Earnings Call: Q2 2019

Aug 6, 2019

Quarterly report

Ladies and gentlemen, welcome to this conference call on Sampo Group's January, June 2019 results. I'm Jarmo Salonen, Head of Investor Relations at Sampo. And with me here in the studio, I have Kari Stadega, Group CEO and President Knut Arne Alsaker, our Group CFO and Morten Tulsrud, CEO for IFB and C. As always, we'll start with Kari's presentation, where he will highlight the most important things in the 1st 6 months of this year. But before handing over to Kari, let me just remind you that you can follow this transmission live at samba.com/result, and a recorded version of the call will later be available at that same address. That's all for me. Now I hand over to Kari. Kari, please. Thank you, Jarmo. Good afternoon, and welcome to the conference call on my behalf as well. Sampo Group reported a profit before tax for the Q2 of €506,000,000 This is lower than the Q2 last year, but we should remember that the Q2 of 2018 benefited from a recorded profit related to Mandatum's deal with Danske of €197,000,000 as well as one off gains in Nordea from divestment of shares in UC and sale of their life and pension business in Denmark, which combined added €74,000,000 to last year's Q2 profit in Sampo. So adjusted for these three one offs, our Q2 profit improved actually by €69,000,000 or 16%. The insurance business in Sampo is performing excellently. We've had a Q2 combined ratio of 83% and a first half year combined ratio of 84.7 percent, an improvement of 2.1percent1.1percentagepoints, respectively, and both were best ever combined ratios. Growth in IF is also really, really strong with a growth rate of 4.3% in local currencies in the first half year compared to last year, even though new car sales slowed down in the beginning of this year. All business areas as well as number of clients in all countries grew. A strong investment result for the first 2 months or actually 1st two quarters contributed to giving IF their best ever operating profit for the 1st 6 months of the year, anecdotally in their own reporting currency, Swedish krona. Topdanmark also improved their underwriting result and reported combined ratios according to our reporting principles below 80 percentage points for both Q2 and the first half year, another clear sign of the great P and C operation, which the management of Top Danmark is running. The Life business in Top Danmark performed also very well and doubled is today already more than 60% of Sampo and insurance altogether roughly 75%. We are apparently back to our origins, so we are really an insurance group. P and C Insurance is an excellent business. We continue to have world class underwriting. Our cost ratios are extremely competitive. Yves' online offerings are now advanced compared to market as well as winning rewards. All of this contributes to strong growth and very strong profitability. And with investment yields that will be lower for longer, the attractiveness of Sampo's high underwriting profitability has increased even further. Mandatum's unit linked reserves were at an all time high by the end of Q2. The company's own sales force continues to perform well. And towards the end of Q2, we could see some signs that sales from our distribution partner Danske was picking up. I'm optimistic when it comes to Mandatum's continued growth going forward as well. When looking at Mordea, I want to divide the approach into 2 different parts. As a client, I'm happy. I'm a client of 4, 5 banks, but I'm really happy with Nordea's offering and competitiveness compared to them. No need for me to change. From an owner's view, the picture is different. Nordea did not surprise positively in Q2, although the development in the last quarter was not very different from what I expected. The most important news from Nordea was that they are now working on setting new targets. We as a shareholder appreciate that Nordea now calls a spade a spade. The environment around Nordea has changed compared to when the previous targets were set. The bank has changed. The Board has changed. The Chairman has changed. There is a new CEO on the way in. This is the right time to set new targets, new ambitious targets based on a detailed business plan. There are no targets without a business plan. Nordea needs to improve both revenue and cost, and it is our view as a shareholder that the cost targets in particular should be more ambitious than the ones Nordea is now communicating. It is essential for Nordea to operate on a clearly lower cost income ratio in their retail business as well as it's clearly important for them to meet higher ROE targets in their Wholesale and Commercial Banking divisions. When it comes to Nordea's dividend, let's see how the communication will look when released. But I am confident that cash flows from Nordea will continue to be a significant part of the buildup of Sampo's own dividend. Which brings me to my last point, Sampo's dividend. I have just told you that Sampo's P and EC operations have record years. This means that I expect well. We are also about to generate excess capital by changing the calculation basis for our solvency. So even if we would receive less dividend in the short term from Nordea, there is absolutely no need for Sampo to change the existing guidance of moderately growing dividend payouts. This