IR Blog

Sampo is one of the most covered companies by analysts in Nasdaq Helsinki. Over 20 analysts cover us actively. But what kind of company is Sampo as an analysis case? We asked this from two analysts, Sauli Vilén from Inderes and Antti Saari from OP.

How long have you covered Sampo?

Sauli: “I started to cover Sampo in 2011.”

Antti: “I have covered Sampo since 2011.”

What kind of company is Sampo to be analyzed?

Sauli: “As a company, Sampo is exceptionally transparent. This partially explained by the fact that Nordea and Topdanmark are listed companies and by Sampo’s open investor relations policy. Sampo is quite special company because the big picture of the investment case is relatively easy to perceive. By the big picture I refer, among other things, to the value of its sum of parts, the role of mergers and acquisitions in the strategy and the future dividend flow.

Respectively, when diving into the details, analyzing Sampo becomes more difficult. For example, Mandatum Life’s profits and how the changes in regulation affect Sampo’s solvency, are factors that cannot be precisely forecasted. For most companies, these kind of details are easy to be forecasted and the big picture is more blurry, but Sampo is the opposite case. Fortunately, for investors, the big picture is the thing that matters in the long-run and investors should focus on that."

Antti: “Due to the fact that Sampo operates in different business areas, there are lots of parameters affecting the results. However, because of the stability of its businesses, it is easy to make quite accurate estimates. The challenges of analyzing Sampo are related to the valuation. The valuation of a stable company like Sampo can significantly vary depending the current market sentiment. In addition, it is hard to figure out new stock price drivers or point of views due to the stability of the company.”

What are the most important things, which you pay attention in Sampo’s financial reporting?

Sauli: “Sampo’s financial statement is exceptional because significant share of the results is public in advance (Nordea and Topdanmark). When adding If’s exceptionally stable profit performance, big surprises in the financial statement are quite rare. Thus, If’s results and technical results get the biggest attention.

In addition, investors should pay attention to the internal dividends paid by Sampo’s subsidiaries. Those give clear indication for Sampo’s coming ability to pay dividend to its shareholders. “

Antti: “Guidance, the profitability of the insurance businesses excluding the changes in technical reserves and NAV per share. If these are in shape, can all the other deviations be explained by temporary factors.”

Besides financial reporting, how all the other events, for example, conference calls, meetings with the management and capital market days affect your analysis?

Sauli: “For me, the most interesting part of the financial reporting day is the conference call, in which the management, especially CEO and President Kari Stadigh, has an open dialogue with the analysts. Mr. Stadigh has quite exceptional comment policy and has a good “Say-Do ratio”. Hence, it is easy to trust the management’s comments and I think these comments are the most important part of the financial reports.

Naturally, the same applies to the capital markets and analyst day as well. For investors, these events provide the best picture of Sampo as an investment case.”

Antti: “Meetings with the management and conference calls are very important ways to get to know the management and learn to understand how they think. When you have been able to listen and to challenge the management several times, you learn to interpret their comments. A similar comment from two different persons can give very different message to the markets, depending, for example, on the person’s creditability and the general way to communicate.

Capital market days provide important deepening information for analysts and investors. Usually, this information will at some point be needed, even though it may not directly affect the view on the company. In these events, it is also often possible to meet the members of the management who cannot be met in the financial results conferences.”

Sampo Group’s insurance companies continued their strong performance, which compensated for tame banking results.

Group’s profit before taxes for January–September increased to EUR 1,643 million from EUR 1,340 million, when adjusting for the non-recurring profit item of EUR 706 million resulting from the change of Topdanmark’s accounting status.

The figures are not audited. Income statement items are compared on a year-on-year basis and comparison figures for balance sheet items are from 31 December 2017 unless otherwise stated.

If’s results were, once again, strong, thanks to the excellent technical result. Profit before taxes for January–September 2018 increased to EUR 626 million from EUR 603 million and combined ratio amounted to 85.8 per cent. Development for If’s top-line was good as well; premiums increased 3.1 per cent in January–September. In geographical terms, the strongest performance was reported in Sweden where premiums increased 4.9 per cent in local currency. In addition, the number of customers grew in all markets.

At the beginning of the third quarter, the large forest fires that raged in Sweden gained plenty of media attention. However, those had only a marginal impact on If’s result – approximately EUR 4 million.

Due to If’s excellent performance, we upgraded our outlook for If’s full-year combined ratio. We expect If to reach a combined ratio target of 85-87 per cent. The earlier target was 86-88 per cent.

