IR Blog

Sampo has today signed an agreement with Rand Merchant Investment Holdings Limited (RMI) to acquire its ownership in Hastings.

Under the terms of the agreement, Sampo will pay GBP 685 million for RMI’s 30 per cent minority interest in Hastings and the option held by RMI to acquire 10 per cent of Hastings’ share capital from Sampo by May 2022.

The total acquisition price of GBP 685 million, or approximately EUR 806 million, will be funded with internal cash resources. Combined with the initial acquisition in November 2020, the agreement implies that Sampo will pay a total of GBP 1,851 million for 100 per cent of the share capital in Hastings.

Release

Why did Sampo want to acquire the rest of Hastings?

Hastings is a high-quality company with leading digital capabilities and fits well in our P&C focused strategy. Since the initial acquisition in 2020, we have been very impressed by company’s performance and we are convinced that it’s a long-term winner in the UK digital motor & home insurance market. Hastings has a great track-record on profitable growth and there’s plenty more to achieve.

Full ownership will enable faster decision making and more flexibility around changes in capital structure. It will also be to share knowledge and technology freely across the group.

Why now?

We got an opportunity to acquire the full ownership from RMI sooner than expected.

Why didn’t Sampo buy the whole company already last year?

We felt that it was good to cooperate with RMI initially, to ensure continuity and to have a highly informed and capable operator with us. The initial transaction was very much a partnership with RMI and they were not a seller at that time.

Why is the valuation of the minority shares higher than the initial acquisition in 2020?

The increase in the acquisition price mainly reflects growth in Hastings’ book value, improved certainty over Hastings reserving position and increased in reserve strength, enhanced visibility on synergies and higher expected forward earnings.

How the acquisition will affect Sampo’s earnings?

Since Hastings profit and loss items are already recognized line-by-line in the Group’s financial reporting, the effect will be shown only in the Group’s net income. Based on consensus estimates, the deal would have an earnings accretion of approximately 4 per cent in 2022.

Is the acquisition more attractive than doing buybacks?

Yes. We see both greater earnings accretion and return on investment from 2023 onward.

How will the deal affect Sampo’s solvency and financial leverage?

The acquisition is estimated to have a negative 14 percentage points impact on Sampo’s Solvency II ratio and to increase financial leverage by approximately 1 percentage point.

Will the acquisition affect Sampo’s buyback program or the announced management’s proposal of an extra dividend?

The deal will not affect Sampo’s ongoing EUR 750 million buyback program or the previously announced management proposal for an extra dividend of at least EUR 2.00 per share.

In connection with the Q3 results, you estimated that Sampo would have excess capital approximately EUR 10 per share, including already announced and ongoing actions, as well as the current holdings. What is the figure after this acquisition?

Approximately EUR 8.5 per share.

Will Sampo make any changes to Hastings’ long-term strategy that was initially agreed with RMI?

There will not be any immediate changes to strategy, but obviously some things like knowledge sharing becomes easier.

Will the acquisition mean that Sampo intends do further acquisitions in the UK?

Our UK M&A ambitions are unchanged. As we have stated, we could consider only some smaller insurance portfolios, mainly in home insurance, that would supplement Hastings existing business.

Does the acquisition require any regulatory approvals?

No but we have obviously informed the regulator, as we have a good dialogue with them.

Sampo announced today that it will return excess capital to its shareholders by launching a share buyback programme. 

Release

The aggregate purchase price of all Sampo A shares to be acquired under the buyback programme shall not exceed EUR 750 million. The maximum amount of Sampo A shares that can be repurchased is 20,000,000 shares corresponding to approximately 3.6 per cent of the total number of shares in Sampo.

The share repurchases will start on 4 October 2021 at the earliest and end by 18 May 2022.

The purpose of the buyback programme is to return excess capital to shareholders by reducing Sampo plc’s capital, as the repurchased shares will be cancelled. The repurchases will reduce funds available for distribution of profit.

Why did Sampo choose buybacks instead of dividends?

As always, we listen to our shareholders carefully and base our actions on their feedback. Naturally, some shareholders prefer dividends whereas others prefer buybacks. This time we decided to use the proceeds from the latest Nordea sale for buybacks, which is a tax-friendly way of returning excess capital for many institutional and private investors.

Will Sampo later distribute excess capital also in dividends?

The decisions on the distribution method of any potential excess capital will be made over time as we continue to reduce our ownership in Nordea and other financial investments. However, it is likely that both dividends and buybacks would be used if Sampo decided to further return excess capital to shareholders.

How will Sampo’s shareholders benefit from buybacks?

