Gjensidige Forsikring ASA (OTCPK:GJNSY) Q4 2023 Earnings Conference Call January 24, 2024 3:00 AM ET
Company Participants
Mitra Negard – Head, Investor Relations
Geir Holmgren – Chief Executive Officer
Jostein Amdal – Chief Financial Officer
Conference Call Participants
Freya Kong – Bank of America
Håkon Astrup – DNB Market
Tryfonas Spyrou – Berenberg
Ulrik Zürcher – Nordea
Alexander Evans – Citi
Youdish Chicooree – Autonomous Research
Thomas Svendsen – SEB
Hans Rettedal Christiansen – Danske Bank
Johan Ström – Carnegie
Jan Erik Gjerland – ABG
Operator
Go ahead.
Mitra Negard
Thank you, Operator. Good morning, everyone. And welcome to this Fourth Quarter Presentation of Gjensidige. My name is Mitra Negard, and I’m Head of Investor Relations. We will, as always, start with our CEO, Geir Holmgren, who will give you the highlights of the quarter, followed by our CFO, Jostein Amdal, who will go further into detail on the numbers. And after that, we will go into a Q&A. I have plenty of time to answer your questions. Geir, please.
Geir Holmgren
Thank you, Mitra, and good morning, everyone. 2023 turned out to be a year marked by significant weather events in many places around the world. Storms, floods and torrential rain hit our region in the third quarter, followed by more storms and heavy rain early in the fourth quarter.
Winter arrived early with several periods of heavy snowfall and low temperatures. 2024 has started off with tough weather conditions in our region. This has and continues to cause difficult driving conditions.
RedGo had more than 28,000 assignments in the Nordics during the first nine days of January, up 150% compared with the same period last year. There have also been many damages from frozen pipes and water damages, with significant impact on property claims. I am very pleased to see how our competent and dedicated teams have taken care of our customers and how efficiently we have processed the large number of enquiries and claims.
Now, let us turn over to page three for comments to — on our fourth quarter results. We generated a profit before tax of NOK1,607 million. The general insurance service result was NOK734 million, reflecting continued strong revenue growth and efficient operations. However, the results development compared to last year was negatively impacted by other private business, driven by weather-related claims and an elevated level of underlying claims frequency, particularly from motor in Norway.
The result both for private and commercial was also impacted by a strengthening of reserves for claims in Norway, which had incurred earlier in 2023. Thanks to our efficient operations, the cost ratio remained at a highly competitive level of 13.3%. Our investment generated returns of NOK1,876 million, reflecting the development in the capital markets. The return on equity for 2023 ended at 18.2%. Jostein will revert with more detailed comments on our results for the quarter.
So, turning to page four and looking at the full year. We delivered a pre-tax profit of NOK5,551 million. We generated strong revenue growth last year. Our operations ran well and efficiently, and we had good returns on our investments. However, the weather conditions in the third quarter and fourth quarter and the one-off expenses we recorded in the third quarter prevented us from reaching our targets from combined and cost ratios and return on equity.
The combined ratio was 87.6%, up 4.8 percentage points from 2022. The increase was primarily driven by the private segment. I am very pleased that our Danish commercial portfolio and our Baltic business achieved lower combined ratio for the year. Our Swedish operations delivered a somewhat higher combined ratio. Our cost ratio in 2023 was 14.4%. Adjusted for the one-offs in the third quarter, it was 13.2%. We have an efficient capital base. Our solvency ratio at the year-end 2023 was 166%, well within our target range. Return on equity for the year was 18.2%, somewhat below the target.
So let’s turn to the next page for a few comments on the proposed dividend. Our Board has proposed a regular dividend for 2023 of NOK4,375 million, corresponding to NOK8.75 per share. This is up 6.1% from the regular dividend in 2022. The proposal corresponds to a payout ratio of 106% and requires an approval from the FSA as the amount exceeds 100% of the total comprehensive income in the parent company. Based on the strong capital position for the group, we expect the application to be approved.
For our Norwegian general insurance customers, this once again boasts the distribution of a solid customer dividend from the foundation, Gjensidigestiftelsen. With this, our solvency ratio is at a good level, enabling us to maintain our S&P A rating, as well as providing us with sufficient financial flexibility. Our solid capital position also enables us to maintain a high and stable stream of regular dividends. Our dividend policy remains unchanged. We aim to pay a high and stable nominal regular dividend.
Over to page six, we saw an increase in claims frequency for private motor in Norway last year and took swift action to address this from the second quarter and we continue with further targeted measures through the year. The tough weather condition in the fourth quarter increased the frequency issue identified in private motor, leading to increased claims for property, but within private and commercial portfolios. We estimate that 70% of the total increase in claims frequency for motor in the fourth quarter was weather related.
For property, we saw some increase in claims frequency, which we believe are related to weather and large claims, and not an underlying trend. We stepped up price increases through 2023 to mitigate the impact of a higher claims frequency on top of the high inflation level. The increase in average portfolio premiums for motor went up from 6.1% in January to 7.7% in December. This was above the claims inflation of 6.5% for the year. We are now implementing further price increases, which we expect to increase the average premium levels by at least additional 10% for this year.
For property, the claims inflation through last year was approximately 4%. The price increases last year were on average 5.7% and we are in the process of increasing prices further with an expected effect on average price level of additional 7% to 8% on the portfolio for 2024. On top of the pricing measures, we have adjusted terms and conditions to bring down the claims frequency and we are now increasing deductibles for the remaining motor coverages.
