Copyright © 2021. Inderes Oyj. All rights reserved.

January-June 2021 results – Q&A

Company post 04.08.2021 15:37 Sampo

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.

 

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.

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.

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.


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.

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.

 

Mirko Hurmerinta, IR and Communications Specialist, Sampo plc

Why invest in Sampo? IR Blog provides information about Sampo as an investment case and the Group's businesses and markets. www.sampo.com/irblog

Sampo Oyj is a Nordic financial company made up of the parent company Sampo plc and If P&C Insurance Holding Ltd, Mandatum Life Insurance Company Ltd and Topdanmark, all of which are its subsidiaries. The Helsinki-based parent company administers the subsidiaries. Kari Stadigh is the Group CEO and President for Sampo.