By returning excess capital via buybacks, Sampo delivers on its commitment to disciplined capital management while at the same time reducing its total share count, which enhances earnings per share and dividends per share growth. The buybacks allow shareholders to choose between receiving cash returns by selling shares or increasing their stake in the company.

Instead of cancelling the repurchased shares, can Sampo use them for other purposes, for example management’s compensation?

No. According to the authorization by the AGM, all repurchased shares must be cancelled.

From which market will the shares be acquired?

Shares will be acquired through public trading on Nasdaq Helsinki, CBOE, Turquoise and Aquis.

Which bank will acquire the shares?

The shares will be acquired by Exane BNP Paribas. The repurchases will be made in accordance with the safe harbour arrangement of Article 5 of the EU Market Abuse Regulation. This means that Exane BNP Paribas will act independently in accordance with its mandate without Sampo’s influence. Thus, the programme can also be run during Sampo’s silent period.

How many shares can be repurchased per day?

Based on regulation (MAR), the maximum number of shares that can be repurchased is 25 per cent of the average daily volume per each market.

Is it possible to acquire a larger block of shares from a single shareholder?

Block trades are not allowed in this programme.

How will the buybacks affect Sampo’s solvency and leverage?

Buybacks will affect the same way as dividends, i.e. decrease Solvency II ratio and increase financial leverage ratio.

At the end of June 2021, Sampo’s Solvency II ratio was 209 per cent and financial leverage 28.4 per cent. If both the latest Nordea share sale and the whole EUR 750 share buyback had taken place at the end of June, Sampo’s Solvency II ratio would have been 207 per cent and financial leverage 29.4 per cent.

Will the buybacks affect Sampo’s dividend policy?

Buybacks will not affect Sampo’s dividend policy, according to which the total annual dividends paid will be at least 70 per cent of Group's net profit for the year (excluding extraordinary items).

Sampo continued its strong performance in the second quarter of 2021, resulting the best-ever operational first half results.

Sampo Group’s profit before taxes for January-June 2021 increased to EUR 1,343 million (569), including the gain of EUR 93 million from the Nordea share sale, which will be treated as an extraordinary item. Earnings per share for the first half was EUR 1.80 (0.81).

The Group’s core business, P&C insurance achieved an underwriting profit of EUR 658 million (489), representing year-on-year growth 34 per cent. Adjusting for the Hastings acquisition and COVID-19 effects in If and Topdanmark, the growth was 12 per cent. The Group’s combined ratio improved to 80.7 per cent (82.6).

With the strong results achieved in the first half of 2021, Sampo Group is well ahead of its financial targets for 2021-2023.

The figures in this report have not been audited.

Sampo Group financial targets for 2021-2023

Financial targets for 2021-2023 announced at the Capital Markets Day on 24 February 2021.

What were the drivers behind the strong results?

The development in the first half and in the second quarter was strong across all areas. Our P&C units; If, Topdanmark and Hastings reported strong results. If reported an underwriting profit of EUR 443 million (393), Topdanmark EUR 114 million (96) and Hastings EUR 101 million for the first half.

In addition to the great underwriting results, the favorable development in the investing markets supported the Group’s investment results.

Mandatum benefitted from the good market momentum and saw very strong net flow to assets. It’s unit-linked and other client assets exceeded EUR 10 billion for the first time.

Sampo’s largest investment, Nordea, continued its strong performance, increasing our share of the bank’s net profit despite the decreased ownership.

Picture from Investor presentation

How did the COVID-19 pandemic affect Sampo’s businesses in the second quarter?

The effect of COVID-19 on If’s combined ratio was approximately 3 percentage points positive in the second quarter. During the second quarter, motor claims were above last year’s level, but still below pre-pandemic levels. A gradual normalization of claims frequency is expected as vaccinations progress and restrictions are lifted. The topline effect of COVID-19 was minor.

In the UK, motor claims frequencies have remained low throughout the pandemic due to lower usage of motor vehicles. This has supported Hastings loss ratio, but also made the market environment more challenging due decreased prices. In the second quarter, motor claims frequencies started to increase as restrictions were lifted.

Mandatum did not experience significant COVID-19-related impacts during the second quarter.

If’s premium growth increased to 7.2 per cent in the second quarter from 2.6 per cent in the first quarter. What were the drivers behind the strong growth?

In the second quarter, all Business Areas had strong growth, with Commercial (10.2%) and Baltic (11.3%) being the brightest stars during the quarter.