Other measures will have a gradual effect on insurance revenue, claims frequencies and results as policies are bought or renewed, and premium is earned. We will be monitoring the situation closely and implement further changes if necessary. We have a strong focus on this action and I’m convinced that we will succeed in improving profitability for Private Norway in 2024.
Let us turn to page seven and a few words about inflation. The general inflation pressure has continued to ease, although the level is still high. We are monitoring the development very closely and are pleased to see that our close cooperation with suppliers and our highly developed analytical approach provide a strong base for making forecasts and our advanced and flexible pricing models ensure that our tariff continuously reflect expected claims inflation.
Based on our latest analysis, we currently expect claims inflation for property in Norway to remain in the 4% to 6% range, material prices continue to come down because of weaker construction activity and lower raw material prices. However, this is expected to be offset by wage increases. We have a tight dialogue with our material suppliers, making us confident that we will not be met with extraordinary changes anytime soon.
The weak Norwegian krona and general inflation pressure continue to drive higher repair costs, but the effect on total claims will still be contained due to our supplier agreements. Our current estimate for the claims inflation for motor in Norway is slightly down from our October projection, starting with 7% in the short-term and gradually declining towards 4% over the next 12 months to 18 months.
Moving to page eight, the strong growth momentum for private continued in the fourth quarter, mainly due to price increases. Both the Norwegian and Danish portfolios continued to increase in revenue.
Retention levels in Norway remained high and sales were strong, particularly for motor retention — motor. Retention in Denmark is improving and we will continue to put through several initiatives. We have renewed several partner agreements recently, as you can see on the slide here.
These are important supplements to our distribution. We have also entered a new bank assurance partnership in Denmark with the Nordic digital bank Lunar [ph]. Online profitability for private declined as explained earlier.
Our commercial segment continued to grow strongly and retention remained at a high level. We are very encouraged by the solid January renewables in Norway and Denmark. The price increases averaged 11% in Norway and 7.5% in Denmark. In addition, approximately 20% of the growth in Norway can be ascribed to growth in underlying volume. For the Danish commercial portfolio, the corresponding figure is 30%.
Our top ranking among the large players in the IPSOS survey is a strong vote of confidence from commercial insurance customers in Norway. Online profitability improved, driven by both Norway and Denmark.
Our Swedish operations are progressing well, although profitability was negatively impacted by the weather condition and higher than normal medium-sized losses. We will continue our efforts to increase results going forward, among others through digitalization. Our Baltic business continues to generate strong revenue growth and I’m very pleased that profitability improved this quarter too.
We are pleased with the renewal of our reinsurance program. We have managed to renew the capacity we require, prices and retention levels are somewhat up from last year, although much more moderate than for 2023.
Over to page nine. I’m very happy to see our strong sustainability efforts through 2023 and strong recognitions on our progress in the field, as you can see on this slide. It is rewarding to see that our efforts to help customers prevent damages is both creating customer satisfaction and business value, while also supporting our strong sustainability ambitions.
With that, I will leave the word to Jostein to present the fourth quarter results in more detail.
Jostein Amdal
Thank you, Geir, and good morning, everybody. I will start on page 11. As Geir mentioned, we delivered a profit before tax of NOK1,607 million in the fourth quarter, slightly below the same quarter last year. Our insurance service result was lower than last year, despite a continued strong revenue growth.
Privates saw the lower result. As Geir explained, the fourth quarter turned out to be very challenging in terms of bad weather, adding to the underlying weakness of the loss ratio. We have taken what we deem to be necessary actions and expect results to improve as policies are gradually renewed and premium earned.
Commercials result increased due to strong revenue growth and an improved underlying frequency loss ratio, both in Norway and Denmark. Results for Sweden were lower compared to the same quarter last year, driven by the weather conditions and somewhat higher than normal medium-sized losses. Results in the Baltics continue to improve, with a significantly lower loss ratio. I am pleased to see the progress of our turnaround process here.
Our pension business generated a lower result, despite growth in the business and a higher finance income. This was due to a strengthening of reserves for children’s disability pensions during the fourth quarter this year. In addition, there was a positive impact on the result in the fourth quarter of 2022, related to a change in the actuarial model for paid-up policies.
The change in results from other items is primarily due to higher interest expenses on subordinated loans. In addition, results for our mobility services are still in the red, reflecting ongoing measures to streamline and integrate the operations.
Turning over to page 12, our strong growth continued in the fourth quarter, with insurance revenues for the group increasing by 9.1% in local currency. Growth in private was driven by both Norway and Denmark. The increase in Norway mainly reflects the significant price increases being put through. Market shares remain broadly stable. Customers are contacting us to discuss their coverage and seek advice. However, we do not see any signs of customers cutting back on insurance.
I am also very pleased to see growth in our Danish private portfolio this quarter, driven by both price increases for all the main products and higher volumes for property insurance. The addition of PenSam Forsikring also contributed to the growth.
Revenues for commercial continued to rise significantly, driven by both our Norwegian and Danish portfolios. The strong growth in Norway was driven by price increases in all products and higher volumes for accident and health insurance. Growth in Denmark was driven by higher volumes and significant price increases in property and motor insurance, in addition to the portfolio from Sønderjysk Forsikring, which we added from the third quarter.
The strong January renewals in both portfolios bode well for growth going forward. Higher revenue in Sweden was driven by volume and price increases in both the private and commercial portfolios, primarily for commercial property insurance and private health and motor insurance. An accounting adjustment to the portfolio reduced the premium growth, adjusted for this the growth was 7% in the quarter. The strong revenue growth in the Baltics continued this quarter, driven by price increases in all the main product lines, but particularly commercial health, property and motor insurance.
