Ladies and gentlemen, welcome to this call on Sampo Group's 2019 results. I'm Jarmo Salonen, Head of Investor Relations at Sampo, and with me at this call, I have our Group CEO, Torbjörn Magnusson, Head of P&C Insurance, CEO of If, Morten Thorsrud, and Group CFO, Knut Arne Alsaker. Torbjörn will start with a brief presentation of the developments in Q4 and 2019. Before handing over to him, let me remind you that you can follow this call, sampo.com/results, and a recorded version will later be available at that same address. With these words, I'll hand over to Torbjörn. Torbjörn, please.
Thank you, Jarmo. This is the first time I present Sampo's results as Group CEO, and I'm pleased to be able to present a strong last quarter for 2019 with successful developments in all our business areas as well as in our investment operations. First and foremost, the P&C operations continue to excel at underwriting.
The stability in combined ratio is second to none, as usual. In addition to this, the combination of a very low and all the time improving cost ratio, together with large investments in digital services, has also produced record growth for If P&C. Over 5% growth over the full year, and the company is in a very strong position indeed in its markets at the moment. Topdanmark, our other P&C asset, had another strong year with a combined ratio of 84% for the full year.
The company is very efficient, and it's rapidly building more digital services in the Danish market. In 2020, we will see the benefits of the distribution agreement with Nordea come into play also for Topdanmark. All our insurance operations, not least Mandatum, were helped by the favorable equity markets last year. Mandatum's unit-linked savings reached an all-time high last year as equity values appreciated substantially.
At the same time, efforts to speed up the shrinking of the with-profit book bore fruit, and the book is now some EUR 300 million smaller than a year ago. A word or two on Nordea. Nordea has gone through a protracted period of difficulties and now has new management and new targets. As owners, it's gratifying to see that the new management shows a great deal of determination to work towards the new targets.
The results this morning were a first step in the right direction. One quarter is, of course, a very short time period, but still, the Q4 results included progress on capital, progress on costs, and high-quality income that looks very encouraging. Now to our dividend proposal and the new dividend policy. As we said in October, we were expecting to propose to the Board a dividend of EUR 2.10 - EUR 2.30 per share, and the Board planned to review our dividend policy in early February.
The Board has now decided to propose a dividend of EUR 2.20 and has reviewed and updated our dividend policy. I'd like to provide some context to the dividend policy from my perspective. First of all, as a management team, we remain committed to an attractive dividend, and our dividend policy reflects that.
We are focused on creating shareholder value and believe that it's best done over time by increasing the earnings of our operations and our holdings, which in turn ultimately underpin the dividends to our shareholders. Consequently, it makes sense to link our dividend to earnings, and we wanted to acknowledge that by updating our dividend policy and committing to a payout that is increased from the previous at least 50% to at least 70%.
Finally, an important part of the jigsaw, we have today also announced an updated outlook for our operations and our business profile and returns support the new dividend policy. Obviously, I might say, from here, we look forward to growing our earnings, and with that, to paying an attractive dividend. The completed succession of Sampo is, of course, a very continuous one. All positions were filled internally.
The management team has deep knowledge and skills in the financial sector with an emphasis on insurance. The world around us will offer both challenges and opportunities in the period to come, and the team looks forward to using these skills and the possibilities given by the balance sheet for the benefit of our shareholders. With that, I hand back to you, Jarmo.
Thank you, Torbjörn. Operator, we are now ready for the questions, please.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. Please hold until we have the first question. Our first question is from Matti Ahokas from Danske Bank. Please go ahead.
Yes, good afternoon. It's Matti Ahokas from Danske Bank. Two questions, please. Firstly, Torbjörn, you mentioned last year, I believe, that you wanted to see Sampo and you see Sampo more as an insurance-focused group. Some people have interpreted this that you might be considering divesting the Nordea stake. What's your take on this?
Pretty awkward timing to ask that, I guess today, Matti. I was very pleased. The new targets in the autumn, I was very much part of that. Today is a very strong step in the right direction, and I'm certainly not thinking about divesting the stake.
That's very clear. Thanks. The second question is on the non-life business, and especially the business in Sweden. We've seen quite terrible new car sales, and you obviously have a fairly big exposure to the motor insurance segment. Would you say that now in Q4, the situation has normalized, or are we still seeing the ripple effect from the tax changes that we had in 2018? How should we look at the motor insurance in Sweden in 2020? Thanks.