is no news to many of you. Sampo continues to deliver a high dividend yield as one could expect from a dividend stock. Thank you, Kari. And operator, we are now ready for the questions, please. Thank you. And our first question comes from the line of Yudi Shikare from Autonomous Research. Please go ahead. Your line is now open. Good afternoon, everyone. I've got 2 questions, please. The first one is on your combined ratio guidance, which has improved 2 percentage points relative to the first half of 2018. Roughly speaking, how much of the improvement would you attribute to better weather compared to last year? And how much would you say is more structural in nature and sustainable going forward? That's my first question. And the second question is on the dividend. You just gave us 2 sources of potentially higher dividends should Nordea review their dividend policy, namely higher dividends from P and C and your excess capital. I was wondering if there are other specific actions you could take to offset the impact of a lower dividend from Nordea. Here, I'm specifically thinking of the EUR 700,000,000 in liquidity buffers you have at the Hovco. I mean, do you have any other plans, specific plans for those buffers? Or could these be used to actually make up for a shortfall from Nordea? Okay. Martin Truesheld here. I will answer your first question about the combined ratio guidance from If. It's correct, we have improved the guidance and are giving a guidance of 84% to 86% in combined ratio for the full year, which is, I think, the best guidance we ever given. I would say then the major part of this is attributable to more structural improvements. Weather is on a Nordic scale not having that big impact. It might impact more on individual countries. So it's more the underlying improvement that we see in the business that is causing the improved combined ratio guidance. Okay. Thank you. On the dividend, I of course, our toolbox includes many other instruments as well. One obvious one is to issue hybrids in the subsidiaries and upstream more capital. But also you ask about how to deploy the cash in the or the funds in the parent. We Let's see what kind of investment objects we find. But I think as you remember, we deployed SEK1 1,000,000,000 last year. And on the existing investments, we have actually mainly good news because Saxo, which was roughly a quarter of the investment, they announced that they are successful with their €400,000,000,000 bid on Binkbank. And therefore, we are going to maintain our shareholding and the bid will be financed with equity and debt. So we will inject €20,000,000 more into the big project. And even if the trading platform market as such has not been very benign, The fact that they can acquire Bink is really positive because they get significant amount of new assets under management and it's also a synergy and a cost savings play. So good news on Sakso in that sense. And of course, you all saw the announcement on Nets yesterday where they sell their corporate business to Mastercard. And I'm here only referring to public information that they will receive roughly half of what they paid for nets when and they sell a business which is roughly a third of their volume. So if a private equity group so early after the investment exit something, I interpret it as very good news. Interim, of course, they have solved main their funding issue and reported good numbers. And you could see in Nordex the profit share positive profit share. So good news on the parent company investments. And if there are new investments that we find, we are, of course, going to deploy more capital from the parent as well. Okay. But it sounds like in the near term, you don't have you're not committing to spending materially more from what you already have. So that still leaves you with significant flexibility at the parent company. I think that the flexibility is always good to be there. If you look at historically how we have created shareholder value, it has been by being contrarian. And in these volatile times, it's good to be well capitalized and have buffers to do things that create shareholder value. Knutane, do you want to add something? Just a small addition in terms of the liquidity and flexibility in Sampo Plc, the holding company. The current liquidity buffer, Yudhys, which we referred to, will increase even further later this year when one of the assets, 81s in Nordea, is maturing, which will bring that liquidity buffer to slightly above SEK 800,000,000 everything else equal. So liquidity is not the big concern in terms of our internal cash flows. Okay, great. Thank you for the clarification. Thank you very much. Thank you. Our next question comes from the line of Matti Ahokas from Danske Bank. Please go ahead. Your line is now open. Yes, good afternoon. Two questions, please. Firstly, a more general question on the interest rate outlook. Now we've seen a fairly dramatic deterioration of the interest rate outlook, bond yields falling quite a lot. How much of an impact for earnings will this have in your opinion? And what are the main tools to mitigate potential negative impact of this? And more specifically, if we look at Mandatum Life, the solvency margin, excluding the kind of take the kind of normal €150,000,000 that you've previously taken in dividends from Mandatum