would assume there is a lower new car sales and lower volume of property transactions in Denmark, as I said on the – one of the previous question. And given our share – market share within a change of [indiscernible] insurance in Denmark that helps us somewhat more than the others. Yes, I think that’s it.
Unidentified Analyst
Understood. And there is no implication from the change of IT system and the like?
Helge Leiro Baastad
No, I think there is general [happiness] [ph] about the [indiscernible] of the IT system among our front people that meet the customers, clear improvement there. And – but not everything is into it. Still there are, I think around 70%, 80%, of the portfolio now moved into [EBIT] [ph], the new system on the private segment. And then commercial will follow later.
Unidentified Analyst
Okay. Thank you very much.
Operator
Thank you. We’ll move on to our next question from [Hans of Danske Bank] [ph]. Your line is open. Please go ahead.
Unidentified Analyst
Yes. Thank you. So, I was just following up on the question on Denmark and relating to the customer retention that you show on Slide 14 in the presentation. I was wondering is the decline, is it because of your pricing or is it because your claim sampling? I guess, with the new IT system, I would have assumed, sort of that this should be moving in the other direction?
Helge Leiro Baastad
Talking about retention levels?
Unidentified Analyst
Yes, retention levels in Denmark?
Helge Leiro Baastad
There is in a way, a bit some technical related to the home, the lack of sales in the change of ownership there, because that is more clear contest and then they, kind of move out of the portfolio and there is not a new property transactions coming, there will be a reduction in retention. Also, there is a repricing, of course, on – in the Danish portfolio, so to keep track with the inflation, which has increased shown somewhat. But I will not describe it to the new core system in any way, it is also somewhat that we lost this distribution arrangement with [indiscernible] back 1.5 year ago now, that still continues to hurt her attention a lot.
Unidentified Analyst
And just a follow-up on that. How do you sort of plan on turning that curve around?
Helge Leiro Baastad
Well, then, we are still going to meet expected inflation on the pricing. So, that is not the issue, but we are just working every day on improving the sales organization and are slowly getting more traction on the new partnerships that we have with home, the real estate broker and the new car partners. So, it’s nothing dramatic changes. It’s just going to hard work and slow improvements there.
Unidentified Analyst
Okay. Thank you very much.
Operator
Thank you. We’ll move on to our next question from [indiscernible]. And your line is open. Please go ahead.
Unidentified Analyst
Yes. Good morning, [Vineeth] from [indiscernible]. Thank you very much. Quick ones, please. First is, just on the – just back on the commercial, just to understand to say a farmer has his personal car that he’s insuring with you. Is that counted in commercial motor or is that counted in personal [indiscernible]. I’m just trying to understand because now it’s been two or three quarters of spectacular performance in the commercial lines. And at this point, where there’s any other motor time items, agricultural club, I don’t know something else, but I’m just [curious on that sense] [ph]? And the second question is from the private equity funds where we see the remarkable 5% return in 3Q, just curious if some of this is a mode return or is it a valuation that your funds are provided but it couldn’t be at risk, because that’s looks like a pretty surprising number? And lastly, of course, I miss [indiscernible] Helge’s last call and congratulations from my side as well. Thank you.
Helge Leiro Baastad
Thank you, [Vineeth] [ph]. Thank you. As you know, the agriculture segment in Norway is not that big. We have around 70% market share that’s the route for Gjensidige. And the typical Norwegian farmer in average. Of course, they have cars. They have some buildings. They usually also have another job beside their work on the farm. And everything around that farmer is registered into the commercial book, but I think the total turnover of the agriculture segment is not that big, if you compare that with the total commercial book.
I think it’s one-twelfth or something like that. 1 billion out of 12 billion, 13 billion, something like that. But that’s right, his personal car is part of the commercial book.
Jostein Amdal
[Indiscernible], that’s actual revaluations in the portfolios, underlying portfolios of [IP] [ph]. It’s not a modern development. And it’s also partly related to currency movements where there has been some unhedged dollar based investments in the portfolio to get them positive return from the exchange rate movements. It’s a dollar strengthening, as Norwegian kroner.
Unidentified Analyst
Thanks very much.
Operator
[Operator Instructions] We’ll move on to our next question from [Jimmy of UBS] [ph]. Your line is open. Please go ahead.
