IR Blog

Sampo’s businesses performed well in the first quarter of the year. The Group’s profit before taxes increased by 7 per cent to EUR 475 million compared to EUR 445 million a year ago.

The state of the economy has remained cautiously positive in Sampo’s home markets, enabling a positive operating environment for our businesses. In addition, after the sharp decline at the end of last year, the equity markets have rebounded, which has supported our investment returns. In fact, the total comprehensive income, taking changes in the market value of assets into account, increased to EUR 561 million compared to EUR 108 million a year ago.

However, interest rates have remained at low levels and interest rate forecasts have been cut around the world. This still makes it difficult to find good investment returns.

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.

Another boring (good) quarter for P&C insurance businesses

If’s performance was, once again, strong, thanks to the strong operative efficiency and technical excellence. In general, the winter season was quite normal in If’s home markets.

If’s profit before taxes amounted to EUR 198 million (193) and combined ratio remained unchanged from a year ago at 86.5 per cent. Both cost ratio and expense ratio improved. Adjusted for currency, gross written premiums growth was strong at 3.9 per cent. The growth was driven by increased retention levels and increased number of customers. The growth was strongest in Norway, 10.5 per cent. In Denmark, the growth was 6.2 per cent and in Sweden, 3.2 per cent. However, in Finland, where the price competitions remained tight, premiums declined by 2,5 per cent.

We upgraded our guidance for If’s combined ratio for 2019 to 85 - 88 per cent. Previously the guidance was 86 - 90 per cent.

Topdanmark had a very strong start for the year 2019. Profit before taxes strengthened to EUR 92 million from EUR 60 million a year ago. The combined ratio improved to 78.2 per cent from 83.7 per cent.

In addition, Topdanmarks top line continued to grow. Premiums increased by 2.6 per cent in non-life insurance and by 18.6 per cent in life insurance.

The digitization of Topdanmark’s businesses and efficiency improvements proceed well. Already 95 per cent of all claims can be reported digitally and 47 per cent all claims reported digitally are automated fully or partially.

Thanks to the strong performance in the first quarter, Topdanmark upgraded its full-year guidance. The post-tax profit forecast model for 2019 is now DKK 1,250 – 1,350 million (previously DKK 1,000 – 1,100 million). The combined ratio without run-off profits for 2019 is now expected to be 86 – 87 per cent (89 – 90). The assumed premium growth for non-life insurance continues to be higher than the growth of 1.7% in 2018.

Topdanmark’s share price has continued to climb higher. At the end of March, the market value of the Topdanmark shares held by Sampo was EUR 1.87 billion. The original average purchase price was approximately EUR 600 million. In addition, Sampo has received total dividends worth EUR 191 million from Topdanmark during the past two years.

Good start for Mandatum Life, tame results for Nordea

Mandatum Life benefited from the strong performance in the equity markets in the first quarter of the year. Profit before taxes remained at excellent level and amounted to EUR 72 million (73).

Net investment income, excluding income on unit-linked contracts, increased to 126 million (72). The largest single item effecting investment returns was the acceptance of the takeover offer for Amer Sports. Before the acceptance, Mandatum Life held approximately 2.4 per cent of the total shares of Amer Sports.

Mandatum Life’s technical reserves amounted to EUR 11.6 billion compared to EUR 11.2 billion at the end of 2018. Unit-linked reserves increased to EUR 7.4 billion, corresponding to 64 per cent (62) of total technical reserves. With profit reserves amounted to EUR 4.2 billion.

With profit reserves related to the higher guarantees of 4.5 and 3.5 per cent continued to shrink and decreased by EUR 74 million compared to the end of 2019. With profit reserves require lots of capital. Thus, the decline of those reserves improves Mandatum Life’s ability to pay dividend to the parent company Sampo plc.

Sampo’s share of Nordea’s net profit decreased to EUR 83 million from EUR 165 million a year ago. In part, the results were burdened by the provision of EUR 95 for AML related matters, that Nordea booked in the first quarter.

Nordea’s tame performance during the beginning of the year has reflected to the bank’s share price, which has had a negative impact on Sampo’s NAV per share as well.

In 2019, Sampo has received internal dividends worth EUR 828 million from its subsidiaries and associates. Mandatum Life paid a dividend of EUR 150 million in March. In April, Sampo received dividends of EUR 594 million from Nordea and 84 million from Topdanmark. If usually pays dividend towards the end of the year.

Potential extra dividend in Nordea’s shares to be decided before the end of 2019

Sampo’s Annual General Meeting held on 9 April 2019 decided to pay a dividend of EUR 2.85 per share. The dividend has now been increased for 10 years in a row.

