January-June 2021 results – Q&A

Mirko Hurmerinta

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.

Key figures, EURm 1-6/
2021
1-6/
2020
Change,
%
4-6/
2021
4-6/
2020
Change,
%
Profit before taxes 1,343 569 136 710 407 74
If 566 383 48 309 254 22
Topdanmark 208 38 442 71 52 37
Hastings 85 - - 38 - -
Associates 369 137 169 243 51 376
Mandatum 141 39 260 65 55 18
Holding (excl. Associates) -26 -29 -8 -15 -5 -204
Profit for the period 1,112 469 137 586 330 78
Underwriting profit 658 489 34 341 275 24
      Change     Change
Earnings per share, EUR 1.80 0.81 0.99 0.99 0.55 0.43
EPS (based on OCI) EUR 2.66 0.02 2.64 1.27 1.73 -0.46
RoE, % 25.2 0.2 25.0 - - -

The figures in this report have not been audited.


Sampo Group financial targets for 2021-2023

  Target 1-6/2021
Group





Mid-single digit UW profit growth   annually on average (excluding   COVID-19 effects)

34% (12% adjusting for the Hastings acquisition and COVID-19 effects in If P&C and Topdanmark)

 Group combined ratio: below 86% 80.7%
 Solvency ratio: 170-190% 209%
 Financial leverage: below 30% 28.4%
If Combined ratio: below 85% 81.1% (84% excluding COVID-19 effects)
Hastings

Operating ratio: below 88% 76.5%
 Loss ratio: below 76% 63.4%

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.

Chart: Strong financial results across all Sampo Group operations

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.

Chart: If P&C Gross Written Premiums increased by 7% in Q2/2021

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.

Chart: If P&C combined ratio improved by 1%-point in H1/2021

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.

Chart: Sampo Group Solvency II

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.

Photo: Mirko Hurmerinta, Sampo
Mirko HurmerintaIR and Communications Specialist, Sampo plc