Good morning and thank you for joining Mandatum's Q2 2025 Audiocast. My name is Lotta Borgström and I lead investor relations here at Mandatum. I am pleased to be joined by our CEO, Petri Niemisvirta, and CFO, Matti Ahokas, who will walk you through the highlights of our second quarter, after which we'll take the Q&A where you have the possibility to dial in for any questions. Without further ado, I would now like to hand over to our CEO, Petri Niemisvirta, who will take you through Mandatum's key achievements and developments for the second quarter. Petri, the floor is yours.
Thank you, Lotta, and now let's move on to the second quarter. The start for the second quarter was somewhat shaky due to planned tariffs and aggressive trade policies in the U.S., leading to a widespread market uncertainty. However, the sentiment rebounded swiftly after April and the markets stabilized. Fee result grew by 26% year on year, reaching EUR 18.5 million, reflecting mainly improved cost efficiency and an increase of 11% in client assets under management. Cost efficiency improved significantly, with the cost-to-income ratio dropping by 11 percentage points to 53%. The result related to risk policies in the second quarter decreased to EUR 2 million. The main reason for this was the high comparison figure that included a profit of EUR 6 million related to the insurance portfolio transferred to IF during 2024.
Profit before taxes fell to EUR 34.2 million during the second quarter, impacted mostly by the decline in net finance result. The net finance result decreased to EUR 21.6 million, mainly driven by the decline in long-term interest rates used in the discounting of insurance contracts liabilities. Also, the comparison figure was notably strong due to the sharp rise in the long-term interest rates during the second quarter of last year. It is important to remember that fluctuations in the net finance result are part of the nature of life and pension insurance business, even if the volatility has decreased significantly in recent years, thanks to interest rate hedging measures taken. Capital light profit before taxes was EUR 20.6 million in the quarter.
The decrease from last year is primarily due to negative one-off factors and adjusting for the EUR 6 million one-off gain from the portfolio transferred to IF, we have actually grown our underlying capital light profit before taxes by some 8% quarter on quarter and 25% year to date. The solvency ratio adjusted for dividend accruals and without the transitional measures remains strong at 193%. Organic capital generation, one of the key factors driving our ability to pay dividends, was especially strong. Capital was also released through the divestment of our NNT holding and other publicly listed shares, which means that Mandatum continues to be a very well-capitalized company. The steady growth of client assets under management continued to a new record high level, even though it was weighted down by a weaker U.S. dollar, especially in retail funds and lower investment product sales in April.
The increase in assets under management was largest among institutional wealth management business, 16% year- over -year, followed by the corporate business, 12%. The impact of weakened U.S. dollar was largest in retail assets under management that remained flat year -over -year. Net flow from the corporate clients increased significantly year to date, the growth coming mainly from personal funds. Sales to corporate clients remain strong. The unit-linked pension business continued to grow steadily, while sales of both risk-life insurance and personal funds remain at a good level. Eight new personal funds were established during the quarter. The strong corporate net flow shows also the diversification of our capital light business, highlighting the importance of corporate business to our growth story. Net flow from the institutional wealth management business grew less than last year, mainly driven by the lower investment product sales in April.
Sales of investment products declined in April due to an uncertain market environment but picked up significantly during May and June, increasing the net flow of the second quarter to EUR 164 million. Overall, we have managed to keep the net flow positive even in turbulent market conditions. Client assets under management were increased by the positive net flow and a positive market movement of EUR 240 million. The steady growth in our institutional wealth management business continued in the second quarter. In terms of assets under management, the largest growth came once again from international institutional clients, 40%, and amounted to EUR 1.7 billion. New client accounts were established in, among others, France and Norway. To further accelerate growth, especially in continental Europe, we are establishing a new sales unit in Luxembourg, bringing us closer to a potential European customer base.
The largest increase in assets under management was once again in credit and allocation products, followed closely by external products. Also, we launched a new European High Yield Total Return Fund. Our award-winning credit products, such as the Nordic High Yield Fund, are good examples of leading industry expertise. Operational efficiency continued to improve significantly, with the cost-to-income ratio dropping by 11 percentage points to 53% over the trailing 12 months. The improved operational leverage demonstrates that the determined focus on cost efficiency is paying off, supporting sustainable profitability. While the fee margin decreased slightly to 1.14% due to the growth in lower margin international institutional business and personal funds, standalone product margins remain stable. Mandatum organized a capital markets day early in June, during which we announced our new financial targets. Setting new targets was essential to reflect our ambition to grow in capital-light business areas while also enhancing profitability.