Life? Well, I think that the interest rate development has been especially dramatic in the last few months. So it has partly taken us by surprise that the decrease is so rapid. And therefore, of course, we have to see what kind of measures we have to mitigate that development. It will not be one issue that has to be done. We have to look through our whole operations. We have to become more cost efficient. We have to look at the terms of our products and pricing. So it's a combination of many things. On the investment side, we have to see how this plays out. Now it's very unclear. I don't personally believe that the quantitative easing will work the way the central banks want unless they find a way to force banks to have negative deposit interest rates. Otherwise, the consumers are not going to consume and invest the way the bank hopes, and we will not see them meet the inflationary targets. But it's too early to say as the development has been so reason. I don't know, Knutane, if you want to add something. Mandatum Sonnzi, Matti, as you referred to, is the part of our business which has been most impact and most sensitive to the current yields. And we have activities ongoing to try to strengthen further the solvency ratio and has been doing so over a period of time. And we work proactively to reduce that even further, also to look at other measures to reduce the risks and increase the solvency ratio somewhat to secure the dividend capacity of a really well performing business currently in the first half of the year. So we shouldn't expect any changes from the kind of normal streams? I think it's too early to say, but as we look at it today, we see no reason for that. But let's see how this interest how the interest rates really play out and where they finally settle. Also the hybrids are one of the things we have in our toolbox because, of course, if you issue hybrids in this environment, their interest rates are much lower than we earlier thought. So it becomes pretty attractive. Attractive. Our next question comes from the line of Jon Pennant from Morgan Stanley. Just thinking about excess capital in IFF, what proportion of IF's profit is from business which requires a credit rating? Is it all of the industrial business? And then I know you can't speculate too much on Nordea. However, if they move to a policy of dividends and buybacks, would you participate in any buybacks even if it meant realizing losses? Presumably, you'd be forced to participate or at least dividend out additional Nordea shares to keep your ownership below 20% and the capital requirement down. I think that if Nordea would start to do buybacks, we would sell out pro rata. But as we today see a significant upside in Nordea, we wouldn't like to sell. And therefore, I don't think we are too positive on buybacks at this moment in Nordea. But the proposal has to come to the owners from Nordea, and we haven't seen any proposal of that nature so far. In terms of if dividend, I don't see the rating to be rating agencies use the strength of If and Sample from various perspective. There's already a big buffer in If's rating model, And it's not an exact science in terms of the fact that 0 is an absolute lower boundary. On the part of the rating sensitive business, Morten? Yes. It's clearly in business area industrial that, that is, of course, an issue. And it doesn't go for all of the industrial clients. But clearly, kind of the larger ones and particularly the clients having captives are concerned about rating of an insurance company. Thank you very much. Thank you. Our next question comes from the line of Christopher Adams from Kepler Cheuvreux. Two questions for me, please. Firstly, the currency adjusted premium growth in IFRS was healthy 4.3% in the first half. Could you please break that down by price changes and change in number of policies? And secondly, you report staff costs up 6% in if. What's driving this? And how should we expect these figures to develop going forward? Thank you. Yes. On your first question on growth, I would split it roughly fifty-fifty. We have a clear growth in number of customers in basically all business areas and regions. And then we do have price increases that are somewhat above expected inflation going forward. So I just made it roughly fifty-fifty between those two effects. The staff cost is going up due to in sourcing. In particularly in Sweden and Norway. We have in sourced some of the external distribution capacity that we had. So that has gone over from being kind of other costs to being staff costs. And then we also in sourced some IT functions where we have used consultants previously. So I would not expect the staff cost to continue to increase like that. This is more kind of one offs driving the cost increase on staff cost this time. And on total cost, you are as committed as ever. On total cost, we are still committed on continuing reducing the cost ratio going forward. And as you see, we report 21.7 percent year to date compared to 21.8 percent last year. Great. Thank you very much. Thank you. Our next question comes from the line of Perro Stewart from Bank of America Merrill Lynch. Please go ahead. Your line is now open. Thank you very much and good afternoon everyone. I've got 3 questions please. On the net You're doing 1 with 3. Yes. Okay. Go ahead. Don't panic. Don't