Sampo: January-March 2024 results – Q&A

Sampo Group achieved strong top line growth, while the positive underlying margin trends continued. However, the underwriting result was materially affected by very challenging Nordic winter conditions.

Profit before taxes increased by 29 per cent to EUR 465 million (359) in January-March 2024, as strong investment returns and slightly higher discount rates offset the negative effect from lower underwriting result.

Earnings per share amounted to EUR 0.68 (0.53). Operating EPS, for which Sampo has a growth target of more than 7 per cent annually on average, stood broadly stable at EUR 0.50 (0.51). This was supported by strong investment returns and share buybacks executed in 2023, partly offsetting the negative effect from the decrease in underwriting result.

The Group combined ratio deteriorated to 87.1 per cent (84.0), driven by severe weather conditions. Following the first quarter result, Sampo has narrowed its 2024 outlook and now expects to deliver a Group combined ratio of 83–85 per cent. Previously, the outlook for the 2024 Group combined ratio was below 85 per cent, as per the stock exchange release published on 6 March 2024.

Sampo introduced a new key figure called underlying combined ratio. How does this differ from the reported combined ratio?

The underlying combined ratio excludes certain volatile items, such as weather claims and the large claims deviation against the budget, as well as some technical effects. The objective of the figure is to showcase how our underlying margins develop behind the short-term volatility. The approach is similar to the adjusted risk ratio for If, which we have been disclosing for many years.

In Q1, the reported Group combined ratio increased to 87.1 per cent (84.0). This was mainly driven by the challenging winter conditions, while better than expected large claims outcome and the prior year development had a positive effect.

Adjusting for all the volatile and technical effects, the Group underlying combined ratio improved by 1.1 percentage points to 87.3 per cent (88.4). This was supported by positive momentum in all segments except Topdanmark, as claims inflation remained below our pricing assumptions, and we continued to improve our cost efficiency.

The Group top line growth amounted to 10 per cent on a currency adjusted basis in Q1. What were the main growth drivers?

The growth was supported by all business areas. In the Nordics, we achieved a record-high first quarter growth of 7.6 per cent on a currency adjusted basis. Our largest business area, Private, contributed the most and saw a growth of 7.2 per cent. This was driven by continued strong momentum in non-motor lines, particularly in personal insurance and property, which offset the slower growth in motor due to weak new car sales. Excluding the Swedish mobility business, Private saw 8.1 per cent growth.

For corporate lines, the first quarter is an important quarter, as over 40 per cent of policies are renewed. The outcome from renewals was in line with our expectations, with high acceptance rates and price increases that cover claims inflation. This drove 5.1 per cent growth in Commercial and 13.1 per cent growth in Industrial. In Commercial, growth was also supported by 20 per cent increase in digital sales and a stable growth of 4 per cent in SME.

In the UK, the pricing environment was stable in the first quarter, but the premium growth continued to be supported by the price increases implemented in the second half of 2023. Top line growth amounted 21.9 per cent. At the same time, live customer policies increased by 6 per cent year-on-year, driven by continued strong growth in home insurance.

What kind of claims experience Sampo had in Q1?

The challenging Nordic winter conditions already seen in Q4/2023 continued in Q1. In fact, the first quarter saw the most severe winter weather since 2010, with freezing temperatures, heavy snow and icy roads. Increased motor claims and pipe bursts are characteristic of winters this harsh.

In total, severe weather claims amounted to approximately EUR 100 million for If. This corresponds to 8.0 percentage points effect on If’s risk ratio. For comparison, the last time we saw this harsh winter conditions in 2010, severe weather had an effect of 7.4 percentage points. Around two thirds of the winter claims related to Private and was split roughly 50/50 between the motor and property lines within the segment. Geographically, Norway and Sweden were most affected, together accounting for nearly 90% of the claims.

On the positive side, large claims outcome was around EUR 40 million below the budget for If. We have been tightening our risk appetite in Industrial and reduced exposures to some higher risk segments such as single large properties.

In the UK, the first quarter saw quite normal weather conditions, with frequencies developing broadly in line with our expectations.

How did the claims inflation develop in Sampo’s core markets?

In the Nordics, claims inflation remained stable in the lower part of the 4-5% range, with reducing building claims inflation being the driver for the pace slightly slowing down. 

In the UK, motor claims inflation remained elevated but has modestly reduced from the around 12 per cent observed for most of 2023.

How did Sampo’s investment portfolio perform in Q1?

Our portfolio delivered strong returns, driven by higher running yields and the good start of the year for equities. In total, our investment return was 1.6 per cent in Q1 and net investment income amounted to EUR 295 million (253), representing a 16 per cent increase year-on-year. Fixed income saw a return of 0.8 per cent, while return from equities amounted to 10.9 per cent.

We continued to benefit from higher interest rates, as we have gradually reinvested our fixed income portfolios. If alone made new investments of over EUR 800 million during the quarter at an average deal rate of 5.3 per cent.

The Group fixed income running yield amounted to 4.0 per cent at the end of March 2024, up from 3.9 per cent at the end of 2023.

Sampo received approval for its Group Partial Internal Model (PIM) in the beginning of May. How does this affect your solvency position and view on potential capital returns?

As stated in the release, as of 31 December 2023, the PIM would have reduced the group-level solvency capital requirement by EUR 0.3 billion. All other things being equal, the PIM will free up own funds and generate deployable capital.

Sampo will apply the Group PIM in the second quarter and report its solvency based on this for the first time in its Half-Year Financial Report 2024. We will then also provide an update on capital allocation, in line with our communication at the CMD in March.

At the CMD, we communicated that our capital optimisation actions could generate up to EUR 700 million of deployable capital in the first half of 2024. These actions include lowering the Solvency II ratio target range to 150-190 cent from 170-190 per cent and the implementation of PIM.

Mirko Hurmerinta
IR Manager, Sampo plc

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