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Sampo Group’s profit before taxes for January – March 2020 amounted to EUR 162 million (475). The Group continued to report strong insurance technical results, although the sharp decrease in the market values of investment assets lowered the profit. Impairments of investment assets totaling almost EUR 200 million are included in the profit. The total comprehensive income for the period, taking changes in the market value of assets into account, decreased to EUR -954 million (561).
|KEY FIGURES||1-3/2020||1-3/2019||Change, %|
|Profit before taxes||162||475||-66|
|Holding (excl. associates)||-24||29||-|
|Profit for the period||139||398||-65|
|Earnings per share, EUR||0.26||0.64||-0.38|
|EPS (incl. change in FVR) EUR||-1.71||0.94||-2.65|
|NAV per share, EUR *)||15.36||20.71||-5.35|
|Average number of staff (FTE)||10,303||9,670||633|
|Group solvency ratio, % *)||179||167||12|
*) comparison figure from 31 December 2019.
The figures in this report 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 2019 unless otherwise stated.
Sampo follows the disclosure procedure enabled by the Finnish Financial Supervisory Authority and hereby publishes its Interim Statement attached as a PDF file to this stock exchange release. The Interim Statement is also available at www.sampo.com/result.
|EXCHANGE RATES USED IN REPORTING||1-3/2020||1-12/2019||1-9/2019||1-6/2019||1-3/2019|
|Income statement (average)||10.6649||10.5853||10.5679||10.5181||10.4187|
|Balance sheet (at end of period)||11.0613||10.4468||10.6958||10.5633||10.3980|
|Income statement (average)||1.4279||1.4183||1.4158||1.4090||1.3959|
|Balance sheet (at end of period)||1.4813||1.3982||1.4326||1.4153||1.3929|
|Income statement (average)||1.0195||1.0749||1.0816||1.0810||1.0694|
|Balance sheet (at end of period)||0.9610||1.0591||1.0809||1.0897||1.0765|
|Income statement (average)||7.4714||7.4661||7.4644||7.4651||7.4637|
|Balance sheet (at end of period)||7.4674||7.4715||7.4662||7.4636||7.4652|
GROUP CEO’S COMMENT
The news flow in the latter part of the Q1/2020 was dominated by COVID-19. Capital market reactions have been very negative, of course – equities down 25 per cent in Europe and bond spreads widening significantly. As a big investor, Sampo Group has also been adversely impacted. The market value of our investment portfolio dropped more than a billion euros and the visibility going forward is more limited than usual.
In the past few weeks our staff has almost exclusively worked from home and I am satisfied to report that all functions have been fully operational during this period. Internet reported claims in P&C insurance have increased significantly and we have paid a large number of COVID-19 related claims, all in all some 26,000 claims in If alone, mostly in travel insurance. Our customers have appreciated the efforts and given us record high Net Promoter Scores.
This crisis has proved the robustness of our business model. More than 60 per cent of our business is P&C insurance. The larger of our P&C insurance operations, If, even produced the best combined ratio ever in a first quarter. Benign winter in the Nordic countries and the decrease in the miles driven reduced the claims costs.
Sampo’s other P&C insurance operation, Topdanmark, had a challenging quarter with market values of assets falling and large claims exceeding the expected level. It is reassuring, however, to note that the underlying technical profitability remains strong.
I am pleased to see that Nordea continues to develop towards its targets, despite the challenging times. Costs were down 8 per cent in the first quarter of 2020. Importantly, Nordea is a strongly capitalized bank with a CET1 ratio of 16 per cent, i.e. 5.8 per cent above the current requirement. Key priorities at Nordea, as in Sampo’s insurance businesses, are to support customers, to keep employees safe and to ensure business continuity. Customer activity has been at an exceptionally high level and both net interest income and net commissions increased.
Mandatum Life’s business has been quite stable despite the equity market development. Only in the couple of weeks immediately after the outbreak of COVID-19 did we see any significant outflows from unit linked savings. Since then outflows are on a normal, low level. The with-profit portfolios continue to run off according to plan and solvency is higher than it has ever been.