Unidentified Analyst
Hi. Thank you for taking my questions. I have two, please. First one on the cost ratios that you mentioned that the wage inflation is having an impact on your clients? And I presume this would have some impact on your – on the cost base for yourself as well. Could you give us some color in terms of how your cost base is going to move going forward in [indiscernible] in relation to wage inflation?
Helge Leiro Baastad
You know, so far, this year, the average I would say, the wage – the change in wages in average was 3.7 and we have some more than that, of course, but I guess around 4% is a figure for 2022. I guess also 4% to 4.5% will be the figure for the next couple of years. So, this is not any dramatic driver for our cost base. And you also have to remember that we every day work with digitalization automation and try to do all the processes in a more effective way. So, that’s more important discussion, compared to wage and wage increases related to the cost base and the cost ratio.
Unidentified Analyst
Okay. Thanks. And my second question is around the credit risk in your investment portfolio, I guess, there’s a small negative in the match. Those are – might be some bigger negatives in the full-year. I just wonder what, sort of kind of views and the views about your credit exposure and your investment portfolio overall especially ones that are exposed to cover down spread?
Helge Leiro Baastad
No, it is true that, especially the Danish part of the Match portfolio, there’s a lot of covered bonds, Danish real estate bonds, which are – it’s a bread and butter instrument for us as a hedged instrument, more or less no default risk, but there is, of course, mark to market risk. And optionality within that portfolio, which has helped us somewhat this year. We’ll continue to use that for the hedging of the industry about this. Also on Norwegian partners, some Norwegian cover bonds, in the Match portfolio, more even development I would say than the Danish had allocated. But yes, we’re still very comfortable about using those for hedging. Regarding the [default risk is] [ph], very, very small.
Unidentified Analyst
Yes, thanks. I also just want to echo the remarks. So, congrats Helge on the amazing achievement and best of luck for the future.
Helge Leiro Baastad
Thank you. Thank you very much.
Operator
We’ll now move on to our next question from [Michelle of KBW] [ph]. Your line is open. Please go ahead.
Unidentified Analyst
Yes. Thank you. One question for me. Of course, you have done, back in 2018, you guided us through the improvement in the – of your pricing infrastructure – general pricing infrastructure, especially in motor, would you maybe give us some sense of the improvement that you have made to this infrastructure in the past couple of years, let’s say, three years? And also, what kind of improvement you envision considering the developing standard changing environmentally high inflation in general? Thank you.
Helge Leiro Baastad
I can start and Jostein you have to fill me in afterwards, but yes, you’re right. If you go back to 2018, we came behind the curve related to motor insurance, that was also a question about claims inflation. And that was due to, as you remember, the rapid shift to the modern cars with all kind of technology and spare parts and increased claims costs. In addition to that, it was also spare parts and currency issues and everything happened quite fast and we came behind the curve.
We established a project internally. We called it back on track. It was a very, very close cooperation in [indiscernible] that people the private division, the commercial division also, obviously, they also have lots of cars in Norway. And of course, the claims operations. And we actually created a new type of process, I would say, much more [indiscernible] process regarding attracting changes regarding repair cost process, claims inflation.
So, we established actually best practice, I would say, for much more rapidly to change prices on the go based on all the dynamics around us. And I think that processes we established in 2018 has been extremely important for us in the claims environment or inflation environment we have now these days. And you can maybe continue to say something about that Jostein.
Jostein Amdal
Yes, I mean, if you want to, kind of highlight really one thing about all the improvements we did after 2018 is the really close cooperation we now have with our suppliers within the [chem sampling] [ph] processes where we have as the major purchaser of these type of services. Norway, we have the best terms possible with our [indiscernible] and a very close and frequent dialogue that we can early detect changes in their expected materials in price increases.
So, they can bake that into our tariffs and our price ranges. I think that has been extremely helpful in the last three, four quarters when we have had this volatile efficiency situation and they really have helped us. So, they are, where we are, where we actually have hit fairly well the actual claims development as witnessed by the price increases and the loss ratio we have delivered.
