Autoliv Executive Insights: German Pricing, Italy & U.S.

On Tuesday, Autoliv, Inc. (NYSE:ALV) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

German Pricing

Michael Huttner – JPMorgan: Just a couple of questions. The first one, can you talk a little bit about pricing in German (market). You’ve got these wonderful rate rises for Germany as a whole, but (similar to what) I’d be very interested and the other question is, can you give an idea what is the underlying run rate for Life as a whole? I know you explained that there is about €300 million of gains, but I’m never quite sure how much of that is attributed to policyholders and I am coming to a number about $600 million, but I don’t know?

Oliver Bate – Controlling, Reporting, Risk: So these were the couple, Mike, with the capital fee. The pricing in Germany, we have motor up on the retail side, 3.7% and on the commercial side, 3.2% and various other items and that’s the year-to-date rate on renewals. We’ll see further effect throughout the year as we hiked up the rate in the beginning of the year, so it’s bringing the combined ratio significantly down. It will however remain above 100% significantly this year still because we are coming from very high level, however overall that will have a very significant positive impact on our combined ratio. Now, I am not quite sure I understood the question on the life insurance side. I would like to remind you of the operating profit outlook that we have provided that by and large gives anywhere between €600 million and €700 million operating profit per quarter, so this one was rather high level which we believe will revert to the numbers that I mentioned to you earlier, but I think in the interest rate environment is actually very strong.

Italy & U.S.

Andrew Broadfield – Barclays Capital: Two questions please; one I think Italy was, those are few questions asked various stages of this business distressed there on the P&C side, what your strategy would be there and I think you felt that there was good opportunity for organic growth there and which doesn’t yet seem to be happening, is that just the consequences, where you talked a little bit about earlier on the challenges there, and can you give us a bit more color as to why you have made more progress there yet whether that come, or whether it is unlikely in the current climate? And the second question, just on the VA’s, just be helpful to understand a little bit better your – the practical implications when you say that you’ll be modelling VAs margin of zero, I think for couple of quarters, as you have been talking down in the U.S. new business margins for a while now and just why that takes so long to turn that full and what the practical implications are?

Oliver Bate – Controlling, Reporting, Risk: Andy, now let me start with Italy. We are really pushing hard now to grow the units and after we’ve really achieved the position where we have the best reserve position and the best profitability in the marketplace, since we have been highly aggressive in addressing the agencies that were underperforming, it takes quite a while to re-motivate them, particularly in a (indiscernible) environment to give us more top line, but I expect units to improve through the course of this year. The distribution forces do not react as quickly as management would often like it to be. The second thing is there’s also been a lot of insecurity in the marketplace and amongst clients and what to do given the distress response, which I hope will also clear up over the course of the year. So we remain optimistic around growing the top line in Italy in P&C this year. Now under VA, as we said, we very carefully looked at the results, particularly of the fourth quarter, we’re not only the in-force business was producing the expected losses but even the business that we wrote after 2009 recorded a loss and then very quickly moved to re-price the number of features get rider fees up, reduce fund choices and so on and the issue is that as you may know all of these changes need to be filed with regulators in the U.S. that takes about 8 to 10 weeks at a minimum so the re-pricing will happen effective in May and that’s why we had some of the last call effects in March that you see here in the numbers. The market will remain extremely tough given the very, very low level particularly on the long-end and significant volatility and therefore the high cost of hedging the riders. Now we’re looking at this extremely carefully and trying to write only the volumes we need to write to support our franchise, but there will be no gross driver here. I personally expect however over the course of the year and it’s somewhat of a (bet) the situation to improve significantly, so the 1% to 1.2% new business margin is what we absolutely have to see. Now by the way also for economic reasons, our cost of capital is at around 90 basis points to 1 percentage points and also that’s the margins we have to see across the portfolio.

Andrew Broadfield – Barclays Capital: There is no other operational techniques to slow the distribution down in the interim period where you were seeking to follow changes?

Oliver Bate – Controlling, Reporting, Risk: No, it’s very difficult to do because typically we have last call effects through your distributors in every channel and particularly in broker-dealer, but if you compare what we do relative to what others do, we are actually – let me say this carefully, strongly advanced in managing the distribution down. There is another thing that we are doing in addition that is actually supporting the changes that are happening on the FIA side if you have (indiscernible), even though I wanted to give you a short answer, because we are – with the necessity to register FIAs, that means registered reps, we are successfully convincing the more sophisticated sales forces to sell FIA and traditional Life products in addition to VA. This takes a while and we support that transition to the minimum needed with VA.