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Sampo Group's Interim Report for January-June 2014

Sampo Group's profit before taxes for January - June 2014 amounted to EUR 861 million (825). The total comprehensive income for the period, taking changes in the market values of assets into account, rose to EUR 790 million (579).

  • Earnings per share was EUR 1.34 (1.27) and mark-to-market EPS increased to EUR 1.41 per share (1.03). The return on equity for the Group was 14.9 per cent for the period (11.6).
  • Net asset value per share on 30 June 2014 was EUR 23.00 (22.15). In early May 2014 Sampo plc paid a dividend of 1.65 euro per share which reduced the net assets correspondingly. The fair value reserve after tax on the Group level strengthened to EUR 1,106 million (960).
  • In the first half of 2014 the combined ratio of the P&C insurance operations amounted to 88.3 per cent (88.8). This is the best ever combined ratio in If's history for the period of January - June. The profit before taxes rose to EUR 483 million (473). Return on equity was 25.1 per cent (21.7).
  • Nordea is accounted for as an associated company and Sampo's 21.2 per cent share of Nordea's profit for January - June 2014 was EUR 309 million (319). Nordea's second quarter results contain a restructuring charge of EUR 190 million.
  • In life insurance operations profit before taxes rose to EUR 73 million (69). The interest rate used to discount with profit liabilities in 2015 was lowered to 2 per cent and the rate used in 2016 to 3.25 per cent. For 2014 the discount rate has already earlier been lowered to 2 per cent. The return on equity at market values was 17.9 per cent (4.6).
Key figures 1-6/2014 1-6/2013 Change, %
4-6/2014 4-6/2013 Change, %
EURm            
Profit before taxes 861 825 4 465 455 2
  P&C insurance 483 473 2 289 270 7
  Associate (Nordea) 309 319 -3 139 157 -11
  Life insurance 73 69 6 36 33 8
  Holding (excl. Nordea) -3 -34 -92 1 -4 -
Profit for the period 749 710 6 399 390 2
      Change     Change
Earnings per share, EUR 1.34 1.27 0.07 0.71 0.70 0.01
EPS (incl. change in FVR) EUR 1.41 1.03 0.38 0.74 0.16 0.58
NAV per share, EUR  *) 23.00 22.15 0.85 - - -
Average number of staff (FTE) 6,757 6,827 -70 - - -
Group solvency ratio, %  *) 189.3 184.4 4.9 - - -
RoE, % 14.9 11.6 3.3 - - -

*) comparison figure from 31.12.2013

The figures in this report are not audited. Income statement items are compared on a year-on-year basis whereas comparison figures for balance sheet items are from 31 December 2013 unless otherwise stated.

The average EUR-SEK exchange rate used for income statement items for January - June 2014 is 8.9592 and the end of period exchange rate used for balance sheet items is 9.1762.  For January - June 2013 the corresponding exchange rates used were 8.5302 and 8.7773, respectively.

Sampo follows the disclosure procedure enabled by the Finnish Financial Supervisory Authority and hereby publishes its Interim Report attached as a PDF file to this stock exchange release. The Interim Report is also available at www.sampo.com/result.

SECOND QUARTER 2014 IN BRIEF

Sampo Group's profit before taxes for the second quarter 2014 amounted to EUR 465 million (455). Earnings per share rose to EUR 0.71 (0.70). Mark-to-market earnings per share was EUR 0.74 (0.16).

Net asset value per share in the second quarter of 2014 decreased to EUR 23.00 from EUR 24.06 at the end of March 2014. The decrease is explained by the dividend of EUR 1.65 per share paid on 7 May 2014.

P&C operation achieved a second quarter combined ratio of 86.5 per cent (86.7). Profit before taxes increased to EUR 289 million (270). Share of the profits of the associated company Topdanmark amounted to EUR 15 million (18).

Sampo's share of Nordea's second quarter 2014 net profit amounted to EUR 139 million (157). In the second quarter Nordea reported a restructuring charge of EUR 190 million. The Bank's Common equity tier one capital ratio continued to rise and amounted to 15.2 per cent.

Profit before taxes for the life insurance operations rose to EUR 36 million (33). Premiums written grew 18 per cent to EUR 339 million from EUR 288 million at the corresponding period a year ago.

BUSINESS AREAS

P&C insurance

For January - June 2014 profit before taxes for P&C insurance increased to EUR 483 million (473). Combined ratio amounted to 88.3 per cent (88.8) which is the best ever January - June combined ratio. Risk ratio decreased 0.2 percentage points and cost ratio 0.3 percentage points. EUR 5 million (39) was released from technical reserves relating to prior year claims. Return on equity (RoE) rose to 25.1 per cent (21.7) and fair value reserve on 30 June 2014 increased to EUR 561 million (472).

If's share of Topdanmark's profit for the first half of 2014 amounted to EUR 26 million (34). On 30 June 2014 If P&C held 31,476,920 Topdanmark shares, corresponding to over 28 per cent of all shares. All Topdanmark shares held by Sampo Group are concentrated in If P&C Insurance Holding Ltd (publ).

