U.S. Markets closed

Edited Transcript of STB.OL earnings conference call or presentation 12-Jul-19 12:00pm GMT

Q2 2019 Storebrand ASA Earnings Call

Oslo Jul 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Storebrand ASA earnings conference call or presentation Friday, July 12, 2019 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Kjetil Ramberg Krøkje

Storebrand ASA - Head of IR

* Lars Aasulv Løddesøl

Storebrand ASA - Group CFO

* Odd Arild Grefstad

Storebrand ASA - Group CEO

================================================================================

Conference Call Participants

================================================================================

* Jan Erik Gjerland

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

* Jonathan Peter Phillip Urwin

UBS Investment Bank, Research Division - Director and Equity Research Insurance Analyst

* Matti Ahokas

Danske Bank Markets Equity Research - Head of Equity Research of Finland

* Peter Eliot

Kepler Cheuvreux, Research Division - Head of Insurance Sector Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon, and welcome to Storebrand's second quarter conference call. My name is Anne and I will be your coordinator for today's conference. (Operator Instructions) I will now hand you over to Group Head of Finance, Strategy and M&A, Kjetil Krøkje, your host for this call. Thank you.

--------------------------------------------------------------------------------

Kjetil Ramberg Krøkje, Storebrand ASA - Head of IR [2]

--------------------------------------------------------------------------------

Good afternoon, ladies and gentlemen. Welcome to Storebrand's Second Quarter 2019 Conference Call. My name is Kjetil Ramberg Krøkje, and I'm Head of Finance and Strategy at Storebrand.

Together with me I have group CEO, Odd Arild Grefstad; CFO Lars Aa. Løddesøl; and Trond Finn Eriksen, Head of Capital Management.

In the presentation today, Odd Arild will give you an update on the developments in the second quarter. CFO, Lars Løddesøl, will give an overview of the financial development and dig into some of the more technical elements in the quarter. The slides will be similar to the analyst presentation released this morning and are available on our webpage. After the presentation, the operator will open up for questions. To be able to ask questions, you will need to dial into the conference call.

I now give the word to Storebrand's CEO, Odd Arild Grefstad, who will start the presentation on Slide 2.

--------------------------------------------------------------------------------

Odd Arild Grefstad, Storebrand ASA - Group CEO [3]

--------------------------------------------------------------------------------

Thank you, Kjetil and good afternoon, everyone. I first have presented today our results of NOK 578 million with the operating profit of NOK 474 million for the second quarter of 2019. This is a weak operating profit, but as I will show you on the following slide, the underlying profit is significantly better due to [restructuring] costs and not least as a result of a good performance in the asset management, resulting in performance fees not booked while the corresponding performance-related costs are prebooked in the quarter. In total, the performance-related income not booked is calculated to NOK 100 million in the quarter and NOK 166 million year-to-date.

We see solid growth within our asset management business with NOK 45 billion in growth so far this year

(technical difficulty)

adjusted for these down the line operating profit is estimated to NOK 568 million.

If we now move to Slide #4, this [will be] our strategy, our twofold strategy stance. We focus on actively managing the guaranteed product in our back book and at the same time, achieving strong growth in our front book of occupational Unit Linked, private savings and asset management.

As mentioned, we are implementing restructuring to reduce our cost base. We are committed to delivering flat nominal costs through 2020.

In addition, we are working on measures to further strengthen solvency and secure capital release in accordance with our Capital Markets Day communication.

In the following slides, I will further address the growth in our numbers. So let's move to Slide #5. Our Unit Linked business showed a growth of 11% and the Norwegian Unit Linked assets reached NOK 100 billion in the quarter, while our Swedish Unit Linked business also surpassed SEK 100 billion. The growth is expected to continue and strengthen by Storebrand's ability to sign important contracts for occupational pension in both Norway and Sweden. I will address the growth in our asset management further in the following slide.

It is also pleasing to see a 2% growth in the Insurance business with a 6% growth in the retail segment of P&C insurance.

Moving to Slide #6. Our asset management has reached NOK 750 billion in assets under management and we have registered our growth in all segments. On the left side, you see development in internal transfers from occupational pension contracts and private savings year-to-date, while on the right side, which is development of the institutional plans and retail savings. So it's internal assets on the left-hand side and more external assets on the right-hand side.