Helge Leiro Baastad
And since 2018, we have also moved close to into the motor industry in Norway with the initiatives on E&C Mobility Group. So, we are actually sitting around the table together with actually the suppliers and all the main partners in the claims handling process. So, we have a completely different situation. And now, I’m talking about motor insurance. These guys compare to [everything] [ph].
Unidentified Analyst
Thank you.
Helge Leiro Baastad
It’s a child here, who want to have some enjoyment.
Operator
Thank you. We’ll now take our last question from [Sumant of Citi] [ph]. Your line is open. Please go ahead.
Unidentified Analyst
Yes. Thanks for taking my question. I hope, think that I am inaudible. Just on coming back to the wage inflation. So, because you alluded to that in the coming years, the wage inflation will be around 4%, so what is your long-term wage cost assumptions that is embedded in your bodily injury claims reserve in? And do you see there’s any risk of, sort of increasing the long-term wage inflation assumption because of the higher forecast for the next few years?
Helge Leiro Baastad
Yes. I’d say, I mean, this is of course an extremely important question for us to see long term, but if you talk about long-term for more than the – close is, next three to four years, we have haven’t really changed our long-term forecast yet. There is considerable volatility and uncertainty around inflation and growth and so on. Currently, a very high fashion speeding over into high wage inflation.
Expects forecast very moderate growth, maybe a recession next year, which will probably dampen, which increase again the year-after. And that we will move it back towards a more normal level. We see still similar interest rates targets from the or inflation targets for the – from the central banks around 2%. So, our long-term forecast are really the same as, kind of the experts in the central banks and [indiscernible].
We’re moving towards a mitigation long-term, maybe around [two-ish percent] [ph] again, long-term with a wage development, really slightly hard on the inflation, so it would be in the long-term a real wage [indiscernible]. And this is baked into our really long-term part of the reserving as well. The current hiring inflation is handled within the reserves we have and we’re not really concerned about that.
Unidentified Analyst
Yes. And just a clarification on the [G sector] [ph], probably that is related to national pension, basic pension amount. So, as I understand, it is related to – I mean, it is set by politicians and is there any – and also related to the wage inflation? So, do you see any, sort of probability of getting the G-factor, getting increase?
Helge Leiro Baastad
Again, really long-term, which I mean most of the reserves on this personal injury related claims are really long-term. Next couple of years, we do you expect, as I just said, if rate increases around [4-ish percent] [ph] and we do expect the [de factor] [ph] to be somewhere in the same range, but really long-term, nothing has changed. And large part of that reserves is, kind of from being paid off four to five years ahead and further, all the way towards 40 years ahead. And that perspective, we haven’t changed our forecasts.
Unidentified Analyst
Okay. Thanks. And just a last one on the large claim, because the quarterly budget remains around [360 million] [ph], but we continuously see a much lower amount than that. So, what are the structural changes – is the underlying risk for large claims is reducing what are components that are driving [indiscernible]? Should we expect this, sort of trend going forward? Should we expect sort of volatility and more comfortable to the [Technical Difficulty] going forward.
Helge Leiro Baastad
I think, I mean, this is a really long-term focus that they have. This is developed based on our internal model. In the longer-term, if the underlying [cash growth] [ph] in the commercial book, both those will have increased our estimate of large claims, potentially more volatile with the situation, due to climate effects, we’ll also increase it.
On the other hand, what we have witnessed is partly [indiscernible] and partly good risk selection that has made us actually deliver or given us lower large claims for most of the periods that we’ve seen behind us, most of the quarters that we have reported. I mean, the real long-term average here is, it’s really hard to make a precise estimate. We just see it has been on the conservative side for the last several years. But, yeah.
Unidentified Analyst
Okay. Thanks and congratulations. Thank you.
Helge Leiro Baastad
Thank you.
Operator
Thank you. There are no further questions. I will hand you back to your host to conclude today’s conference.
Mitra Hagen Negard
Thank you. Thank you for all your good questions, everyone. We’ll be participating in a number of roadshow meetings and one conference in the next quarter. We will be meeting investors in Norway, the UK, Germany, Sweden, and Finland. For more details, please have a look at our website. Thanks all for your attention and have a nice day.
Operator
Thank you. Ladies and gentlemen, this concludes today’s call. Thank you for joining. Stay safe. You may now disconnect.
Be the first to comment