Sampo Group and its subsidiaries continue to report solid solvency ratios. This is also the background for our Board’s decision to propose a dividend of EUR 1.5 per share. It is important for us to pay dividends in accordance with our dividend policy as we have the capital and the liquidity to do so.
Group CEO and President
COVID-19 EFFECTS ON SAMPO GROUP
This section describes the COVID-19 impacts on Sampo Group’s business areas.
If has since mid-March prioritized business continuity and continued to serve and support If’s customers in the best way in the changed working conditions in all markets. As a result, approximately 83 per cent of all If’s employees worked from home offices at the end of the quarter. If has broadly managed to offer a service level close to normal.
Claims cost is negatively impacted from travel insurance policies primarily following imposed travel restrictions from governments due to Covid-19. At the end of the first quarter, the total number of reported claims amounted to approximately 26,000 claims corresponding to a gross claims cost of EUR 12 million. At the end of April, the number of claims had increased towards 48,000 claims, mostly in BA Private and in Norway. For this event, If has a reinsurance cover with a net retention of approx. EUR 10 million. Claims exposure for other areas is in general considered low and in the case of Business Interruption, a loss from the current Covid-19 situation is not covered by the standard terms.
At this stage, it is still too early to draw conclusions on the risk ratio impact from the lock down but from mid-March, If has noted a decrease in claims frequencies, especially in motor, that for a shorter period of time will have a positive effect. At the same time claims repair costs might increase due to a lack of material, delays in transportation of material or shortage of personnel following implemented government travel restrictions.
As a consequence of the COVID-19 situation, If expects a negative effect on premium volume for the rest of 2020 from less business activity, fewer new cars sold, decommissioning of vehicles and lower insurable sums and goods. A decrease in business volume is expected to be largely neutral on the risk ratio.
Topdanmark has reported on COVID-19 impacts in its Q1/2020 report published on 24 April 2020.
In accordance with the contingency plans all personnel started to work from home offices as of 13 March. Business activities have functioned normally.
Outflow of funds from capital redemption and endowment policies was higher than normal during two weeks after the outbreak of the COVID-19 and was mainly due to two large surrenders. Since then outflow seems to have stabilized at the same level as previous years and before the COVID-19 outbreak.
Liquidity is expected to remain good as with profit liabilities are predictable and coupons and expirations cover the pension payments for the next two years.
COVID-19 is not expected to have a material impact on the risk result. The expense result is expected to suffer a little due to lower fee income from unit linked policies.
Sampo Group’s and its subsidiaries’ solvency is covered in the section Solvency.
A strong sell-off took place in the capital markets after the outbreak of the pandemic crisis in March and resulted in negative returns across asset classes. Listed equities and high yield credit were the worst hit asset classes. Impairments amounting to EUR 191 million were booked in the profit and loss account in January-March 2020. If’s share was EUR 94 million, Mandatum Life’s EUR 61 million and Sampo plc’s EUR 36 million.
If’s mark-to-market investment return for January - March 2020 was -5.6 per cent and Mandatum Life’s -8.4 per cent. Equity allocation in If’s investment assets decreased to 9 per cent and in Mandatum Life’s allocation to 22 per cent.
More information on asset allocations, running yields, durations etc. is available in the supplementary package for January – March 2020 at www.sampo.com/result.
Profit before taxes for January – March 2020 for the If segment was EUR 129 million (198). The total comprehensive income for the period after tax decreased to EUR -518 million (259). Combined ratio was 83.7 per cent (86.5) and risk ratio 63.4 per cent (64.8). The improvement in risk ratio compared to last year was supported by measures taken in all business areas during past two years as well as a benign frequency situation for a winter quarter.
Net releases from the technical reserves relating to the prior year claims were EUR 62 million (51) in the first quarter of 2020 the main part of which relates to Sweden and motor third party liability. The technical result increased to EUR 180 million (147). The insurance margin (the technical result in relation to the net premiums earned) rose to 16.7 per cent (13.9).