Turning over to page 13. The group’s loss ratio increased by 5.5 percentage points from the fourth quarter of 2022. The development reflects an increase in the underlying frequency loss ratio. In addition, runoff gains were somewhat lower and large losses were higher year-on-year. Higher interest rates resulted in an increase in the discounting effect.
The main driver for the increase in the underlying frequency loss ratio was private, driven by motor and property insurance. As mentioned, this was related to difficult weather, as well as a general increase in claims frequency for motor. We are addressing this by continuing to put through effective and differentiating pricing measures, beyond the expected claims inflation.
I’m very happy with the improvement in profitability in commercial, particularly in Denmark, driven by property, health and travel insurance, despite negative weather effects and reserve strengthening also for the commercial portfolio in Norway.
The increase in the loss ratio for the fourth quarter was also driven by strengthening of reserves for property and motor insurance in Norway. Many of the claims from earlier quarters last year were comprehensive and complex to assess. With a very high number of claims in several periods, it took time to get a full overview of the damages and determine the causes and eligibility for coverage. We have increased our reserves to reflect higher severity than we initially estimated. For motor, we have adjusted our models to further improve the quality of estimates.
Sweden showed lower underlying profitability, driven by private motor and property insurance, which were impacted by several periods with heavy snowfall and low temperatures. In addition, commercial motor and property insurance were negatively impacted by higher than normal medium-sized losses. The underlying frequency loss ratio in the Baltics decreased, reflecting improved profitability in commercial property, health and motor insurance.
Let us turn to page 14. Our group cost ratio came further down to 13.3% this quarter. Excluding the Baltics, our cost ratio was 12.6%, also this metric down year-on-year. I am pleased with the cost ratio in Norway this quarter, as well as the improvement for the commercial portfolio in Denmark. Private in Denmark showed a higher cost ratio, mainly driven by PenSam and higher IT expenses.
Sweden had a higher cost ratio, mainly due to a strengthening of the sales force and higher depreciation driven by digital technology investments. The Baltics also showed an increase in the cost ratio due to higher sales activity. We have a dedicated focus on operational efficiency and will continue to put through strong efforts into maintaining a competitive cost level.
Over to slide 15 for comments on our pension operations. Our pre-tax profit adjusted for the change in the contractual service margin was NOK137 million, compared with NOK174 million in Q4 2022.
The underlying results for our pension business continued to improve, due to cost-efficient operations and a good growth momentum. The decline in the result was mainly driven by strengthening of provisions for children’s disability pension, as a consequence of higher observed claims frequency. Our provisions reflect the current assessment of risk in our portfolios and our reinsurance programs reduce the downside risk.
The other main driver of the decline in the pension result was a positive impact in the fourth quarter of 2022, related to a change in the actuarial model for paid-up policies. There were no model changes related to paid-up policies in the fourth quarter of 2023.
Net finance income turned positive this quarter, reflecting lower interest rates and a high running yield. Assets and management rose to NOK69 billion. We have an agile and highly cost-efficient pension business, set for further growth going forward.
Moving on to the investment portfolio on page 16. Our investment portfolio generated a return of 3.1% in the fourth quarter, with positive returns for all asset classes. The match portfolio returned 3.7% this quarter, net of unwinding and the impact of changes in financial assumptions, the return was 1%, mainly reflecting lower credit spreads and the fact that the investments did not fully match the accounting-based technical provisions.
The free portfolio returned 2.3% this quarter, reflecting positive returns from a high running yield, lower interest rates and credit spreads, as well as positive equity markets. The risk in our portfolio was broadly unchanged from the third quarter. The derivative positions took down the exposure in listed equities by approximately NOK400 million, compared to the NOK1.5 billion recorded as carrying amount at the end of this quarter. We have a balanced portfolio and solid fixed income investments, with the large majority having an investment grade rating.
Over to page 17. We had a solvency rate of 166% at the end of the fourth quarter, down 19 percentage points from Q3 and mainly reflecting the proposed dividend for 2023. Eligible own funds decreased by NOK1.5 billion, reflecting a positive contribution from Solvency II operating earnings and the free portfolio, which was more than offset by the proposed dividend for 2023.
The acquisition of PenSam Forsikring reduced eligible own funds by approximately NOK200 million. The capital requirement increased by approximately NOK0.5 billion, with the main drivers being higher non-life underwriting risk due to growth in premiums and some insured, and higher life underwriting risk, partly reflecting the reserve strengthening in the business.
Market risk was lower due to less exposure to credit risk. The Norwegian FSA has approved a minor change in our internal model regarding health insurance, reducing the capital requirement with approximately NOK100 million.
A few words on the latest development of our operational targets on slide 18. Customer satisfaction continues to be at a very high level and confirms that our products and services are meeting or even exceeding the expectations of our customers, particularly in Norway. We will continue to seek further improvement in all our markets.
Even though we are in a challenging period with increasing prices for many of us, our customer retention in Norway remains at a high and stable level, and this applies both for private and commercial customers. During the quarter, the retention improved in Denmark, driven by the private portfolio, and in the Baltics, while it was stable in Sweden.
Digitalization and automation are key measures to maintain high cost efficiency, with effect on both the cost and the claims ratios. Our digital distribution index improved by 4% in 2023, driven by digital sales, mainly Private Norway and digital service in commercial Norway. This was offset by a decline in digital customers in Denmark due to the ongoing implementation of the new core system. Digital claims reporting increased, primarily due to an increase in Denmark.
I will now hand the word back to Geir.
