If P&C Insurance Year-End 2001 Report

If P&C Insurance Year-End 2001 Report · Torbjörn Magnusson new CEO and President of If, February 8 · Merger between If and Sampo P&C agreed, completed January 2, 2002 · Significant premium increases implemented · Large claims much above normal · Weak investment return for the full year, 2.5% · Strong positive cash flow from operations, SEK 2.1 bn (SEK 0.5 bn) Group result highlights 2001 2000 If Stand alone Gross written premiums 25 520 20 474 Operating result incl. normalised investments* -1 415 77 Operating result -2 752 -989 Combined ratio 115.3% 111.2% Combined ratio** 112.7% 110.2% * In addition to the statutory results, If shows an operating result based on a normalised investment result as well as the statutory investment result. This approach is taken because as equity investments are fully marked to market in the profit and loss account, short-term fluctuations in equity market returns affect the statutory operating result. The normalised investment result for 2001 was calculated based on If´s applicable investment mix, as adjusted during 2001, and assuming a bond yield of 5.2% and an equity risk premium of 3.5%. **Excluding one-time launching cost of MSEK 170 in Q2 2000 and increase of the technical provisions by MSEK 485 and restructuring charges of MSEK 88 in Q4 2001. Comments from Torbjörn Magnusson, CEO of If "The result in 2001 was unsatisfactory, due to adverse claims development, including high large claims, and a weak investment return. This calls for decisive action. In November, the merger with Sampo P&C was announced, and completion took place on January 2, 2002. The integration with Sampo has started and we have significant value potentials in several areas. A fully pan- Nordic business area structure has been defined. In Q4, the technical provisions were increased by MSEK 485, as agreed between the owner parties in the merger with Sampo P&C. If also posted restructuring charges and related transactions cost of MSEK 148, of which MSEK 88 affected the combined ratio. We now look forward to 2002 as a year to develop If. Our aim is to combine customer value with long-term profitability. The differentiated premium increases we are implementing together with even more efficient claims handling are both key to this. Actions to restore profitability have already been taken and will be reflected in the results in 2002 and 2003. The focal points are risk selection, portfolio pruning in appropriate market segments and retention of existing customers. We have a single-minded focus on improving profitability in the core business areas, and the speed to deliver change will be stepped up." Group results 1) Premiums earned for 2001 were MSEK 22 237 (MSEK 17 545). Claims incurred were MSEK -20 531 (MSEK -15 220) and expenses were MSEK - 5 121 (MSEK -4 285). The statutory operating result before tax was MSEK - 2 752. The claims ratio was 92.3 per cent (86.8) and the expense ratio was 22.62 per cent (23.42). The combined ratio was 112.72 per cent (110.22). The deterioration in the claims ratio was driven by changed water damage claims trends, high motor repair costs and an abnormally high large claims level. The investment result was impacted by three quarters of global equity markets downturn, though the equity markets rebounded towards the end of the year. The expense ratio was lower than the year before. Despite the negative result, the operating cash flow exceeded 2 billion, which was well ahead of last year's cash flow. Group result highlights (MSEK) FY 2001 FY 2000 Premiums earned, net 22 237 17 545 Claims incurred, net -20 531 -15 220 Operating expenses -5 121 -4 285 Underwriting result -3 415 -1 960 Normalised investment result* 2 443 2 145 Operating result including normalised investment -1 415 77 result Investment result 1 106 1 079 Operating result -2 752 -989 Claims ratio 92.3% 86.8% Expense ratio 23.0% 24.4% Expense ratio2 22.6% 23.4% Combined ratio 115.3% 111.2% Combined ratio2 112.7% 110.2% Cyclicality Property and casualty insurance is subject to cyclical variations. When the economy is at its peak one often sees an increased frequency of claims and higher average cost of claims. If is thus subject to the business cycle in the countries in which it operates. In addition, spring and summer usually have a lower claims frequency than late autumn and winter. Furthermore, because equity investments are fully marked to market in the profit and loss account, short-term fluctuations in equity market returns affect the statutory operating result. Equity investments have historically outperformed fixed-income investments. Business area comments Private had net earned premiums in 2001 of MSEK 11 440 (MSEK 8 580). The combined ratio was 111.5 per cent (111.2), with an expense ratio of 21.9 per cent (23.5). The increase in gross written premiums is attributable to the acquisition of Volvia and an increase in premium rates, mainly in relation to existing customers. Despite the significant premium increases and lower expense ratio, the combined ratio remained at the same level as last year. This was due to a trend change in claims regarding water damages, especially in Norway, as well as increasing claims expenses regarding Motor in Sweden. The latter is driven by significant expense increases in car repair shops. Premium increases have been substantial throughout the year but there is still a need for further increases to match the claims development. During the year, Private has downsized the sales office networks in Norway, achieving manning reductions. The main focus for 2002 is to improve profitability through highly differentiated premium increases in selected market segments, focus on retention instead of new sales in call centres and strict underwriting guidelines for new customers. Commercial had net premiums earned of MSEK 6 907 in 2001 (MSEK 6 187). The combined ratio was 107.8 per cent (109.3), with an expense ratio of 23.1 per cent (23.0). 