In addition to the ordinary dividend, the AGM authorized the Board, in its discretion, on the distribution of an extra dividend up to EUR 500 million (EUR 0.9 per share) either in cash and/or in financial instruments.

The authorization is meant to be one available tool that can be used to counter the increasing capital requirements. If the extra dividend was decided to be paid in Nordea’s shares held by Sampo and Sampo’s ownership in Nordea thereby decreased to below 20 per cent, it would significantly improve Sampo’s solvency ratio. The exact timetables have not yet been decided upon, but the potential actions are expected to be taken before the end of 2019. Read more about the potential extra dividend from the previous IR blog post. 

Read more about Sampo’s results for January-March 2019 

Sampo’s Board has today proposed that the Annual General Meeting authorizes the Board to resolve, in its discretion, on the distribution of an extra dividend. The extra dividend could be paid either in cash and/or in financial instruments (including, but not limited to, shares and/or other securities) held by the company. The proposed authorization for the total dividend is up to EUR 500 million (i.e. EUR 0.90 per share).

Why does the Board propose this kind of authorization?

The background for this proposal is the increasing capital requirement for Sampo regarding its ownership in Nordea. This has been disclosed earlier.

Extract from Sampo’s Results for 2018:

“In the fourth quarter of 2018 Nordea’s Risk Exposure Amount (REA) increased EUR 35 billion to EUR 156 billion stemming mainly from migration of existing items from Pillar 2 to Pillar 1 due to the re-domiciliation of the bank from Sweden to Finland. At the same time, the systemic risk buffer (SRB) decreased temporarily to zero per cent.

As a consequence of these two effects, the nominal capital requirement for Sampo was EUR 3,779 million on 31 December 2018. However, the SRB has to be applied in Finland starting 1 January 2019 (2 per cent in the first half of 2019 and 3 per cent from 1 July 2019) which will increase Nordea’s capital requirement for Sampo accordingly in 2019 and decrease the Group solvency ratio. As the situation develops Sampo will be looking into different measures to counter the impact.”

The proposed authorization is one conceivable measure, among other measures, for the Board to counter the impact of the changes in the capital requirement. Distribution of extra dividend in the form of financial instruments would increase Sampo’s solvency.

Why this authorization was not proposed in the original Notice to the AGM?

Sampo’s Board looks into different measures to counter the increasing capital requirement. This measure was not introduced to the Board until now.

Should the shareholders be worried about Sampo’s solvency?

There is no need to be worried. Sampo’s solvency is at sufficient level, but with stronger solvency we are able to operate more freely in the investment markets. It also supports our ability to pay dividend and creates better possibilities to create value for our shareholders, for example by participating mergers and acquisitions or making large-scale direct financial investments.

Would shares of Nordea held by Sampo be included the financial instruments mentioned in the proposal?

Yes.

If the Board decided to distribute extra dividend in the form of Nordea’s shares, could Sampo’s ownership in Nordea decrease below 20 per cent?

This option is not excluded.

What would the decrease of the ownership below 20 per cent mean?

In that case, Nordea would no longer be Sampo’s associated company and the profit would not be consolidated in Sampo’s income statement. This would also substantially change the capital requirement rules for Sampo.

Would this change Sampo’s view on Nordea?

No, it would not. As the largest shareholder in Nordea, Sampo is still committed to participate developing the company to create value for shareholders.

When would this extra dividend be distributed?

This is an authorization, which the Board can, in its discretion, use or not use. The authorization would be valid until the next Annual General Meeting.

What would be the tax treatment for the possible extra dividend in financial instruments?

The tax treatment for the dividend in the form of financial instruments is similar as for cash dividends. Also, the Finnish transfer tax of 1.6 per cent would become payable but Sampo would pay it on behalf of the shareholders. If the AGM approves the proposed authorization and the Board decides to use it, we will provide further information on the tax treatment.

Over the years, Sampo has become a major shareholder in the Danish insurance company Topdanmark.

In 2011, Sampo’s holding exceeded 20 per cent and Topdanmark became our associated company. At the moment, Sampo owns 46.7 per cent of Topdanmark and the company has been consolidated as a subsidiary since September 2017.

We will let Peter Hermann, the CEO of Topdanmark, tell you more about the company.

In a nutshell, what is Topdanmark?

“Topdanmark is a non-life and life insurance company focusing 100 per cent on the Danish market. The market share in non-life and life insurance are 17 per cent and 10 per cent respectively.

In non-life we create value for our shareholders by running an efficient operation focusing on the private and the commercial segments where profitability is high and volatility in earnings is low. Over the years, we have developed Topdanmark into a robust business model with low and stable combined ratios.

In life insurance Topdanmark has been growing rapidly in recent years increasing the market share from 4,8 per cent in 2014 to approximately 10 per cent in 2018.