Geir Holmgren
To sum up on page 19, our strong growth momentum is very encouraging. It is a result of high customer satisfaction and high retention. The fourth quarter was challenging in terms of claims frequency. We are handling inflation well and we have strong measures in place to mitigate the effects of the elevated claims frequency in Norway.
We have set ambitious targets for the next three years and we are confident to deliver on them. We will continue to focus on profitable growth and further improve operational efficiency, which together with our strong product offering should bode well for continued solid results and attractive returns.
And with that, we will now open the Q&A session of this presentation. Thank you.
Question-and-Answer Session
Q – Freya Kong
[Audio Gap] and then I am sure your results strengthening that [inaudible]. Maybe on a full year basis, just so we can get a clearer view overall? Secondly, we have now seen a year of working expected frequency and you are taking actions to mitigate it, but can you help us identify, how you identified the source of it, is it just more driving post-COVID or has claims behavior somehow changed? And then last question just on pricing, it seems to, based on what you are saying, it seems that you are accelerating the price increases last year into this year, but the retention levels still remain quite high. Does that mean the market is largely moving in line with the terms of pushing price increases there?
Geir Holmgren
Okay. I can start and then, probably, Jostein can follow up. Yes. As you comment, there is a decline in the underlying frequency in loss ratio, especially in private in Norway. The reason we like to divide it in three, it’s like 30% is coming from weather-related claims, 40% is strengthening reserves and the remaining 30% is a combination of elevated claims frequency for motor and volatility in more medium-sized claims for property, mainly fires.
When it comes to price and pricing measures, as I’ve described, we have started actually from, yeah, end of second quarter last year with additional pricing and additional to what we have done on the inflation side, especially for motor, but — and we also showed in presentation the average premium per insured unit and it has increased during the year and we’ll put on additional pricing measures on top of that in January this year, February this year as well, which also leads to mitigate the frequency development we have seen during the last quarters.
Jostein Amdal
Yeah. Your second question, Freya, on the reasons for the change in the frequency for motor, I think you asked and I think to elaborate on what we said in the previous two quarters calls, there is a combination of factors. One is the more moving out of the post-pandemic restrictions, which has probably increased frequency somewhat. Weather is still an important explanation for the frequency of motor as well, especially now in the fourth quarter.
And then as we talked a bit about on the previous calls, there is a creep up on the frequency due to deductibles having been normally stable and changes in the loyalty programs. So I think we don’t provide you with a very detailed breakdown, but these are the factors that we build our case on.
Freya Kong
Thank you.
Mitra Negard
To add that, please limit your questions to two, at least in the beginning. So we’re sure that everyone that has questions can get them through.
Operator
Our next question comes from Håkon Astrup from DNB Market. Please go ahead.
Håkon Astrup
Good morning. Thanks for taking the questions. Two from me. The first one just based on how Q1 has started and also the deteriorating underlying change frequency trend that we’ve seen in motor. If they are 2024 combined ratio target, that’s below 84% at risk in your view. And then also a question on following up on the retention side. So given that you’re ramping up price increases in Norway, but in motor and on property on the private side, have you seen any say deteriorating trend in churn on the back of this versus what you’re doing now in January so far? That was my two questions.
Geir Holmgren
Okay. Yes. In Norway, the temperature has been many places very low during the start of January this year. We also see that we have some days with heavy snowfall, which also led to many incidents as earlier commented. We see that RedGo has had during the first nine days of January had more than 150% more incidents to handle than the average in January last year. So this is definitely to have an impact on the frequency when it comes to the losses.
But then your next question about the combined ratio target for 2024, we are doing a lot of pricing measures started in July last year. This will have a positive impact unless we have some extraordinarily bad weather condition from second quarter in 2024. So we are haven’t — we are not considering anything about changing the financial targets for 2024.
When it comes to retention rates, we see that the general renewal for commercial with 40% of portfolio being renewed. We are very happy to see that the renewal rates or retention rates are still very, very high and we have a solid position in the — especially in the Norwegian market, high customer loyalty, high customer satisfaction and I’m very confident that we will come through all the pricing increases mentioned with still high retention rates. Jostein, anything to add?
Jostein Amdal
No. That’s fine.
Håkon Astrup
Thank you. So just on the first question there, so we don’t need I am going to say an additional loss in this year in order to reach our target in your view?
Geir Holmgren
I think it’s too early to change the targets after three and a half week whatever it is. So it’s, yeah.
Håkon Astrup
Makes sense. Thank you.
Operator
Tryfonas Spyrou from Berenberg. Please go ahead.
Tryfonas Spyrou
Hi. Hi. Thanks for taking my question. So I had two. The first one, I just wanted to understand again how comfortable are you getting back to the below 84% target for 2024 given the actions you’re taking so far? I guess looking at numbers on slide six of the presentation, it looks like you only fully price in frequency during 2024 as the 2023 price increases only appear to sort of mitigate cash inflation, presumably it would take more than 12 months for the 2024 actions to kick in. So I just want to understand how comfortable are you with that target? The second one is on the reserve strengthening for claims earlier in 2023. I guess, can you elaborate a bit more on what has actually driven this, presumably these are not sort of big claims in the private sector, which would suggest there are lots of small claims that were sort of understated. I’m surprised to see this development. I’m not sure you had anything similar before. Was it just a case of the workload was too high in the claims department? So are you doing anything to adjust the underlying cause of this type of applicant? Thank you.
Jostein Amdal
What we tried to illustrate and I know it’s some new numbers on this slide, the number six, I guess it is, with — where we have this mitigating increased loss ratio in private. In the middle of the page there, we have this, if you look at the motor side, an average premium per unit of 7.7% higher than what it was the year before.