In the beginning of November, If distributed a dividend of SEK 7 billion, approximately EUR 675 million, to the parent company Sampo plc. In 2017, the dividend was SEK 6 billion, approximately EUR 620 million.

Topdanmark reported strong results as well. Profit before taxes amounted to EUR 170 million and combined ratio was excellent, 82.7 per cent. In January–September, Topdanmark’s premiums increased 2.2 per cent in non-life insurance business and 14.1 per cent in non-life insurance business.

Topdanmark also upgraded its outlook for full-year results and combined ratio.

Nordea’s performance was not that desirable, as the bank’s management admits in the interim report. However, for the 9 months period, Sampo’s share of Nordea’s net profit increased to EUR 527 million from EUR 491 million. Positive things in the report included low levels of credit losses, good cost development and very strong capital position.

Mandatum Life’s profit before taxes for January–September increased to EUR 385 million from EUR 180 million. The profit includes the contribution of EUR 197 million from the Danske Bank co-operation agreement in the second quarter of 2018.

Mandatum Life’s technical reserves increased to a record-high level. At the end of September, reserves amounted to EUR 7.2 billion, which was EUR 100 million more than year ago.

Mandatum Life’s with-profit technical reserves continued to shrink and were EUR 4.3. billion at the end of September compared to EUR 4.6 billion a year ago. Reserves related to the higher guarantees (3.5% and 4.5%) decreased by EUR 174 million during January-September. With-profit portfolio requires lots of capital. Thus, the shrinking of the portfolio improves Mandatum Life’s ability to pay dividend to the parent company.

In late September, Mandatum Life distributed an additional dividend of EUR 150 million to the parent company. In the spring, Mandatum Life paid a dividend of EUR 150 million. Hence, the total dividend for the year 2018 amounted to EUR 300 million compared to EUR 275 million in 2017.

Loss before taxes for the Holding segment (excluding Nordea) for January–September amounted to EUR 45 compared to a loss of EUR 27 million a year ago. In the first half of the year, the result was affacted by unfavorable currency development, especially by the weak Swedish krona. In the third quarter, currency development was clearly more stable and the segment’s profit before taxes was slightly positive.

In the third quarter, we continued to make larger, direct financial investments via the parent company. Our ownership in the Swedish credit management services provider Intrum exceeded 5 per cent and lead to a flagging announcement. In addition, we closed the Saxo Bank deal announced last year.

On capital markets, autumn was calm at first but after the quarter changed, there has been very strong movements. For an opportunistic and patient investor like Sampo, increased volatility is the most welcome phenomenon because it can offer good investment opportunities.

Read more about Sampo’s results for January–September at www.sampo.com/result.

Sampo Group is the largest player in the Nordic insurance sector. Not many people know that Sampo is also one of the largest investors in the region. At the end of June 2018, Sampo had investments worth near EUR 22 billion. Thus, we are in the same league as the large Finnish pension funds.

Sampo Group's Investment Allocation, 30 June 2018, total EUR 21.7 billion

However, a big investment portfolio does not require a large battalion of portfolio managers. Vast majority of the Group's investments are managed by the team of six portfolio managers sitting at the Sampo headquarter at Fabianinkatu, Helsinki. In addition, there are six portfolio managers in If in Stockholm. Both teams report to the Chief Investment Officer Patrick Lapveteläinen.

Sampo's investment philosophy is to be an opportunistic long-term investor.

"We are patient, contrarian and we don't follow indices. Time to time, there occurs stupidity in the markets and we have both competence and liquidity to take advantage of them", says Ville Talasmäki, the Head of Allocation.

By stupidity Talasmäki refers especially to the herd behavior in the markets, which can lead strong movements in both directions.

"Many investors benchmark themselves to some index and invest at least partially like the index, because they fear to perform worse than the index. For many investors, the fear of being wrong alone is more powerful than the chance of being right alone."

"One good example of this behavior is the 100 year bond issued by Argentina last year. Argentina has defaulted several times, but many investors bought the debt just because it's part of certain emerging markets indices. Since the issuance, the bond price has gone down by 25 per cent."

Big size brings big benefits

The fact that Sampo is a big and globally well-known investor, brings great benefits. Because of that, vast amount of different investment ideas and opportunities to participate M&A deals are presented to us every year. Much of the portfolio managers job is to meet corporate executives and bankers.

Some of the ideas presented to us end up in Sampo's portfolio, but the majority of them gets denied. Talasmäki reminds that a stock or a bond of a good company is not automatically a good investment. In order to be a good investment, the price has to be right from the point of view of a long-term return potential. Sometimes, the right buying opportunity requires a lot of patience. Nordax and Intrum are good examples. We followed closely these companies for years until we saw that the time was right to push the buy button.