2001 has been a year of further improvements for Commercial. At year- end, the premium level was 12 per cent higher than last year and the combined ratio has improved. Despite an abnormally high large claims level, the claims ratio improved to 84.7 per cent from 86.3 per cent. Almost all large claims are within Property. Yet, there is no significant trend in this area, but rather an unusually high number of separate claims, mainly caused by fire. Motor in Norway has developed well during the year. The important turnaround process of Workers' Compensation in Norway is finalised and has been successful. Commercial has initiated a new project to better monitor and manage profitability in different distribution channels. This will enhance profitability, as will the red flag pruning project and the use of financial rating filters for new customers. Industrial Risk Solutions, IRS, had net premiums earned of MSEK 2 470 in 2001 (MSEK 1 857). The combined ratio was 115.1 per cent (114.6), with an expense ratio of 25.2 per cent (25.0). IRS' combined ratio deteriorated compared to last year, due to large claims of approximately MSEK 200 above normal, mainly in Property. This was almost entirely due to one large claim at the end of the year. Premium increases have been implemented and the number of customers remained stable. The share of policies sold through brokers increased. Naturally, the terror attacks in September have affected IRS, but not as much in the result in 2001 as going forward. Reinsurance has become significantly more expensive 2002 compared to 2001. The focal areas for 2002 are to further develop customer and risk selection and to develop even closer relationships with the preferred customers. Also, internal work processes will be refined to improve cost efficiency. Marine & Energy had net earned premiums in 2001 of MSEK 1 337 (MSEK 905). The combined ratio was 123.7 per cent (115.0), with an expense ratio of 24.0 per cent (23.8). Marine improved the quality of its insurance portfolio and the combined ratio, which was 101%. The claims development remained normal throughout the year. 2001 was one of the worst claims years for the energy business world- wide, and If's Energy business suffered from this adverse development, showing a combined ratio of 170%. This was due to large claims above normal, including the Petrobras oil rig incident, but otherwise mainly related to accidents in petrochemical plants. Significantly higher premiums have been imposed in Energy. Stand-alone downstream underwriting is regarded as an undesirable risk in the portfolio, and no new such risks are underwritten. The existing portfolio will be phased out. Investments The investment result for the full year was severely hit by the performance of the global equity markets in the first three quarters. However, towards the end of the year, the investment result was strong as the equity markets recovered significantly. If benefited from the diversified equity investment strategy. The total return was MSEK 1 047, corresponding to 2,5%. Exchange Rate Effects Translation of income and expenses in foreign currencies such as NOK and USD into SEK was performed at higher average exchange rates than for 2000. MSEK 272 higher operating expenses, MSEK 1 053 higher claims incurred and MSEK 1 207 higher net premiums earned were attributable to exchange rate effects. Changes in Net Asset Value The Net Asset Value decreased from MSEK 8 237 last year to MSEK 7 433. During the year, the shareholders made in total capital contributions of MSEK 1 100. Result for If P&C Holding AB If P&C Holding is a pure holding company with no business activities. The pre-tax result for 2001 was MSEK -143 including one-time expenses. This report has been compiled using the same accounting principles as in the Annual Report for 2000, except in relation to IT expenditures and deferred tax assets, as described in the appendix. Solna, Sweden, February 12, 2002 Torbjörn Magnusson President and CEO For questions please call: Torbjörn Magnusson, CEO tel: +46 8 788 11 07 Tom Rathke, CFO tel: +46 8 788 32 25 Investor relations: Susanna Halse tel: +46 8 788 24 28, e-mail: susanna.halse@if.se Press contacts: Helena Dyrssen tel: +46 8 788 23 35 A teleconference will be held on February 12, at 15.30 Stockholm time. The invitation is published under Press Service on If's IR website. www.if-insurance.com APPENDICES The Volvia portfolio is included as from 2001. Comparative numbers for the same period previous year in parenthesis. 2 Excluding Q2 2000 one-time launching expenses and Q4 2001 reserve strengthening and restructuring charges of MSEK 485 and MSEK 88 respectively. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/02/12/20020212BIT00730/bit0002.doc http://www.waymaker.net/bitonline/2002/02/12/20020212BIT00730/bit0002.pdf http://www.waymaker.net/bitonline/2002/02/12/20020212BIT00730/bit0002.xls Appendix