IR Blog

Sampo Groups profit before taxes for January-September 2019 was EUR 1,073 million compared to EUR 1,643 million a year ago. In the third quarter, profit before taxes decreased to EUR 92 million from 490 million a year ago and earnings per share was only EUR 0.01 (0.70)

The result was burdened by large non-recurring items. The distribution of an extra dividend in the form of Nordea shares in August caused a negative impact of EUR 155 million. In addition, Nordea booked in total of EUR 1.3 billion one-offs for the third quarter pushing the result to a negative territory. Sampo’s share of Nordea’s net result was EUR -75 million.

* Comparison figure from 31 December 2018
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 2018 unless otherwise stated.

The good momentum for Sampo’s insurance businesses continued in the third quarter. If’s profit before taxes for January-September increased to EUR 655 million (626) and combined ratio improved to 84.3 per cent (85.8).

In addition, If’s premium growth remained at very strong level. In local currency, If’s premiums grew 5.0 per cent in January-September, accelerating the growth pace from 4.3 per cent in the first half of the year. Premiums increased in all markets and business areas. Growth was particularly strong in Norway, 9.1 per cent, and in business area Industrial, 13.9 per cent.

However, If’s net investment income decreased by 13 per cent in January-September and 39 per cent in the third quarter, reflecting the challenging investment environment, especially in the fixed income markets.

The guidance for If’s combined ratio for 2019 remained unchanged at 84-86 per cent.

Topdanmark and Mandatum Life keep up the good work

Topdanmark’s profit before taxes for January-September was EUR 180 million compared to EUR 170 million a year ago. However, in the third quarter, the profit decreased clearly compared to the very strong period last year, partly due to lower discount rates and weaker investment income. Combined ratio for January-September was 80.5 per cent (82.7).

In January-September, Topdanmark’s premiums grew 2.4 per cent in non-life business and 13.5 per cent in life business.

Topdanmark updated its profit forecast model for 2019. The model forecasts combined ratio excluding run-offs to be 84-85 per cent (previously 85-86) and net profit to be DKK 1.30-1.40 billion (previously 1.25-1.35).

In the third quarter, Topdanmark and Nordea entered into a new non-life agreement for distribution on the Danish market. The agreement comes into force on 1 January 2020. From 2021, it is expected that the Nordea agreement in terms of premiums will compensate fully for the terminated distribution agreement with Danske Bank, which was terminated at the end of June 2019.

Topdanmark also introduced a new crop insurance, which covers up to 80 per cent of farmer’s normal crop yield if the crop yield is below average. Topdanmark is the market leader on the agricultural insurance market with approximately 50 per cent market share measured by the number of farms.

Mandatum Life’s profit before taxes for January-September amounted to EUR 212 million compared to EUR 385 million a year ago. The comparison figure contains a non-recurring profit item of EUR 197 million related to Mandatum Life’s co-operation agreement with Danske Bank.

Mandatum Life’s premium income increased to EUR 824 million (681), of which unit-linked premiums were 87 per cent. Net investment income, excluding unit-linked contracts, increased to EUR 280 million (196).

Technical reserves increased increased to EUR 11.7 billion (11.2), of which unit-linked reserves were at a record-high level of EUR 7.8 billion. With-profit reserves with higher guarantees (4.5% and 3.5%) continued to decrease as planned to EUR 2.2 billion, which is EUR 198 million less than at the end of 2018.

In September, Mandatum Life issued a Tier 2 bond of EUR 250 million due 2049 and received a long-term issuer credit rating of A+ from Standard & Poor’s.

In the field of wealth management, Mandatum Life’s determined work on socially responsible investing has received international recognition. In August, Mandatum Life Wealth Management received an excellent overall score of A+ (Strategy & Governance) in the 2019 UNPRI assessment. One fourth of all members of the UN’s Responsible Investment (PRI) organization worldwide achieve this score.

Change in Sampo’s view on expected dividends

Sampo’s management announced on 24 October 2019 that it has changed its view on expected dividends. This is due to Nordea’s new dividend policy and dividend guidance for 2019 and increasingly difficult operating environment, with government bond yields expected to remain negative for some time.

