IR Blog

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

Five years ago, Sampo Group published its Half-Year Financial Report for January–June with a title "Boring is good". The title is still valid and describes well the performance for the first half of the year 2018: good growth and strong results with no drama.

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.

The good performance was driven by strong results in our insurance businesses. If's profit before taxes increased to EUR 415 million in January–June and combined ratio amounted to 85.8 per cent.

If's premiums and the number of customers enjoyed good growth. In local currency basis, If's premiums grew 3.4 per cent in January-June. Premiums grew in all business areas and the growth accelerated during the second quarter. In addition, the number of private customers increased 2.1 per cent in the first half of the year. The growth was strongest in Sweden, where the number of customers increased 3.0 per cent. The growth in the number of customers provides good base for future profit growth.

During the summer, the large forest fires dominated the news in Finland and especially in Sweden. The share of forest insurances policies is very small in If's insurance portfolio. Thus, the fires have no significant effect on If's operations, as long as the fires keep away from buildings.

Topdanmarks results for the first half of the year were good, even though last year's comparison period was very strong. Topdanmark's profit before taxes amounted to EUR 105 million in Sampo Group's consolidated accounts and combined ratio was 84.1 per cent.

Like If, Topdanmark enjoyed good growth in premiums in the first half of the year. Premiums increased 2.2 per cent in non-life insurance business and 20.2 per cent in life insurance business.

The first half of the year was favorable also for Mandatum Life. Profit before taxes amounted to EUR 313 million for January–June. The profit 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 on own account increased 25 per cent to EUR 528 million in January–June. Mandatum Life's core focus area, unit-linked premiums were EUR 465 million, i.e. 88 per cent of total premiums. Unit-linked technical reserves rose to an all-time high of EUR 7.1 billion at the end of June 2018. The total technical reserves were EUR 11.5 billion.

Nordea stayed on the right path during the second quarter, which reflected on results. Sampo's share of Nordea's net profit for the first half on 2018 amounted EUR 388 million compared to EUR 322 a year ago. At the end June, Nordea's balance sheet was stronger than ever with a Common Equity Tier 1 ratio of 19.9 per cent.

In spring, we started to treat NDX Intressenter as an associated company. NDX Intressenter reported loss for the second quarter due to costs related to the takeover bid and delisting of Nordax. Nordax itself reported an operating profit of SEK 98 million for the second quarter.

Profit before taxes for the Holding segment, excluding Nordea, amounted to -48 million in January–June. The profit was burdened by weak Swedish Krona, which caused losses for the first quarter. During the second quarter Krona showed some stabilization.

Financial markets have somewhat calmed down during the summer, although political risks and the threat of trade war are on the carpet. Interest rates are still low, which is an inconvenience for our investment activities.

We specified the 2018 outlook for If's combined ratio target. We now expect If to reach a combined ratio target of 86 – 88 per cent for the full-year 2018.

Read more about Sampo's results for January–June

In this blog post our IR Team answers private investors' questions that we received by email and through social media. Thank you for excellent questions and active conversation!

Nordea is going through a major IT renewal. Does the other Group companies, especially If, face similar projects in the near-term?

There is no need for large IT projects for other Sampo Group's companies in the near-term. If has constantly updated its IT systems towards one pan-Nordic systems for years. As the largest P&C insurer in the Nordics, If has strong resources for IT investments.

Would Sampo consider share buybacks as part of its distribution policy?

Buybacks are one option that can be considered if the Board of Directors considers Sampo's share to be clearly undervalued.

What are the key political risks for Sampo?

All kind of risks that cause turbulence in the fixed income and stock markets affect Sampo Groups investment activities. From an operational point of view, political risks in our home markets, in the Nordics are relatively small. Main risks are potential changes in taxation and regulation in the finance sector.

How Sampo is prepared for the retirement of its key people?

Sampo has detailed plans in case of changes in personnel when the time comes.

What are the biggest surprises that have happened in Nordea since Sampo invested in it?

Obviously, the biggest surprise has been the significantly tightened regulation in the banking sector. This has required major investments, particularly in compliance. In addition, the changes in regulation and taxation, which were the reasons for Nordea's re-domiciliation, were surprising. Another one is that no one would had guessed that interest rates stay so low for so long period.

Why does Sampo not increase its stake in Nordea?