Far right, we show that the share of external assets are in strong growth and the share now of external assets are 34.5% of the total assets under management. We are working on more specific invoices of these flows and we'll in the following show analysis of flow from internal transfers in the first half of 2019.

So let's move to Slide #7. On the left, we see that there is a modest flow of premiums from the guaranteed business of NOK 3.2 billion primarily from profitable active schemes with low guarantee levels. The claims/transfers from this mature portfolio are substantially -- are substantial and amounts to NOK 6.8 billion year-to-date. Over time, this will reduce the guaranteed portfolio. The returns have been solid in the portfolio in the first half of 2019. It's well above the guaranteed interest rate level, meaning that close to half of the returns have been allocated to building buffer capital.

Within Unit Linked, the situation is quite different. This is a young portfolio where premiums by far exceeds claims and transfers and where a high equity of share results in a solid growth so far this year.

Moving to Slide #8. The public sector pension market is large and growing in Norway. In terms of premiums, the market is twice the size of the private market for occupational pension where we are the market leader. The market is, today, dominated by one actor, KLP. Changes to the public sector pension products draws the market closer to -- in closer resemblance to the private markets. We will make use our existing platforms and systems to reenter these markets. We strongly believe we will achieve profitable growth in this markets and will execute within the communicated cost targets.

On Slide #9, we show that we are intensifying the digitalization of our business, both with regard to improving efficiency and in our processes and with a goal of improving the digital solutions we provide to our customers.

We give 4 concrete examples of this journey on this slide.

By that, I give the word to Lars for further details and -- about the numbers.

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [4]

--------------------------------------------------------------------------------

Thank you, Odd Arild. Let me go through some of the key figures with you starting on Page 10. The operating profit of NOK 568 million after adjustment for restructuring cost and performance-related bonuses is somewhat on the weak side. The figure includes NOK 25 million in normal stock incentivized cost -- incentive cost for employees that we book in the second quarter, but not in the other quarters. Including this, the result is acceptable. Furthermore, if we were to include these earned but not booked performances, the result would be good.

The graph illustrates strong customer buffers in both Norway and Sweden. This brings further resilience in our risk management.

Moving over to Page 11. The solvency position has fallen to 165% and 167% with transitionals. Model and assumption changes give a negative contribution of 1 percentage points in the quarter. Behind this number, there are some positive elements like increased volatility adjustment and some negative effects like increased equity stress and model improvements and corrections.

Interest rates hit significantly in both Norway and Sweden in the second quarter. In Norway, the NOK 10-year swap rate is down 13 basis points. And in Sweden, the 10-year swap rate is down 32 basis points in the second quarter. This hits the solvency rate by approximately 3 percentage points. In the business mix and asset allocation, there are 3 main effects. One, the strong growth in Unit Linked by more than 8 billion is positive for Storebrand but contributes negatively in the solvency as these products have an embedded solvency of approximately 130%, diluting the group solvency of 165%. And secondly, some large maturities in the bonds at amortized cost portfolio changed to maturity late in the second quarter. These have already been reinvested in the third quarter, but weakened the solvency as of the end of the quarter. And three, good returns and increased buffers have improved our risk-bearing capacity. We have used this increased risk capacity to purchase equities. The equity investments weakened the solvency short term, but increased expected returns and solvency creation over time.

On the M&A side, we have finalized the previously communicated acquisition of Cubera and the sale of Nordben. In total, the solvency is weakened by 1 percentage points, but the transactions will add profitability and solvency creation going forward.

Operating profit adjusted for dividend reservation contributes positively by 1 percentage point. Profit after tax and adjusted for amortization strengthened the solvency by approximately 2 percentage points, of which half is set aside for expected dividends. Despite the interest rates fall in the quarter, we were hit outside the transitional rules for interest rates and the 2 percentage points are related to equity stress on equity owned coming into the Solvency II regime. This effect will be phased out during the year.

Turning over to Page 12. The solvency position is weakened by 6 percentage points in the quarter. As explained, the main drivers are lower interest rates, which is a negative, but also long-term positive elements like growth in Unit Linked and increased risk in the portfolios. Please notice that if rates fall further, we will once again get solvency capital from the transitional rules and the regulatory and reported solvency will be strengthened. The sensitivities show a strong resilience to volatility in financial markets under different scenarios shown. Storebrand announced on our Capital Markets Day in May 2018 that we expect to reach 180% in solvency during 2021 and that we envisage to release around NOK 10 billion tied up in the guaranteed back book between 2022 and 2028.

