Preview Q1, Outstanding on volume and investments, ok on CR – Buy 238

My 2023 base case assumptions are volume growth 15%, CR 90%, equity return 16% and bond return 6%. As you can see below, we are ahead of schedule, and my expectations are smaller adjustments upwards from consensus. Have a look at differences between analysts and rank them tomorrow✌️ I personally think Ulrik felt sleepy when calculating investment income😂 or he was …..🥴

Let’s start with Invest income for once – Q1 will be very very good both in absolute and relative terms with an equity return at 15.8% (MNOK 418) and a bond return sized 1.5% (MNOK 214) 💪💪. Running yield is still moving north which means bond returns will continue to be very strong. Conclusion: Ahead of schedule by a lot😁

Volume (Insurance rev.): January 1st growth in LCY is already communicated to 17% leading us to 15.6% in LCY in Q1 based on old accounting rules (February and March slightly lower) and around 20% growth in NOK for two reasons 1; 2/3 of Q1 volume is in currencies that are a lot stronger relative to NOK in Q1. 2; New (IFRS 17) seasonality adds another volume increase in Q1. Remember UK growth is not about Q1, it’s Q2 and later. The most important volume question now is – what happened April 1st in public sector UK? My view is a very strong Q2 on volume in UK housing sector and UK public sector, not in line with Q4 of course but…. Conclusion: Ahead on volume in Q1 (above 15%) and higher than 15% in Q2. Both comments are after seasonality IFRS 17 adjustments.

Combined Ratio: My CR estimate in Q1 is 94% since seasonality kicks in and winter in Norway and Sweden has been pretty hard on Motor claims 🥶 (Protector has overweight on Motor). A better than normal Property quarter may lead to slightly better CR. Conclusion: Slightly behind schedule (Q1 schedule 93%) but underlying nothing to worry about.

Eps 7.00 in Q1🔥: When you add up, calculate in some options losses on equities and financial costs on Tier1 and Tier2 you will end up with a profit after tax sized MNOK 580 or eps 7,0. This should lead to a quarterly dividend at 2.5 (and you should think this will be repeated next 3 quarters). IFRS 17 update from Protector on Tuesday was late but very well written. IFRS 17 will gradually lead to a better understanding of insurance results and could invite more investors on board. Let’s see how this is played out on Friday morning.

Summary and Question: At 143 per share the company is priced far, far lower than peers despite growing a lot faster and expected ROE is on a historical high level (due to > 6% running yield and solid underwriting profit).

Disclaimer: I’m a significant shareholder and bought more in Q4, so you cannot trust me (or perhaps you can?)

Sverre Bjerkeli

Analyst trainee, Hvaler Invest AS
Lillestrøm, 26.04.23