Sampo’s management expects to propose to the Board a dividend of EUR 2.10 – 2.30 a share for 2019. The Board will review the dividend policy in early February 2020.

The Finnish Financial Supervisory Authority has today approved Sampo’s application for the termination of the financial and insurance conglomerate (FICO). Henceforth, Sampo Group’s solvency will be calculated only by Solvency II rules. In other words, Sampo becomes an insurance group again. 

Release, 21 October 2019

Background in brief

Sampo’s ownership in Nordea exceeded 20 per cent at the end of 2009. Since 2010, the Finnish Financial Supervisory Authority has considered Sampo Group as a financial and insurance conglomerate and Nordea as an associated company of Sampo. Thus, Sampo Group’s solvency has been calculated by both Solvency II rules for insurance companies and FICO rules.

In 2018, Nordea’s Annual General Meeting decided to re-domicile the company’s headquarters to Finland from Sweden. Due to the re-domiciliation, capital requirements for Sampo’s Nordea ownership have increased significantly. This is because, as part of the decision of the European Central Bank on Nordea’s capital requirement, risk-weighted items (REA) were transferred from non-binding Pillar I to Pillar II, which are binding when calculating the capital requirement for financial and insurance conglomerates as well. Sampo Group’s factual risk position has not changed, but its share of Nordea’s capital requirement increased as Nordea’s Pillar I capital requirement increased. Since the end of 2018, Sampo’s capital requirement has increased by roughly EUR 800 million by the end of June 2019. The adoption of the Systemic Risk Buffer as of 1 July 2019 has further increased Nordea’s capital requirement.

To counter the impacts of the increased capital requirements, Sampo’s Board proposed the AGM in Spring 2019 that the Board be authorized to distribute an extra dividend in cash and/or in financial instruments. The Board received the authorization by the AGM and in the summer, the Board announced that it plans to distribute an extra dividend in the form of Nordea shares with the aim of reducing Sampo’s ownership below 20 per cent. By going below 20 per cent, Sampo Group would no longer be considered as a financial and insurance conglomerate nor Nordea as an associated company in the Group’s solvency calculations. The change was subject to the approval of the Finnish Financial Supervisory Authority.

On 7 August 2019, the Board resolved on the distribution of an extra dividend. As a result of the distribution, Sampo’s ownership in Nordea decreased to 19.87 per cent. On the same day, Sampo filed an application with the Finnish Financial Supervisory Authority for the termination of FICO. The Finnish Financial Supervisory Authority approved the application on 21 October 2019. Henceforth, Sampo Group’s solvency will be calculated only by Solvency II rules and Nordea is treated as an ordinary equity investment instead of an associated company. The change will significantly improve Sampo’s solvency.

How much will Sampo’s solvency improve?

At the end of June 2019, Sampo’s Solvency II ratio was 137 per cent. If Nordea would have been treated as an equity investment, Sampo’s pro forma Solvency II ratio would have been 170 per cent on 30 June 2019. The change released roughly EUR 1 billion of capital. Solvency figures for the end September 2019 will be published normally in the Interim Statement for January-September on 6 November 2019.

At what level does Sampo want its solvency to be at least?

Sampo started to take action when its solvency ratio was, for the reasons mentioned above, decreasing below 140 per cent. However, Sampo does not have any specific minimum level for solvency ratio target, but we aim to maintain a level that, in addition to our normal operations, provides room to seize opportunities that may arise in the markets.

Nordea is now treated as an equity investment in Solvency II calculation. How does this differ from the previous treatment as an associated company?

The solvency ratio is calculated by dividing Sampo Group’s own funds by its solvency capital requirement. Going forward, Sampo's own funds will no longer include a share of Nordea’s own funds as defined in banking regulations and corresponding to Sampo's share of ownership in Nordea. Instead, Sampo’s own funds will include the market value of the Nordea shares owned by Sampo. Similarly, going forward, Sampo's capital requirement will no longer include a share of Nordea’s capital requirement as defined in banking regulations and corresponding to Sampo's share of ownership in Nordea. Instead, the capital requirement for the Nordea shares owned by Sampo will be determined by equity market risk as defined in insurance company regulations and in a similar way with other equity investments made by Sampo.

