Q&A

In this blog entry we answer investors questions collected from different channels. Thank you for the good questions!

How will Sampo create shareholder value over the next ten years?

Sampo creates shareholder value through its profitable businesses. Particularly, in P&C business, digitalization and economies of scale create favorable opportunities for steady improvement trend. Sampo’s ability to participate in mergers and acquisitions remains good.

What are Sampo’s key growth drivers in the coming years?

Insurance business is rather defensive and steady and one should not expect any rapid growth leaps. In P&C insurance, premiums can be expected to grow roughly at the same pace as GDP. However, If’s growth has been exceptionally strong recently, partly due to the favorable competitive environment in the Nordics. Low interest rates make it difficult to achieve good investment returns, which has forced all insurance companies to focus on technical profitability. This has reduced the aggressive price competition, which has positively reflected in If’s premium and customer volume growth.

In life insurance, the premium growth can be expected to be faster than the GDP growth. For the coming years, one key growth driver is the increasing importance of personal savings and financial safety net as unfavorable demographic trend create pressure on the public social security and pension system.

In the short-term, the biggest single profit potential relates to Nordea’s new business plan and targets.

What is Sampo’s strategy in Nordea? Is the intention to exit the investment at some point?

We welcome Nordea’s business plan and targets announced in October. Nordea, like Sampo’s all holdings, is for sale if the price is right.

Could Sampo exit Nordea by distributing the whole ownership in dividends to its shareholders?

In theory, yes, but it would have a significant negative impact on the Group’s solvency. In addition, it would cause noteworthy one-off tax consequences for the shareholders. 

What kind of M&A opportunities does Sampo see in its core markets?

We are constantly looking at potential M&A projects that could create shareholder value. Because Sampo is a big investor, various opportunities are presented to us regularly. However, it is hard to say anything concrete about this subject because opportunities can come quickly and unexpectedly and must always be considered case-by-case.

On a general level, it is clear that large-scale M&As are unlikely in the Nordics in both insurance and banking sector. In insurance sector, all the big players are currently in quite good shape and company valuations are high, and this reduces the likelihood of M&As. In both the insurance and banking sectors, competition regulations can come into play for larger deals. On the other hand, smaller deals, where a small player merges with another or a larger player takes over smaller players, may well continue to occur in both sectors.

What kind of value creation potential does Sampo plc’s direct financial investments have?

The direct financial investments made by the parent company Sampo plc (Saxo Bank, Nets, Nordax, Asiakastieto, Intrum and Bank Norwegian) are normal investments from which Sampo will exit at some point. What unites all the companies is that they operate in the financial sector and fintech sector, which Sampo knows well. There are also a lot of consolidation taking place within the sector and Sampo can give its own contribution and create shareholder value. For example, Sampo participated Saxo Bank’s takeover bid for BinckBank corresponding to its ownership.

The value creation potential and exit points vary case by case. Of these investments, Saxo Bank, Nets and Nordax are private equity investments, where the investment horizon is usually longer than in publicly traded investments.

Why has Sampo invested in Nordax and Bank Norwegian, which are specialized in consumer credit? Are these investments in conflict with Sampo’s responsibility considerations?

We have invested in Nordax and Bank Norwegian because we see them as interesting players in the changing financial sector and see potential for value creation.

The investments are not in conflict with our responsibility considerations. We are aware that the companies operate in a sector, where is a lot of problems and negative attitude. However, both Nordax and Bank Norwegian operate by all the laws and regulations. The companies have clear requirements and conditions under which loans can be granted to clients.

To which companies does Sampo compare itself and its businesses?

Sampo’s primary benchmark companies are other major P&C insurers in the Nordics. These include, for example, Tryg, Gjensidige, LF, OP and LähiTapiola. Due to the large ownership in Nordea, we usually use benchmark indices that include both insurance and banking companies when comparing stock price development.

Why was Sampo so strongly speaking for increasing the dividend instead of taking more cautious approach in August?