The updated financial targets for 2025 - 2028 are: return on equity above 20%, above 10% compound annual growth rate in capital-light profit before taxes, and a solvency margin of 160% - 180%, with cumulative shareholder payouts exceeding EUR 1 billion. We want to develop into an even more capital-efficient and increasingly fee-based company, while committed to being a good dividend payer also in the future. Our vision is to be the fastest growing Nordic asset and wealth manager with optimized growth in Finnish life and pension sectors, positioning us strongly for the future. Although our new targets are ambitious, I have every confidence that we will achieve them by 2028 through determined actions and the dedication of all Mandatum employees. Now, let's move over to Matti and the figures.
Thank you, Petri. Let's take a closer look at the second quarter result component. As Petri mentioned, the fee result was up 26% year on year, with assets under management up by 11%. If we compare to Q1, our AUM was up by some 3%, but we still had quite a substantial negative of some EUR 300 million from the weaker U.S. dollar in the quarter. As we pointed out earlier, around a quarter of our client AUM is denominated in U.S. dollars, and this is especially big in the higher margin retail funds. The weaker U.S. dollar had a negative P&L impact on the H1 fee result itself. Client fee margins were down a bit in the second quarter. We're looking on a rolling 12-month basis, and this reflects the mixed impacts from the fast-growing international institutional business.
The cost-to-income ratio of our client AUM continued to decrease according to plan and was 53% in the quarter. Our net finance result was EUR 22 million, and despite the very weak investment markets in April, especially our fixed income investments were at a good level in the second quarter. At the same time, the discounting impact in Q2 was significantly negative following the decline in the long IFRS discounting rates, and I'll come back to this a bit more later on. Worth noting is that the Q2 net finance result also included a EUR 12 million capital gain from the sale of our shares in NNT in June. Our result related to risk policies in Q2 was down compared to 2024. Note that the comparison figure in 2024 included some EUR 6 million one-off income from the portfolio transferred to IF.
H1 has typically seasonally higher costs in the risk insurance business, mainly due to the accrual of the previous year's reinsurance costs. The CSM release in the quarter was lower, but this was only due to timing effects, not the CSM itself. Despite the turbulent markets, we consistently continue to generate capital. Organic capital generation was up to EUR 85 million from EUR 58 million in the last year. This translates to EUR 0.17 per share altogether. The main positive driver in the quarter was the faster AUM growth in the quarter. Return on equity was 7.6% in the quarter, mainly due to the lower net finance result. As you know, one of our financial targets is to grow our capital light profit before taxes by more than 10% annually by 2028 compared to 2024.
If we look at the first half of 2025, the reported profit before taxes was EUR 41 million, basically in line with 2024, despite the very turbulent financial markets, the mentioned FX headwinds, and lower sales in H1. Worth noting is that the comparison figure last year includes a EUR 7 million one-off gain from the portfolio transfer of IF, so adjusted for this, the growth was around 25% as Petri mentioned. If we then look closer at the group net finance result, it was down to EUR 22 million, and in the with-profit segment, it was down to EUR 9 million. However, the with-profit investment return in the quarter at 1.3% was above last year and broadly in line with a normalized quarterly run rate. Especially, our fixed income portfolio returns were good at 1.6% or over 6% annualized.
The fixed income marked to market yield was down to 4.3% due to lower rates and tightening spreads, as well as some internal portfolio adjustments. This is still well above the cost of liabilities. Although equities contributed positively this quarter and we continued to decrease our equity exposure during the quarter, now the listed equity exposure was down to 4% of total assets at the end of Q2. As you all know, this is in line with what we have communicated previously. We sold equities worth some EUR 30 million during the quarter. Private credit actually had a fairly normal quarterly return, but then we had a negative value change in our own real estate portfolio, and also private equity returns were negative in the quarter, so these were both below normal.
Although the swap rates actually were quite unchanged in the second quarter, the IFRS rates that we use for discounting in the long end of the yield curve actually decreased in the quarter. The change in the shape of the yield curve was quite unusual and had a EUR 25 million negative P&L impact in the quarter. This was mainly a result of a 20 basis point - 30 basis point lower illiquidity premium in the long IFRS discount rates that we use. The move actually was unusually large in Q2 and happened mainly in the 20+ year maturity where our hedging ratio is very low, as you can see from page 19 in our investor presentation. The with-profit portfolio interest rate hedging ratio increased further and was probably unusually high at 97% at the end of Q2. The reason for this was a technical asset class mix change.
