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Sampo Group's results for January - June 2015

Sampo Group's profit before taxes for January-June 2015 amounted to EUR 1,015 million (861). The total comprehensive income for the period, taking changes in the market value of assets into account, increased to EUR 1,147 million (790).

  • Earnings per share rose to EUR 1.60 (1.34) and marked-to-market EPS to EUR 2.05 per share (1.41). The return on equity for the Group was 20.9 per cent (14.9). Net asset value per share on 30 June 2015 was EUR 25.01 (22.63) and the fair value reserve after tax on the Group level increased to EUR 1,153 million (1,017).
  • The profit of the P&C insurance operations contains two non-recurring items - the reform of the pension system in If Norway and the lowering of the interest rate used in discounting annuities in Finland from 2.0 per cent to 1.5 per cent. The former had a positive effect of EUR 155 million and the latter a negative effect of EUR 110 million on the result. Taken together they improved the combined ratio for January-June 2015 by 2.2 percentage points and the ratio amounted to 85.0 per cent (88.3). This is the best ever combined ratio for the first half of the year for If even when the effect of the non-recurring items is excluded. The profit before taxes increased to EUR 511 million (483). Comprehensive income for the period increased to EUR 488 million (392) and return on equity was 31.2 per cent (25.1).
  • Sampo's share of the profit of its associated company Nordea for January-June 2015 amounted to EUR 418 million (309). Nordea's net profit from continuing operations increased 33 per cent in local currencies and its fully loaded Basel III Common equity tier 1 (CET1) capital ratio rose to 16.0 per cent at the end of the second quarter. Credit quality remains solid and loan loss ratio amounted to 13 basis points.
  • Profit before taxes for the life insurance operations was EUR 81 million (73). The interest rate used to discount all with profit liabilities in 2015 was lowered to 1.0 per cent and the rates used for 2016 and 2017 to 1.25 per cent and 1.5 per cent, respectively. These measures had a negative profit impact of EUR 96 million in the second quarter of 2015. The comprehensive income increased to EUR 144 million (113). The return on equity at market value was 21.8 per cent (17.9).
KEY FIGURES 1-6/
2015
1-6/
2014
Change, % 4-6/
2015
4-6/
2014
Change,%
EURm            
Profit before taxes 1,015 861 18 528 465 14
  P&C insurance 511 483 6 310 289 7
  Associate (Nordea) 418 309 36 195 139 41
  Life insurance 81 73 11 42 36 17
  Holding (excl. Nordea) 7 -3 - -19 1 -
Profit for the period 894 749 19 459 399 15
      Change     Change
Earnings per share, EUR 1.60 1.34 0.26 0.82 0.71 0.11
EPS (incl. change in FVR) EUR 2.05 1.41 0.64 0.80 0.74 0.06
NAV per share, EUR  *) 25.01 22.63 2.38 - - -
Average number of staff (FTE) 6,725 6,757 -32 - - -
Group solvency ratio, %  *) 193.9 187.4 6.5 - - -
RoE, % 20.9 14.9 6.0 - - -

*) comparison figure from 31 December 2014

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 2014 unless otherwise stated.

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.

Exchange rates used in reporting  1-6/2015  1-3/2015  1-12/2014  1-9/2014  1-6/2014
           
EUR 1 = SEK          
Income statement (average) 9.3416 9.3805 9.1011 9.0420 8.9592
Balance sheet (at end of period) 9.2150 9.2901 9.3930 9.1465 9.1762
DKK 1 = SEK          
Income statement (average) 1.2530 1.2593 1.2205 1.2118 1.2001
Balance sheet (at end of period) 1.2352 1.2437 1.2616 1.2289 1.2308
NOK 1 = SEK          
Income statement (average) 1.0809 1.0746 1.0893 1.0924 1.0823
Balance sheet (at end of period) 1.0482 1.0674 1.0388 1.1266 1.0920

Second quarter 2015 in brief

Sampo Group's profit before taxes for the second quarter 2015 rose to EUR 528 million (465). Earnings per share amounted to EUR 0.82 (0.71). Marked-to-market earnings per share were EUR 0.80 (0.74).