How will the changes in Nordea’s share price affect Sampo’s solvency?

Since Nordea is now treated as an ordinary equity investment, an increase in the share price will improve Sampo’s solvency and decline will weaken it. A 10 per cent increase in Nordea’s share price from the dividend payment date level (EUR 5.661) would improve Sampo’s solvency ratio roughly by 3-4 per cent.

How does the change affect Nordea’s treatment in Sampo’s financial statement?

The consolidation of Nordea as an associated company in Sampo Group’s financial statement (IFRS) remains unchanged. Thus, Sampo’s share (19.87 %) of Nordea’s net profit will be consolidated in Sampo’s results.

Why is Nordea still treated as an associated company in Sampo’s financial statement?

Solvency II, FICO and IFRS rules are independent, separate regulatory frameworks and the definition for an associated company is different in each. Thus, a change in one regulatory framework does not necessarily lead to a corresponding change in another.

How does the distribution of an extra dividend affect Sampo’s results?

Sampo will book a non-recurring loss of EUR 155 million for January-September 2019. The loss consists of a loss of EUR 143 million from the valuation difference between the value of the share dividend (5.661) and the book value of Nordea share in our balance sheet (EUR 8.238) and a loss of EUR 12 million from recycling of previous OCI items trough P&L. The loss has no impact in cashflow.

Nordic Capital and Sampo have agreed to acquire in total 17.47 per cent of Norwegian Finans Holding, which is the parent company of Bank Norwegian. The transaction price is NOK 68 per share, in total NOK 2,218 million.

Completion of the acquisition will occur in two tranches, whereby the first (9.97%) will be acquired with expected settlement on August 26, 2019. The second tranche (7.50%), which is subject to approval by the Norwegian Financial Supervisory Authority, will be acquired once regulatory approval has been obtained.

Following completion of the whole transaction, Sampo will hold approximately 6,3 per cent of the company. The size of Sampo's investment will be EUR 80 million.

Bank Norwegian offers, among other products, consumer credit and deposit accounts via its digital platform and has over 1.6 million clients in Norway, Sweden, Finland and Denmark. In 2018, Bank Norwegian’s total income was NOK 4.7 billion or approximately EUR 465 million. Norwegian Finans Holding is listed on the Oslo Stock Exchange.

This is the sixth financial investment made by the parent company Sampo plc in the Nordic fintech and financial sector where we see buy & build opportunities characteristic to Sampo’s investment style. Previously we have invested in Asiakastieto, Nets, Saxo Bank, Nordax and Intrum. In total, Sampo has invested over one billion euros in these companies.

Nordic Capital, one of the leading private equity investors in the Nordics, is a familiar investor partner to Sampo since we made a joint bid offer for Nordax in Spring 2018. Nordic Capital is also the largest shareholder in Intrum.

Nordic Capital’s press release regarding the transaction

The first half of the year 2019 was very mixed for Sampo Group. Our insurance businesses, once again, reported strong results but results for Nordea remained at weak level.

* Comparison figure from 31 December 2018
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 2018 unless otherwise stated.

If reported both strong top-line growth and strong results. Profit before taxes increased by 6 per cent to EUR 440 million from EUR 415 million a year ago. On the top-line, premiums growth was 4.3 per cent in local currency. Growth was positive in all markets and business areas, but particularly strong in BA Industrial, 12.1 per cent, and in Norway, 8.7 per cent.

The combined ratio for if improved to 84.7 per cent from 85.8 per cent. This was the best-ever combined ratio for the January - June period in If’s history. Thanks to the strong performance, we upgraded our full-year combined ratio guidance to 84-86 per cent from 85-88 per cent.

For Topdanmark, the good momentum seen in the first quarter continued in the second quarter as well. Profit before taxes for January-June was EUR 146 million (105) in Sampo’s consolidated accounts and the combined ratio improved to 79.0 per cent (84.1). This was one of the best-ever combined ratios for January - June in Topdanmark’s history.

Premiums increased by 2.6 per cent in both non-life and life insurance businesses, although in life insurance, premiums decreased in the second quarter.

Topdanmark's good performance is the result of determined improvement in a number of areas, including improved product mix and underwriting together with the good progress in digitization and efficiency programs. At the moment, already 95 per cent of all claims can be reported digitally and almost half of all claims reported digitally are automated fully or partially.