In addition to the long-term return potential, responsibility matters are also important. Sampo is currently adapting more systematic ways to take corporate responsibility into account when making investment decisions.

Sampo's individual investments are usually worth between EUR 10 and 100 million. In order to keep up-to-date on our investments, Sampo's portfolio managers usually meet each company's executives 2-4 times a year. In the case of a larger investment in a company that operates in the financial and insurance sector, Sampo aims to influence its operations via board positions. Saxo Bank and Asiakastieto are good examples for that.

Sampo has investments around the world. Investments in North Europe and especially in the Nordics are mainly managed internally, whereas in global investments we tend to use external mutual funds.

"When choosing an external fund manager, the most important criterion is that he or she brings added value and bold enough ideas. If we wanted just to follow some index, we could easily do that by ourselves using etf:s", says Talasmäki.

According to Talasmäki, one of the biggest benefits of Sampo's portfolio team are small boundaries between different asset classes.

"When we find an interesting company, we can very flexibly choose whether we want to invest in its debt or equity."

The current market situation is challenging for Sampo. Interest rates have been exceptionally low for years, thanks to central banks' monetary stimulus measures. Because of that, good returns from fixed income are difficult to find.

"Without taking duration or credit risks, it's really hard to get decent returns from fixed income. In the U.S. interest rates have been rising but our insurance operations' technical reserves are mainly in euros, which limits our ability to invest in dollar debt."

Even tough stock valuations are very high in many markets, stocks are currently the best asset class. In fact, Sampo has been overweighting stocks for a long time now. However, the importance of stock picking has become even more pivotal. Our largest equity investments are in the Nordic financial and insurance sector, which is our core competence area.

Over the years, Mandatum Life, a subsidiary of Sampo has strengthened its position as one of the leading and respected financial services companies in Finland.

Mandatum Life provides different kind of life insurance and wealth management services for private customers, entrepreneurs and corporates. The company also provides, among other things, services for inheritance planning and remuneration programs. Mandatum Life serves 250,000 private and 50,000 corporate customers and operates in Finland and in the Baltics.

Petri Niemisvirta, the Chief Executive Officer, how does Mandatum Life differ from its competitors?

"I believe that we have, by far, the best knowledge in life insurance in Finland. It is the result of the long experience and culture that has formed in the company over the years. One thing that has helped us is the structure of Sampo Group. Mandatum Life is an independent company, not just one department of a bigger group. That gives us very good opportunities to develop our company.

In addition, our model to provide insurance and wealth management services under the same roof, combined with the opportunities of co-investing, is quite unique. Co-investing, which means that we invest our own money and our customers' money in the same assets, is one of our most remarkable services creating value to our customers. We have also plenty of knowledge of alternative investments, which enjoy increasing demand all the time."

Mandatum Life has a leading position in Finland, but the company operates also in Estonia, Latvia and Lithuania. How would you describe the market?

"For now, it is quite small market, as measured by premium volumes, but we see good growth opportunities there. However, the market is quite challenging: three countries, three cultures and three languages plus Russian. We don't have a major distributor like Danske Bank in Finland and our name is not as familiar there as in here. That is why the growth requires more hard work."

In June, Mandatum Life and Danske Bank agreed to continue their co-operation. How important is this agreement?

"For sure, it is a very important agreement for us. Some years ago, the share of products and services distributed by Danske Bank was, at its best, 40 to 50 per cent of the total volume, compared to 15 to 20 per cent last year. I'm very confident that with this new agreement we can raise the sales back to the top level and, at the same time, maintain the excellent level in our own channels. Both us and Danske have a good premise for increasing sales. We have already seen some good signs."

What is the state of the economy and financial markets from Mandatum Life's point of view?

"In Finland, the economy and Finnish companies are doing well, which reflects to our businesses, especially in the corporate customers segment. There is demand for services related to remuneration programs, because companies compete for skillful new employees and try to hold on tight their existing ones. By the same token, the good momentum in the economy and financial markets increases activity in the private customers segment.

In the financial markets, the bull run of stocks has continued, but on the other hand, earnings have grown as well, particularly in the U.S. As far as I'm concerned, stocks are not cheap, but not that expensive either because earnings are still growing. Using the method of exclusion, stocks and alternative investments are still the best asset classes to invest to. From our product range's point of view, this is a good thing.