Being a big player in both non-life and life insurance gives us synergies, but it also gives us better opportunities to do cross-selling. Customers, who have both non-life and life products in the same company are more loyal and feel that they get more value, than those, who have only one type of products. Thus, being big domestically is good for us but more importantly, it is good for our customers.

How would you describe the market environment and competition in Denmark?

“The Danish non-life and life markets are dominated by few large players and have been further consolidated during 2018. In non-life, the competition is relatively disciplined, even though we are competing from door to door. The market is dominated by six listed players representing a total market share of 72 per cent. All six players have profitability at the top of their agenda.

Similarly, the life market is now dominated by five players as two M&A’s took place in 2018 among the largest life companies.”

How does Topdanmark differ from its competitors?

“As the only player on the market, Topdanmark has a market share of 10 per cent or more in both non-life and life insurance. Topdanmark will exploit the synergies selling both non-life and life products as well as utilizing the economies of scale providing non-life and life insurances in one group.

Furthermore, Topdanmark focuses 100 per cent on the Danish market. This is the market we know best, and it will continue to have our management’s full attention. We are often asked why don’t we export our efficient business model to other countries?” Well, we have absolutely no intention of expanding abroad. Shareholder value could very well be destroyed, as we believe that the required return on the Topdanmark share would increase if we expand into less disciplined markets.

Finally, in the non-life market we focus on the low end of the market – the private segment and in the agricultural and SME segment.  These are segments with high claims frequency, but low average claims. Combined with risk-based prices and a comprehensive reinsurance program, this implies low volatility in our earnings and relatively low and stable combined ratios. “

What are Topdanmark’s key drivers for growth and profitability?

“Our mantra is: Profitable growth – in that order!

Besides the advantage of being the only insurance company with a significant exposure within both non-life and life we want Topdanmark to differentiate from other players in the market by being best at risk management, having the strongest distribution power and being the best at customer relations.

Topdanmark’s pricing policy is based on the specific risk of each and every customer. As a result, we are being competitive pricewise for low risk customers in the market. Our disciplined pricing strategy has supported the stable profitability of our portfolio.

On the distribution side, we have invested in improving our efficiency through our own distribution channels as well as through exclusive distribution agreements with Sydbank and most recently with COOP, a large Danish supermarket chain. In addition, we are looking more into digital platforms as new distribution channels. Co-operation with COOP is a good example of that. Over 50 per cent of sales under this agreement is fully digital and the rest partially digital.

Finally, we focus intensely on customer relations. As an example, our share of ambassador customers has since 2010 increased from 34 to 47 per cent. Ambassador customers are customers who recommend Topdanmark to neighbours, colleagues and family.

In general, it is cheaper to keep the existing customers than get new ones. Furthermore, profitability is higher for existing customers than for new customers. That is why customer loyalty is an important driver for profitable growth for Topdanmark. Our strong focus on customer satisfaction has helped increase the retention rate in both the personal and the SME segment.”

How will the technology trends (digitalization, automatization, AI…) change the insurance industry?

“We believe that the winners in the insurance industry will be the companies that are best at combining implementation of new technology with the basic underlying skills of effective risk selection and data analysis. Technology helps us to increase our profitability but what is more important, it will provide better service for our customers.

We have initiated a range of measures to increase efficiency and automate a significant part of our business processes by way of:

Digitalisation – where we will provide further self-service solutions to our customers, such as online claims handling and online sales. Initially we have invested in online claims handling. As a result, 62% of all claims were reported digitally in 2018. We will now focus a bit more on digital sales.

Efficiency improvement – We aim to be more prompt and reduce expenses and we will improve the efficiency of the customer supporting processes. In recent years we have invested in automation by using robotics and machine learning. 51 processes are being executed via robot process automation and we have handled more than 1 million transactions by using robotics.

In our guidance for 2019, we are forecasting a combined ratio between 89 and 90 per cent exclusive run-offs. This is the first time we are guiding a combined ratio below 90 per cent at the beginning of the year. Among other things, this is due to efficiency gains improving the combined ratio of approximately 1 percentage point”.

In this blog entry we aim to answer questions that may rise regarding our Annual Results 2018 and the announced changes in our top management.

Annual Results 2018

Sampo’s profit before taxes for 2018 was EUR 2,094 million, but the total comprehensive income for the period was EUR 1,034 million. What is the reason for such big difference between these figures?

The profit before taxes describes more operational performance, whereas the total comprehensive income includes changes in exchange differences, available-for-sale financial assets, cash flow hedges, share of associate's other comprehensive income as well as actuarial gains and losses from defined pension plans.

The total comprehensive income for 2018 was burdened especially by the rough decline in the stock markets in the last quarter.

Why does Sampo distribute such high dividend?

