EUR 436.87 For Business Accounts Only

Gjensidige Forsikring (Hold, TP: NOK140.00) - Weather and motor claims inflation

Gjensidige’s Q2 results were hurt by higher weather-related claims from the Norwegian winter, which lasted into April, as well as deteriorating motor insurance profits due to higher claims inflation than price adjustments reflect. We have reduced our 2019–2020e EPS by ~2% from somewhat weaker underwriting profit on motor insurance. With 2017/2018 winter having concluded, Gjensidige remains our top pick within Nordic P&C as we believe the stock is trading at an unwarranted discount to Nordic peers at 16x P/E versus peers at 19–20x. We keep our NOK140 target price unchanged and reiterate HOLD. Combined ratio missed materially, as it came in at 88.2% versus our estimate and consensus of 84.9%. Gjensidige said that weather-related effects probably hurt q2 results by 3%-points. In addition, Gjensidige expects a continued deterioration of motor insurance margins as the current 6% claims inflation should not be fully offset by initiated pricing measures until H1 2019. However, the strong profitability seen in the motor segment seen over the past years may not return in full. The issues with deteriorating motor insurance margins and harsh winter weather appear to be a Norway-specific theme; however, the international segments also came in weaker than our forecasts with a 95% combined ratio in Denmark (Tryg’s reported Q2 combined ratio in Denmark suggests that it should have been a fairly benign quarter). The Swedish and Baltic segments, which have struggled over the past years, delivered more in line with expectations with combined ratios of 97% and 96%, respectively. We have reduced our 2019–2020 EPS estimates by ~2% to reflect the expected continued deterioration in Norwegian motor margins.