Large claims overall ended up EUR 20 million worse than expected in the first quarter of 2020. Large claims were EUR 9 million better than expected in BA Commercial and EUR 29 worse than expected in BA Industrial due to two major large claims in Norway.
The Swedish discount rate used to discount the annuity reserves was -0.83 per cent in January – March 2020 and had a negative effect on the results of EUR 4 million.
Gross written premiums increased to EUR 1,733 million (1,651) in January – March 2020. With fixed currency rates premiums grew 7.0 per cent in the first quarter of 2020. Growth was positive in all business and market areas. The growth was highest in Denmark and accelerated to 13.3 per cent. Gross written premiums grew by 9.5 per cent in Norway, 5.5 per cent in Sweden and 3.1 per cent in Finland. In BA Industrial premium growth amounted to 7.6 per cent, in BA Commercial 7.3 per cent, in BA Baltic 6.6 and in BA Private 6.4.
The cost ratio was 20.4 per cent (21.7) and expense ratio 15.0 per cent (15.7).
On 31 March 2020 the total investment assets of If amounted to EUR 9.9 billion (10.8).
If’s solvency position is described in the section Solvency.
At the end March 2020 Sampo plc held 41,997,070 Topdanmark shares, corresponding to 46.7 per cent of all shares and 48.2 per cent of related voting rights in the company. The market value of the holding was EUR 1,541 million on 31 March 2020.
As a consequence of the COVID-19, only a half of the previously announced dividend of DKK 17 per share was paid out in connection with the AGM on 2 April 2020. Sampo received EUR 48 million in dividends from Topdanmark on 7 April.
Topdanmark’s profit before taxes for January - March 2020 amounted to EUR -13 million (92). The combined ratio amounted to 88.7 per cent (78.2). The expense ratio is 17.2, up from 17.1 in the first quarter of 2019.
The following text is based on Topdanmark’s January – March report published on 24 April 2020.
The negative financial markets in connection with COVID-19 situation have had a substantial negative impact in Topdanmark’s investment return and the result of life insurance. In non-life insurance, technical result was negatively impacted by lower run-off, COVID-19 related issues and by a higher level of weather-related claims and more rain claims.
The claims trend was 72.5 in the first quarter of 2020, up from 63.0 in the first quarter of 2019. The run-off, net of reinsurance, represented a 4.9 percentage points negative impact on the claims trend. Run-off was primarily generated in motor third-party liability, illness and accident and in workers’ compensation, whereas run-off losses were generated within motor own damage, property, professional liability, and income protection insurance.
Topdanmark’s premiums increased 2.4 per cent in non-life insurance and 10.5 per cent in life insurance.
In the first quarter of 2020, weather-related claims amounted to nearly EUR 9 million and were EUR 2 million above the normal level. The large claims were EUR 2 million above the normal quarterly level.
Topdanmark’s solvency position is described in the section Solvency.
Further information on Topdanmark A/S and its January - March 2020 results is available at www.topdanmark.com.
Associated company Nordea
Nordea is the largest bank in the Nordic region and among the ten largest financial groups in Europe in terms of total market capitalization with around 11 million customers. Nordea’s shares are listed on the Nasdaq exchanges in Stockholm, Helsinki and Copenhagen. In Sampo Group’s financial reporting Nordea is treated as an associated company and is included in the segment Holding.
On 31 March 2020 Sampo plc held 804,922,858 Nordea shares corresponding to a holding of 19.87 per cent. The average price paid per share amounted to EUR 6.46 and the book value in the Group accounts was EUR 8.36 per share. The closing price as at 31 March 2020 was EUR 5.13.
In light of the ECB recommendation on dividend payments amid the COVID-19 outbreak, Nordea’s Board decided to propose for the AGM on 28 May 2020 a postponement of the dividend decision until after 1 October 2020.
Sampo’s share of Nordea’s profit before taxes for January – March 2020 amounted to EUR 84 million (86).