What that means that in the portfolio, the average price of the vehicle is 7% higher and that has come an effect of what we went into 2023 with in price increases and the increased price increases during the second half of 2023. But of course, those price increases that we decided on then are not fully reflected in that because policies were renewed in private, mainly fairly evenly distributed throughout the year. It actually means that we have higher price increases ongoing as policies renew and as we sell to new customers.
So the speed is picking up and as we talk about for coming now we look at pricing measures on top of what we already have done of at least 10% on average. So I think it takes some time to get policies renewed and the accounting and effect shown through the earned pattern. But we have much higher price increases than the actual or expected claims inflation, actually both the actual and expected claims inflation. And that makes us confident and positive around the combined rates of development going forward.
And then of course, there are the risk of volatility. So when you ask how confident we are quantify that, but given normal kind of weather and other — no other kind of surprises, we stick to that combined rate to target.
Tryfonas Spyrou
Okay. So just one point, is it fair to assume that the bulk of that earn — earning through — comes through the second half of this year as opposed to the first half and then there’ll be sort of a nice improvement in the combined ratio later during the year?
Jostein Amdal
If we look at the average price increases, they will be gradually into the portfolio as policies renewed and shown in the account as we get the earned effect of that and then we’ll see what the results development will be.
On the second question on the reserve strengthening, these affect both private and the commercial segment and has been a combination of motor and property, but mainly I would say, there’s more of an issue in property than in — and in — than in motor. There has been a large increase in claims that have been slightly more complex and although events like Hans, the storm we had in the third quarter is covered through reinsurance — the financial effect is covered through reinsurance and then The Norwegian Natural Perils Pool arrangement. It’s still our claims are just that need to do the work. So it has increased the workload quite a lot.
And Hans was an extreme event. Norwegian Met Office called it a one in 200-year event. We think it’s much more frequent than that, but it is an extraordinary event. We handle the situation very well towards the customers and then we’ll see that kind of — that there has been changes in the assessments of the individual claims afterwards. And as we mentioned also this on the previously today, we see an increase in slightly more larger and complex claims as well. So the — yeah, so it’s a mixture of effects there. Yeah. I’ll stop there.
Tryfonas Spyrou
Okay. One might be a clarifying point. The rate, the price increases that you need to put it through for these claims. Would you have enough? Would you renew these policies now so you have the bigger estimate and you pay for the pricing of that or some of these policies, again, will be repriced based on previous sort of loss estimates?
Jostein Amdal
Everything that is renewed or sold now will be based on the current loss estimates, if I understand the question correctly.
Tryfonas Spyrou
That’s Fine. Thank you.
Operator
Ulrik Zürcher from Nordea. Please go ahead.
Ulrik Zürcher
Yeah. Thank you. You’re increasing prices above what you previously said, which indicate that you might think that some of the claims frequency observed this winter or at least in Q4 is permanent. Can you quantify this a bit further? Like the price increases, what do they assume about next winter? Does it assume that next Q4 will be the same as this one or?
Geir Holmgren
Okay. Ulrik, we have done many different types of pricing measures at the moment, both regarding motor and property. And what we — if you look at the change in the underlying frequency loss ratio the last quarter [Technical Difficulty] 30% is related to weather claims.
But we are not saying that weather claims are volatility alone. We will, when we are doing the pricing measures, we are taking into account that we will come in a situation that we can handle weather claims or more weather-related claims volatility in the future.
And we say that 40% of the frequency change we have seen is related to reserve strengthening and 30% is a combination of more elevated claims frequency for motor and some volatility in medium-size losses, especially tires. So probably some part is due to volatility, but we are taking into account that we will be a position where we can handle such weather incidents that we have — that we see.
If you sum up 2024 and 2023 in total, it’s — you can argue that it’s an unnormal year, but we are doing many pricing measures and other measures at the moment to come in a situation and position to handle incidents that we have seen in the past. But we don’t expect that due to climate change and weather change in the future, we will see such a year every year coming up. So it’s a slightly increase of the risk, but not that kind of volatility we have seen in the last year.
Ulrik Zürcher
Okay. That’s a good answer. Thank you. Just follow and the second question is, there’s quite a high increase in the capital charge for non-life and health underwriting risk Q-on-Q from NOK11.1 billion to NOK12 billion. Can you, like, what was the reason for this? It’s not only PenSam, I assume.
Jostein Amdal
It’s — if you look at the non-life underwriting risk, the increase there is mainly a factor of good premium growth and growth in the sum insured, which are kind of driving the catastrophe risk modelling and they’re using the standard formula, so it’s more like a — just a fixed percentage in a way.
And on the non — on the life side, this is actually also reflecting the increase in the reserves for children’s disability or pension that we talked about. There’s a — still also using standard formula, it’s a percentage on the reserves really. So when you shrink reserves, you also then get a higher capital requirement and there’s some other type…
Ulrik Zürcher
Okay. But going forward, it will roughly stay at its current level compared to premiums, then?
Jostein Amdal
Yeah. That’s the best approximation you can make I think.
Ulrik Zürcher
Okay. Yeah. Super. Thank you.
Operator
Alexander Evans from Citi. Please go ahead.
Alexander Evans
Hi. Thanks for taking my questions. Just firstly, if you could just help me understand the difference between sort of 3Q and 4Q in frequency, very helpful that you split out the 11% year-over-year in motor and 4Q. What was 3Q? And then, secondly, just on, you mentioned reinsurance increases at 1.1, but also the retention increase. If you could just give a little bit of detail on that and how that you think impacts the volatility that you’ll see in weather in 2024?