Nordea has an US branch which is under the local regulation. If Sampo would increase its stake, there is a risk that Sampo would be interpreted, in accordance with the US Bank Holding Company Act, as a bank holding company. This would increase regulation and limit our operations.

Sampo's top management has said that it is difficult to find good investment opportunities in this market environment. However, there are several small technology companies in the market. Would Sampo consider investing in them, at least from a R&D point of view and explore if there is any technological innovations for Sampo's businesses to benefit from?

In strategic, larger-class mergers and acquisitions Sampo's core competence is in the Nordic financial and insurance sector. However, our latest investments, Saxo and Nets, are in fact, true fintech companies. Nets is a pioneer in digital payment technology and Saxo Bank focuses on online trading technology. The same applies for Asiakastieto as well. In addition, from a pure financial point of view, we have invested in different kind of companies, including technology companies. Our largest investments are listed in our Annual Report.

What is Sampo's view on the future of the banking sector in five years horizon?

The technological development will change the industry. However, we believe that the traditional banks will continue to play a key role as recipients of deposits and lenders. Different kind of fintech companies will complete the offering and find business opportunities for example in transfer of payments, which is relatively low-margin business for traditional banks.

What comes to the changes in the industry, one key factor is the increased regulation. In the ever tightening regulation environment, the winners will be small and agile niche players, or as Kari Stadigh, the CEO and President, says "commandos" and in the other hand, "large armies" that have enough recourses to carry the regulation burden and, on the other hand, ability to benefit from the economics of scale. In addition, the new players have to evaluate how much regulation they can or are willing to handle.

As the largest bank in the Nordics, Nordea has an advance compared to its many peers. Nordea operates in all Nordic countries and thus, it is a wanted partner in the eyes of fintech companies.

What are Sampo's main competitors?

If's competitors are all Nordic P&C insurance companies and many of them operate locally only in one country. Main competitors are OP and LähiTapiola in Finland, LF and Folksam in Sweden and Tryg and Gjensidige in Norway. In Denmark, If and Topdanmark compete against Tryg and Codan.

Mandatum Life's main competitors are companies that offer life insurance and wealth management products and services in Finland, for example OP, Nordea, LähiTapiola, Fennia, Evli and eQ.

Nordea competes against Nordic and local banks. Larger competitors are, among others, Handelsbanken, SEB, Swedbank, OP, Danske Bank and DNB.

How is Sampo going to grow its profit in the coming years?

We will keep up the good work and continue to develop our subsidiaries. Growth in the number of customers create a good base for profit growth. Nordea's contribution to the Group's profit is significant. In addition, we believe that our latest direct investments in Saxo Bank, Nets and Nordax will create value for our shareholders in the longer-term.

It is important to note that the fixed income markets have a significant impact to our investment activities, because the majority of the Group's portfolio consists of fixed income investments. We estimate that if the yield curve increased by one percentage point throughout, our financial benefit would be approximately EUR 600 million. The benefit would be generated from higher discount rates for technical provisions, higher running yield and improved interest margins for Nordea.

Instead of investing profits, why does Sampo pay such high dividend?

Sampo has profiled itself as a dividend company and our shareholders expect us to pay high and stable dividend. In addition, we have very strong balance sheet, which gives us ability to pay high dividends.

What comes to investment opportunities, the current market environment, particularly the low interest rates make finding good opportunities quite challenging.

Why Sampo has invested so heavily in fixed income?

Especially If has very large weight in fixed income. It can be explained by two factors: dividends and credit rating. When it comes to return on equity, our objective is to keep If's balance sheet light and efficient. However, at the same time, the high credit rating and ability to pay large dividends require strong solvency. Thus, the risk profile of If's investment portfolio must be low. In addition, the group level profit performance benefits from the fact that If's profit is based on successful risk assessment and pricing i.e. underwriting rather than profits from investments. Mandatum Life, on the other hand, usually takes more equity risk.

Why does Sampo usually report its full year results and held its AGM later than most large-cap companies in Nasdaq Helsinki?

Sampo's schedule for financial reporting are affected by the reporting schedule of the subsidiary Topdanmark and associate Nordea. We have to wait them to publish their reports before we are able to start working on our report. This will also push the AGM and dividend payment further the spring. Before we pay dividend to our shareholders, we wish to collect internal dividends from our subsidiaries and associates.

