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Sampo Group's results for January - September 2014

Sampo Group's profit before taxes for January - September 2014 rose to EUR 1,313 million (1,228). The total comprehensive income for the period, taking changes in the market values of assets into account, decreased slightly to EUR 1,099 million (1,112).

  • Earnings per share amounted to EUR 2.05 (1.88) and mark-to-market EPS remained almost unchanged at EUR 1.96 per share (1.99). The return on equity for the Group was 13.6 per cent for the period (14.6).
  • Net asset value per share on 30 September 2014 was EUR 23.29 (22.15). The fair value reserve after tax on the Group level amounted to EUR 1,042 million (960).
  • The combined ratio of the P&C insurance operations decreased to 87.8 per cent (88.2) for January - September 2014. This is the best ever combined ratio in If's history for the period of January - September. The profit before taxes rose to EUR 711 million (700). Return on equity was 22.2 per cent (26.0).
  • Nordea is accounted for as an associated company and Sampo's 21.2 per cent share of Nordea's profit for January - September 2014 amounted to EUR 501 million (477).
  • Profit before taxes in life insurance operations rose to EUR 112 million (103). The interest rate used to discount with profit liabilities in 2016 was lowered to 3 per cent. For 2014 and 2015 the discount rate has already earlier been lowered to 2 per cent. The return on equity at market values was 10.8 per cent (15.7).
KEY FIGURES 1-9/
2014
1-9/
2013
Change,
%
7-9/
2014
7-9/
2013
Change, %
EURm            
Profit before taxes 1,313 1,228 7 452 403 12
  P&C insurance 711 700 2 228 227 1
  Associate (Nordea) 501 477 5 192 158 22
  Life insurance 112 103 9 40 34 15
  Holding (excl. Nordea) -10 -49 -79 -7 -15 -51
Profit for the period 1,149 1,055 9 400 345 16
      Change     Change
Earnings per share, EUR 2.05 1.88 0.17 0.71 0.62 0.09
EPS (incl. change in FVR) EUR 1.96 1.99 -0.03 0.55 0.95 -0.40
NAV per share, EUR  *) 23.29 22.15 1.14 - - -
Average number of staff (FTE) 6,744 6,815 -71 - - -
Group solvency ratio, %  *) 191.0 184.4 6.6 - - -
RoE, % 13.6 14.6 -1.0 - - -

*) comparison figure from 31 December 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 - September 2014 is 9.0420 and the end of period exchange rate used for balance sheet items is 9.1465. For January - September 2013 the corresponding exchange rates used were 8.5811 and 8.6575 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.

Third quarter 2014 in brief

Sampo Group's profit before taxes for the third quarter of 2014 amounted to EUR 452 million (403). Earnings per share rose to EUR 0.71 (0.62). Mark-to-market earnings per share decreased to EUR 0.55 (0.95).

Net asset value per share in the third quarter of 2014 increased to EUR 23.29 from EUR 23.00 at the end of June 2014.

The third quarter combined ratio for the P&C operation amounted to 86.9 per cent (87.2). Profit before taxes increased to EUR 228 million (227). Share of the profits of the associated company Topdanmark amounted to EUR 18 million (8).

Sampo's share of Nordea's third quarter 2014 net profit amounted to EUR 192 million (158). In the third quarter Nordea reported a sales gain of EUR 378 million from the Nets transaction, an IT impairment charge of EUR 344 million and a write down of deferred acquisition costs in the Polish life operations of EUR 27 million. The bank's Common equity tier 1 capital ratio rose to 15.6 per cent.

Profit before taxes for the life insurance operations rose to EUR 40 million (34). Premiums written decreased 21 per cent to EUR 188 million from EUR 238 million at the corresponding period a year ago.

BUSINESS AREAS

P&C insurance

For January - September 2014 profit before taxes for P&C insurance increased to EUR 711 million (700). Combined ratio improved to 87.8 per cent (88.2) which is the best ever January - September combined ratio in If P&C's history. Risk ratio decreased 0.1 percentage points and cost ratio 0.3 percentage points. EUR 18 million (49) was released from technical reserves relating to prior year claims. Return on equity (RoE) was 22.2 per cent (26.0) and fair value reserve on 30 September 2014 increased to EUR 538 million (472).

If's share of Topdanmark's profit for January - September 2014 amounted to EUR 44 million (42). On 30 September 2014 If P&C held 31,476,920 Topdanmark shares, corresponding close to 30 per cent of all votes. All Topdanmark shares held by Sampo Group are concentrated in If P&C Insurance Holding Ltd (publ).

Gross written premiums decreased to EUR 3,724 million (3,845) as a result of the weakened Norwegian and Swedish kronas. Adjusted for currency, premiums rose 1.9 per cent and there was positive growth in all other business areas than Industrial. Cost ratio improved to 22.5 per cent (22.8) and expense ratio to 16.6 per cent (16.8).

On 30 September 2014 the total investment assets of If P&C amounted to EUR 12.3 billion (12.0). Net income from investments amounted to EUR 278 million (278). Investment return mark-to-market for January - September 2014 was 3.6 per cent (3.7). Duration for interest bearing assets was 1.0 years (1.3) and average maturity 2.3 years (2.3). Fixed income running yield was 2.5 per cent (3.0) unchanged from the second quarter of 2014.

If P&C's solvency ratio as at 30 September 2014 (solvency capital in relation to net written premiums) amounted to 94 per cent (81). This is the highest ever solvency ratio in If's history. Solvency capital increased to EUR 4,157 million (4,002). Reserve ratios remained strong and were 160 per cent (159) of net written premiums and 235 per cent (226) of claims paid.