Despite lower interest rates and weaker solvency this quarter, we confirm this ambition. We have numerous tools to secure and strengthen our solvency position.

Moving over to the next page, heading to Storebrand Group. In short, we've put behind us a weak quarter in terms of the reported numbers. The growth has slowed and the costs have increased. Adjusted for restructuring cost and performance-related bonus charges and including our earned but not booked performance fees, the results are satisfactory. We expect increased growth in the coming quarters. The growth will come from several sources in asset management especially linked to international sales. In private equity, we have -- we already have record commitments in Cubera and Storebrand funds this year. SKAGEN performance is good and the transfer balance is improving. Pension sales are up in Sweden in particular. In Norway, we just won the single largest contract in the market. Many exciting digital initiatives are expected to improve efficiency and the group operation and increase sales overall. Finally, yet importantly, the opening of [secondary] market is promising a few years down the road.

Restructuring costs and performance-related bonuses affected the results in the quarter, but laid the foundation for continued cost efficiency and increased profitability going forward. Previously communicated cost ambitions are confirmed.

And as I already said, on the solvency, our ambition to return excess capital from 2021 or building of the solvency to 180% in '21 and distributing excess capital from the back book is confirmed.

Now I think we can go over to Q&A.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from Peter Elliott from Kepler Cheuvreux.

--------------------------------------------------------------------------------

Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [2]

--------------------------------------------------------------------------------

First question, I want to start on earnings. I guess if you adjust for the one-off items, then you get a Norwegian Unit Linked result of NOK 76 million and a Swedish Unit Linked result of SEK 58 million. I guess those numbers are still a little bit below the recent run rate. I'm just wondering is that a good view of the current run rate? And what we should be putting into our models? Or are there still other factors there to consider? And maybe specifically on Unit Linked Sweden. I mean I note that it's consistently reported negative financial and risk results. Well, each and -- for the last sort of 6 quarters or so. I just wanted if you could explain what's happening there? And then secondly on the solvency, I think I understand there is some moving parts after going through with IR who were very helpful this morning. But I guess if I could just focus a little bit on exactly how and when you might get the benefits of the transitionals again. I mean, Lars, you said, when interest rates -- if interest rates were to fall then you would get the benefit, but my understanding is the Unit Linked book is still growing and might the bar be raised going forward. So if you could talk us through the moving parts a bit, that would be very helpful. And the second point. You showed 1 percentage points from ongoing solvency capital generation this quarter. I mean there's probably some rounding and stuff in there. But I'm just wondering if you could update us on our guidance for what you expect in terms of ongoing generation? And how that depends on the growth rate that you see?

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [3]

--------------------------------------------------------------------------------

Okay. If I start with earnings on Unit Linked. The -- if you look at the first quarter for Unit Linked Norway and this -- and the second quarter together, there is some volatility due to some prioritization and some seasonal effects in those numbers. So I would look at the first half numbers seen together and divide that in 2 to get a good guiding on the future profitability. And as you say, we'll have to adjust it for the restructuring costs in the quarter, which were NOK 9 million in Unit Linked in Norway. In Sweden, the one-off restructuring charge was SEK 16 million in Unit Linked SPP. So that's the adjustment you will have to make there. And I would also emphasize that there is very strong growth in the Swedish Unit Linked business. We have very good premium development there and the cost base is fixed. So you should see increased profitability from that area as well.

--------------------------------------------------------------------------------

Odd Arild Grefstad, Storebrand ASA - Group CEO [4]

--------------------------------------------------------------------------------

Peter. When it comes to -- when we will enter -- or if a potential -- we enter back into the transitional measures -- that's not a straightforward question to answer because as you say, you have arrived at increased value from Unit Linked business to be able to postpone fall in interest rate and enter back into the transitionals. At the moment, or in this quarter, there were the technical provisions of approximately NOK 200 million away from getting back into transitional measures. So that was approximately half, or in Q1 this was NOK 500 million away from entering back into transitionals. So that's the magnitude that you are looking at. So -- but that's only after we experienced a good growth in the front book, which is a good thing. As I'm -- vision get back into transitional measures and thus you see significant drops in the markets.