Mandatum segment’s profit before taxes for January – March 2020 amounted to EUR -16 million compared to a profit before taxes of EUR 72 million a year ago. The total comprehensive income for the period after tax reflecting the changes in the market values of assets amounted to EUR -323 million (113). Return on equity amounted to -105.2 per cent (37.6).
Mandatum Life Group’s premium income on own account amounted to EUR 287 million (238) in the first quarter of 2020. Premiums increased in January - February but decreased in March due the market turmoil.
Net investment income, excluding income on unit-linked contracts, was significantly affected by the market turmoil and amounted to EUR -23 million (126). Net income from unit-linked contracts was EUR -884 million (427). In the first quarter of 2020 fair value reserve decreased to EUR 128 million (438).
Mandatum Life’s total technical reserves amounted to EUR 11.0 billion (12.0). Unit-linked reserves were EUR 7.2 billion (8.1) and with-profit reserves EUR 3.8 billion (3.9) at the end of March 2020.
The decrease in unit-linked reserves was fully explained by the negative investment return. During the first quarter of 2020, with-profit reserves related to the higher guarantees of 4.5 and 3.5 per cent decreased by EUR 65 million to EUR 2.1 billion.
Mandatum Life has overall supplemented its technical reserves with a total of EUR 206 million (230), of which EUR 165 million is allocated to years 2020 – 2022. The figure does not take into account the reserves relating to the segregated fund. The discount rate used for 2020 and 2021 is 0.25 per cent. The rate used for 2022 is 1.25 per cent.
The discount rate for segregated liabilities is 0.0 per cent and the discount rate reserve of segregated liabilities amounted to EUR 256 million (263).
At the end of March 2020, Mandatum Life Group’s investment assets, excluding the assets of EUR 7.2 billion (8.1) covering unit-linked liabilities, amounted to EUR 5.1 billion (5.7) at market values.
Mandatum Life’s solvency position is described in the section Solvency.
Holding segment’s profit before taxes for January - March 2020 amounted to EUR 62 million (113). Sampo’s share of profits of associated companies Nordea and NDX Intressenter for January – March 2020 amounted to EUR 86 million (83) of which Nordea’s share was EUR 84 million (83) and NDX Intressenter’s EUR 2 million (1).
The segment’s profit before taxes excluding the associates for January – March 2020 was EUR -24 million (29).
Changes in market values of derivative instruments and currency exchange rates can cause volatility in the net investment income and finance cost lines.
Sampo plc’s holding in Nordea was booked in the consolidated balance sheet at EUR 6.7 billion, i.e. EUR 8.36 per share. The market value of the holding was EUR 4.1 billion, i.e. EUR 5.13 per share, on 31 March 2020.
Annual General Meeting
The Board of Directors of Sampo plc disclosed on 25 March 2020 its decision to postpone the Annual General Meeting scheduled to be held on 23 April 2020. Sampo intends to arrange the Annual General Meeting on 2 June 2020.
The postponement was made in order to ensure the safety and well-being of Sampo’s shareholders, employees and other stakeholders in light of the COVID-19 outbreak and the related health threat.
Shares and shareholders
Sampo plc made no repurchases of its own shares during January – March 2020 and has not purchased any shares after the end of the reporting period. Sampo plc and its subsidiaries hold no Sampo shares on 31 March 2020.
During the first quarter of 2020 Sampo plc, Sampo Group’s parent company, received no dividends from its subsidiaries or associated company Nordea.
On 2 April 2020 Topdanmark’s AGM decided to pay half of the planned dividend and postpone the decision on the payment of the other half until autumn. Sampo received EUR 48 million on 7 April in dividends from Topdanmark.
Mandatum Life decided not to pay the dividend of EUR 150 million planned for March 2020.
In light of the ECB recommendation on dividend payments, the Nordea’s Board decided to propose for the AGM on 28 May 2020 a postponement of the dividend decision until after 1 October 2020.