Associated company Nordea Bank AB

On 30 September 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 8.16 per share. The closing price as at end of September 2014 was EUR 10.27. Nordea is accounted as an associated company in Sampo Group's accounts.

The following text is based on Nordea's January - September 2014 interim report published on 22 October 2014.

Net interest income was largely unchanged 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 7 per cent and the net result from items at fair value decreased by 12 per cent compared to the first nine months of last year.

Total expenses were down 1 per cent compared to the first nine months of 2013 excluding impairment charge and 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 405 million for the continuing operations, corresponding to a loan loss ratio of 15 basis points (21 basis points in the first nine months of last year). The loan loss level is below the 10-year average.

Net profit including non-recurring items increased 5 per cent to EUR 2,455 million and net profit as basis for dividend distribution increased 16 per cent to EUR 2,716 million.

The Group's fully loaded Basel III Common equity tier 1 (CET1) capital ratio increased to 15.6 per cent at the end of the third quarter from 15.2 per cent at the end of the second quarter, following sale of Nordea's shares in Nets Holding A/S, strong profit generation and the continuous focus on risk exposure amount (REA) initiatives. REA was EUR 152.5 billion, an increase of EUR 0.3 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 50 million has been conducted in the third quarter and EUR 350 million from the beginning of 2013. The focus on capital efficiency will continue.

Life insurance

Profit before taxes in life insurance for January - September 2014 increased to EUR 112 million (103). The total comprehensive income for the period, taking changes in the market values of assets into account, decreased to EUR 103 million (137). Return on equity (RoE) amounted to 10.8 per cent (15.7).

The interest rate used to discount all with profit liabilities for the rest of 2014 and 2015 has been lowered to 2 per cent and the discount rate for 2016 to 3 per cent. Mandatum Life has increased its technical provisions with a total of EUR 155 million (146) due to low level of interest rates.

Excluding the assets of EUR 5.2 billion (4.6) covering unit-linked liabilities, Mandatum Life Group's investment assets on 30 September 2014 amounted to EUR 5.3 billion (5.5) at market values. Net income from investments, excluding income on unit-linked contracts, amounted to EUR 212 million (219). Net income from unit-linked investments increased to EUR 257 million (169). Investment return mark-to-market for January-September 2014 was 3.9 per cent (5.2). The fair value reserve amounted to EUR 502 million compared to EUR 492 million at the end of 2013. At the end of September 2014 the duration of fixed income assets was 1.7 years (1.8) and average maturity 2.1 years (2.2). Fixed income running yield was up 0.2 percentage points from the second quarter of 2014 and amounted to 3.5 per cent (3.7).

The expense result for January - September 2014 amounted to EUR 15 million (7) and risk result to EUR 13 million (17).

The transfer of Suomi Mutual's with profit group pension portfolio to Mandatum Life is progressing as planned and the transfer is scheduled to take place on 30 December 2014.

Holding

The segment's profit before taxes amounted to EUR 491 million (428), of which EUR 501 million (477) comes from Sampo's share of Nordea's January - September 2014 profit. The segment's profit, excluding share of Nordea's profit, was EUR -10 million (-49). The depreciation of Swedish krona decreased finance costs by EUR 14 million and the lower swap rates by EUR 12 million in January - September 2014.

Sampo plc's debt financing on 30 September 2014 amounted to EUR 2,503 million (2,027) and interest bearing assets to EUR 958 million (980). Interest bearing assets include bank accounts and EUR 438 million of hybrid capital instruments issued by the subsidiaries and associates. The amount of debt financing increased because of the 7-year senior bond of EUR 500 million with a coupon of 1.50 per cent issued under the Euro Medium Term Note Programme to refinance a EUR 300 million senior bond maturing in early October 2014. Gross debt to Sampo plc's equity was 39 per cent (29).

During the first three quarters of 2014 the net debt increased EUR 497 million to EUR 1,545 million (1,048). In early October 2014 the EUR 300 million bond was paid back and net debt decreased to EUR 1,245 million.

Financial liabilities in Sampo plc's balance sheet on 30 September 2014 consisted of issued senior bonds and notes of EUR 2,206 million (1,720) and EUR 298 million (308) of outstanding CPs issued. The average interest on Sampo plc's debt as of 30 September 2014 was 1.99 per cent (2.28). After the EUR 300 million senior bond was paid back in early October the average interest decreased to 1.85 per cent.

OTHER DEVELOPMENTS

Remuneration

Sampo plc's Board of Directors decided on 17 September 2014 to adopt a new long-term incentive scheme 2014:1 for the management of Sampo Group (including the Managing Director of Sampo plc) and other separately named key employees of Sampo Group. The total number of participants in the scheme is approximately 120. The scheme complies with the updated Sampo Remuneration Principles, which the Board of Directors approved on the same day and the remuneration policies of the different Sampo Group companies in force at the launch of this scheme.

The terms of the long-term incentive schemes are available at www.sampo.com/remuneration.

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 - 90 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 based on historical data. Currently their quantified contributions to the Group's Economic Capital - used as an internal basis for capital needs - represent normal levels of 34 per cent, 45 per cent and 10 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. Currently there are a number of generally identified macro-economic, political and other sources of uncertainty which can in various ways affect financial services industry negatively.

Other sources of uncertainty are unforeseen structural changes in the business environment and already identified trends and potential events. They both may have also long-term impact on 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

Essi Nikitin, IR Manager, tel. +358 10 516 0066

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

Conference call

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 Group's Interim Report for January - September 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 Financial Statement Release 2014 on 11 February 2015.

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

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