Claims development in the first half of 2014 was generally benign. Combined ratio for BA Industrial improved significantly as both risk and cost ratios decreased.  All in all large claims outcome was close to expected and ended up EUR 3 million negative. In Sweden, however, the large claims amounted to approximately EUR 20 million above expected level. The continuing decline in discount rates used to discount the annuity reserves also burdened the Swedish result. The strong improvement in the Finnish risk ratio for the second quarter of 2014 is largely due to the fact that the discount rate was lowered in the comparison period. The large claims result in Finland also improved compared to last year.

Gross written premiums decreased to EUR 2,812 million (2,907) because of weakened Swedish krona. Adjusted for currency, premiums rose 1.5 per cent. Premiums in BA Industrial decreased but all other business areas had positive growth. Cost ratio improved to 22.6 per cent (22.9) and expense ratio remained unchanged at 16.7 per cent.

On 30 June 2014 the total investment assets of If P&C amounted to EUR 11.9 billion (11.7). Net income from investments amounted to EUR 209 million (198). Investment return mark-to-market for January-June 2014 was 3.1 per cent (1.9). Duration for interest bearing assets was 1.0 years (1.3) and average maturity 2.2 years (2.3). Fixed income running yield was 2.5 per cent (3.1).

Associated company Nordea Bank AB

On 30 June 2014 Sampo plc held 860,440,497 Nordea shares corresponding to a holding of 21.2 per cent. The average price paid per share amounted to EUR 6.46 and the book value in the Group accounts was EUR 7.94 per share. The closing price as at end of June 2014 was EUR 10.28. Nordea is accounted as an associated company in Sampo Group's accounts.

The following text is based on Nordea's January - June 2014 interim report published on 17 July 2014.

Net interest income was down 1 per cent compared to last year. Lending volumes were up 3 per cent excluding reversed repurchase agreements in local currencies. Corporate and household lending margins were higher, while deposit margins overall were down from one year ago.

Net fee and commission income increased 10 per cent and the net result from items at fair value decreased by 11 per cent compared to the first half of last year.

Total expenses were largely unchanged compared to the first half year 2013 excluding restructuring costs and in local currencies. Staff costs were up 3 per cent excluding restructuring costs and in local currencies.

Net loan loss provisions decreased to EUR 293 million for the continuing operations, corresponding to a loan loss ratio of 17 basis points (23 basis points in the first half year last year).

Net profit including restructuring costs decreased 2 per cent to EUR 1,556 million.

The Group's fully loaded Basel III Common equity tier 1 (CET1) capital ratio increased to 15.2 per cent at the end of the second quarter from 14.6 per cent at the end of the first quarter, following the divestment of Nordea Bank Polska, strong profit generation and the continued focus on REA (Risk Exposure Amount) initiatives. REA was EUR 152.2 billion, a decrease of EUR 6.7 billion compared to the previous quarter.

Nordea's cost efficiency programme is progressing as planned and the net cost reduction effects are expected to be seen by the end of 2014 and onwards. An annualized gross reduction in total expenses of EUR 45 million has been conducted in the second quarter and EUR 300 million from the beginning of 2013. The plans for reduce costs by 5 per cent by the end of 2015 vs 2013 are now in place. Restructuring costs for the cost efficiency programme were made with EUR 190 million in the second quarter.

The focus on capital efficiency will continue. In the second quarter, efficiencies of approximately EUR 6 billion have been achieved. Of the remaining efficiencies, the focus is on delivering process efficiencies.

The sale of Nordea Bank Polska was completed on 1 April 2014.

The sale of Nordea's 20.7 per cent stake in Nets Holding A/S was completed 9 July 2014. Nordea's total proceeds of the divestment was approx. DKK 3.5 billion (approx. EUR 470 million) leading to a tax free capital gain of approx. DKK 2.8 billion (EUR 378 million) that will be recognised during the third quarter 2014 in Other income.

Further information on Nordea Bank AB and its January - June 2014 result is available at www.nordea.com.

Life insurance

Profit before taxes in life insurance for January-June 2014 amounted to EUR 73 million (69). The interest rate used to discount all with profit liabilities in 2015 was lowered to 2 per cent and the discount rate for 2016 to 3.25 per cent. The discount rate used in 2014 has already earlier been lowered to 2 per cent. Mandatum Life has increased its technical reserves with a total of EUR 161 million due to low level of interest rates.

Return on equity (RoE) rose to 17.9 per cent (4.6). The total comprehensive income for the period, taking changes in the market values of assets into account, amounted to EUR 113 million (25).

Premiums grew 6 per cent and amounted to EUR 584 million (549) and the overall market share in Finland remained stable at 18.6 per cent (18.8). Unit-linked premiums were 84 per cent of the total volume.

Excluding the assets of EUR 5.1 billion (4.6) covering unit-linked liabilities, Mandatum Life Group's investment assets on 30 June 2014 amounted to EUR 5.4 billion (5.5) at market values. Net income from investments, excluding income on unit-linked contracts, amounted to EUR 152 million (145). Net income from unit-linked investments increased to EUR 202 million (31).

