Post Q3 Protector Target price 200 (strong buy) - EPS estimates moving north as we speak

Q3 volume up 12%, a bit of bad luck (opposite Q2 where you had a bit of luck). Underlying volume development stronger. Very strong.

Q3 Combined 84,9%, Large losses in line with normal, some reserve releases but also some reserve building (according to management) in order to meet IFRS 17 in due time. This IFRS reserve building «is real» but we «cannot see it». This is actuary and CFO area, and it is rather technical, just trust me . Underlying Combined ratio neutral. Very strong.

Running yield bond portfolio 5,5%, my expectation in Preview was 5,0%. Very, very strong.

Wow - it’s moving fast, and it is extremely important. Underlying running yield probably slightly stronger since there is a «time lag» on running yield.

This means that the Investment team are moving (pretty) fast on duration and high yield development now. The company has also started the “matching game” which is relevant in a high interest rate environment. Running yield is now 5,5% vs 2,0% 12 months ago!! You don’t «lock in and match» long term on something close to 0 when risk of falling further is very limited. You might also lose interest rate uplift if you lock in «at zero» - they have not. Brilliant position built on competence and discipline. Andreas, Jonas and Dag Marius you are ……. good.

What are the consequences of these huge changes in interest rates happening extremely fast (at an unprecedented speed)? I think you should expect:

- Rapidly increased EPS

- «Consensuses» will move earnings estimates up. This has been poorly discussed by analysts, and their assumptions have been far too low lately. They prefer - as always - to be on the «safe side». A bit more boldness from my analyst colleagues would be better . I know you know…

- Target price 200 will be reached before November 2023 (like I said last quarter)

Equity return was better than expected (not at all important) but the important information in Q3 was the estimated discount to intrinsic Value sized 40%! Wow

SCR was 222%, too much capital (again). If you add a strong and stable Combined ratio and a running yield at 5,5%, the company should have paid dividend. It’s not important but the company will lose some capital credibility if they continue this route. We’ll have to wait on the good news one more quarter. If Protector moves harder on «bonds and equities» then you can keep the money in the company, if not give them to me (us shareholders) and we can do better. SCR target is 150%-180% and you are now constantly above 200% => ROE is lower than necessary, and multiples are lagging.

Final question - Which analyst scored best in Q3? I’m afraid it was me.

- I will say I was better on volume (together with Vegard)

- I was better on Combined ratio since the two reserve situations explained above probably is neutral

- I was clear and far better on running yield passing 5.0% (we all had normalized interest rate in the longer run around 4% and we all must increase these figures now).

Sorry guys - better luck next time

Sverre Bjerkeli
Analyst trainee, Hvaler Invest AS

Lillestrøm, November 6th 2022