Yeah. Morten Thorsrud here. I think if you look at the car sales in Sweden for 2019 as a whole, it's actually quite stable compared to 2018. However, we've seen quite some movement from quarter to quarter. In the fourth quarter, new car sales in Sweden was up by some 50% compared to fourth quarter 2018. I think depending on tax changes, of course, you can see these changes from one quarter to another. I think it's more fair to look upon this on a full year basis, and then you see quite a stable situation, actually.
This should continue into 2020 as well?
That's hard to predict. I think 2018, 2019, fairly stable development in terms of new car sales, at least so.
Great. Thank you very much.
Our next question is from Sami Taipalus from Goldman Sachs. Please go ahead.
Yeah. Hi, everyone. Sami from Goldman Sachs here. My first question, just coming back to the dividend policy. It also mentions buybacks. I'd be interested to know what the parameters you'd look at here on the buybacks are. Is this linked to capital or excess earnings, or what are the things that might trigger a buyback? My second question is on the Industrial P&C business.
Could you comment a little bit on what you saw at the January 1st renewals here? Second, also related to this, I think you've said before that it's a business that you're interested in longer term. Given that some of your peers appear to have plans to pull back a bit, do you see a chance to potentially take a bit of market share here? Thank you.
The buyback. We're, as a management team, committed to paying an attractive dividend, and we believe that our owners are interested in that. Buybacks in the history of Sampo has been used very infrequently. I think the last time was probably 2011.
No, that was 2012.
when the share price was very weak.
Okay, are you saying that this is something that the trigger for this would only be a weak share price, or are there other potential triggers as well?
That's obviously a Board decision, but that would be my expectation.
Okay. All right, great.
On your question on industrial growth, Sami. What we saw last year was quite a good combination with increased volume stemming from increased turnover with key clients, increased shares on some of the more structured enabling programs that we participate at. We clearly saw some price increases in the large corporate segment, and we had a record high retention in that segment.
When it comes to new sales, it was more of a normal situation, but those other very positive factors gave a very positive outcome in terms of growth for industrial in 2019. We've pretty much seen the same development when looking at the first of first renewed. Quite a favorable development in the industrial market.
Of course, needless to say, with these growth rates, just now we are somewhat growing market share, but of course, you can look upon this over a longer period, we've been going up and down in volume here.
Okay, you're happy with the returns, obviously, that you're getting in the market, given that you're willing to take on a bit more volume.
Okay, our next question is from Michael Hoffman. Please go ahead.
Hi there. Two questions. The first one is on stakes. You mentioned motor insurance. You've got the list of stakes you built up are mostly in banking and payment, apart from the Viking deal, which is the most recent one. I just wondered if there's a change there, if you're going to stop doing these more banking stakes, if you're going to sell them or just to get a feel for that.
The other one is on the remittance from Mandatum. Excluding the one-off in 2018, that remittance is flat. In the past, you've said that reducing back book means that you can have less allocated capital to Mandatum. I would have expect is the wrong word, but I was thinking maybe you could have paid if Mandatum could have paid more to the parent, and I just wondered if there's a moving part I'm not seeing.
Hello, Michael, it's Arne Alsaker here. I'll start here on the first part in terms of the investment portfolio in the holding company. It had, as you will have seen from the changes in the fair value reserve in the comprehensive income by segment in our report, a really good year in 2019. The return was strong. Obviously we could, at one point in time, decide to sell and take some profit also in that portfolio as we do in other investment portfolios throughout the group.
When it comes to Mandatum, I'm not exactly sure I got your question, but the release of capital from the runoff of the with-profit book is still happening, so to speak. We released more than EUR 200 million last year are the highest guaranteed products, also some additional of lower guaranteed products.
That did release capital to the tune of between EUR 100 million and EUR 150 million. There's no change there. The possibility for us to pay a dividend from Mandatum remains. We have said that we expect Mandatum to pay a dividend now in March of EUR 150 million, which was about in line with what we expected it to do when we started 2019. Everything according to plan in Mandatum when it comes to the capital release and the dividend for that last year.
Okay. Thank you.
Next question is from Blair Stewart of Bank of America. Please go ahead.