Investment return mark-to-market for the first half of 2014 was 3.9 per cent (1.7). The fair value reserve amounted to EUR 544 million (492). At the end of June 2014 the duration of fixed income assets was 1.7 years (1.8) and average maturity 2.0 years (2.2). Fixed income running yield was 3.3 per cent (4.2).

The expense result for the first half of 2014 rose to EUR 8 million (4). The risk result decreased to EUR 9 million (11) in the same period.

The unit-linked reserves reached an all-time high and amounted to EUR 5.1 billion (4.6). The with profit reserves amounted to EUR 3.9 billion euro (3.9) and the total technical reserves were EUR 9.0 billion (8.5).

In March 2014 Mandatum Life Insurance Company and Suomi Mutual Life Assurance Company announced that they have agreed on the transfer of Suomi Mutual's with profit group pension portfolio to Mandatum Life. The required approval of both companies' Annual General Meetings and the consent of the Financial Supervisory Authority have been received and the transfer is scheduled to take place on 30 December 2014. The final amount of transferred assets will be established in connection with the transfer, but it is estimated to have been around EUR 1.3 billion on 31 December 2013.

Holding

The segment's profit before taxes amounted to EUR 306 million (285), of which EUR 309 million (319) comes from Sampo's share of Nordea's January - June 2014 profit. The segment's profit, excluding share of Nordea's profit, was EUR -3 million (-34). The depreciation of Swedish krona decreased finance costs in the first of half 2014 by EUR 16 million.

Sampo plc's debt financing on 30 June 2014 amounted to EUR 2,009 million (2,027) and interest bearing assets to EUR 460 million (980). Interest bearing assets include bank accounts and EUR 352 million of hybrid capital instruments issued by the subsidiaries and associates. During the first half of 2014 the net debt increased EUR 501 million to EUR 1,549 million (1,048). Sampo plc's dividend of EUR 924 million paid in early May 2014 increased the net debt but dividends of EUR 470 million received from Nordea Bank and Mandatum Life decreased it. Gross debt to Sampo plc's equity was 31 per cent (29).

Financial liabilities in Sampo plc's balance sheet on 30 June 2014 consisted of issued senior bonds and notes of EUR 1,709 million (1,720) and EUR 300 million (308) of outstanding CPs issued. The average interest on Sampo plc's debt as of 30 June 2014 was 2.25 per cent (2.26).

OUTLOOK

Outlook for the rest of 2014

Sampo Group's business areas are expected to report good operating results for 2014.

However, the mark-to-market results are, particularly in life insurance, highly dependent on capital market developments. The low interest rate level also creates a challenging environment for reinvestment in fixed income assets.

The P&C insurance operations are expected to reach their long-term combined ratio target of below 95 per cent in 2014 and achieve a combined ratio of 88 - 91 per cent.

Nordea's contribution to the Group's profit is expected to be significant.

Major risks and uncertainties to the Group in the near term

In its day-to-day business activities Sampo Group is exposed to various risks and uncertainties which it identifies and assesses regularly.

Major risks affecting the Group's profitability and its variation are market, credit and insurance risks that can be quantified by financial measurement techniques. Currently their quantified contributions to the Group's Economic Capital - used as an internal basis for capital needs - represent normal levels of 33 per cent, 45 per cent and 11 per cent, respectively.

Uncertainties in the form of major unforeseen events may have an immediate impact on the Group's profitability. Identification of unforeseen events is easier than estimation of their probabilities, timing and potential outcomes. One of the latest examples is the tension in Ukraine that started as an unforeseen event leading to increased volatility at financial markets, but probably will also have an impact on business environment as a result of financial sanctions. Sampo Group has no direct exposures to the region.

Other sources of uncertainty are unforeseen structural changes in the business environment and already identified trends. They both may have also long-term impact how business shall be conducted.

SAMPO PLC
Board of Directors

For more information, please contact:

Peter Johansson, Group CFO, tel. +358 10 516 0010

Jarmo Salonen, Head of Investor Relations and Group Communications, tel. +358 10 516 0030

Maria Silander, Press Officer, tel. +358 10 516 0031

Press Conference and Conference call

Sampo will today arrange a Finnish-language press conference at Savoy (Eteläesplanadi 14, Helsinki), at 12.30 pm Finnish time.

An English-language conference call for investors and analysts will be arranged at 4 pm Finnish time (2 pm UK time). Please call +44 203 194 0550, +1 855 269 2605, +46 8 5199 9355 or +358 (0)9 8171 0465. The title for the conference is 'Sampo's Interim Report Q2/2014'.

The conference call can also be followed live at www.sampo.com/result.  A recorded version will later be available at the same address.

In addition a Supplementary Financial Information Package is available at www.sampo.com/result.

Sampo will publish the Interim Report for January - September 2014 on 6 November 2014.

Distribution:
NASDAQ OMX Helsinki
The principal media
Financial Supervisory Authority
www.sampo.com

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