panic, Kari. It'll be fine. On the next disposal, is it too early to assess what they might do with those proceeds? I guess just looking at the proceeds as a proportion of your stake, it would be, I think, more than €100,000,000 coming back to you if they decide to distribute. So I just wonder if there's any indication from that as what they might do with the disposal proceeds. Secondly, with regards to the P and C business, is there with a very low interest rate and low inflation environment, is there an argument for excess levels of reserves in the company given the reserve to premium ratio is high, particularly versus some of the peer group? Just wondering again if that's possibly a source of additional income as we go through the next few years. And finally, I had to ask this, Carrie, but what would it take for you to cut your dividend? Some aspects of consensus are looking for a 50%, five-zero, percent dividend cut at Nordea, and that would leave you a shortfall that I think would be more difficult to plug. And of course, the market will not really give you credit if you're paying a dividend out of additional debt, for example. So just wondered if you've got any further thoughts that you can share on that particular aspect. So if we net disposals, we have no net disposals, we have no information. It's a significant number because with this deal, they get back 50% of their purchase price. But I don't want to speculate how they will treat it. We are happy to receive it, but if they don't give it back to us, then they have found something fantastic to deploy it with and we wouldn't mind that either. So we are neutral on that. On the reserving side on the P and C business, as you know, we are always having a reserve level that we assume to be appropriate. And it's, of course, estimated every month. We do have a run of profit, which is historically on a fairly high level these days. And I think you already communicated that, that is mostly driven by a benign development on bodily injury claims in motor insurance in Sweden, where we see less bodily injury cases developing. Then of course, we do not speculate in sort of whether this will continue. It kind of depends on whether we see the trends continuing. When you try to compare reserve ratios if versus competitors, you need to bear in mind that there is quite a different business mix between the different competitors. If in particular have a large exposure to Swedish motor that is extremely long tail and we therefore naturally have a higher reserve ratios than many other kind of peers in the Nordics. On the dividend speculation, I don't really want to speculate on this. Let's see what Nordea communicates. I'm absolutely sure that we will continue with our guidance and moderately increase our dividend. So I see no reason to change that view. If we take a longer view, I think that the expectation is still that even if there would be a dividend cut, it would be a dividend cut which forms a new floor and then it would start to climb up again. So then it would be a question how to bridge it. So I'm not worried on this part and the liquidity is there. So we will continue moderately to increase our dividend. That is what we will propose to the Board. And you would do that, Kari, even if the dividend was uncovered from ongoing cash flows? Temporarily, I could do it because the world is such that if it's for 1 year or 2 years, I wouldn't mind if I'm confident that I'm back on track after that period, yes. Okay. Thank you. Thank you. Our next question comes from the line of Michael Huttner from JPMorgan. Please go ahead. Your line is now open. Fantastic. Thank you so much. Back to dividends, so 2 on the dividend and 1 on the combined ratio, if I may. On the dividend, so you said high dividend from IFRS or I think highest or whatever. But the figure I have, in 2016, they paid out €879,000,000 which includes the one offs. I'm just wondering whether your kind of statement or views is relative to that very high figure or is it relative to the more normal kind of recurring dividends you made? The second, a similar question from Mandatum. So Mandatum for 2 years has had what I perceive or maybe I'm wrong here, a kind of €150,000,000 a year positive adjustment probably related to the Danske deal. And I just wondered if you would see that as a kind of semi recurring. You alluded to the reducing reserves, any help on this would be very, very gratefully received. And then finally, just going back to that amazing combined ratio, and here, I know you don't like hearing giving anything looking forward, but you kind of alluded to to low interest rates. It means you have to focus more on the combined ratio and things. Where do you see I mean, 83% or even 84.6 percent is just an amazing number. Is there any kind of limit to this on the way I mean, in terms of how much you can improve? There is very little I can add actually to the dividend discussion. I just repeat that we are committed to the moderate increase of our dividend and we have to see what we up stream from which entity and how much. So let's come back to that when we get more clarity on the Nordea plan because it will affect our internal upstreaming. And the issue also that if we issue hybrids, what will that have as an effect. We are strongly reserved in IF and then we, of course, will receive dividends