Of course, in the big picture, there are different kind of concerns to worry about, such as the fear of trade war and the rise of protectionism. If escalated, the trade war would cause significant damages to the financial markets and the economy of Finland, which is dependent on exports. In addition, the state of the emerging markets and especially the currency crisis in Turkey are worthwhile to keep an eye on."

Equity investment account, which is already used in other Nordic countries, will be introduced in Finland as well. How this will affect Mandatum Life's business?

"The account is planned to be introduced in 2020 and the final terms are still blur. Thus, it is hard to make any estimates at this point. Instead of a company point of view, I like to pay attention to the big picture.

It is very important that the government makes decisions that encourage people to save and invest in more risky assets, not just in bank accounts. In Sweden, there are good incentives to invest in stocks. As a result, Swedes have benefitted from the ongoing bull market, whereas in Finland, the net inflow of mutual funds has lagged but the money pile laying useless in the bank accounts has increased by EUR 10 billion.

It is important to notice that if the return on bank accounts is zero, the capital income tax to the state is zero too. Increasing the incentives for saving and investing would be a win-win situation for all parties: for the private investors, for the financial industry and for the whole economy. Unfortunately, there is a risk that tax populism leads to increasing taxation, which would further weaken the incentives to save and invest."

What are the key figures in Mandatum Life's financial reporting, that Sampo shareholders should pay attention to?

"I would recommend to pay attention to expense result, which tells how the fees and commissions of life insurance business have developed compared to expenses.

Because Sampo is a dividend company, I would pay attention to Mandatum Life's ability to pay dividend for the parent company. This is influenced, among other things, by the pace at which our with-profit insurance portfolio ages and shrinks, because the portfolio requires lots of capital. In the past years the portfolio has contracted at around EUR 200 million annually.

In addition to solid figures, investors should also look at the so called softer indicators, such as the results of the satisfaction surveys. High customer satisfaction gives some indication of the future premium income development. Equally, employee satisfaction will help the company to keep the current top talents and attract new ones."

More about Mandatum Life

Sampo announced on 8 August 2018 that the Group CFO Peter Johansson will retire from his position as of 1 January 2019 and that Knut Arne Alsaker, CFO of If P&C Group and a member of the Sampo Group Executive Committee, will take over as the new Group CFO (as of 1 January 2019).

Knut Arne has an extensive background in Sampo Group, but we will let him introduce himself.

Where do you live and where are you from?

"I'm Norwegian. I grew up on the west coast of Norway. I have lived in Sweden permanently for 15 years. I live just outside Stockholm with my wife and two kids."

Tell us a little bit about your work background

"I ended up in the insurance business by accident. I was just about to start work at an investment bank I had already landed a job with. I remember that day very well. I came home after my last university exam. I was happy and relieved and had the feeling of doing something "wild".

I decided to call my contact at the investment bank and told them I was not coming. After that I called the insurance company Storebrand's CFO, who I happened to know. I told him that I wanted to work for the company. I got the job, but I still don't know exactly why I did the crossover.

I worked at Storebrand for two years. A part of my job was to participate in selling Storebrand's non-life business, which we finally managed to do by consolidating non-life insurance activities together with Skandia and Pohjola. The result was If Skadeförsäkring AB, which was established in 1999.

I continued working with If by being the coordinator of If's initial public offering (IPO) project. We all know that If never became a listed company, so that plan failed. If had all kind of challenges in the beginning. Our results were terrible, the internet bubble burst and the stock market crashed.

After I failed with the IPO, my original plan was to go back to Storebrand. However, I had second thoughts. I had worked with a lot of people from If's side and liked the people, the company, and the entrepreneurial feeling I got from being a part of setting up a new insurance company. I decided to continue to work for If."

What positions have you held in If and Sampo Group?

"In If I was first responsible for what we called corporate finance, which included funding, capitalization and mergers & acquisitions. Then I became If's Chief Risk Officer, which was a brand-new position. Thereafter, I became the Chief Risk Officer of Sampo Group.

After a while I decided that I wanted to work more directly with customers and got a job in If's Business Area Industrial. However, in 2011, after just 1,5 years of working there, I got a call from Torbjörn Magnusson, the CEO of If, offering me the CFO position. My original plan was to work within the business areas for a longer period of time but got an offer I couldn't say no to."

What do you enjoy most about your job as the CFO?

"I think there are two things. Both If and the whole Sampo Group have the best and most knowledgeable insurance and financial professionals that I have come across. I enjoy being challenged by these colleagues every day.

In addition, I enjoy the complexities the financial services business provides and the challenges of trying to simplify those complexities."

Knut Arne's CV