Sampo has profiled itself as a dividend stock and our shareholders appreciate high and stable dividend. Good profit performance, good internal dividends and strong balance sheet make it possible to pay high dividend.

What is the ex-dividend date and when the dividend is paid?

If the AGM held on 9 April 2019 approves the dividend proposal, the ex-dividend is 10 April. The payment date is 18 April.

In 2017, Sampo’s results included a positive non-recurring item of EUR 706 million because of the change in Topdanmark’s accounting treatment. In 2018, Mandatum Life received a non-recurring contribution of EUR 197 related to the co-operation agreement with Danske Bank. How does these items differ?

The non-recurring item related to Topdanmark purely a change in accounting and had no effect in cash flow. Practically, the book value of Topdanmark increased in Sampo’s balance.

The non-recurring contribution received by Mandatum Life, on the other hand, was paid in cash.

In Sampo’s financial statement release, for example Topdanmark’s premiums increased significantly from the year before. What is the reason for this?

In this case, the figures don’t tell the whole truth because the year 2018 was first for Topdanmark as Sampo’s subsidiary. In 2017, only the last quarter was fully consolidated in Sampo’s accounting because before this Topdanmark was an associated company.

The best view on Topdanmark’s performance can be found in the company’s own reports.

In Sampo’s Financial Statement Release, Topdanmark’s combined ratio is 82.3 per cent but in Topdanmark’s own report it is 83.6 per cent. Why the figures differ?

There are small differences in calculation methods. To present a congruent view, Sampo calculates Topdanmark’s key figures like they are calculated for If.

In Sampo’s outlook for 2019, If is expected to reach a combined ratio of 86-90 per cent in 2019. In previous years, Sampo tended to use a target of below 95 per cent combined ratio, which was trimmed during the year. What is the reason for more detailed outlook?

If has maintained its high-level of performance for years. Taking this to account, the old practice was no longer that functional.

Why did Sampo’s solvency ratio decrease in 2018?

Sampo’s solvency ratio decreased due to increased capital requirement for Nordea in 2019, which was caused by the re-domiciliation from Sweden to Finland.

More about Sampo’s results for 2018

Changes in Sampo’s top management

Why did Kari Stadigh decide to retire right now?

It was Kari’s personal decision. Kari reached his official retirement age over 3 years ago but he has prolonged his tenure at the request of the Board.

Why was Torbjörn Magnusson appointed the next Group CEO and President?

Torbjörn has worked as CEO of If since 2002 with excellent track record. He knows the insurance industry better than his own pockets and he has quickly got into the banking sector via his positions of trust in Nordea. Torbjörn’s appointment is a proof of Sampo’s strong corporate culture and bench strength.

Is Sampo’s strategy going to change after Torbjörn Magnusson becomes the Group CEO and President on 1 January 2020?

The Board of Directors decides on Sampo’s strategy and the Group CEO and President is in charge of the execution of the strategy. Sampo’s main objective is to create value to its shareholders, now and in the future.

During his tenure, Kari Stadigh’s goal has been a forever increasing dividend. Does Torbjörn Magnusson have the same goal?

Torbjörn shares Kari’s view on the importance of rising dividend curve for investors.

Why did Torbjörn Magnusson step down as CEO of if immediately?

Torbjörn starts to focus on his new responsibilities right away. These are the chairmanship of If and subsequently the chairmanship of Nordea if he is elected as proposed by the Nomination Committee of Nordea.

Why is Björn Wahlroos no longer available as Chairman of the Board Directors of Nordea?

Nalle’s decision to step down from Nordea’s Board was his personal one. According to him, Nordea’s Board needs new energy and from Sampo’s perspective the best choice is the Sampo’s future Group CEO and President of Sampo.

Were the money laundering allegations related to Danske Bank and Nordea the reason for Björn Wahlroos’ decision?

No, they were not.

Björn Wahlroos steps down from Nordea’s Board. Does Sampo now have one representative fewer in the Board?

Sampo is Nordea’s largest shareholder and, thus, uses its power in Nordea’s Nomination Board. Through the Nomination Board, Sampo has influenced the proposals and is happy with them.

How the changes in Nordea’s Board affect the bank?

Sampo does not comment matters of Nordea’s Board.

What plans does Björn Wahlroos have for his chairmanship of Sampo?

Nalle is proposed to be re-elected as Chairman of the Board of Sampo.

What kind of representation is Sampo going to have in Topdanmark’s Board?

The current Chairman Torbjörn Magnusson will step down from the Board. Ricard Wennerklint from If, the Member of the Board since 2017, is proposed to succeed him as Chairman. If’s new CEO Morten Thorsrud is proposed to be elected as new member. Petri Niemisvirta, CEO of Mandatum Life, is proposed to be re-elected.

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.”