from Topdanmark as well. Mandatum, whether €150,000,000 is the right number, also there I would not this time of the year go out and speculate. Is it that exactly that number or other? But the total sum of all these dividend streams give and take the scale or the magnitude, I feel comfortable with my statement. On your question on the combined ratio, of course, over many years now, we have been adjusting the combined ratio targets of IF to reflect a low interest rate environment. So that is what is pushing down the combined ratio requirement for If as well as the P and C industry in general. But of course, there is a trade off there. There is always a trade off between profitability and growth. So of course, we have we're trying to make a good assessment of that when we put up our actual targets for the different business areas, different products, different markets. So it's it will be at the end of the day a trade off between the combined ratio and also the competition kind of where you want to see also growth in the market. May I just ask a follow on just on this trade off point? So growth 4%, of which, say, 2% or 2.5% is volume and this amazing combined ratio improvement of somewhere around 1% or 2%, depending how you look at it. If you look at this trade off environment, which way are you inclined to move? Are you saying, well, would you be more inclined to say, well, actually, at such excellent combined ratios, more growth would be welcome? Or would you rather say, well, actually, I'd like to grow more and improve the combined ratio more? Just to get a feel. I think you have the amazing flexibility to do what you like, but any kind of view would be helpful. Thank you. I don't think I'll answer that directly, but I think, of course, we are extremely happy about the growth that we see, 4.3% for 6 months, 4.8% in Q2 stand alone. And in particular, sort of if you also bear in mind that car sales in the Nordics have been rather low so far this year. It kind of makes the growth numbers even more impressive. And it's purely organic driven. So but I will not speculate sort of on the exact sort of trade off there. It's something that we do sort of on a more granular basis kind of down on the product and segments of per country basis. Thank you very much. Thank you. Our next question comes from the line of Per Gramburg from SEB. Please go ahead. Your line is now open. Yes, thank you. A couple of questions from my side. First of all, technical accounting question on your distribution of Nordea shares. Those shares booked at 8.24 currently, I assume you are distributing them at market price to the shareholders. That must imply an accounting loss of some €140,000,000 €150,000,000 How should we expect that show up in the Q3, we put on equity or somewhere in the P and L? My second question is on the solvency. You're addressing that you would be willing to increase leverage in the holding company. Any views on your after the Nordea transaction solvency of 170,000,000? How far you would accept that one to go? Do you have any lower limit on the new way you are calculating it? Or how do you see the solvency rate, your worst case developing going forward? Good afternoon, Per. On your first questions, the number you have is, of course, correctly calculated. That will show up in the Q3 P and L, so not booked directly to equity but in the P and L. And on the solvency, the SEK 170,000,000, we don't have a policy with a limit stated. You saw us take action with the current solvency situation where when we were approaching 140 in solvency ratio. And I think you could consider around that level to be what we would consider to be a minimum on a running basis. Okay. Perfect. Just on the loss on the Nordea stake, will that be booked on the Nordea line or somewhere else? Or is that too early to say? No, it's going to be booked there. Okay, perfect. Thank you. Thank you. Our next question comes from the line of Jon Erik Jernlund from ABG. Some couple of questions from my side as well. I just wanted to check the on the premium growth in the Ip side. Could you what awaits your expectations going forward versus product and geographically growth in customers? Is it so that this trend is an ongoing trend, which you have seen for some couple of quarters and you expect it to continue? Or how should we elaborate on that? That's my first one. Yes. Of course, we try to avoid speculating too much about the future. But we've seen a good growth rate now in IF over the last few quarters. Part of this is driven by improved retention in most business areas. And as that is something that is not turning around totally overnight at least, we expect that to give us some support also going forward. So that the competition has increased or decreased in that sense? I think on the Nordic total scale, it's not very changed totally in the Nordics. It's very much the same players. Isn't it more than also so that we saw this excellent growth, especially in our biggest market in Sweden, despite the fact that car sales were down? And wasn't it so that the cut date for the very, very good cuts car sales, where was the tax issue freed up? I guess most of you remember that there was quite a special year last year, tax change in Sweden as of 1st July, which meant that there was a record high number of new cars being sold up until that