The overall fixed income exposure increased, mainly in the 5 - 10 year bucket, while the share of listed equities decreased, as I mentioned. As we show, although the average hedging ratio is high, there are big differences in the maturities. The hedging ratio is very high in the short end but low in the very long end. I'd like to also note that the IFRS discount rate marked to market changes have no impact on the actual contractual cash flows nor our dividend paying capacity. Despite the turbulent markets, we continue to consistently generate capital. Organic capital generation was up to EUR 85 million in Q2, or significantly higher than the reported IFRS result. This measure, as you know, takes into account also, for example, the own funds generation from income booked in the CSM, as well as potential capital release from a lower solvency capital requirement.
As pointed out before, we think the OCG is a more relevant measure to assess our performance and capital generation. Our own funds generation increased the solvency margin by roughly 9% in the quarter. To reflect our new financial targets, we now report our solvency margin also including the transitional measure. The group solvency margin increased by 10% quarter on quarter but decreased by 3% when taking into account the larger dividend deduction assumption compared to last year. Last year, we had 0.33x, and now we use 0.50x. In addition to the announced sale of the Saxo Bank share, it is expected to increase the solvency margin by around 35% once the transaction is finalized. This means that we will be significantly above the target range at the end of the year. Back to you, Lotta.
Thank you, Matti. Now let's move on to the Q&A. Please dial in for any questions.
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 Hans Rettedal Christiansen from Danske Bank Markets. Please go ahead.
Good morning and thanks for taking my question. The first question I have is on the sort of fee margin and net flow. Thank you for the slide 14 where you've started reporting the cost-to-income and fee margins. You say on the slide that you have strong growth in international client business, which is affecting the mix. What I was really wondering is, are you able to quantify how much of the EUR 160 million in net flows this quarter is coming from the international business in institutional and wealth management versus how much is, if I can sort of say, local, I guess?
Okay, yeah. The number what we are getting from what is the portion of international sales, it's quite substantial during this quarter. Lotta, remind me, do you have an exact number? No, we don't publish that exact number, but I would say it's the fastest growing as you have seen the numbers, 40% growth year on year. It's quite a substantial amount what we are getting. Another growing body, it's really fast growing, is our private wealth management in Finland, which is growing more or less the same speed. It's a very big part of our sales nowadays.
Okay, thank you very much. I guess my second question is a bit more technical in nature, but on the transitional measure that you're starting to report on this quarter, I was wondering how to kind of think about the unwinding of this measure, especially up against your target of 160% - 180% on solvency over the next four years. If your solvency was at sort of 193% with that measure at the end of last year, I guess that would imply that it was EUR 170 million at Q4, and then it's EUR 155 million this quarter. Am I thinking correctly that it's down sort of EUR 14 million for a half year? That would imply sort of an unwinding of EUR 30 million each year. I guess my question is, is that the right way to think about it up against your total goal, or am I completely off here?
No, I think that's the right way to think about it. Remember, the 193% is an all-in figure. Of course, technically, that's the figure we look at. There is no unwinding there at all. In the actual figure that we report, that will be lower and gradually unwinding until 2028. That's exactly the reason why we look at the 193% as the all-in figure, and there is no unwinding effect on that at all. As you know, our new financial target is exactly for that reason, that otherwise the ratio would technically decrease every year simply because of the lower impact of the transitional measures. The 193% is comparable to the 160%- 180%, and there is no kind of unwinding or transition figure impacting that at all. Just to remind you, once the Saxo Bank transaction is finalized, the ratio will jump quite significantly, as I mentioned.
Yeah, that's very clear. Thank you so much. That was all from me.
The next question comes from Antti Saari from OP Markets. Please go ahead.
Hello, and thanks for taking my question. From an international growth perspective, I would like to ask whether you can mention us any blockbuster products, or are there any few products that are leading to sales and in a way causing this lower margin level?
Yes, thank you, Antti. We have stated already before that our fee margin will go down once our fastest growing body is our wealth management, institutional wealth management division. Traditionally, that business is lower margin than what we have in our retail and corporate, which are not growing that fast than our wealth management division. It's not specifically international. It's all institutional business, both in Finland and outside of Finland, which are, let's say, lower margin business. Still, we are in asset classes that we have quite reasonable, decent, and quite high fee levels altogether. What we are selling internationally is our Nordic High Yield Fund, which is not very low margin, but of course, it's not 1.2% or over 1%. What we are also selling is in your secured loan fund, European High Yield Fund.
A little bit also, we started to see some growth in our managed futures fund, which is a hedge fund, which is a high margin product. Our wealth management division fee level is around 0.8%, so that's something which is more we sell that, of course, the combined number will go down.