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [5]

--------------------------------------------------------------------------------

And in solvency capital generation, as we have previously guided, we expect to generate 10 to 12 basis points -- percentage points per year, of which half is allocated to a reserve for dividends on a quarterly basis.

--------------------------------------------------------------------------------

Odd Arild Grefstad, Storebrand ASA - Group CEO [6]

--------------------------------------------------------------------------------

And I think also when it comes to the reserve generation and the 1%, you should bear in mind that we take half of the result out of that calculation. Of course, it goes to expected dividends. So it's a 2 percentage point increase where one of them increases the solvency directly.

--------------------------------------------------------------------------------

Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [7]

--------------------------------------------------------------------------------

Okay. So it sounds like no change to the ongoing guidance then. So I -- can I just come very quickly on the first point. The -- in the breakdown, you gave us special items. You showed NOK 16 million of the one-off costs being attributed to Unit Linked Norway and SEK 2 million being attributed to Unit Linked Sweden. It sounded like you quoted slightly different figures there.

--------------------------------------------------------------------------------

Odd Arild Grefstad, Storebrand ASA - Group CEO [8]

--------------------------------------------------------------------------------

Yes. I think, Peter, sorry, that's a little mistake on my part. It should be the other way in special items. The figures on the online, we will update them after the...

--------------------------------------------------------------------------------

Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [9]

--------------------------------------------------------------------------------

Right. Okay. So could you repeat the numbers then? Sorry. I didn't quite catch them.

--------------------------------------------------------------------------------

Odd Arild Grefstad, Storebrand ASA - Group CEO [10]

--------------------------------------------------------------------------------

So it's SEK 16 million on the Swedish Unit Linked business. That's inverted.

--------------------------------------------------------------------------------

Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [11]

--------------------------------------------------------------------------------

Okay. They're just inverted. Okay.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

The next question comes from Matti Ahokas from Danske Bank.

--------------------------------------------------------------------------------

Matti Ahokas, Danske Bank Markets Equity Research - Head of Equity Research of Finland [13]

--------------------------------------------------------------------------------

Question firstly on the solvency capital and the return of capital that, Lars, you mentioned earlier on or the ambitions. When you look at the interest rates, obviously, they've been trending down this year. And now recently, we've seen a little bit of a pickup in Norway. But how much should the 10-year swap rate or could it fall before it would really start to have an impact on this capital release plan? Or is it just so that if the interest rate falls enough, then the transitionals will kick in, so it really doesn't matter. I'm just kind of trying to gauge the timing of the plans of the guaranteed pension back book capital release. And then I've got second question on the insurance business. Could you just remind us what the issue in the health and group life was then? Is that now solved? Or should we expect that, that will continue in the coming quarters as well?

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [14]

--------------------------------------------------------------------------------

So on solvency and interest rate fall, you are correct that there is a sensitivity there. But I also said that we do have a number of different tools available to us that we'll have to try and manage that as well as we can, but there is some kind of limitation at some stage in terms of how much rates can pull in, in Norway. But it's very difficult for me to give you a fixed answer as there are many tools in the toolbox to counter that depending on how dramatic the changes are.

In terms of insurance and group life, we mentioned in the first quarter that we had an issue with especially one industry -- or one group contract with one particular client and we also mentioned that we had announced price changes on that contract. However, there is a 12-month delay, so those price changes will only take place on January 1, 2020. So this quarter, we also had weak profitability and we strengthened reserves in this particular -- on this particular contract by NOK 58 million in order to ensure that we can expect a -- around 0 result for the rest of the year. So while group life and health insurance this quarter also had a small negative contribution, we do expect a small positive contribution for the remainder of the year and then significant improvement as these price increases are -- come through in the first quarter next year.

--------------------------------------------------------------------------------

Matti Ahokas, Danske Bank Markets Equity Research - Head of Equity Research of Finland [15]

--------------------------------------------------------------------------------

Could you, Lars, just give us a little bit more flavor on what are -- what exactly are the most important tool -- tools in this toolbox you mentioned to kind of combat the potential decline in interest rates?