Net asset value per share decreased EUR 2.01 during the second quarter of 2015 and was EUR 25.01. The decrease is explained by the dividend of EUR 1.95 per share paid on 28 April 2015 and the decrease of in the valuation difference of Nordea and Topdanmark holdings corresponding to EUR 0.89 in Sampo's net asset value per share.

P&C operation achieved a second quarter combined ratio of 80.9 per cent (86.5). Excluding the effect of the non-recurring items the combined ratio would have been 85.2 per cent. Profit before taxes increased to EUR 310 million (289). Share of the profits of the associated company Topdanmark amounted to EUR 12 million (15).

Sampo's share of Nordea's second quarter 2015 net profit amounted to EUR 195 million (139).

Profit before taxes for the life insurance operations was EUR 42 million (36). The lowering of the interest rates used to discount with profit liabilities burdened the second quarter profit with EUR 96 million. Premiums written decreased 12 per cent to EUR 299 million from EUR 339 million at the corresponding period a year ago.

Solvency II developments

Mandatum Life applied for approval from Finnish FSA to use transitional measures on technical provisions in April 2015 and application was supplemented in May based on further information requests by FSA. The Finnish FSA issued its decision to approve the use of transitional measures on 11 August 2015. After transitional measures, the estimated own funds (OF) of EUR 2,095 million exceed Solvency Capital Requirement (SCR) of EUR 1,350 million and capital ratio is strong at 155 per cent. Without transitional measures on technical reserves, the estimated own funds of EUR 1,542 million would have exceeded SCR of EUR 1,350 million slightly and capital ratio would have been 114 per cent.

If P&C Group aims to use a partial internal model for Solvency II. An application for the approval of the model has been submitted to the authorities in June 2015. If has over the years developed its internal economic capital model as part of the authorities so called pre application process to correspond as far as possible to the Solvency II requirements. Therefore it is estimated that the current economic capital requirements will not materially differ from the Solvency II requirements. On 30 June 2015 If P&C Group's economic capital requirement was EUR 1,939 million and adjusted solvency capital amounted to EUR 3,800 million.

BUSINESS AREAS

P&C insurance

Profit before taxes for P&C insurance increased to EUR 511 million (483) in January-June 2015. Combined ratio improved to 85.0 per cent (88.3) while risk ratio deteriorated to 69.7 per cent (65.7), both impacted by the two non-recurring items booked in the second quarter of 2015. Excluding the non-recurring items, the combined ratio for January-June 2015 was 87.2 per cent, which is still the best ever combined ratio for the first half of the year.

January-June 2015 result for the P&C insurance segment contains two non-recurring items - the reform of the pension system in If Norway and the lowering of the interest rate used in discounting annuities in Finland from 2.0 per cent to 1.5 per cent. The former had a positive effect of EUR 155 million and the latter a negative effect of EUR 110 million on the total result.

The lowering of the discount rate in Finland affected all business areas' results negatively and weakened the Finnish country specific result substantially. It had a 5 percentage points negative effect on the total January-June 2015 combined ratio. The reform of the pension system in If Norway was booked in the segment Other and therefore did not affect the other business areas' or Norway's country specific result. It had a positive effect of 7.2 percentage points on the total January-June 2015 combined ratio.

Technical reserves relating to prior year claims were strengthened by EUR 80 million in January-June 2015 (EUR 5 million released in the comparison period). Return on equity (RoE) increased to 31.2 per cent (25.1) and fair value reserve on 30 June 2015 increased from the end of 2014 to EUR 554 million (507). Technical result amounted to EUR 342 million (286). Insurance margin (technical result in relation to net premiums earned) improved to 15.7 per cent (12.8).

Swedish discount rate used to discount the annuity reserves increased to 0.41 per cent by the end of June 2015 from -0.15 per cent at the end of March 2015. This improved the Swedish result by EUR 43 million in the second quarter of 2015. Large claims outcome for If in total ended up EUR 12 million negative in the first half of 2015.