Topdanmark updated it’s profit forecast model for the full-year 2019. According to the profit forecast model, the combined ratio excluding run-offs would be 85-86 per cent (previously 86-87 per cent). The net profit for the full-year 2019 would still be DKK 1.25-1.35 billion.

For Mandatum Life, the profit for first half of the year was one of the best periods in the company’s history, excluding the EUR 197 million non-recurring profit item related to the Danske Bank co-operation in the comparison period. Profit before taxes amounted to EUR 137 million (313 / 116 without the Danske contribution).

Net investment income, excluding income on the unit-linked contracts, increased to EUR 203 million (123). Mandatum Life’s technical reserves amounted to EUR 11.6 billion at the end of June, from which unit-linked reserves were EUR 7.5 billion, the highest ever figure. Reserves related to the higher guarantees (4.5 and 3.5 per cent) continued to shrink as planned and amounted to EUR 2.3 billion, EUR 130 billion less than at the end of 2018. With-profit contracts with higher guarantees require lots of capital. Thus, the decline of those reserves improves Mandatum Life’s ability to pay dividend to the parent company Sampo plc.

Extra dividend in the form of Nordea shares

Sampo’s Board today resolved on the distribution of an extra dividend in the form of Nordea shares. Each shareholder will receive 1 Nordea share for each 10 Sampo shares held. Fractional entitlements to Nordea shares compensated to shareholders in cash.

The ex-dividend date is 8 August 2019 and the record date is 9 August 2019. In order to receive the extra dividend, the shareholder needs to hold Sampo share at the end of 7 August 2019. The payment date is 12 August 2019 for the share dividend and 16 August 2019 for the cash compensation.

The background for the plan relates purely on Sampo’s solvency, which is decreased due to the increased capital requirement for Sampo’s Nordea ownership. Since the end of 2018, the capital requirement has increased for over EUR 800 billion.

The Group’s solvency is currently calculated under two different frameworks, the conglomerate rules (FICO) and Solvency II -directive. By distributing Nordea shares as dividend, Sampo’s ownership in Nordea will decrease below 20 per cent, which would lead to withdrawing from the conglomerate rules calculation. This is still subject to the formal approval of the Finnish Financial Supervisory Authority (FSA). Sampo expects to receive the approval before the Q3 results release date.

After the approval of the FSA, the Group’s solvency would be calculated only by the Solvency II rules and Nordea would be treated as normal equity investment instead of a subsidiary.

The changes in solvency rules would significantly improve Sampo’s solvency. At the end of June 2019, Sampo’s Solvency II ratio was 137 per cent. If Nordea would have been treated as an equity investment at the end of June, Sampo’s pro forma Solvency II ratio would have been 170 per cent. Sampo wants to maintain strong solvency in order to act more freely in the investment markets. Strong solvency also supports Sampo’s ability to pay dividend.

The consolidation of Nordea as an associate in Sampo’s Financial Statement (IFRS) will remain unchanged. Thus, Sampo’s share of Nordea’s net result will be included in the Group’s results.

In total, approximately 55 million Nordea shares will be distributed as dividend. Sampo will report a capital loss calculated from the difference between the value of the Nordea share on the dividend payment date and the book value of Nordea share (EUR 8.24 at the end of June 2019) in Sampo’s balance sheet.

Taxation of the extra dividend

The Finnish Tax Administration has published a general guide regarding the taxation of dividends in kind.

Guide (www.vero.fi) 

In Finland, a share dividend is taxed similarly as cash dividend. The value of the share dividend would be calculated based on the volume weighted average price of the Nordea share on the payment date 12 August 2019, which is the base of taxation.

Sampo will pay the Finnish transfer tax of 1.6 per cent resulting from the distribution of the share dividend on behalf of shareholders. However, transfer tax does not have to be paid if the payable transfer tax is less than 10 euros per beneficiary. Example: based on 6 August 2019 closing price of Nordea share (EUR 5.655), there would be no transfer tax payable if the amount of share dividends received does not exceed 110 Nordea shares, which would require ownership of 1,100 Sampo shares.

