Sampo Oyj

Good afternoon, everyone, and welcome to this Sampo Group conference call on our third quarter 2024 results. My name is Sami Taipulus, and I am Head of Investor Relations at Sampo. On the call with me today, I have Group CEO Torbjörn Magnusson, Group CFO Knut-Anne Ahlsaker, CEO of IF, Morten Torsrud, and CEO of Hastings, Tobbe van der Meer. The call will feature a short presentation from Torbjörn, followed by Q&A. The call will be recorded, and a recording will later be available on Sampo.com. With that, I hand over to Torbjörn.

Thanks, Sami, and good afternoon, everyone. Much of Sampo's success and stability over the past decade has been built on continuous and constant deliveries of Nordic synergies. Our organization is used to always working with finding the next process and system to optimize cross-border, and then the next, and then the next. And there's considerable optimism and energy in the organization now that we get the new opportunities to employ our pan-Nordic structure with Top Danmark. It certainly also gives us new business opportunities locally in Denmark, where our presence has been too small in history. And diversification improves with all of this, of course. The integration process has started at high speed. A joint Nordic management team is in place. And both the regular customer service and the synergies work is run by the people who will be measured by the results. We will report first on integration costs in Q4 and then from the first quarter next year on synergy realization. There are no new numbers on this slide, only a few weeks after the integration started, of course. From a more legalistic perspective, the squeezing out of the last remaining shares has been completed and top 10 mark is delisted. Today, we also take the next formal step in the process by selling Top Denmark from Sampo to FPNC, and we expect the legal integration work to be complete sometime mid-next year. Since the acquisition has been so much discussed over the years, it's tempting for me to mainly talk about it, but however, it's still a limited change to Sampo's structure, so let's turn to the very solid performance of our regular business. Overall, nine-month underwriting profits increased by 8%, driven both by good developments in the number of customers and rates. The development is better than our target, despite the challenging winter this year in the Nordics, as well as more losses than normal, large losses than normal. We will always have a little volatility in our quarterly numbers, less so in the annual ones, and Q3 2023 contained rather bad weather. so I'll abstain from commenting on the face value quarterly improvements. Both our Nordic and our UK businesses are running at very good speed since some time. In the UK first, even though this year we are a little helped by a supportive market in general, our timing has been excellent and we have been able to exploit the fact that our profit level is much better than average and the total live policies count is up by 11% year on year. The extraordinary premium growth numbers for the UK in general will of course fade for the market as a whole in the coming period, but we are still very well placed to reap profits as well as customer growth from the good work in the past year. The UK market behavior so far this year is quite rational. gradually reflecting lower frequencies and moderating severities, rather than a few aggressive optimists changing market behavior or anything like that. I finally think that the doubled profits before taxes for Hastings with cautious reserve bookings speak for themselves. Second, turning to the Nordics, we have solid growth in our prioritized segments. For instance, 11% in personal risks, 6 in property and 10 in private online sales. These segments make up some 40% of FPNC. The total is moderated again by some of the lowest car sales in a decade and the fact that workers' comp premiums in Finland come down a bit when the economy is slow. At the moment, I see no trend towards lower growth numbers, especially since our 89% retention for private lines holds up really well. The only more important change in the Nordic market, I think, is the continuous change to digital direct sales and services over the years. Price comparison websites have not been able to gain any important foothold at all. Claims inflation is very gradually moderating, now 4% on average, more in motor, less in property. But our expectation is not that it will reach lower in the very near future. And our pricing reflects this. There are variations between geographies and sub-segments, of course, as usual, but we're able to price for at least claims inflation. Since this is the first time Top Danmark is not reporting separately, let me also just very briefly comment that it's pleasing to see Top Danmark contributing better to growth now than in the early 2020s. Organic growth of 7.5% plus the owner health acquisition. That's quite good numbers. And a bit of weather in Denmark this quarter. Some rate increases in motor is all business as usual for top Denmark. There's always a lot going on in our group in terms of underwriting services, and I seldom comment on specific actions. Let me this time make an exception and mention two key topics. The first one has to do with our dislike for volatility. As you are aware, the large corporate market has been improving rates-wise for a few years, driven by us and by others, and we have been able to get much better attritional loss ratios from this. Large losses are, of course, more random to their nature, but in the present market, we're now able to be selective in our choices of the largest risks or in the line sizes we take there. reducing volatility without sacrificing our leadership in this segment. This exercise has been going on since the beginning of the year and has worked out as planned. This does not mean that we will never, ever have any negative large loss deviations, but the volatility will definitely be reduced. On the right-hand side of this slide, another key action, We have made a special study, again, of profitability and working with electric vehicles. This type of car is now making up some 11% of our motor book in the Nordics, so no longer small. And the work underlines the importance of pricing with all information for these vehicles, just as for all other types of engines. This information that you need to use, of course, includes the age of the car, where the car is driven, the individual brands and model, and much, much more. Since several years, we have the same profitability targets for EVs as for combustion engines and hybrids. And the very firm conclusion, as you can actually see from the graph here, is that we have the same profitability for EVs as for other cars since several years. So, in summary, the third quarter of 2024 was a financially stable quarter with continued very positive momentum in the Nordics and accelerated growth in the UK. Finally, it was also a quarter when we completed Sampo's transformation that we initiated in 2020. And with that, Sami, we open up for questions.