Geir Holmgren
I would love to answer the first one, but I don’t have the figure in my head, Alex, on what was the increase in frequency Q3, Q3. We’ll get back to you on that one I think. And yeah, Mitra is looking at me. Maybe we don’t get back to you, but we’ll try. On the…
Alexander Evans
I am sorry. You said — I guess if I ask it a different way?
Geir Holmgren
Yeah.
Alexander Evans
Is basically the change from 3Q to 4Q basically the weather impact, and what you say is, underlying roughly about 4 percentage points year-over-year, is that the same?
Geir Holmgren
I think on the frequency side for motor, the 11%, I think, you could say that, the increase from Q3 to Q4 would be mainly weather-related. Yeah, and on the reinsurance program, and I mean, as you said, we’ve renewed the reinsurance program basically as it has been in 2023. And there were some, I mean, some but just a moderate increase in the kind of the rate level that we paid on the reinsurance program. Not quite — I can’t got your question around how this should influence volatility.
Alexander Evans
I think you mentioned in your comments before that you also had a slight increase in the retention levels…
Geir Holmgren
Yeah.
Alexander Evans
… that you attained. I don’t know if you can give any more detail around that?
Geir Holmgren
Yeah. On the catastrophe risk, the increase in the retention level was NOK50 million, not any more than that.
Alexander Evans
Okay. Thank you.
Operator
Thank you. We’ll now move to our next question from Youdish Chicooree from Autonomous Research. Please go ahead.
Youdish Chicooree
Good morning, everyone. So my first question is on, if I could go back on the underlying frequency loss ratio. You gave us a split, right, between the various factors that impact it, winter weather, reserve strengthening and for claims booked earlier in the year and the frequency increase in motor. That split you gave us, is that — does that explain the increase for the full year or is that like in relation to the fourth quarter specifically?
Geir Holmgren
Fourth quarter.
Youdish Chicooree
Fourth quarter. Okay. All right. Thank you. And then in your opening comments, you talked about ongoing work going on in getting your own internal model approved. I mean, do you have some further timelines around which modules or which elements might get approved in H1 this year, please? Thank you.
Geir Holmgren
The three main areas we looked at are the same that we talked about in the Capital Markets Day. It’s the storm model, it’s the correlation between underwriting and market risk and it’s some buffers that have been forced to put onto our own estimates on — yeah, and we don’t have a clear timeline for when that will be resolved, but we are working diligently on together with FSA to get as much as possible, improved as fast as possible. But we talked about this for a long time and this will take time to get approved.
Youdish Chicooree
But is that going to be this year or do you think it’s quite hard to put a date on it?
Geir Holmgren
I think it’s hard to put a date on it.
Youdish Chicooree
Okay. All right. Thank you.
Operator
Thomas Svendsen from SEB. Please go ahead.
Thomas Svendsen
Yes. Good morning. I have two questions as well. First, when I look at the Norwegian operations, both in Q4 and the full year, you have this deterioration on the private side while the commercial is sort of stable — largely stable. So could you highlight a little bit on why this difference between commercial and private?
Geir Holmgren
There are different products in different market areas. So there has been some kind of — they are differently exposed and also they come from a much higher profitability level. If you remember, fourth quarter of last year, we were somewhat weak on the commercial Norway portfolio, if you remember back to that. So that’s some of the reasons, but nonetheless, we’re very pleased with the development in the commercial Norway portfolio.
I mean, we do have a small improvement in the underlying, even though we’ve had some of the same weather effects in the commercial portfolio and the same strengthening of reserves there as well. So the underlying improvement in commercial is in a way slightly better than the accounting numbers show.
And then, of course, motor weighs much more heavily in the private book than it does in the commercial book. And what we talked about in, probably, this is the third quarter is the underlying deterioration in private motor business. That is a very small part of the commercial book.
Thomas Svendsen
But do you see any change or any difference in behavior within the motor in each of the two segments coming from different terms, et cetera, or…
Geir Holmgren
There…
Thomas Svendsen
… possible to comment on that?
Geir Holmgren
There might be differences between kind of if you look at the same object, like, a private and personal vehicle. But I mean, this is just a small part of the commercial book. So it doesn’t really weigh that much in that development.
Thomas Svendsen
Okay. And second question, just if you look at 2023 as a whole, would it be possible to sort of quantify the effects of sort of normal weather in terms of Norwegian kronor in total?
Geir Holmgren
I don’t have the figure here at least. We focused on the fourth quarter and gave you the breakdown there.
Mitra Negard
We also commented on the weather effects in the third quarter report. So you have those numbers in terms of Hans torrential rain, et cetera. And then you have the comments on what we have in the fourth quarter regarding the three main drivers behind the deterioration of private, so…
Jostein Amdal
And I think I’ll also, I mean, stress what Geir said, what is normal here. We do believe that there will be — there’s a risk of on higher level, but not the same level as we’ve seen today, as this year, 2023 and we’re taking that into consideration in pricing. So pricing for a slightly in a way higher than historical weather pattern, if you look at last 10 years or something like that, we think it will be higher in the future and take that into consideration.
Thomas Svendsen
Okay. Thank you.
Operator
Hans Rettedal Christiansen, Danske Bank. Please go ahead.
Hans Rettedal Christiansen
Yes. Thank you. So I was just wondering each quarter we speak about the customer retention, right, and that it’s high and stable and you’re very happy with that. But then your profitability is suffering. So my first question is, why can’t you go down on the retention to sort of improve the profitability quicker? And then my second question is around the proposed dividend, where firstly it’s above 100%, so you need FSA approval. And then is there sort of any risks around this that we should consider? And then secondly, it’s also — on the back of sort of a very bad year, why do you propose such a high increase in the dividend? Is it due to the customer dividend model or is there any other thoughts around this, because of course, you also have to sacrifice some solvency to do so.