If normally pays its dividend at the end of the year. The company paid already in December 2019 a dividend of SEK 7.5 billion (EUR 710 million).
Relevant ratings for Sampo Group companies did not change in the first quarter of 2020. The ratings at the end of March 2020 are presented in the table below.
|Rated company||Moody’s||Standard & Poor’s|
Sampo plc – Issuer Credit Rating
|If P&C Insurance Ltd – Insurance Financial Strength Rating||A1||Stable||A+||Stable|
|If P&C Insurance Holding Ltd (publ)
- Issuer Credit Rating
|Mandatum Life Insurance Company Ltd – Issuer Credit Rating||-||-||A+||Stable|
Sampo Group calculates its group solvency under the Solvency II rules. In this calculation Nordea is treated as an equity investment. Sampo Group’s solvency ratio according to the Solvency II directive amounted to 179 per cent (167) at the end of March 2020. If the year-end 2019 solvency was calculated taking into account the changed dividend proposal, the adjusted solvency ratio would have been 174 per cent.
The adverse capital market development following the outbreak of COVID-19 had a negative impact on Sampo Group’s own funds. Market values of equities decreased, and the bond spreads widened in the beginning of the crisis significantly. On the other hand, a decrease in the symmetric adjustment and increases in the volatility adjustments reduced SCR and impacted positively the solvency position. The volatility adjustments also increased Group’s Own funds. Market risk, especially related to Nordea, decreased SCR, which also had a positive impact on solvency. Board’s proposal to reduce the dividend from EUR 2.20 to EUR 1.50 per share increased own funds by almost EUR 400 million and increased the solvency II ratio by 9 percentage points.
Solvency position in the subsidiaries
The insurance subsidiaries apply Solvency II rules in their regulatory solvency calculations. If Group companies use either partial internal models or standard model for calculation of their solo solvency position. Mandatum Life reports in accordance with standard formula for Solvency II. Topdanmark uses a partial internal model to report its stand-alone solvency position.
If Group has an A+ rating from S&P which will continue to require significantly more capital than the standard formula and therefore the use of standard formula has no practical implications on If Group’s capital position. On 31 March 2020 If Group’s Solvency II capital requirement under standard formula amounted to EUR 1,689 million (1,890) and own funds to EUR 2,879 million (3,592). The solvency ratio amounted to 170 per cent (190).
The S&P single-A capital requirement for If Group amounted to EUR 2,744 million (3,083) on 31 March 2020 and the capital base was EUR 2,503 million (3,151).
Topdanmark calculates most of its non-life and health risks and their respective solvency capital requirement by a partial internal model approved by the DFSA. Other risks are calculated by Solvency II SCR standard formula. Topdanmark’s solvency ratio under the partial internal model was 205 per cent (177) at the end of March 2020.
Mandatum Life’s solvency ratio after transitional measures amounted to 205 per cent (176) on 31 March 2020. The comparison figure would increase from 176 per cent to 194 per cent if the cancellation of the EUR 150 million dividend payment in March 2020 was taken into account. Own funds were EUR 1,944 million (2,117) and Solvency Capital Requirement (SCR) was EUR 946 million (1,204). The negative development in the equity market decreased own funds and SCR. The latter was further reduced by the decrease in the symmetric adjustment applied in equity stress. The loss related to credit instruments was partly mitigated in the solvency position by the increased volatility adjustment. Without transitional measures, own funds would have amounted to EUR 1,590 million (1,756) and the solvency capital requirement to EUR 957 million (1,234) leading to a solvency ratio of 166 per cent (142).
Sampo plc’s debt financing on 31 March 2020 amounted to EUR 3,883 million (3,908) and interest bearing assets to EUR 1,833 million (1,725). Interest bearing assets include bank accounts, fixed income instruments and EUR 349 million (359) of hybrid capital and subordinated debt instruments issued by the subsidiaries and associated companies.
Sampo plc’s net debt amounted to EUR 2,050 million (2,183). The net debt calculation takes into account interest bearing assets and liabilities. Gross debt to Sampo plc’s equity was 52 per cent (51) and financial leverage 34 per cent (34).