Gross written premiums decreased to EUR 2,760 million (2,812). Adjusted for currency, premium growth was flat. Growth was positive in business areas Private and Baltic, and negative in business areas Commercial and Industrial.

Cost ratio improved to 15.4 per cent (22.6) and expense ratio to 9.6 per cent (16.7), both impacted by the positive effect (7.2 percentage points) of the non-recurring reform of the pension system in If Norway.

On 30 June 2015 the total investment assets of If P&C amounted to EUR 11.8 billion (11.5), of which fixed income investments constituted 75 per cent (75), money market 12 per cent (13) and equity 13 per cent (12). Net income from investments amounted to EUR 173 million (209). Investment return marked-to-market for January-June 2015 was 2.1 per cent (3.1). Duration for interest bearing assets was 0.9 years (1.0) and average maturity 2.6 years (2.4). Fixed income running yield was 2.0 per cent (2.5).

On 16 June, 2015 If P&C Insurance Company Ltd. (publ), the Swedish subsidiary of If P&C Insurance Holding Ltd (publ), used its call option on the EUR 150 million capital loan issued on 16 June 2005 in accordance with the conditions of the loan.

Associated company Nordea Bank AB

On 30 June 2015 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 8.18 per share. The closing price as at end of June 2015 was EUR 11.22.

After an exceptional start to the year, net interest income stabilized during the second quarter and was down 3 per cent in local currencies and 5 per cent in euros in January-June 2015. Total income was up 7 per cent in local currencies and 6 per cent in euros in January-June 2015 from last year. Total expenses were down 1 per cent in local currencies and 3 per cent in euros from previous year excluding non-recurring items.

Operating profit was up 21 per cent in local currencies and 19 per cent in euros from last year excluding non-recurring items. Cost/income ratio improved 4 percentage points to 45 per cent in January-June 2015.

Credit quality remains solid and loan losses are well below the 10-year average. Net loan loss provisions decreased to EUR 225 million, corresponding to a loan loss ratio of 13 basis points (17).

Net profit from continuing operations increased 33 per cent in local currencies and 32 per cent in euros to EUR 2,034 million.

The Group's fully loaded Basel III Common equity tier 1 (CET1) capital ratio increased to 16.0 per cent at the end of the second quarter from 15.6 per cent at the end of the first quarter 2015. The CET1 capital ratio was positively affected by currency effects, improved credit quality and strong profit generation.

In connection with its interim report Nordea disclosed it has initiated a dialogue with authorities in the Nordic countries regarding its legal structure. The purpose is to simplify the legal structure by changing the Norwegian, Danish and Finnish subsidiary banks to branches. The process is expected to take approximately two years and a decision about a future legal structure is subject to approval by Nordea's shareholders at a general meeting.

Further information on Nordea Bank AB and its January-June 2015 result is available at www.nordea.com.

Life insurance

Profit before taxes in life insurance for January-June 2015 amounted to EUR 81 million (73). The interest rate used to discount all with profit liabilities in 2015 was lowered in the second quarter of 2015 to 1.0 per cent, the rates used for 2016 and 2017 to 1.25 per cent and 1.5 per cent, respectively. These measures had a negative profit impact of EUR 96 million in the second quarter of 2015.  All in all, Mandatum Life has increased its technical reserves with a total of EUR 238 million (135) due to low level of interest rates. The figure does not take into account the reserves of EUR 235 million relating to the segregated fund.

Return on equity (RoE) amounted to 21.8 per cent (17.9). The total comprehensive income for the period, taking changes in the market value of assets into account, increased to EUR 144 million (113) after tax. The fair value reserve amounted to EUR 585 million (508).

Premium income rose 16 per cent to EUR 676 million (584) and the overall market share in Finland was 18.0 per cent (18.6). The expense result for the first half of 2015 was EUR 13 million (8) and risk result EUR 11 million (9).

The unit-linked reserves amounted to EUR 5.8 billion (5.3) at the end of June 2015. Net investment income from unit-linked investments was EUR 346 million (202).