Geir Holmgren
Okay. Starting with the retention rates, we’re coming from a situation in Norway with extremely high customer satisfaction, a solid position, a valuable position that’s very well recognized and appreciated by customers. We put it in a situation where you can actually do the pricing measures that we have listed up in this presentation and during the Q&A now. And we are aiming for improving the — our results and bringing down the underlying frequency loss ratio, as I mentioned. But adding additional measures on the top and reducing the retention rates is nothing actually we have go — went into or tried to consider. We are doing the thing on the pricing side that we mean are — is the right way of handling it now to actually improve the results and the main ambition is actually to improve profitability as fast as it can.
When it comes to dividend and risk of not getting it approved, we have solid capital position. We — the Board has done their consideration and assessment of the situation and we expect that the FSA will approve the application.
And the high increase in dividend, as I mentioned, we are still within our solid ratio range between 140% to 190%. We still have a solid capital position in the group, very solid capital position. So that’s part of the consideration that we have done and the Board has done when concluding on the proposal on the dividend.
Hans Rettedal Christiansen
Okay. Thank you very much.
Jostein Amdal
And also, of course, there is a less forward-looking element in setting a dividend. The Board takes into consideration what they think is the expected solid capital generation over the coming years when they make this assessment and it’s within the dividend policy.
Geir Holmgren
Yeah.
Hans Rettedal Christiansen
Yeah.
Geir Holmgren
Yeah. And as of — we haven’t changed our dividend policy, high and stable dividend, which also means that we have set the floor for next year as well.
Hans Rettedal Christiansen
That’s very clear. Thank you.
Operator
Johan Ström from Carnegie. Please go ahead.
Johan Ström
Thank you very much. Two questions from me as well and thank you very much for adding that slide number six in the presentation. It’s very helpful in such a volatile period. You talked a little bit about terms and conditions and in particular the comments on higher deductibles caught my and some investors’ attention today. So can you perhaps give us some numbers on this? For example, what was the old and what is the new typical deductible for motor in the Norwegian private market, and after these increases, do you expect a potential impact on claims frequencies to come already this year? Then secondly, Geir, you mentioned that the solvency position allows you to maintain a S&P A rating. Is there a specific solvency margin level that is needed to meet this requirement?
Geir Holmgren
Yes. On the last one, I think, we actually discussed that and talked about that at the Capital Markets Day when setting and changing the level limit of the solvency range. So going into the capital model for S&P, we see that above 140% is, call it important or is a relevant topic when talking about keeping the A rating.
Jostein Amdal
On the deductibles, typical, I mean, the deductible is somewhat differentiated by type of claim that you talk about. But on the kind of the main coverage, what we call it comprehensive motor insurance, the typical retention deductible level will be increased by NOK2000 and then, of course, there is a bit different between different customer groups depending on agreements and so on, but the typical would normally be NOK6,000 or NOK8,000 for the full comprehensive coverage. And then there’s a different deductible for glass and salvage and the roadside assistance and so on.
Johan Ström
Thank you, Jostein. Does that mean that you expect a potential impact on claims frequency in 2024 then?
Jostein Amdal
Yes. So that’s the second part.
Geir Holmgren
Absolutely. I think, there is, first, of course, only policies that have renewed after we changed the terms will have this increased deductible and that’s where we can see the effect. But we’ve already done this — decided on this increase. So this will have an effect gradually during 2024 and we — the effect will come on some claims will be now not claimed because of the higher deductibles and the average claim that will be claimed will have a NOK2000 lower claim number, claims costs because of the higher deductible. So an effect both on the average claim and the claim frequency, but policies need to be renewed before this actually has an effect.
Johan Ström
That’s very clear. Thank you so much.
Operator
Tryfonas Spyrou, Berenberg. Please go ahead.
Tryfonas Spyrou
Hi. Thank you for the second opportunity. I just had one maybe comment and then one question. The first comment is, how you consider whether it will be appropriate to set a weather-related claims budget to help us track the actual weather claims from the rest of the claims and I think we’ll probably maybe shorten the duration of the call as well in terms of discussions on the annual frequency and the supply issue. The second one is on the discounting ahead wind from low interest rates. Can you maybe help us understand what would be the discount — the impact of the discounting on the command ratio maybe for 2024 versus 2023? Thank you.
Geir Holmgren
I’ll start on the weather budget. We give — do give you a budget on large claims and events, including weather events like Hans. We have not considered setting up a weather budget where you kind of get an increase in the frequency over time due to weather conditions. We haven’t really considered that. Yeah, so many — yeah, it has — we’re not going to do that. Stop there.
And discounting 2024 versus 2023. Of course, long interest rates, especially about the, say, about the to your point, were reduced during the fourth quarter compared to the third quarter. But where they are compared to where we started the year, I think we are more, the long rates are more or less at the same level when we exit 2023 as we enter 2023.
So there — on the short end, from memory, they’re slightly higher now. So I think that’s based on that. I think there is a fairly neutral expectation on the discounting effect of 2024 versus 2023. But then, of course, you have to make your own estimates of where will interest rates go in 2024. I’m sure you’re better than predicting that than I am.
Tryfonas Spyrou
I guess the starting point would be the exit discounting. So the Q4 would be a fair sort of starting point for estimating the 2024 quarterly impact going forward.
Geir Holmgren
Yeah. I mean, if you look at the — yeah, I think, that’s a fair estimate. We do the calculated discounting effect monthly and then give you the quarterly numbers. So, yeah, we do that. We calculate discounting effect every month.