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [16]

--------------------------------------------------------------------------------

I cannot say -- there is -- it can mainly be divided into 3 different categories. The first is, of course, the asset allocation on the ALM as such that we can always adjust your risk-taking in the portfolios. So that's number one. Measure number two is what you can do on the capital side, either we buy more subordinated loan capital or we can do reinsurance. And the third element is what goes on what I should say internal structures of how you set up and run the business and how you are making the model work and stop. So you have at least 3 different main levers, EBITDA and some levers.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

The next questions come from Jan Erik from ABG.

--------------------------------------------------------------------------------

Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

Yes. It's Jan Erik from ABG. I just wanted to pick up how much costs there are other than the Cubera acquisition from 1st of April? If it was anything added there at all? Because it looks like the asset management cost base went up a little bit on top of whatever you had as a restructuring cost. And secondly, there is some negative profit sharing. This is technically in the asset management and then also in the defined benefit for Norway. What is kind of -- what is that? Is that something recurring or it's something particular which we should be aware of?

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [19]

--------------------------------------------------------------------------------

There's 2 things, Erik. The cost base in Cubera, I believe it's somewhere in the area of NOK 7 million, NOK 8 million. I can get back to you on that, Erik, but it's somewhere in that area for the quarter. When it comes to the negative sum in the defined benefit, this is basically a technical adjustment where we had a small deviation into each of our systems and this was fixed in the quarter and it led to a charge of NOK 21 million.

--------------------------------------------------------------------------------

Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [20]

--------------------------------------------------------------------------------

Okay. In the asset management side, you have also some NOK 6.6 million in negative something there? I just couldn't understand what else was listed under profits or...

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [21]

--------------------------------------------------------------------------------

These are -- yes, apologies for (inaudible). That is tied to both the value of the earnout, which is on the balance sheet after we bought Cubera, and it was some other financial effects that occurred in the asset management business.

--------------------------------------------------------------------------------

Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [22]

--------------------------------------------------------------------------------

Okay. How much was the earnout in Cubera, if you could remind me?

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [23]

--------------------------------------------------------------------------------

Roughly half of that should be from that.

--------------------------------------------------------------------------------

Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [24]

--------------------------------------------------------------------------------

Okay. And the other half is from SKAGEN? Or...

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [25]

--------------------------------------------------------------------------------

No. It's just from general financial effects in the asset management business, not from SKAGEN.

--------------------------------------------------------------------------------

Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [26]

--------------------------------------------------------------------------------

Okay. Would this be -- would you say you are in the -- on the SKAGEN earnout story as well? Or is -- how is that proceeding?

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [27]

--------------------------------------------------------------------------------

So the SKAGEN business and turnaround is really progressing well according to plan. Performance is very well up this year in all the large share funds and also the smaller funds. The flow in that business has been negative for a while, but that's turning interesting now and the operational platform is very much integrated. I think we've already said previously that we've run this business basically for a small profit without performances and performance-related costs. But at the end of the year, we do expect quite significant performance-related bonuses, which should then contribute significantly to the end result. In terms of the earnout, we have -- due to lower funds under management during the last year as well as weak performance last year, the earnout reserve was reduced down from what was set aside initially. But this -- so far this year, it's basically stable.

--------------------------------------------------------------------------------

Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [28]

--------------------------------------------------------------------------------

Okay. So it's a fund that you have provided to. So it's not going to be sort of a big one-off cost when -- if that happens? Is that fair to equate?

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [29]

--------------------------------------------------------------------------------

Yes. It's -- so the earnout itself, it's on the balance sheet based on expected levels of earnout.

--------------------------------------------------------------------------------

Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [30]

--------------------------------------------------------------------------------

Based on this?

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [31]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [32]

--------------------------------------------------------------------------------

Based on this? Yes.

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [33]

--------------------------------------------------------------------------------

Unless there's large deviations from that because we have a large one-offs coming from that. And the earnout liability is in Storebrand ASA, not in Storebrand Asset Management.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is Jonny Urwin from UBS.

--------------------------------------------------------------------------------

Jonathan Peter Phillip Urwin, UBS Investment Bank, Research Division - Director and Equity Research Insurance Analyst [35]

--------------------------------------------------------------------------------

Just two. So firstly, just on the business extract to Solvency II. Apologies if I missed this earlier. But is there any recurring impact there? Any comments there will be great. And then secondly, just on the cost side of things. So I gather you guys are still committed to flat operating costs, good cost discipline, but just -- I've asked you this before, but just strategically, given the level of growth that's sort of there for you guys, how wedded are you to that target if you could say investable for greater growth, particularly given the new products that you're going into. So I guess it's a balancing act, but any color there would be great.