Sampo has increased its dividend nine years in a row. Would Sampo consider paying more dividend than it makes profit in order to keep dividend curve growing?

Sampo has a strong balance sheet and large amount of capital. If there is any troubles with internal dividend flow, we can release some capital by decreasing the buffers.

Digitalization and automatization increase safety. How this trend affects insurance companies, is there still need for insurances in the future?

Technological development, digitalization, automation and artificial intelligence will change the insurance business and thus, affect the evaluation and pricing of risks. However, there will be need for insurances, because accidents happen. Devices break, ankles wrist, employees get sick and homes will be broken into in the future as well.

One of the key questions is how self-driving cars will change the car insurance businesses.

"Digitalisation and automation have already changed the insurance business – and this transformation is gradually gaining momentum. Although digitalisation and automation fortunately contribute to greater security, they also usher in new kinds of risks. For instance, as electric cars become more common, there might be an increase in unexpected accidents, as the vehicles are more silent and battery charging can pose new fire risks. Equipping vehicles with more automation technology will probably lead to a greater need for different kinds of product liability and cyber insurances. As a result of digitalisation, human activities are becoming not only increasingly automated, but also strongly networked. In the future, due to digitalisation and networks, a traffic accident might result from a system crash and have a broad impact on different locations, instead of being merely a traditional collision. The nature of damages is also constantly changing, from physical damages to financial threats such as interruption of operations. As an insurance company, our task is to identify new, increasingly complex risks and develop solutions for their management for our customers – this is a major focus for us at If", says Matti Sjögren, If's Liability Risk Management Specialist

It is also important to note that technological development will also create new business opportunities (for example cyber-insurances) and help insurance companies to improve their services and to enhance their processes. Automation and artificial intelligence improve and speed up the service by streamlining the assessment and pricing of risks and compensation processes. If is in the forefront of this development.

Sampo published today its first group level Corporate Responsibility Report. The report provides information that we have been publishing before but that can now be found in one report.

Naturally, the fact that the new legislation obliges large corporations to report their non-financial information is one reason for publishing this report. However, as the CEO and President Kari Stadigh states in the preface of the report, the key reason is the increasing importance of corporate responsibility to our business and society at large, and the amount of interest our stakeholders have in the topic.

Corporate responsibility is no longer just a hot trend or a bunch of nice words to boost the image of the company. Corporate responsibility is now part of companies' everyday business, as it should be. The legislation draws the broad lines for responsibility reporting but the largest requirements come from investors. Today, investors are well-informed and require that companies are responsible and transparent. They have a good motive for that; in the long-term these kind of companies tend to perform better compared to their peers and thus create value for their shareholders.

What's new in Sampo's CR Report? For example, the carbon footprint of our direct equity and fixed income investments. In 2017, we measured the carbon footprint of investments made by If, Mandatum Life (excluding wealth management) and Sampo plc for the first time. The total carbon footprint of the equity portfolio was 146,748 tCO2e at the end of 2017. This corresponds to a relative footprint of 75 tCO2e/EUR million invested. The footprint is 49 per cent below the global benchmark index.

Direct Equity Portfolio, Sector Contribution to Financed Emissions (tCO2e) If, Mandatum Life and Sampo plc, 31 December 2017

Another interesting figure disclosed in the report is Sampo’s tax footprint. In 2017, the taxes of Sampo plc, If and Mandatum Life totaled EUR 988 million. In Finland, we paid taxes worth EUR 566 million which makes Sampo one the largest tax payers in the country.

Investors and other stakeholders may be curious about how the responsibility is taken into account in risk management and governance, HR management and customers relations or how diversity and equality is seen in Sampo. All this information can be found in the report.

As mentioned, the CR Report is our first. We are happy with the report, but our ambitions are higher. In 2017, we focused on identifying corporate responsibility data sources and responsibilities within the group. Our goal was to create strong basis for the ongoing processes, and thereby for future reports.

“The work with responsibility matters is continuous development and aim to improve. My view is that we are on the right track. This year, our goal is to develop our reporting and our internal practices. We also aim to clarify the Group’s targets, map out development areas and make responsibility more systematical at the group level”, says Johanna Tynkkynen, CR Manager of Sampo.

Our CR Report for 2017 is available here.