date. And then the second half of last year was, of course, much more modest. And of course, that's going to give us some support now in Q3 and Q4, where we expect more normal sales levels to the car sales in Sweden and comparing them to quite weak Q3 and Q4 last year. Okay. On the combined ratio improvement, could you shed some more light into where the improvement has come, both on product side and geographics? We see an improvement basically in all business areas if you look at sort of somehow an underlying trend. As you see kind of we report 2.1% improvement Q2 this year versus Q2 last year, 1.1% improvement for 6 months compared to last year. I think all of you know that sort of there are quite some price actions in the commercial segment in quite many countries. So of course, we do see then some improvement there. And then also in motor, we do see improvement in Norway and Finland. Yes. The Specialty Finland was very good. Is that something that you will expect to continue going forward on? That is this decrease, which was quite heavily for some years, is somewhat behind us? I think to understand the Finnish development, you need to remember the quite big changes that was done to the motor TPL bonus systems in Finland. That was reducing Motor TPL premiums quite a lot going back in time. And of course, that has now kind of been fully earned into the premiums. So now we expect a more normal sort of development going forward. Okay. Just one more on the life side. We have seen investment results of some 60 plus over the last two quarters. Is this so that you should expect to come down to around 40 plus ish? Or is that 60 plus ish now new recurring level? And finally, on the capital side, how much capital can you really release from your old back book is now running off? I think that the what the quarterly results will be for if for Mandatum, you have to wait and see. So that will that is, of course, always dependent on the capital market development. On how much the old book euros 200,000,000 is roughly it depends a little bit on what kind of reserves, but roughly SEK 50,000,000 in capital and release. In the quarter or in a year? For full year. So SEK 200,000,000 in a year is roughly SEK 50 million. It doesn't matter sort of which time period it's run down on, but SEK 200,000,000 lower with profit reserves is roughly €50,000,000 per year, €50,000,000 capital. Yes, exactly. So €50,000,000 of capital potential release of those €200,000,000 reduction in sort of underlying reserves? Yes. Yes. And it of course, that $50,000,000 will change if the if it's run down at a quicker pace during the year. I mean it will be a little bit more, it can be bigger. Yes. Thank you. Per, just I'm sitting thinking myself on your question where it will show in the P and L this accounting loss of SEK140,000,000. It is a part of the share of associate profit and loss, but I think we will decide to actually specify it explicitly this time in the profit and loss just to have a continuity going forward and comparison for the back on that particular associated profit and loss line for your model. So I correct myself that we will it is a part of that part of the P and L, but we will make that an explicit item in the Q3 report. Our next Just a couple of quick ones actually. First one is a bit of a follow-up on the last question on Mandatum Life. You say €50,000,000 or €200,000,000 per year from the runoff of the back book. Could you say a little bit you talked a little bit about new business at the start of the call. Could you give us a little bit of sort of indication of what sort of level of capital generation you'd expect from new business value in Mandatum Life? And also, I appreciate, obviously, the actual investment result is going to be volatile out of that business. But what would sort of a sensible number be to think about in terms of sort of plan or budget investment income contribution and capital generation? So that's question number 1. And number 2, you're talking a bit about debt issuance. Can you just remind us what the upper limit for debt issuance or what you see as the upper limit for debt issuance within the group? Are you thinking about debt leverage ratios or interest cover? Or how far could you go on this? Thanks. The actual investment result going forward that you can see our investment mix, how much equity risk, how much fixed income we have. You can see our running yields. So unfortunately, you have to figure out that yourself because I have no clue how where the markets will go. So your guess is as good mine. On the Mandatum back book, yes, it runs off with €200,000,000 plus per year and releases this €50,000,000 On the new business, it doesn't really tie up that much capital because as you know, we are we have changed the company to do more fee based business. And especially the main products that it sells now are alternative asset management products. And as it said when you go into private equity or infrastructure and such and you sell it to your customers, what you really do is you sell it on a commitment basis. So actually, I don't know if we have published the commitment based numbers, but we are talking of premiums. But we can see that the committed capital is increasing faster than our booked sales. So we are building a buffer on top of the premium sales that we have today because