I see. The reason for lower margin is client mix, not product mix?
It's the client mixing, yes. Yes, that's true. The more we sell to institutions, it's not retail or corporate. We traditionally, though in those areas, have a higher margin. I guess most of our competitors have the same things happening for them as well once they're selling different customer segments.
I see. A more technical question: looking at the with-profit business, the other result was now negative for the second quarter in a row. What should we expect about this? Is this sort of a new normal?
Yeah, hi, Antti. It's Matti here. It's a good question. Here again, we had some portfolio transfers related to kind of IT system renewals. No, it's not the new normal. Of course, when you have a couple of quarters where you see negative figures, it's kind of annoying, but the figures should be pretty close to zero going forward. In our line of business with a very long tail of liabilities and hundreds of thousands of customers and different client segments and cohorts, what we call, there's always these kind of some movements here. Actually, this quarter, it was mainly caused by a technical move from actual corporate to with-profit other, some of the portfolios that have both with-profit and unit-linked capabilities. It's not a big figure, but I think the figure should be pretty close to zero going forward.
Okay, thanks. One more question. You mentioned this distribution agreement with Pohjantähti . Could you remind us whether you have other distributors in the insurance space, and do you expect this deal to have a meaningful impact to your sales?
Yes. We have two distributors in Finland. Danske Bank, of course, is our main partner in Finland, selling both risk insurance, which is called loan insurance. It's a creditors' protection loan product. Of course, endowment of the capital redemptions, so savings products as well. Pohjantähti is only concentrating on risk policies to private people and micro companies, so very small companies. Is it meaningful? We hope so, and we believe that. Otherwise, we wouldn't have done that. In our figures, if you look at the risk premium numbers, they are not that big. It's a meaningful partner, and they have a very substantial distribution and close to 200 salespeople all around Finland. We are waiting for a good result, and this is a good add-on to our risk sales in the retail segment.
That's clear. Okay, this is all from my side. Thanks.
The next question comes from Kasper from Mellas. Please go ahead.
Hi, this is Kasper from Inderes. Thanks for having my question. How many persons do you plan to recruit to boost your international sales in Luxembourg? Are these additional costs included in your guided 1% annual cost growth going forward?
Yeah, it's, of course, it's additional cost, even though one person from Finland will move there to do his job from there, which he's currently doing from here, so heading to international business. It's, of course, extra cost, but we believe that it's the investment, not just the cost, to enhance our business. Let's say we are targeting few people at this point, so not a huge amount of people. A little bit the same as what we have done in Sweden, so handpicked people who can really deliver results in a short period of time, meaning few people, a couple of people at this point, like in Sweden, what we have done.
Kasper, yes, it is included in the cost guidance.
Okay, thank you very much.
The next question comes from Jukka from Tevenon. Please go ahead.
Thanks, I'm Jukka from SEB. You're not in some new mandates in Norway and France. Could you elaborate a bit how is the pipeline looking in these new markets if you compare the situation a year or two ago? What is kind of your typical level internationally versus a few years back?
Yeah, thank you, Jukka. It's far better than it was two years ago. Of course, we have more salespeople and sales forces also. We have more people to cover those markets. We just rotated last year one new wealth manager salesperson to Stockholm, and he has really put a lot of effort to Norway. He has a lot of connections there, and it started to get some money in as well. It's a good process, and the pipeline is, of course, very promising. At the same time, it's not just the activity or more people. It's also that we have award-winning products, Nordic High Yield. All our credit products are really performing well. They are top products in surveys and so on.
We are in a good position in a certain way that we have a lot of questions in various places because they have recognized our performance, our products, and they want to look at more carefully, meet our teams, and so on. For example, this France case came actively from the customer side. Now we see that there's a lot of demand in a certain way for our products, and that's why we also made a decision to put more efforts and the resources and make investments to Luxembourg because it's a lot of ground to our products. Totally different and much better situation than two years ago.
Excellent. That's helpful. Thanks. On the fee margin and the weaker USD, obviously the USD, like Matti mentioned, it impacts on the absolute numbers in euro terms, but does it have an impact on the reported blended fee margin as well?
Yeah, hi Jukka. A very small impact. This is mainly a kind of product mix and client mix impact, as said. There is also some variation. If you look back in 2024, especially in the institutional and wealth management business, alternatives played a much bigger role than today for obvious reasons. The private equity and real estate market has been slow. That is impacting as well. The main impact is actually coming from the product mix impact here together. There is some quarterly variation. We have a lot of products that we sell, and the margins may vary a bit every now and then. I guess the fall in the second quarter was a bit bigger than expected. Small impact from the U.S. dollar, but not at all as big as to the reported figures.