Two key events occurred after the Q2 results in August. Nordea announced its new dividend policy, which will have a significant impact on Sampo’s internal dividends in the coming years. In addition, interest rates fell sharply after the ECB meeting in September and markets expect them to remain low for even longer period of time than previously expected, which affects Sampo’s investment activities. If these things had been known in August, the communication would certainly have been different. Thanks to our strong balance sheet, it would be possible to increase the dividend in spring 2020, but would not serve our shareholders nor the company’s interest because the matters will have a longer-term effect on ability to pay dividend.

Is Sampo going to renew its dividend possibility and if so, how?

Sampo’s Board will review the company’s dividend policy in February 2020. No comments can be given before that.

Can If still be more efficient or is the profit growth only dependent on premiums growth?

If has successfully reduced its cost ratio (operating expenses and claims adjustment expenses divided by premiums earned) by at least 0.1 percentage points for several consecutive years. In 2018, the cost ratio was 21.9 per cent compared to, for example, 23.5 per cent in 2011. Such steady improvements can be expected in the future as well. The trend is supported by digitalization and economies of scale.

If focuses on profitability and does not seek growth at the expense of profitability. Growth must always be profitable, and If’s premium growth has been very strong recently. In January-September 2019, If’s premium growth was 5.0 per cent in local currency.

At what point will Sampo reach the limits of growth in its current markets?

As mentioned above, Sampo will focus on profitability rather than in growth in its businesses and growth must be profitable. In terms of market shares, there are no limits in sight for organic growth. On the other hand, bigger single growth leaps through M&As are less likely due to competition regulations.

Why wouldn’t If expand its operations, for example, to Central Europe?

We constantly monitor developments in other markets and in the insurance industry if there are opportunities to enter new markets. However, expanding into a new market always involves a lot of risks and we only take risks that are manageable and justified from the point of view of shareholder value. There is no reason to expand just for the joy of expansion. In addition, we want to be a major player in every market in order to be able to benefit from economies of scale. Thus, any expansion into new markets would more likely to take place through an acquisition, which involve its own risks.

What kind of added value the Viking acquisition announced on November brings to If?

The Viking acquisition is relatively small for If (the enterprise value is EUR 114 million), but it adds value in many ways. Through the acquisition, If can offer more comprehensive service to its customers and partners such as car manufacturers that includes both insurance and roadside assistance. A more comprehensive service enables better customer contact in the events of accident, which makes processes more efficient and faster for both If and the customer. In the event of accident, the information reaches both the roadside assistance company and If at the same time, which makes it easier, for example, to arrange a rental car, recommend a suitable repair shop and start the claim procedure.

What is Sampo’s view of the consolidation development in the Nordic financial sector?

At a general level, it is likely that there will be consolidation, particularly amongst small and medium-sized players, which are subject to regulatory pressure. However, consolidation between the big players is less likely due to competition regulations.

What is Sampo’s view of the future interest rate development? How has Sampo positioned itself against the changes?

We do not know in which direction interest rates will go, nor can we forecast the weather for the next Summer. The duration of our fixed income investments is still short. Thus, rising interest rates would have only a small momentary negative impact on our portfolio and we would benefit from higher interest rates faster. Higher interest rates would therefore be very positive for Sampo.

Sampo’s subsidiaries If and Topdanmark compete with each other in Denmark. Is there a contradiction?

If and Topdanmark are both independent companies and compete with each other as they as they should do. However, their target customers are somewhat different, which reduces the overlapping. Topdanmark is strong on the household and agricultural side, whereas If focuses more on the corporate side in Denmark.

How often does Sampo attend IR events and meet foreign investors?

About 65 per cent of Sampo’s shares are foreign-owned, which means a lot of meetings abroad. Sampo’s management and IR have approximately 250-300 meetings with foreign investors and analysts each year. This will be followed by numerous meetings with domestic institutional investors. In addition, we do our best to serve our domestic private shareholders through investor events and increasingly through social media.

How does Sampo use its owner’s control in companies, in which it’s a minority shareholder?

Sampo is an active owner and exercises its voting rights trough Board work. For example, three of the six members elected by the AGM of Topdanmark are representative of Sampo, including the Chairman. In Nordea, Torbjörn Magnusson, the Group CEO and President of Sampo as of 1 January 2020, is the Chairman of the Board. In addition, Sampo has a representative in several companies in which we have invested by the parent company Sampo plc.

Does Sampo any short-term trades or short sell assets?

No.