Good afternoon. Thank you. First question on our favorite topic of underlying combined ratio, Torbjörn. The adjustments that we can make from the disclosures we get suggest that for the full year, the underlying combined ratio was broadly stable, and in Q4 it looks like it deteriorated a little. I wonder if you can just give us a little bit of color on that.
I know we're not able to do all the adjustments that would be necessary, but one would have expected with pricing at or better than the claims inflation that that might have improved. Secondly, just interested in your comments around Denmark, with the rollout of the new systems, what impact that might have on that business going forwards. Finally, just on the growth outlook, the growth, I think 5.7% and higher than that in Q4 discrete is impressive. I wonder if you expect that going into this year as well. Thank you.
I'll take the middle one and then give you a better shot than with me on the underlying combined ratio with Morten. On Topdanmark's new systems, I don't think that we should see that as a revolution around the corner. The Danish market has been very slow at picking up internet web sale services, and Topdanmark has not invested enough to lead the market there, and they're investing heavily in that. You will see this year, for instance, a number of products being made available on the web there. It's a gradual development, but we're investing quite a lot. Well, Topdanmark is-
Sorry, Torbjörn. Is it only in Top or is it also in your own Danish operations that the IT investment is increasing?
Yeah, I can comment on that. Within If, we are rolling out a new base system and currently doing that partially in Sweden and also starting up in Denmark. That means that in Denmark, you could say that we have a little bit of double IT costs right now, still having to maintain the old legacy systems and then at the same time, rolling out the new core system. To your other questions, I guess the topic of underlying improvement is probably one of your favorites, perhaps not necessarily ours.
Torbjörn loved talking about it in the past, so I'm hoping for a good answer from you.
Exactly. I think there's so many moving parts, so it's really hard to do a proper statement on that. I think we are really happy about the current profitability level, delivering 84.5 in combined ratio. We see a good competitive situation. We have said throughout 2019 that we are pricing somewhat above inflation, mainly due to the fact that there is a bit of repricing within the commercial segment. I think that's what we can say about it. We have also, as you've seen, published an outlook for 2020, which is 1% lower than the outlook that we published at the same period last year. Finally, to your question about growth.
We report, as you mentioned, 5.7% growth in 2019 for the full year, and then 8.5% for the fourth quarter standalone. A portion of the growth is coming from increased retention rates, in particular in the private segment. We do believe that we have a little bit of a tailwind, given that we're seeing clear improvement in key customer metrics, and that will give us also a good competitive situation in 2020.
Okay, great. Just one comeback on the Danish situation. When would you expect to not be running with dual costs in IT, and what might the impact of that be? Presumably fairly modest, given it's a small operation, but it'd be worth knowing.
Hard to put an exact date on that. It takes a couple of years to roll out the current base system that we roll out, and then you need to close down the existing or the legacy systems. It easily takes some few years, but we are progressing according to plan.
I think maybe the relevant answer, Morten, is that you know very well that we're committed to improving the cost ratio by a couple of small percentage points every year, and this will contribute to that, and that we stick to that promise.
Okay, gentlemen. Thank you very much as always.
Okay, our next question is from Per Grønborg from SEB. Please go ahead.
Yes, thank you. Three questions from my side. The first relates a bit to Blair's question. When we listen to your peers in this context, probably Tryg being the most relevant, they have talked about weather-related claims being very benign in 2019. Are you seeing the same picture? I know you don't report on the topic.
It's a bit different from country to country. I think on the Nordic level, I wouldn't necessarily say that the weather was more benign in 2019 than 2018. We've seen some few events in Sweden, for instance, in 2019. It's not a big difference as I see it between 2018 and 2019 on the Nordic level. There is clearly variations when you go down on the country level, of course.
My second question related to your new dividend policy. Basically, the key question is, any ambitions of showing an annual increase in dividend going forward? Should we look more for a Topdanmark lookalike dividend that fluctuates with earnings? Should we expect a reset from the current EUR 2.20, which is approximately 100% payout? You're only promising to pay out above 70%. That doesn't really sound like Sampo, but still, I have to ask the question.
Sampo is a much bigger animal than Topdanmark. We get diversification on a number of levels, dimensions compared to Topdanmark. Our ambition is, you're quite right, to increase earnings and that the dividend will reflect those earnings. I also expect that to be more stable than for Topdanmark.
Seeing a declining dividend, that is not as ruled out any longer as it was in the old days. Is that correctly interpreted?
I think that's that.