Yes, that concludes the introduction and let's move over to the Q&A section of the call.

if you wish to ask a question please dial pound key five on your telephone keypad to enter the queue if you wish to withdraw your question please dial pound key six on your telephone keypad the next question comes from ulrich searcher from nordia please go ahead

Thank you for taking my question. You say near term that the rate increase claims inflation picture will not change much. So I interpret that as The picture will basically be unchanged throughout 25. I was wondering if that was correct interpretation. And number two, I was wondering if there's any differences in the Nordics with the required price hikes between retail and commercial SME customers. Or is it more by product, as you mentioned, Torbjörn?

Many of our longer-term agreements with suppliers are struck around about the 1st of January. So saying that nothing will change for the full year 2025 is a bit early. But in the very near future, in the next six months, I have no information that contradicts what you said. And Morten, do you have more information?

No, I could just add on the Nordic differences when it comes to price increases. Obviously, motor is higher than property, and that's sort of across the Nordics. And then in terms of countries, Norway has been standing out significantly. partially driven by weak currency that sort of fuels inflation. And that sort of means that Norway have pretty high price increases. Then looking forward in Denmark, we have this special situation where you use an index sort of for your pricing, and that's going to be very high actually next year. So next year we will see also very high price increases in Denmark.

Is the motor situation, is that the same for commercial car parks and stuff like that as it is for retail?

Yeah, that's quite similar. I mean, a larger part of the commercial motor fleet is passenger cars, but company-owned, so it's quite similar.

Okay, thank you so much.

The next question comes from Vineet Malhotra from Mediobanker. Please go ahead.

Yes, good afternoon. Thank you. I hope you can hear me clearly. The first one is just on the broader topic of new cost sales affecting premium growth. In the scenario that this doesn't really change very quickly, will it affect how you think about underwriting, strategizing? I mean, do you think, will it bother you too much if new car sales don't pick up and the private sales growth is lower? So that's my first question. Will it affect your behavior in the market? And second question is just from the UK. In the Hastings commentary, there's comments on benign claims frequency in 3Q. Could you help us quantify or indicate How much of that was a positive effect in the 86.5%? Thank you.

I could start then by commenting on growth per line of business. Year-to-date, we have 11% growth on personal risks. We have 6% growth on property and 4% growth on motor. Yes, low new car sales, of course, give us a lower growth on... on motor, but I think it's not necessarily a problem if this situation is continuous sort of into 25, 26. We still see very good growth in other lines of businesses. Motor is about one-third of the IF P&C book in the Nordic, so it's important, but again, we are also growing in other areas. Then that is said, of course, the new car sales now is on a very low level. compared to sort of historic numbers. So one would expect it to go up again, but wouldn't change our approach or behavior in any way.

And then Toby somewhere.

