Protector Forsikring

Business and Financial Review • Apr 15, 2020

Update on COVID-19, Q1 result and Solvency Capital Ratio

Update on COVID-19, Q1 result and Solvency Capital Ratio

COVID-19 creates turbulence in all markets

In the course of the last months, as COVID-19 has developed to become a global pandemic coupled with a significant oil price decrease, financial markets have been extremely turbulent in this year’s first quarter. On a general basis one has experienced a massive and wide negative development within most asset classes. Leading stock market indices have fallen significantly, interest rate movements have been extreme and credit spreads have widened substantially.

Investment result MNOK -452, increased allocation towards High Yield (HY)

The Q1 investment result ended on the negative side with MNOK -452. The equity portfolio inclusive of hedging instruments inflicted a loss of MNOK -331 (-28.8%), whereas the fixed income portfolio ended with a negative result of MNOK -121 (-1.1%). Among our investments, both in equities and bonds, there are very little exposure towards industries and companies directly affected by the corona virus disease and the oil price collapse (e.g. travel-, oil- and oil service companies).

At the end of 2019 about 16% of our total financial positions where allocated to HY. By the end of March we have increased this allocation to 28%, whereof the majority of increased exposure were taken during the days of March 16.-20. The change in value, together with increased exposure to the HY marked, have made quite an impact on our asset class allocation – going from 10.1% equities and 89.9% fixed income as of year end 2019 to 7% equities and 93% fixed income as of Q1 2020. In the same period of time the running yield on our fixed income portfolio have increased from 2.1% to 4.3%.

Combined ratio 98.3% – significant improvement

In Q1 we delivered a net combined ratio of 98.3%, compared to 105.9% the same period last year. The underlying result improvement is even stronger as we have 0% in run-off gains this year compared to 6.9% in Q1 2019. Volume has grown 4% relative to the same period last year (0% in local currency), supported by continued necessary price increases. Significant price increases in the Nordics has resulted in a higher than normal churn. In Q1 the average overall price increases in our Nordic insurance portfolio came in at 13.5%.

The net combined ratio in the respective countries were; 90.1% in Sweden, 100.8% in Norway and 70.0% in Finland (incl. MNOK 28 run-off gains). These countries has shown a strong improvement relative to the previous year. In Denmark we have experienced a weaker start of the year with a CR at 121% (incl. MNOK 31 run-off losses). UK with a CR at 93.5% continue to show good numbers.

The COVID-19 situation has to this point had limited effect on the company’s insurance business and our employees. The company’s employees work from home and all business critical functions operate well. Products in our portfolio that may be adversely affected by COVID-19 is limited. The situation may lead to some increased pay-outs within products like other illness and business interruption, but at the same time reduced economic activity has lead to stronger profitability expectations on other products. We see, among other things, a reduced claims frequency within motor.

Q1 result

Based upon preliminary accounting figures the profit for the quarter will be negative with approx. MNOK -385.

Solvency Capital Ratio 142% – good downside protection if market turmoil continue

As of March 31st Protector has a volatility adjusted SCR-ratio of 142%. Non-adjusted the SCR-ratio is 130%. As earlier communicated, Protector has a solvency based reinsurance contract where we have the possibility of increasing the cession rate in stressed situations. We have not utilized this opportunity. Furthermore, the company holds stock market put options which are “in the money” as of 31.3.2020, and which give a good downside protection if stock market turmoil continue.

From April 1st until April 14th the investment result improved by MNOK 180.

Further information will be given on April 30th in connection with the presentation of the Q1 results.

Oslo, April 15th 2020

Protector Forsikring ASA