On 31 March 2020 financial liabilities in Sampo plc’s balance sheet consisted of issued senior bonds and notes of EUR 3,359 million (3,414). In addition, Sampo plc has issued subordinated notes of EUR 494 million (494). Outstanding CPs amounted to EUR 30 million (0). The average interest, net of interest rate swaps, on Sampo plc’s debt as of 31 March 2020 was 1.2 per cent (1.2).
More information on Sampo Group’s outstanding debt issues is available at www.sampo.com/debtfinancing.
Outlook for 2020
Sampo Group’s insurance businesses are expected to report good insurance technical results for 2020. The investment results are at this point in time more uncertain than usual. The mark-to-market results for 2020 are highly dependent on capital market developments, particularly in life insurance.
If P&C is expected to reach a combined ratio of 84 - 87 per cent in 2020.
With regard to Topdanmark reference is made to the profit forecast model that the company publishes quarterly.
Nordea’s contribution to the Group’s profit is expected to be significant.
The major risks and uncertainties to the Group in the near-term
In its current day-to-day business activities Sampo Group is exposed to various risks and uncertainties mainly through its separately managed major business units.
Major risks affecting the Group companies’ profitability and its variation are market, credit, insurance and operational risks that are quantified independently by the major business units. At the group level sources of risks are the same, but they are not directly additive because of diversification effects.
Uncertainties in the form of major unforeseen events may have an immediate impact on the Group’s profitability. Identification of unforeseen events is easier than estimation of their probabilities, timing and potential outcomes. Currently the COVID-19 pandemic is causing significant negative effects on the Nordic economies. The duration of the measures taken to contain the virus and their effects on economic and capital market development are uncertain. There is also a number of widely identified macro-economic, political and other sources of uncertainty which can, in various ways, affect the financial services industry negatively.
Other sources of uncertainty are unforeseen structural changes in the business environment and already identified trends and potential wide-impact events. These external drivers may have long-term impacts on how business shall be conducted. Examples of already identified trends are technological development in areas such as artificial intelligence and digitalization, demographic changes and sustainability issues that may have profound effects on financial sector companies as well.
NEW DIVIDEND PROPOSAL TO THE ANNUAL GENERAL MEETING ON 2 JUNE 2020
The parent company’s distributable capital and reserves totaled EUR 7,383,547,646.18, of which profit for the financial year 2019 was EUR 1,489,678,098.42.
The Board proposes to the Annual General Meeting a dividend of EUR 1.50 per share to the company’s 555,351,850 shares. The dividends to be paid are EUR 833,027,775.00 in total. The remainder of the funds are left in the equity capital.
The dividend will be paid to the shareholders registered in the Register of Shareholders held by Euroclear Finland Ltd as the record date of 4 June 2020. The Board proposes that the dividend be paid on 11 June 2020.
No other significant changes have taken place in the company's financial position since the end of the financial year, except the decrease in the market values of investment assets as a consequence of the COVID-19 outbreak. The company's liquidity position is good and in the view of the Board, the proposed distribution does not jeopardize the company's ability to fulfill its obligations.
Board of Directors
For more information, please contact:
Knut Arne Alsaker, Group CFO, tel. +358 10 516 0010
Jarmo Salonen, Head of Investor Relations and Group Communications, tel. +358 10 516 0030
Maria Silander, Communications Manager, Media Relations, tel. +358 10 516 0031
An English-language conference call for investors and analysts will be arranged at 4 pm Finnish time (2 pm UK time). Please call tel. +1 631 913 1422, +44 333 300 0804, +46 8 5664 2651, or +358 9 8171 0310. The conference code is 60179736#.
The conference call can also be followed live at www.sampo.com/result. A recorded version will later be available at the same address.
In addition, the Supplementary Financial Information Package is available at www.sampo.com/result.
Sampo will publish the Half-Year Financial Report for January - June 2020 on 5 August 2020.
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