Yes, hi. So let me give you a bit of color on claims frequencies. So the industry data that's available suggests between a 5% and 10% increase frequency change year on year versus the equivalent period in 2023 for the industry. And there's a lot of volatility in that. What we can see in our numbers is three dynamics. Firstly, the weather. So 2024 weather has been more favourable than 2023. So that's contributing a bit to the frequency reductions. Secondly, it does look like the trend of safer cars and safer roads the long-term trend is continuing and and therefore that trend's been hidden by covid the post-covid era and then inflated frequencies in 2023 and it feels like across the market we're returning to a more normalized level of frequency more in line with the historical averages with with a slight downward trend um so that's the safer cars and safer roads part of the dynamic And then thirdly, and specific to Hastings, we took significant underwriting actions in 2023, including introducing new data sources and new models that were deliberately designed to, in really simple terms, avoid bad drivers and attract more good drivers into Hastings. And from our analysis, it looks like those initiatives have paid off handsomely with a safer book, contributing to the overall operating ratios, both for the full year and Q3, as reported today. Not going to unpick all the operating ratio dynamics for one quarter, but can reaffirm what Torborn said earlier, that we continue to book a cautious loss ratio and take a cautious approach to reserving and are still able to produce the good results that we've shown with you today.

Great. Thank you, Toby.

Thanks. The next question comes from Jan-Eric Geerland from ABG. Please go ahead.

All right, why don't we take the next question?

The next question comes from Vash Gosalia from Goldman Sachs. Please go ahead.

Hi, thank you for taking my questions. Two for me, please. First is within the UK, could you throw some light on the pricing development at Hastings? Basically, market data suggests that prices have been going down. but not entirely sure if that's the case at Hastings. And second question is in the Nordics. For a few periods now, the NPS and the retention levels have been going down. So could you please throw some light on why that is and what can we expect there?

So will you try the first one?

Yeah, happy to. So pricing dynamics... Just to reset the scene, prices went up very significantly in 2023, both for the market and for Hastings. But we priced up earlier than most others, as we saw the claims development that we did in 2023. And so we've been able to take a more growth-oriented approach, having priced earlier than others in 2024. And you see that reflected in the numbers. Because of the lower frequencies and improving severities by lower claims inflation than we saw in 2023, the market is acting rational and reflecting that in lower prices. So prices have continued to come down by small amounts for quite a few of the months in 2024 so far. And if this makes sense, because we're now lapping the period last year when prices went up a lot, you can, I think, infer that average premiums now are not growing very much anymore because of those two dynamics coming together. Having said that, the average premiums are still very healthy. The premiums we're seeing are still consistent with our margin and target margins are better. And so we're still feeling like there is further growth opportunity for us to exploit as we look ahead. Albeit, we would say that Q3 was a particularly attractive period. And so those sorts of growth rates in terms of policy count we wouldn't expect to see in Q4 or going forward.

Then comments on NPS and retention in the Nordics. NPS is mainly affected by fairly significant price increases. That's what we clearly see in the customer surveys. And of course, in many markets, you have year number two or even year number three with pretty high price increases. So that's obviously having a negative effect on the net promoter score. Retention, however, is broadly stable. In the commercial segment, it is very stable. In private, it has been ticking a little bit down, but it's now stabilizing and we even see slight increase in a few markets over the last few months. And the retention in private is on Historically, very high level. So it continues to be high retention in the Nordics, also in the private business area.

Are we ready for the next question?

Thank you. The next question comes from Jan-Erik Geerland from ABG. Please go ahead.

Thank you for taking my question. I hope you can read it now. The first one is about volume versus price and the need for further profitability. How would you think when you price for the next year, would you sort of start to further increase the profitability, or are you happy with the current one and want to do some volume growth on top of it? Secondly, on the workers' compensation in Finland, could you shed some more light into what happened and if that is going to be repeated again into 2025? And finally, on the car frequency part in Denmark, can you shed some light into that topic on top of Denmark? Thank you.

I'm going to give you a very general answer before Morten and maybe Toby. More detail. Volume compared to price initiatives or thinking about that. There's always a segment or a tactical decision in each line, in each geography, for each product. We see what opportunities we have to maximize value. And that's the whole point of, for instance, having underwriting profit, increasing the underwriting profit as the main target, rather than running a race for the combined ratio to get to zero.