we are selling alternative asset products. However, it's there is an additional good news here and that is that when you sell commitments, clients start to pay fees on the commitments even before it comes into premiums. So that's, I think, important to realize. Then when we look at the Danske deal, even if there are small numbers, we must remember that part of the business that's risk products, that's mainly loan insurance to mortgages. And there the top line is extremely small, but it's a high ROE business and that is also picking up. And that you will then see in an improved risk ratio going forward. On debt issuance Sorry, just to follow-up on that briefly. I mean my question wasn't so much about how much it sort of burdens the SCR. It was more about the amount of owned funds it generates. Is it possible to I mean, I appreciate you might not want to give the exact numbers here, but is it possible to say anything about the order of magnitude of this capital generation? Well, I think that you then you should look at our fee income and that you can see in our expense ratio and risk ratio. And you can start to analyze that how much could we improve our risk ratio on an annual basis. And there I think we have room of improvement. On our expense ratio, we have clearly stated that the new deal that we have done with Danske is not as favorable as the old one. And therefore, we got the €197,000,000 compensation last year. And therefore, we have seen a drop in the expense ratio and now it should then start to improve once the fee income grows slowly. So this is these are the parameters you have to work around. But I guess these are multiyear policies, so it's quite difficult to get to those numbers from your P and L disclosures. Are we talking single digit million, low double digit million? Is it possible to give any sort of spare? On one part, we are talking single digit and on the other part, probably low double digit numbers, but not significant numbers on an annual basis yet, but it's a high ROE business. Now I'm talking of the improvement from the present levels. Okay. We're actually just we're looking into how to optimize even contract wording to optimize also the capital generation and own funds generation, which you are referring to. So let's revert to that a little bit later when we have gone through this possible positive effect on the Mandatum zone fund, which you bring up an important point. On the debt issuance? On the debt issuance, the theoretical sort of of course, it's 50% of SCR, 20% of in terms of Tier 1 on the own funds. And in a sort of new world where after we have changed the calculation basis of Nordea, that would mean a theoretical capacity of more than EUR 2,500,000,000 little bit more than EUR 2,500,000,000, which is 5x what the sample PLC has and then the group has a few 100,000,000 more in IF. So it's to the tune of an additional €2,000,000,000 theoretically. Of course, that's not the realistic issuance capacity. But we certainly could use parts of that. But at the same time, also probably look at the senior debt if we were to issue more that we have to try to not significantly increase the leverage ratio from here. So sorry, just to follow-up on that. I didn't quite understand your comments there about theoretical versus realistic. I mean, are you saying that you could actually issue that much? Or are you saying that, that's theoretically capacity, but you would never issue that much? Theoretic capacity in terms of Solvency II, I don't think we have plans to issue 50% of our SCR in hybrid capital. But how much would you be comfortable with actually issuing, I mean, in terms of total debt, both senior and hybrid combined from current levels? I think we're fairly comfortable with the level we currently have. Yes. So you wouldn't want to go much further than we currently have? Not much further. But of course, we could, over time, change the composition of that debt with the majority of the debt we have issued is not hybrid capital and not counted towards our solvency capital and excess capital base. That was my link to only sort of shy of SEK 1,000,000,000 in the group and then SEK 4,000,000,000 in senior or SEK 3,500,000,000 in senior. Perfect. Thanks very much. Thank you. Our next question is a follow-up from Blair Stewart from Bank of America Merrill Lynch. Please go ahead. Your line is now open. Thank you. I just wanted to follow-up on the comment you made earlier, Carrie, about this being a good time or an appropriate time for Nordea to undertake a review of its targets, etcetera. And I know that's a call for Nordea, but you do have the chair at Nordea. So I think it is fair game to ask. I'm just not clear why it a good time? The actual timing ahead of a new CEO joining seemed rather strange to me from the outside that a new CEO is going to inherit a set of targets. He might want to set his own targets. Just wondering if you could be able to comment on that at all. I think that if we look at how Torbjorn as the new Chairman works, he is planning things really carefully. So I think that all new targets would be such that he would have them well aligned with the management, the present and the future management. And I think this is a very good time to do it because they have announced that they will change the CEO. There is a new CEO on the way in. And because