--------------------------------------------------------------------------------

Odd Arild Grefstad, Storebrand ASA - Group CEO [36]

--------------------------------------------------------------------------------

Sorry, Jonny. Well, the first question. What that is, there was any recurring elements in the movement on the solvency.

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [37]

--------------------------------------------------------------------------------

Now on the business-mixed asset allocation. So basically I can just do a short answer and then you can fill in from it if you have anything. So basically, we had 3 factors. So increased allocation requisites. That is not anything recurring. That's, of course, something that -- we have just our [export] for every now and again but it's not a recurring feature on that part of the movement. The second of all was that we have a little bit shorter duration just on the turn of the quarter. That is not a recurring feature. We do you have strong growth in Unit Linked, which, of course, gives some -- also requires some capital as far as

(technical difficulty)

take on this huge opportunity without stretching the cost levels further, but to do that within the cost limits we have already set forward.

--------------------------------------------------------------------------------

Odd Arild Grefstad, Storebrand ASA - Group CEO [38]

--------------------------------------------------------------------------------

But just to be very clear, Jonny, it -- we are going to be -- it's going to be a very good profitability opportunity if we were to reach our cost communicated goals and we would communicate clearly if that was to be the case. So you should not expect that we'll just float into higher cost. We will be -- continue to very, very strict on the cost base according to the communicated levels.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

(Operator Instructions) We do have another question from Peter Eliot from Kepler Cheuvreux.

--------------------------------------------------------------------------------

Peter Eliot, Kepler Cheuvreux, Research Division - Head of Insurance Sector Research [40]

--------------------------------------------------------------------------------

So I just wanted to follow up actually on, I guess, my earlier question but also Jonny's question. I mean -- I know we're talking sort of small numbers and rounding and all the rest of it and other tools in the box. But if we just take the numbers that you've reported now of 1 point of solvency capital generation post dividend, and actually when you factor in the business mix change and you hope to get ongoing growth, then actually the net ongoing capital generation looks sort of being below 1 point this quarter. And if you extrapolate that out from 165%, then you've got a lot more than 2 years to get to 180%. I appreciate you got all the tools in the box, which you might use if interest rates were to fall. But am I just rounding too much there? I mean would you expect the normal run rate being higher in this quarter? Sorry for the long-winded way of asking a fairly simple question. So I guess you understand where I am coming from?

--------------------------------------------------------------------------------

Lars Aasulv Løddesøl, Storebrand ASA - Group CFO [41]

--------------------------------------------------------------------------------

I think we are still confident at around 12 -- around 10% increase in solvency annually pre-dividend. That's the level we're at. As you see in the presentation, there is definitely rounding when you look at these different factors. So nothing new here really. And also we have factored into our capital generation that we will set some capital aside for a capital-light group.

If I can also add on that, Peter? Because the movement, the official one, the capital generation we show is compared to the financials -- to the result explanation. Of course, they are expecting a normalized, well, a pickup in some risk premiums in the market. So we are expecting to have a market return above the discount rate until the buffered capital, which is still lower than capital requirement as well as -- then move towards a lower average interest rate guarantee in the portfolio, which you can also reflect in the picture that Odd Arild have showed during the presentation, where we see a larger outflow than inflow. So I think that you will see that you will also get capital regeneration from excess return of all the risk we generate and that's slightly defined in the guaranteed liabilities or the capital requirements from the -- guaranteed items fits all the time as well as to the results as such.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

Ladies and gentlemen, at the moment there's nobody in the queue (Operator Instructions). There is no further questions coming through. Will hand the call back to you. Thank you.

--------------------------------------------------------------------------------

Kjetil Ramberg Krøkje, Storebrand ASA - Head of IR [43]

--------------------------------------------------------------------------------

Thank you, all, for joining the call today. Before we end, I'd just like to remind you that we will be present in London on Monday and I hope to see several of you there at the Analyst Meeting and in meetings during the day. Have a good afternoon.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Thank you for joining today's conference. You may now replace your handsets to end this call. Thank you.