Tryfonas Spyrou
Okay. Thank you.
Operator
Freya Kong from Bank of America has a follow-up question.
Freya Kong
Hi. Thanks for the follow-up. We’ve talked a lot about the, I guess, claims inflation outlook and premium outlook for private. I was just wondering if you had any comments on commercial, given that the underlying profitability is already quite strong. What’s the claims inflation and pricing outlook for that segment? Thank you.
Geir Holmgren
Yeah. In terms of our claims inflation, especially in Norway, we divided by motor and property across private and commercial. So within motor, as we said, 47%, closer to 70% in short-term, but after 12 months to 18 months, close to 4% within property, 46%. And some changes for as we have commented on what’s driving the inflation, a little bit changing from reduced raw material prices to not so high inflation, raw material prices and more on the wage increases and the weaker Norwegian kroner, as mentioned.
Freya Kong
Okay. I…
Geir Holmgren
Yeah.
Freya Kong
I guess the — yeah. I agree on the similar claims inflation drivers, but on pricing, it seems like commercial has kept pace with the claims inflation. I guess what your pricing outlook is for 2024 in commercial.
Geir Holmgren
Yeah. What we have seen in the last quarter is, especially on the motor side and some on the property side, the frequency have increased and that would be aimed to mitigate by the pricing measures and there is increase in the claims frequency is higher — had a higher impact in private segment and that’s also the reason for having more and tougher pricing measures in the private segment.
Freya Kong
Okay. So maybe commercial price increases relative to private negative, that’s fair. Is that a fair assumption?
Jostein Amdal
I think when we look at price increases in commercial, Geir mentioned in the opening presentation that a very large part of the portfolio renews at January 1. We’ve seen very good price increases there, both in Denmark and for that matter in Sweden as well. Much above the expected claims inflation, so that everything else equally should both fail for the profitability going forward in commercial, but we’ll see what happens on the claims side.
Freya Kong
Okay. All right. Thank you. That’s helpful.
Operator
And we’ll take the last question in the queue. Jan Erik Gjerland from ABG.
Jan Erik Gjerland
Thank you for taking my questions as well. Two questions. The first one is, of course, an early start with the potential synergies between Norway and Denmark when it comes to commercial and private. But what have you seen as sort of biggest advantage that you share the confidence between the two countries in commercial and private this time around? Is it anything we should sort of have in our minds into 2024?
Geir Holmgren
Yeah. Thank you, Jan Erik. Good question. I think I refer to what we said on Captain Markets Day and with our ambition when it comes to synergies and possibly impact on results coming from the close integration between Norway and Denmark.
What we have done is we have worked systematically to go through the private commercial segments and also the claims area, set up a claims program to improve the results on profitability in both segments. But I also think we mentioned some specific topics we are working on the claims area, including procurement, including automation and so on, which will have an impact.
But if you look at 2024, 2025 and 2026, the positive impact will be, of course, larger in 2026 and I will look at 2024 as more a year for investments and doing the right things to integrate our organization successfully and to do all the measures we need to do to actually realize the synergies we have talked about.
Jan Erik Gjerland
Okay.
Geir Holmgren
But…
Jan Erik Gjerland
And second on the competition…
Geir Holmgren
Yeah. Sorry. But from day-to-day, we actually see how we improve the — when exchanging competence and resources across the borders, have a positive impact on culture, positive impact on understanding business, positive impact of how we actually deal with data and improve our operational efficiency. But too early to let that flow through and give positive numbers this year. Okay.
Jan Erik Gjerland
Okay. Competition, then. Could you give us a sort of feel for the competitive environment in each of your markets and each of your segments, so we better understand, since most of the competitors also are struggling with poor weather and high combined ratio, some of them are also even above 100%, how we should read your potential volume loss, et cetera, into 2024 and 2025?
Jostein Amdal
I’ll kick off with the Norwegian side. It’s a long answer if we’re going through all segments here, Jan Erik, but what we have seen previously in 2023 is that we have had, I would dare to say, much better numbers than on the profitability level on the other players and that we continue to keep up the retention levels even with the current strong pricing measures that we are putting through is probably a sign that other players are seeing the same need to price up due to the claims picture and their profitability levels and targets.
So, just indirectly, I think that it is a sign that this is a picture that others see as we do, and probably, we think we are earlier than the others in raising prices, have been earlier than the others in raising prices. We’ll see when the other companies report how that is working out. And Sweden?
Jan Erik Gjerland
Sweden and Denmark?
Jostein Amdal
Yes. Sweden and Denmark. At least in Denmark, we’ve now seen that in the — what we talked about for several quarters, that when we got through this system change and kind of got washed out the effects of the losing the credit agreement, we will be picking up in growth again in the private segment in Denmark and I think that’s a very encouraging sign that we see now in the fourth quarter.
The commercial business in Denmark has been fairly robust all the time and we continue to see good kind of hit rate success in the renewals there this January. So, I think it’s — I think our competitive position there is quite well and then we saw Topdanmark yesterday reporting not too strong numbers in either on growth or profitability.
So, I think, there is a sense, a common view, I think, on the situation in Denmark as well. But we’ll see, there are other companies reporting very soon, so we’ll just have to pay attention and see what they’re saying, companies that are larger than us in Denmark. I’ll stop there.
Mitra Negard
Yes. Thank you very much all for all your questions. We will be participating in roadshow meetings in several cities the next month, starting with Oslo today and London tomorrow. More details on this on our website in our Financial Calendar. Thanks for your attention and have a nice day.