The with profit reserves amounted to EUR 5.1 billion euro (5.1), of which the original Mandatum Life with profit reserves constituted EUR 3.8 billion (3.8) and the segregated fund EUR 1.2 billion (1.2). The amount of higher guarantee with profit reserves (3.5 and 4.5 per cent) continued to decrease according to plan, i.e. EUR 104 million in the first half of 2015 but the lowering of discount rates kept the overall reserves almost unchanged.

The assets covering Mandatum Life's original with profit liabilities on 30 June 2015 amounted to EUR 5.5 billion (5.3) at market values. 39 per cent (32) of the assets are in fixed income instruments, 16 per cent (23) in money market, 30 per cent (30) in equities, 4 per cent (5) in private equity and 12 per cent (10) in other investments. The investment return marked-to-market for January-June 2015 was 5.9 per cent (3.9), the duration of fixed income assets at the end of June 2015 was 1.8 years (1.6) and average maturity 2.3 years (1.9). Fixed income running yield was 2.9 per cent (3.3).

The assets covering the segregated fund amounted to EUR 1.2 billion (1.3), of which 45 per cent (48) was in fixed income, 35 per cent (33) in money market, 9 per cent (8) in equities, 3 per cent (3) in private equity and 8 per cent (8) in others. Segregated fund's investment return marked-to-market for January-June 2015 was 3.0 per cent. At the end of June 2015 the duration of fixed income assets was 1.5 years and average maturity 2.4 years. Fixed income running yield was 0.8 per cent.

Holding

The segment's profit before taxes amounted in January-June 2015 to EUR 425 million (306), of which EUR 418 million (309) comes from Sampo's share of Nordea's January-June 2015 profit. The segment, excluding share of Nordea's profit, reported a pre-tax profit of EUR 7 million (-3). Currency exchange rate changes affected the profit negatively by EUR 6 million.

Sampo plc's debt financing on 30 June 2015 amounted to EUR 2,332 million (2,192) and interest bearing assets to EUR 675 million (1,233). Interest bearing assets include bank accounts, EUR 447 million of hybrid capital issued by the subsidiaries and associates and EUR 24 million of other fixed income instruments. During the first half of 2015 the net debt increased to EUR 1,657 million (960). Gross debt to Sampo plc's equity was 35 per cent (31) and financial leverage 26 per cent (24).

On 28 May 2015 Sampo plc repaid SEK 2,000 million senior notes maturing on that date. In connection to the repayment it issued under Sampo plc EMTN Programme senior unsecured floating rate notes of SEK 2,000 million and fixed rate notes of SEK 1,000 million both maturing on 28 May 2020.

As at 30 June 2015 financial liabilities in Sampo plc's balance sheet consisted of issued senior bonds and notes of EUR 1,994 million (1,888) and EUR 338 million (305) of outstanding CPs issued. The average interest, net of interest rate swaps, on Sampo plc's debt as of 31 June 2015 was 1.53 per cent (1.74).

OUTLOOK

Outlook for the rest of 2015

Sampo Group's business areas are expected to report good operating results for 2015.

However, the marked-to-market results are, particularly in life insurance, highly dependent on capital market developments. The very 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 2015 and achieve a full year combined ratio of 87 - 90 per cent excluding the positive total effect of the Norwegian pension reform and the change in discount rate for Finnish annuities.

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, insurance and operational risks that can be quantified in most of the cases 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 36 per cent, 44 per cent, 10 per cent and 9 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 widely 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 wide-impact events. These external drivers 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
Essi Nikitin, IR Manager, tel. +358 10 516 0066
Maria Silander, Communications Manager, tel. +358 10 516 0031

Conference call and press conference

Sampo will today arrange a Finnish-language press conference at Hotel Kämp (Meeting room Paavo Nurmi), 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 (0)203 194 0552, +1 855 7161 597, +46 (0)8 5664 2702 or +358 (0)9 8171 0495.

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 the Supplementary Financial Information Package is available at www.sampo.com/result.

Sampo will publish the Interim Report for January - September 2015 on 5 November 2015.

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

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