The decision to pay the transfer tax payable on behalf the shareholders is part of the dividend distribution decision. Thus, according to the Tax Administration’s guides, the transfer tax is taxable dividend income for both resident and nonresident beneficiary. The transfer tax will be included in the acquisition cost of the shares when those are being sold.

Since tax practices vary depending on the domicile and the legal status of the shareholder, we kindly recommend our non-resident shareholders to turn to their own tax advisors and, if necessary, the Finnish Tax Administration for questions related to Finnish taxation.

Sampo’s Board has today announced that it plans to resolve on the distribution of an extra dividend in its meeting scheduled for 7 August 2019.

The extra dividend would be distributed in the form of Nordea shares so that each shareholder would receive one Nordea share for each ten Sampo shares held. Fractional entitlements to Nordea shares resulting from the distribution ratio would not be distributed in the form of shares, but an equivalent amount would be compensated to shareholders in cash.

Providing that the Board resolves to distribute the extra dividend on 7 August 2019, the ex-dividend date would be 8 August 2019 and the record date would be 9 August 2019. The payment date would be 12 August 2019 for the share dividend and 16 August 2019 for the cash compensation.

Why does Sampo plan to distribute an extra dividend in the form of Nordea shares?

The background for the plan relates purely on Sampo’s solvency. Capital requirements for Sampo’s Nordea ownership has increased due to Nordea’s re-domiciliation from Sweden to Finland. The capital requirements increased in the spring 2019 and will increase further in the beginning of July 2019. The increase in capital requirements has decreased Sampo’s solvency significantly. However, the actual underlying risk related to Nordea ownership has not changed.

If the Board resolves to distribute an extra dividend in the form of Nordea shares, Sampo’s ownership in Nordea would decrease below 20 per cent, which would significantly decrease the capital requirements.

Why did the Board announce that it will plan to resolve on the matter on its meeting in August, instead of resolving on the distribution of an extra dividend now?

Sampo has over 120,000 shareholders. Thus, the distribution is a significant technical operation for different parties. We want to give the banks, the authorities and Euroclear time to prepare so that the distribution would be executed without any technical problems.

Would the decrease in Nordea ownership mean that Sampo’s view on Nordea has changed?

No, it would not. The distribution of an extra dividend in the form of Nordea shares would be purely a technical measure to improve Sampo’s solvency.

Is the planned extra dividend part of Sampo’s dividend policy?

No. The distribution of an extra dividend in the form of Nordea shares would be purely a technical measure to improve Sampo’s solvency.

Why is it important for Sampo to have strong solvency?

Sampo wants to maintain strong solvency to be able to operate more freely in the investment markets and, for example, participate in M&As. Strong solvency also supports Sampo’s ability to pay dividend.

How much would the distribution of an extra dividend in the form of Nordea shares improve Sampo’s solvency?

At the end of March 2019, Sampo’s Solvency ratio according to the Solvency II directive amounted to 126 per cent. Taking the hybrid capital of EUR 500 million issued in May 2019 and the planned distribution of an extra dividend into account, the solvency ratio would have been approximately 169 per cent at the end of March 2019.

Why does not Sampo just sell the equivalent number of Nordea shares?

We believe that there’s much more potential in Nordea. Thus, we don’t want to sell the shares. It would be difficult to sell a position this large and it could send a negative signal to the markets. By distributing the shares as dividend, our shareholders could decide themselves what to do with the shares.

How would the decrease in Nordea ownership below 20 per cent affect Sampo’s financial reporting?

The decrease in Nordea ownership below 20 per cent would affect Sampo’s solvency calculations. In the future, the Group’s solvency would be calculated only by Solvency II directive and Nordea shares would be treated as normal equity investment. The Group’s solvency would no longer be calculated by the conglomerate rules (FICO).

However, the consolidation of Nordea as an associated company in Sampo Group’s financial statement (IFRS) would remain unchanged.

The changes/impacts mentioned above are subject to authorities’ decisions.

Why would Nordea be still treated as an associated company in Sampo’s financial statement?

Solvency II, conglomerate and IFRS rules are independent, separate regulatory frameworks. At the moment, according to the overall assessment, the consolidation of Nordea as an associated company in IFRS statements would remain unchanged. 