And I think I'll continue then with the two last questions. Verkoskomp Finland, that's a funny product. It's the only product where we have runoff on premiums. So what happened here was that we have something called adjustment premiums. In the charge the clients based on expected salary levels. And then when we get sort of the updated real salaries sort of from the clients, we then adjust the premiums according to that. So then you could have a positive or a negative sort of adjustment premium if companies have employed more, if salary increases have been higher than what you have assumed and so forth. So in the third quarter now we had a negative adjustment premium, meaning that salary levels with the companies that we insure on workers' comp was lower than what we had assumed when making the initial premium calculation. So that's on workers' comp, and that means that you, well, one could have positive and negatives on this also going forward. Car frequencies, I think nothing really special to comment on in the Nordics nor in Denmark in the third quarter. We see a pretty normal development again throughout the Nordics and also in Denmark in the third quarter.

Okay, so nothing more to report. It sounds like you had some higher prices in Denmark. What is that going to be fixed?

The prices, of course, there are quite significant price increases in Denmark, which is also the case in other countries. In Denmark, it's not only in motorists, also in other areas, there is new legislation on workers' comp, the tribal workers' comp premiums. And as I already mentioned, I think we have a high index going into 2025. So premium increases in Denmark are quite significant now.

Could you just shed some light into the indexation increase? Is that 5%, 10%, 15%?

4.3 for next year.

Thank you. In Denmark. Thank you.

The next question comes from Antti Sori from OP Markets. Please go ahead.

Hello. Thanks for taking my question. Regarding Hastings, the top line development is impressive, but operating expenses have been growing for last two years very rapidly, even more rapidly than top line. So there doesn't seem to be that much operating leverage. What should we expect regarding this going forward?

You're wasting money, Toby.

Thank you for the question. As you can imagine, one I get from the board relatively frequently as well. The response is twofold. One is, of course, there is a strain of writing lots of new business and growing the company. We have to pay the price comparison websites and the setup costs and sales costs of new policies being written that have all, within a period of more rapid growth, have all contributed to the growth in expenses as well. The second part is very deliberate investments in new capabilities that we've made over the last couple of years to make sure that Hastings is not just successful in 2024 or even 2025, but that consistent with Sampo's long-term ambitions, Hastings is set up for success over the long term. And the business cases that the teams have presented us with in pricing, in anti-fraud, in digital, in claims, and many more areas around the company are so attractive that that for now we've decided to keep investing in them. I guess as we look ahead then, the balance of where our expenses will go will depend on three things. Firstly is how much we continue to grow and that strain of new business and the extent to which it continues. Secondly, the business cases we get presented with by the teams and to what extent we continue to get excited by them. I would say that at least for now in 2025, the business cases continue to look very good. have great paybacks and returns and therefore i'm very happy to continue to invest but thirdly we do expect the organization to become more efficient through the investments we've made over the last few years in digital and technology and automation and we'll expect particularly the call center costs within hastings to gradually start to come down over time um and That part of it, we're confident will happen. How it will net out against those other two dynamics is hard to tell. But that's the way we manage the business is to focus on achieving that operating leverage in the costs that we think are not key to our future and separate that out from the areas where we see investment opportunity and growth opportunity.

And as a background to everything that Toby said, let me offer the combined ratio of Hastings for Q3 86.5.

Exactly. Very clear. Thanks. That's all from me.

Okay, next question.

The next question comes from Joko Tervainen from SEB. Please go ahead.

Good afternoon. Joko here from SEB. A question on the high level of run-ups again in P&C. Was there something special to know behind this or Has the inflation just been more moderate versus your expectation at the time when reserving?

No, it's nothing in particular, sort of normal volatility in a quarter, I would say, and coming from different lines of businesses and also different countries. Could be noted, however, that bear in mind that we are having also run off of the risk adjustment reserve. Not all of our competitors do the risk adjustment reserve accounting the way that we do. We build it up on the current year and then we have always done a certain gain on the runoff side from running it off. So you saw, for instance, in Q3 that risk adjustment reserve on current year was 1.5%. So that will automatically give us a certain runoff gain over time.

Okay, good, thanks for that. Then on the hastings, you probably already touched this a bit, but pricing seems to be flattening or actually declining. At the same time, it seems that you are taking more and more market shares. Are you basically pricing lower versus the current market, or is just the gained market shares coming in with the other actions you are doing?

