Good performance in insurance businesses continued, Board resolved on the distribution of an extra dividend

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.

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.