How would the distribution of an extra dividend affect Sampo’s results?

Sampo would report a capital gain/loss calculated from the difference between the share dividend and the book value of Nordea share in Sampo’s balance sheet. The gain/loss would not be cashflow-effective.

For example, if the value of the share dividend was EUR 7.00 on the payment date and the book value of Nordea in Sampo’s balance sheet was EUR 8.10 (31 March 2019), Sampo would report a capital loss of EUR 1.10 per distributed Nordea share.

How many Nordea shares would Sampo distribute?

Sampo would distribute approximately 55 million Nordea shares, corresponding 1,4 per cent of Nordea’s total stock. After the distribution, Sampo would hold approximately 19,9 per cent of Nordea.

As a shareholder, do I have to do something in order to receive the extra dividend?

No, you don’t. In order to receive the extra dividend, shareholder would need to hold Sampo share at the end of 7 August 2019 when the Board plans to resolve on the distribution.

I hold less than 10 Sampo shares. Would I receive Nordea shares as dividend?

No, you would not. Fractional entitlements to Nordea shares would be compensated in cash.

I hold 19 Sampo shares. What would be my dividend?

You would receive one Nordea share for the 10 Sampo shares you hold. For the rest 9 shares, the dividend would be compensated in cash.

What would be the value of the cash compensation for fractional entitlements?

The cash compensation would be based on the value of the share dividend, which would be calculated from volume weighted average price of Nordea share on the date when the share dividend is withdrawable, 12 August 2019. If the volume weighted average price of Nordea would, for example, be EUR 7.00 on that day, the value of the cash compensation would be EUR 0.70 (7.00/10).

In order to receive the extra dividend, when should I hold Sampo share at the latest?

The Board plans to resolve on the distribution on 7 August 2019. In order to receive the extra dividend, at least one Sampo share must be held at the end of that day.

I hold shares at the end of 7 August 2019 but I sell them before the dividend is paid. Would I receive the dividend?

Yes.

How would the share dividend be paid?

The share dividend would be paid to the same account in which the shareholder’s Sampo shares are held.

On what stock exchange are the Nordea shares listed?

The shares that are planned to be distributed are listed on Nasdaq Helsinki.

Why is the cash compensation for fractional entitlements to Nordea shares paid later than the share dividend?

The value of the cash compensation is based on the volume weighted average price of Nordea on the payment day on 12 August 2019. The cash compensation cannot be paid before the value of the share dividend is clear.

Taxation

The following answers regarding taxation apply to shareholders that are based in Finland. Tax treatment for share dividends received by foreign shareholders are, in principle, taxed in the same way as cash dividends. Since tax practices vary depending on the domicile and the legal status of the shareholder, we kindly recommend our foreign shareholders to turn to their own tax advisors and, if necessary, to the Finnish Tax Administration for questions related to Finnish taxation.

How would the share dividend be taxed?

In Finland, share dividends are taxed in the same way as cash dividends. Because the dividend would be paid in the form of shares, the bank could not collect the withholding tax. Instead, the shareholders must take care of the tax payment by themselves.  

What would be the taxable value of the share dividend?

The taxable value of the share dividend would be calculated based on the volume weighted average price of the Nordea share on the payment date 12 August 2019.

How would the cash compensation for the fractional entitlements to Nordea shares be taxed?

The cash compensation would be taxed in the same way as cash dividends. Also, the withholding tax would be collected in the same way.

Would the share dividend be subject to the Finnish transfer tax?

Yes, the Finnish transfer tax of 1.6 per cent would become payable but Sampo would pay it on behalf of the shareholders. No measures would be required from the shareholders.

Could I sell the Nordea shares I receive as a dividend?

Yes.

If I sold the Nordea shares I received as a dividend, what would be the acquisition price of the share?

The acquisition price of the share would be calculated based on the volume weighted average price of the Nordea share on the payment date 12 August 2019.

If I sold the Nordea shares I received as a dividend, what would be the acquisition time of the shares?

The acquisition time would be the payment date 12 August 2019.

More information and instructions are published closer to the distribution at www.sampo.com. The Finnish Tax Administration will publish more tax instructions later at www.vero.fi/en.