Okay, perfect. My final question, your investment returns on the bond side, can you give us any indication what the yield to maturity is on your bond portfolio in If and in Mandatum in these low-interest rate markets?
The running yields in Mandatum is currently 2.4%, and for If it's 1.8%. The market yield is roughly some 50 basis points lower than that.
Okay, 1.9 in Mandatum and slightly below one in If.
Slightly below one in If.
Yeah. Okay, perfect. Thank you.
Our next question is from Jan Erik Gjerland from ABG. Please go ahead.
Hello, it's Jan Erik Gjerland from ABG. I have some questions about your premium growth. It looks like you have sort of lagging a little bit behind, if you can see it like that, on the commercial side. Could you shed some light into that kind of business line to say how you were thinking going forward, and if the claims higher than the premium growth at the moment in that business unit?
When it comes to growth in commercial lines, I think we pointed out throughout last year that we started with a weak-ish first quarter, mainly driven by loss of some business in Vakuutuskampen in Finland. Then it's been improving sort of course, over the quarters in 2019. When it comes to pricing, I think, again, we said that within the commercial segment, we do see price increases somewhat above what we would assume to be normal inflation.
Okay. Thank you. On the combined ratio, could you shed some light into the underlying level if you strip out the discount rate in both Sweden and Finland? Is it sort of a normal run-off rate on top of that, or how should we look upon these two countries in specific?
I think it's repeating a bit the story as we talked about sort of during the quarters throughout 2019. Good underlying combined ratio. We obviously think it's more important to focus on the total combined ratio. When it comes to run-off gains, yes, they've been on a somewhat higher level over the last, almost 18 months I guess now. More around 4%, then historically it's been more around two. Then we sort of are not giving any sort of guidance on how this will be progressive. It kind of really depends on the underlying development compared to our reserve models.
Why has it been more four-ish rather than two-ish the last 18 months? Is it any trend you're seeing, any high court objections or anything? Is it particular motor accident that has come off, or if people are ill, or what is the main reason here?
It's back to the development in Swedish motor TPL, where we've seen clearly a more benign development than what has been assumed in the reserving models. This as you know is an extremely long-tail business. That's what's driving it.
Have you changed your reservation or if you're still using your old tariffs when it comes to this back book and front book?
Of course. You update your reserving model constantly, sort of taking into account the new data.
On Denmark, you have a very high cost ratio. Is that linked to the IT system development stuff you have in the Q4, or is it something structural?
It is a situation that's been there for a while in Denmark. Obviously, replacing the IT system is one contributor in taking that down, and then it's back to the overall kind of focus on cost improvement in it. Clearly there is a target of reducing the cost ratio in Denmark.
Okay. Finally, on Baltikum. You have lowered your sort of buffer, what is it called again? You lower your discount rate for down to 1.25 for 2022, probably using your very strong financially in the Q4 numbers. How should we look upon the 1.25 versus the 25 basis point for the other years? Is it so that you want to be down to the 25 basis point as well for, on Baltikum by 2022? How should it be running there? Is it just by financial strong results that will get you there?
We make decisions on the discount rates sort of at every quarter, depending on how the rate environment looks. There's of course, no change in the guarantees in Baltikum, which on average currently is just around 3%. For us to prepare for a lower, for longer interest rate environment also going forward, we have no plan to change that. We don't have a guidance for how we will deal exactly with the discount rate reserve going forward.
Okay. The running yield is around 2.4 as you said, to Per. We should think about it being, coming down towards 1.5%-2% somewhere, and that you should be happy with 1.25 in there.
We're happy with 1.25 right now, but that doesn't mean that we will not take it further down at one point in time going forward.
Okay. Thank you.
Our next question is from Jakob Brink from Nordea. Please go ahead.
It's Jakob Brink here. I think that was me, from Nordea. Sorry, just coming back to the payouts policy once again, sorry. How do you look at, this is a payout ratio on net profit, but these days, of course, there's a difference at least right now between payout ratio of, in Nordea it's not 100%, there's a difference between the cash flow and the actual profit that you consolidate. How do you look at that in connection with the dividend policy?
Also in addition to that, what if at some point Nordea would start to do a buyback? I guess that could be a meaningful change to the cash flow that you would be starting to incur. How would you then look at the potential for Sampo to start doing buybacks, or would you accumulate the capital over time, or how would that work? Thank you.