Yours, Toby. Yeah, so I guess our basic approach in Hastings is that we try and let the data and the models do the talking. So I guess I don't sit and make a decision on the market environment in my ivory tower and decide whether we're going to push for growth or not. We have models that are designed to assess all the time at a micro segment level, what our current performance is, how we expect claims to develop over the next year or longer than that, what the market dynamics are, including price elasticities we see, how much volume we gain or lose if we adjust our prices, again, at a micro segment level. And it's the outworking of those models that decides how we respond to competitor prices, to claims inflation, and make sure that we hit our target margins going forward. And so the color on this year and those dynamics is that on balance, we've seen more micro segments where we create shareholder value by targeting more growth than we've seen segments where we create shareholder value by increasing our prices. That's a dynamic that's been very prominent, particularly at the end of Q2 and into Q3, and hence the growth that we've experienced during this more recent period. I would say that the more recent data is suggesting a more balanced picture as a combination of us looking at all those micro segments. And we'll continue to assess those market opportunities at assignment levels and let the model do the talking as we look ahead. Overall, we're happy with our target margins, still comfortable hitting them at these pricing levels that we're at at the moment in Q4, and still confident that there are growth opportunities for us to go after, just not as many or as obviously as there were at the end of Q2 and Q3.

Okay, that's very good. Thank you all from my side.

The next question comes from Amelie Zdravovic from Deutsche Bank. Please go ahead.

Yes, hello, good afternoon. This is Amelia from Deutsche Bank. Thank you so much for taking my questions. I have two, if that's okay. Firstly, on the net financial result, it's been moving around a bit for IF due to market moves and actually missed relative to consensus. I was just wondering if you have sort of any color to add on this or... or how it looks going forward also on a quarterly basis. And then second, there's been a lot of news flow recently around premium financing in the UK. And I was just wondering if you have anything new to add from Hastings' perspective on premium financing and the APRs you charge. Thank you very much.

On the net financial result, I think we were sort of broadly in line with many estimates. Then there were a couple that have high estimates using our sensitivity tables. And of course, our sensitivity tables represent a 100 basis point parallel shift, which wasn't the case in this quarter on the net investment result. And that probably made the estimates a little bit difficult to make accurately. There were absolutely nothing special in the net financial result for this quarter, which was not in line with our expectations given the significant drop in short rates and then a slightly more modest rate towards the longer end of the curve.

And Toby, can you comment a bit on premium financing?

And on premium financing, yes, we've brought down our APR slightly during the year. They're in line. that has had no impact on our margins or our target margins. And hence, despite that small movement down in the APR, we've been able to produce the sorts of results that we have this year, including Q3.

You're cutting out a little bit, Toby. Okay, all right, okay, perfect. Amelia, did you have another question or were you done?

No, I mean, sorry, can I just clarify? I think it cut out for me. But so you brought the APRs down slightly during the year and they're sort of now more in line with the rest of the market. Or sorry, you cut out after that sentence.

Apologies, but yes, brought them down slightly. It's in line with the market now.

Thank you very much. That's clear. Thanks.

The next question comes from Jan-Erik Geerland from ABG. Please go ahead.

Thank you for taking my follow-ups. Regarding the insurance or the dividend, the insurance dividend and the solvency and the share buyback ongoing these days, how should we think about the upcoming full year when it comes to your having the insurance dividend capacity last year? Would you not think that without being sort of an insurance company only, just think about the dividend or would you sort of be looking at your old history when it comes to the dividend policy and what you're expecting going forward? And finally, with your sort of increased EPS and operating EPS going forward, should we shed more light to that level when we're thinking about the future expectations for dividend than your past history? Thank you.

In terms of a dividend decision each year, it's of course a decision for the board. Um, and we have the dividend policy, which we have, which says that it should be at least 7%, 70% of our operating result. In other words, the result we're reporting, excluding, um, the mark to market volatility in our net finance result. Um, Now, in terms of dividends going forward, you should think about the regular dividend as the dividend that we intend to pay in line with our dividend policy. And it would be natural to think that that grows in line as a principle with the improved operating result or the improvement in the operating EPS policy. that we have as a specific target. Then on top of that, it would be natural to refer to our target of generating at least 4.5 billion euros of deployable capital during the strategic period and excess capital sort of between that 4.5 billion and the accumulated regular dividend that we will pay during this period could either be used for share buybacks or extra dividend, depending on decisions that we will make when such excess capital is being generated.

Okay. Thank you very much.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Okay. Well, no further questions. So the call concludes there. Thank you, everyone, for listening.