In If’s largest Business Area, Private, the growth increased to 5.8 per cent from 3.9 per cent in the first quarter with strong development especially in Sweden and Norway. BA Private benefitted from a strong new car sales development in the Nordics, in which If had a 26 per cent market share in the first half. This means that every fourth new car sold is insured by If. In addition, the private customer retention remained strong at approximately 90 per cent and NPS increased to 61 from 60 at year-end.

Picture from Investor presentation

If’s combined ratio (80.7%) was a bit higher in the second quarter of 2021 compared to a year ago (80.5). Why?

In the second quarter of 2021, COVID-19 had a positive effect of 3 percentage points to the combined ratio, whereas last year the effect was 4 percentage points. Thus, excluding COVID-19 effects, the combined ratio improved by 0.8 percentage points.

Besides the lower COVID-19 effect, If’s combined ratio was affected by the increase in cost ratio due to some IT expenses and an increase in activity.

Picture from Investor presentation

How is the knowledge and skills share program with Hastings developing?

The program is progressing well. During the first half, we have identified annual pre-tax earnings benefits of EUR 30 million from knowledge sharing with If. These include, for example, new and electric vehicles tariff and pricing automation, telematics, fraud analytics and IT procurement and services. We expect these benefits to fully show in the profit by first half of 2023.

In addition, there is a further EUR 15 million benefit from capital optimization actions related to, for example, reinsurance optimization and potential internal financing.

In total, these benefits represent over 30 per cent of Hastings average profit before taxes in 2018-2020.

Sampo Group’s Solvency II -ratio increased to 209 per cent from 189 per cent at the end of the first quarter. What was behind of this increase?

The biggest driver was the Nordea share sale in May, which had a 17 percentage points positive effect. Operating items increased the ratio by 4 percentage points. Market movements had also a positive effect, but that was subdued by the change in the symmetric adjustment.

Picture from Investor presentation

On 25 July 2021 Sampo announced that in total of EUR 182.5 million of bonds due 2023 and 2025 will be bought back. The total outstanding amount of these bonds was EUR 894 million. Was the result a disappointment?

It was expected that it would be quite challenging to get fixed income investors to sell their investments in these times of very low interest rates. Nonetheless, we are happy that we managed to bring down the debt a bit.

What will be Sampo’s next steps for the financial leverage?

There are options to bring down the financial leverage. Sampo plc has one senior bond of EUR 360 million maturing in September 2021 and If has some hybrid debt with a first call date in December 2021. There are also some other options that can be considered.

The ECB announced on 23 July 2021, that it will not extend its dividend restrictions for banks. Will Sampo distribute the potential dividends from Nordea to its own shareholders?

Sampo’s dividend policy is linked to net profit, not internal dividends. However, the guidelines for usage of potential excess capital, communicated at the CMD on February, apply to all capital regardless of origin of it. The potential excess capital can be used for bolt-on acquisitions or returned to the shareholders.

In this blog entry, we have compiled questions we have received from investors and analysts during the second quarter.

How has the claims environment been in Q2?

During the second quarter, there were no major weather events, although there has been some localised unsteady weather, such as a period of heavy rain in Sweden and a couple of small storms in Finland.

Regarding to COVID-19 situation, the general activity has started to improve towards the end of the first half of 2021 after the spring lock-up periods.

How will the sale of Nordea shares in late May affect Sampo?

The gross proceeds of the transaction were EUR 1,377 million. Since the sale price of EUR 8.50 per share exceeds the book value of Nordea in Sampo’s balance sheet, Sampo will make a sales gain of approximately EUR 93 million, including recycling of previously recognized other comprehensive items of approximately EUR -30 million, from the transaction. The sales gain will be treated as an extraordinary item. Thus, it will not affect Sampo’s dividend.

In addition, the transaction will improve Sampo’s Solvency II ratio as the market risk decreases.

How will Sampo use the proceeds from the Nordea share sale?

As we communicated in the Capital Markets Day in February, Sampo is committed to return possible excess capital to its shareholders while maintaining a strong but efficient balance sheet.

Most of the proceeds from the latest sale will be consumed to further bring down the Group leverage ratio. In June, Sampo launched a debt buy-back, which is expected to be completed in Q3. In addition, there’s also one bond maturing in September.

Options for the rest are to re-deploy it in the business or return to shareholders, depending on where the returns are the highest.

Would the potential excess capital be returned to shareholders in dividends or through buybacks?

Both options are on the table and to be considered when the time is right. Some of our shareholders prefer dividends, others see buybacks as a better option.

Will Sampo sell more Nordea shares soon?

In connection with the latest transaction, Sampo entered into a lock-up undertaking, under which it has, subject to certain exceptions, agreed not to sell any Nordea shares for a period ending at 23 August 2021.