In the dividend policy that we have published today is a balanced one. Clearly, we have taken into account the Nordea dividend policy. Not much more to say about that. On buybacks. Potentially in the future, as the rules and regulations look today, we cannot allow our holding in Nordea to increase above 20%, but we don't know what that situation will look like if and when Nordea decides to start with buybacks.
Okay. I think that is it. Thank you.
Okay, our next question is from Derald Goh from Citigroup. Please go ahead.
Good afternoon, all. Thanks for taking my question. Just going back to the January renewals, please. Could you give a sense of the rate improvements that you're seeing possibly by regions, and how does it compare to 2019? I think in 2019 there's a bit more rates in industrial Norway. Has that picked up outside Norway as well?
I think I will avoid going too much in details. I think it's been a positive renewal for us. I commented that we do see rate increases in industrial book, and we continue to see rate increases, price increases within commercial. I think apart from that, I think I commented that it's more clear that the price increases are strong in Norwegian markets, but we see it a little bit across the board.
Okay, thank you. My next question is just on the large losses in the commercial segment. I think it's the second or third in a row where it's exceeded expectations. Could you maybe talk a bit about what are the issues by specific lines or maybe also by countries? Also, are you taking any actions to address that?
No, I think it's certain volatility that you would expect. We've seen over the last year, somewhat more losses in the commercial segment. In the fourth quarter standalone, it was clearly less than expected. This is moving, and it's varying a bit from country to country also, and from industry to industry.
Let me add to the rate increase question that Sampo, the main target for If P&C is to exceed 70.5% ROE post-tax, which it has been able to do with a margin for a long period. The rate increases are designed so that we would meet that, and the rate increases carried out in 2019 and one now have been able to meet that.
Okay. Thank you all.
Okay, our next question is from Niccolò from BNP Paribas. Please go ahead.
Yes, good afternoon. Three questions from me. Firstly, at Q3, you told us that it was reasonable to answer questions about strategy the next year. Here's the next year. I want to double-check if you already have something to share or whether we should expect an update on this later in the year.
Maybe if you can't tell us what changes, you can already give us a strong view about what will not change. Secondly, on Nordea, you mentioned earlier that it's not a good time to ask whether you'd be selling it. Maybe you can give us a bit of a longer-term perspective in terms of whether you look at this as a strategic or financial stake, by which I mean, do you think there are reasons you're a better owner than the market of it?
Will you try and create value for the shareholders by, of course, selling it if you think it's at the right price to do so? That's the second question. Lastly, on the new money yield, if you could tell us what yields you have been investing at most recently in your P&C portfolio. Thank you.
I'll take the first two then. Strategy for next year. I think I actually covered what I could cover in my introduction. The strategy is on an operational level, Nordea starting to move towards the target and supporting that. For If P&C and Topdanmark keep the combined ratios where they are, and obviously, P&C at the strong position they are should also be able to pursue a higher growth figure than in the past.
That will increase the profits of the group. That's a very operational strategy. Apart from that, we use all the skills and knowledge that there is in the management team to see what opportunities the world brings. On the longer-term perspective on Nordea. Well, Sampo has always been agile. I use phrases like everything is always for sale at an extremely high price, of course.
At this point in time, we believe that we can develop Nordea, and Nordea's management team can develop Nordea to much higher values. That's the focus. I see no reason to speculating what happens after that.
That's very clear.
Niccolò, it's Morten Thorsrud answering your last question about the yield we had been invested in. You mentioned Q3, referenced Q3, where I was signaling a possible clear drop in the running yield during 2020. The fixed income investments we have done in the fourth quarter helped to stabilize the running yields at the level I indicated earlier. I'm more positive to being able to maintain the current running yield, 2.4% for Mandatum and 1.8% for If during 2020 than I was a quarter ago, meaning that we've been able to invest in yields slightly higher during the last three months than during the first part of the last year.
Thank you.
Okay, we have a follow-up question from Jan Erik Gjerland from ABG. Please go ahead.
Yes, thank you. My question is really answered. Thank you. I don't have any follow-up. Sorry.
Okay, ladies and gentlemen, as a reminder, if you wish to ask a question, please press zero one on your telephone keypad. As a reminder, if you wish to ask a question, please press zero one on your telephone keypad. There are no further questions at this time. Please go ahead, speakers.
Thank you, operator. Thank you all for your attention, and have a great evening.