If I may add, because I already answered to Antti about this issue, it's product, but it's also customers because those customers we are selling, they are buying those products which are selling very well. I don't know which one is first, chicken or egg, but that's the case. We are selling professional buyers, institutions, credit product, which of course is affecting the total combined fee margin. All in all, what I haven't said yet, we haven't seen any softening or tightening inside of the customer segments or product range. It is more or less the same than what we have seen in the last quarter or a year ago.
Good, thanks. Finally, a kind of a technical question regarding the dividend accrual, which was now raised. Why was it raised? Did I miss something during the quarter? What is the reason behind here?
If you look at what we said at this Capital Market Day, we said above, you know, EUR 1 billion of dividends. If you kind of take that as a figure and divide that by four, it would imply EUR 0.50 per share. This is not the guidance in any way of the dividend. It's a kind of technical adjustment we use. Since we said the EUR 1 billion or above EUR 1 billion, actually, we use now that it would be distributed evenly. However, as you remember, like we said at the Capital Market Day, we believe it's probably going to be de facto a bit more front-loaded, obviously entirely up to the Board to decide what they think about it.
Of course, for obvious reasons, the Saxo Bank transaction finalization, the NNT shares means that, you know, we have ample liquidity here, but we use EUR 0.50 per share as the assumption for the accrual. This was EUR 0.33, as you know, last year.
Okay. I thought it would just be more technical based on last year. Last year, EUR 0.33 +, EUR 0.33. Okay, but fair enough. Very well understood. Thank you.
The next question comes from Emil Immonen from DNB Carnegie. Please go ahead.
Hi, thanks for taking my questions. Just a couple more. Maybe first starting on the cost-to-income ratio development. I was wondering, with lower fees in the international business, but maybe that being a little bit smaller right now, but growing very strongly, is there any scale benefits you can realize here so that actually our cost-to-income could improve even though fee margins are a little bit lower?
Yeah, hi Emil, it's Matti here. Absolutely. If you then take our cost guidance of 1%, which is including the investments, that means that if we grow our income by more than 1%, the cost-to-income ratio will improve. It will not improve, obviously, forever, most likely. I think we still see potential for improvement. Of course, one of the big drivers is, like we mentioned, that a lot of the significant IT investments have not been amortized and have been taken. That, of course, means that the cost growth will be fairly limited going forward. If the income growth is bigger than the cost growth, the cost-to-income ratio will improve.
That's clear. Thank you. On the net financial result in the with-profit, that seems where the maybe misclaimed estimates. I wonder, could you go into a little bit more detail on how we maybe should think about the net financial result if interest rates continue to go down and how it compares, for example, to the average policy rate?
Yeah, I guess, of course, this is one bit of a surprise because obviously, externally, you can observe the swap rates, which have an impact on our asset side. The IFRS discount rate, which we use, is a combination of both the swap rate and a liquidity premium for BBB+ euro-denominated bonds, which we actually get from Moody's. It's not our own invention. That move was quite significant. As said, in the portfolio or in the maturities above 20 and 25 years, for obvious reasons, we have hardly any hedge there, and it's part of our strategy. The interest rate moves, obviously, you should not kind of take, especially when it comes to anything below 10 years. We are very well hedged for that. Of course, if there's movements in the very long end, that will have an impact, like was the case here in the quarter altogether.
If we look then overall, as you mentioned, on the kind of policyholder funds and policyholder development, first of all, if the mark-to-market yield on the fixed income portfolio comes down, if we would use the, if the unwinding rate would be the current rate, it would be also 50 basis points roughly lower. For us, it's not the actual level of rates. It's also the spread we make on the policyholder liabilities. As said, that is roughly the 2% that we've indicated even now. For us, the level of interest rate is not relevant, excluding the fact that if it happens in the very long end of the yield curve, and especially these illiquidity premiums, that will have an impact. I actually had a look, and for example, these moves we haven't seen for a number of years, which happened now in the second quarter.
I would like to characterize them as quite unusual. The level of the interest rate in the below 10 years maturities will have very limited impact on our figures.
Okay, thank you. That clarifies it a lot. That's all from me.
There are no more questions at this time, so I hand the conference back to the speakers.
That was all for today. Thank you for joining us, and please don't hesitate to contact us at investor relations should you have any further questions. Goodbye.