After that, the options naturally depend on Nordea’s performance and the share price, but also on ECB’s announcements on the dividend and buyback restrictions for banks.

Sampo has owned Hastings for over six months now. How do you feel about the acquisition?

Hastings has had a good start and the skills and knowledge transfer program between Hastings and If is progressing well. Due to the pandemic and heavy lockdowns, the UK motor market has been challenging, but Hastings has achieved a good profit growth through disciplined approach and strong margin development in Q1. We expect Hastings to get more opportunities for top line growth as the pandemic lifts.

What levers does Sampo have to grow its P&C insurance profits?

Sampo’s largest business, If, will continue to benefit from its pan-Nordic presence and being the leader in digitalization while pricing at least claims inflation and continuous cost focus and other initiatives will support margins.

Topdanmark has launched a bunch of digitalization initiatives that will further improve its efficiency. With regard to Hastings, we are confident that the company can take more market share in the medium term.

Mandatum has made a lot of changes recently. What are these about?

Mandatum is broadening its new business proposition to include a wider range of asset management products. This should help to support earnings development on top of the capital generated from the run-off of the old with-profit book.

How have the capital markets developed from Sampo’s perspective?

In the equity markets, the good momentum has continued, supporting especially Mandatum, which has the highest exposure in equities within the Group. In the fixed income market, there have been no major movements during Q2.

How have the key currency rates developed during Q2?

Both the Swedish Krona and the Norwegian Krone have strengthened against the Euro compared to Q2/2020. This will have a small positive effect as If’s figures are converted to euros.

If’s competitor Tryg sells Codan Denmark to Alm. Brand. Any thoughts about the transaction?

We don’t expect the transaction to cause any major changes in the Nordic P&C markets, which are expected to remain favorable.

Was Sampo interested in buying Codan?

We already have a strong presence in Denmark through Topdanmark and If. Thus, Sampo was not interested in buying Codan and did not participate the bidding process.

Sampo announced on 27 May 2021 that Jarmo Salonen, 62, the Head of Investor Relations, has decided to step down after serving our shareholders for 20 years in his position. Jarmo will continue as senior adviser in the Group until his retirement.

Sami Taipalus, 37, who joined Sampo in August 2020 to work on strategic projects within the Group Finance unit, starts as the new Head of Investor Relations today.

Sami, where do you live and how do you spend your free time?

“I live in Täby, just outside of Stockholm. I have two young children so much of my spare time is taken up with their activities, which include various sports and trips to the park, beach and countryside. I love football and although I no longer play myself, I coach my older son’s team. I am also a foodie, so I like to go out to eat something nice or cook at home when I get a chance.”

Tell us a bit about your work background

“I have spent my whole career working with P&C insurers. I started as an actuarial analyst at Tillinghast, which was then part of Towers Perrin, after which I worked briefly in a similar role in the London Market. In 2010, I moved to Berenberg to work as an equity analyst specializing in insurance companies and then I moved again to Goldman Sachs in 2017 to do the same job. As an analyst, I worked mainly on European P&C companies, including those in the Nordics and UK. In 2020, I joined Sampo to work on certain projects within the finance function.”

You used to work as an equity analyst. What skills or qualities can you bring to this side of the table from your previous career?

“As an analyst, I have discussed the strengths and weaknesses of many insurance companies countless times with investors over the last decade. This has helped me build a good understanding of what investors value in insurers and how to communicate this.”

How would you describe good IR communication?

“In my view, the key objective for an IR team is to communicate the purpose, competitive strengths and financial plan of a business, since these are what make it success in the long term. I believe that transparency and regular communications with investors and analysts are essential to build confidence in the business and its trajectory. I also think it is important to recognize that all investors are different and therefore require different types of contact and information. For example, in Sampo we have a strong contingent of retail investors, so we will make sure that these also get top quality access to the company.”

You have been working at Sampo for almost a year. What has been the best and what are you looking forward to the most?

“Due to COVID-19 it has been a strange time to join a new company – I have had lot of Teams meetings but met few people face to face. Nonetheless, I have very much enjoyed my time at Sampo thus far, as I have worked on interesting projects with excellent people. I have learnt a lot since joining the group.

Now I am looking forward to meeting our shareholders and analysts to discuss Sampo and the markets we operate in, not least since the insurance industry is going through significant changes that I think our business is very well positioned to navigate. As someone that considers himself Finnish, Swedish and British in roughly equal measures, I am naturally also very much looking forward to working in a group with our operational footprint.”