of the recent development we have seen on interest rates and because of the modest development on their results. So they need to and because all the targets that they are going to present, they must be based on a new business plan. There are no targets without the business plan. So I think actually the key is the plan that they are preparing internally what they want to deliver because that is then the way you will transfer it into actions. And Nordea needs as a client, I'm really happy. But in as a shareholder, I think that Nordea really needs to improve its internal efficiency and deliver more shareholder value. And that will that also has to improve include a more ambitious cost plan than what they have communicated so far. Yes. I certainly hope they're not going to deliver less shareholder value. I agree with you once again. Thank you. Thank you. Our next question comes from the line of Niccolo Della Palma from Exane BNP Paribas. A couple of questions for me on the investment portfolio of Veif. I wondered if you could share if there's currently any significant or worthwhile mentioning hedges in place that mean that the economic exposure is maybe slightly different to what we see, Particularly interested on the equity side, is 10% of the portfolio the real exposure? Or is there any significant hedge that means it's actually slightly different at the moment? And the second question on the portfolio is you have 1.3 years duration on the asset side, so you run a short duration mismatch. What's the solvency cost of that? And what would it take for you to change your view and have a closer matching of assets and liabilities on that book? Thank you. We invest all our assets all afloat in a way as it would be our own money. So we don't do anything exotic. So we have no hedges of the kind that we would not have disclosed to the market. What the second question was, what would we think of matching? I think this is the completely the wrong moment to go along on the yield curve now after the drop we have seen. It would have been wiser to do it earlier, but there we have been wrong because we could not foresee this exceptional drop in interest rates. But the timing would be wrong. So we are not even contemplating or matching that. We have the reserves to maintain the mismatch. And does the mismatch have a significant impact on the solvency ratio of the entity? Or is it marginal? In Mandatum, it has an impact on the solvency ratio and if it's more marginal. Thanks. Thank you. And the next question is a follow-up from Jon Erik Jernlund from ABG. Please go ahead. Your line is now open. Thank you. Very short from Numeral Saadog. Your discussions with the Finnish FSA about your solvency situation, Could you give us some insight to the discussions on how fruitful they have been? It's been a good discussion. It's been going on, as you know, Jan Erik, for a long time since the start of the year. It's been a good discussion. The Board has made a decision today on distributing the dividend based on that discussion. And it is and I feel personally very confident that the regulator understands our position and will handle the matter in a way which has made the basis for the Board to make the decision I did today. Thank you very much. Thank you. Our next question is a follow-up from Michael Huttner from JPMorgan. Please go ahead. Your line is now open. Thank you very much. I was really to ask again because I'm really sorry I didn't follow the points about the debt and the limit. I'm sorry I got confused. Would you be able to maybe just say it again or say it in just the main bits. I think the question was originally how much capacity you have and how much willingness you would have to and my perception of the answer was it was more changing it at the edges, so maybe replacing some of the senior with hybrid, but rather than issuing what I think I heard was a kind of limit at the current level of an extra SEK 2,000,000,000. But any classification would be very helpful. Thank you. I think that Knutane said we are happy with the debt level that we have today. And I remember when this question has been put forward many times during the years, I have said that we can't really have a fixed number because it also depends on the attractiveness on where we would deploy it. Because if you take on more leverage, then you take on more risk and then the investments have to be attractive. We have more capacity than we need. That is, I think, the main point. But if there and we have no intention to take on more debt on a gross basis at this moment. But if there was something unusually attractive, we could use this firepower for that, but we have no such plans at this moment. Maybe this clarifies. Brilliant. And the figure on the capacity, did I understand right, was SEK 2,500,000,000? Yes. In excess, so it will be it's 50% of the SCR, which will mean for the group in excess of SEK 2,500,000,000 after we change the calculation basis for Nordea. And we have shy of SEK 1,000,000,000. So we have hybrid, what I called theoretical hybrid capacity, additional hybrid capacity. Thank you very much. Thank you. And as there are no further questions registered at the moment, I will return the word to the speakers for any closing comments, please. Thank you, operator, and thank you all for your attention. Have a very nice evening.