Welcome to today's presentation where we have the pleasure to present Sampo Group. To help us through and answer questions and give a short introduction, we will run a Q&A afterwards. I think we will focus on the Q&A as Head of Investor Relations, Sami Taipalus. As always, of course, this event is covering the Q2 half-year report out this morning. Do feel free to ask questions in the box down below. We have had a couple of questions in, but do feel free to put in more questions in the box down there. Do feel free to do it in Danish, and I will try and translate to the best of my ability. For now, I will hand the call over to you, Sami.
Thank you, Michael. I'll start with a few remarks on the quarter, and then we'll go to Q&A time. I'll try to keep it reasonably brief. Overall, a very solid quarter, a sort of continuation of what we saw in the first quarter with very strong growth, some of the benign weather, but also strong underlying development on the margin. If you follow the numbers in detail today, you'll see that we beat the consensus by quite a lot. Most of that comes from investment income, which was partly a little bit fortunate. If you look through the detail of the numbers, you can also see that actually the operational story is coming through very, very strongly. We'll go more into that detail in a second.
Strong organic growth, strong underlying margin development, which has allowed us to upgrade our guidance by a smidgen for the underwriting result to a range now of EUR 1.425 billion- EUR 1.525 billion for this year. That was a EUR 25 million upgrade on both ends. In total, we have delivered an operating EPS growth of 16% year on year in the second quarter, which is a solid result and compares very well with the more than 7% target that we have for the current strategic period from 2024- 2026. In addition to this result, I should have changed the slide already, so you can see a lovely summary of all this. In addition to the strong results, we've also launched another share buyback program, so EUR 200 million announced today.
We continue to have a very solid balance sheet with a solvency ratio of 174%, which is slightly above the midpoint of our target range of 150%- 190%. In a very comfortable position. Let's go through a few details then. I'll just start with this slide here where really, and without going through all the numbers here, really the main point is the breadth of the strength in the results. We're growing top line in all divisions except one, and I'll tell you why in a second. More importantly, we're growing underwriting profit by significant amounts in all of our divisions across the business. It's not like we're lucky in one area and just have momentum there and it'll fade there, but the whole business is very well positioned.
I'll come back to talk about the private businesses in a second, but if we look at our corporate units, so commercial and industrial, we have a little bit of headwind on the revenue in industrial, and that comes from a de-risking program that we've undertaken over the last year or so, where we had a little bit more exposure to large corporate risk, large corporate property risks than we would ideally like. What we've done now is we've cut back that exposure. We've had very good pricing quality on that business, and that will ensure that we deliver results that are also very stable as well as with strong margins. That's that on corporate. Let's look a little bit more in detail then on the private segments. Let me start with the Nordic Business, which had another really excellent quarter.
In fact, it was so excellent that it was the third consecutive quarter where we had record growth within premiums, so effectively growth of revenue growth in the quarter. Where's that coming from? First of all, and very pleasingly, we have a high so-called retention rate. A very large share of our customers, more than 89%, renew their insurance with us every year, which we're very pleased with because it obviously reflects a strong competitive position. We're giving good service at a good price to our customers, so they're choosing to stay. If you drill into the details of the private segment, so the segment where we sell insurance to our retail customers, the growth is very broadly based here as well. Both in terms of countries, we're at or above 5% in all the countries in the retail segment, but also in all the products.
We're at or above 5% in all the major products across retail. Norway stands out as being particularly strong. That's because there's been some quite significant claims cost increases in Norway over the last few years for different reasons: inflation, weak Norwegian krona, etc. By product, it's personal insurance and motor insurance actually that are developing very nicely in the Nordic region right now. That's the Nordics. Let's look at the U.K. A small reminder first, in the U.K., we have a very clear focus. We're in the digital channel, the price comparison websites. We have a business that's set up to operate in those, and it doesn't compete outside of those channels. We don't do any corporate business or any sort of business through traditional brokers or anything like that in the U.K. The story here really is we entered the U.K. through the acquisition of Hastings in 2020.
Since then, we've managed to almost, or more than actually, double the premium volume in that business to 2024 and continue to grow in 2025. We've added more than a million customers during that period in the U.K. We've done all of this whilst delivering very, very solid results. The U.K. market has tended to be known for having high cyclicality of margins. Actually, our margins have been very stable. The reason for that is that we've been very disciplined in underwriting. We've been growing when the market has been giving us an opportunity to do so, as it has been doing this half year. Policy count, the number of customers that we have, is up 19% year on year to the end of the first half. We've been very much more cautious when the market hasn't allowed us to grow.
This hasn't come true in a straight line, but rather we've been taking the opportunities when we've been able to. That's what we expect to continue to do in the second half. We will play market conditions in every single quarter. We have really excellent pricing capabilities that mean that we can select risk really well. When we see that the market isn't there, we'll hold back on growth. When we see that we can hit our target margins, we'll continue to grow. What about those margins then? We've delivered a return on capital in this quarter of 24%, which is fully in line with the returns on capital that we're achieving in the Nordic region. We sometimes get questions about whether the UK dilutes our returns or not. The answer is no. It's just as profitable as the Nordics.
We did an interesting transaction last year with the acquisition of the minority in Topdanmark. Now we have, in earnest, started the integration of the Topdanmark business into If which is the sort of the big brand that we have in the Nordics. So far, everything is delivering and developing exactly according to plan. The synergies to date have been very much sort of hard cost synergies across central functions primarily. We obviously expect these to accelerate as we continue to implement our plans. This first half has been the half where we had the least amount of synergies of any period now over the next couple of years. It's going to accelerate in the second quarter, which will help our, particularly our cost ratio. Over time, we'll get more into more complex synergies like the IT transformation, for example, which will deliver even bigger values.
Remember, we upgraded our cost ratio target on the back of these synergies last quarter. Instead of improving the cost ratio by 20 basis points year on year, we expect to improve it by 40 basis points year on year now until 2028, which is when we plan to hit these EUR 140 million pre-tax synergies that we've announced. Finally, a slightly closer look at the outlook range. I mentioned the numbers already, so I won't go into them too much in detail. Basically, we're looking at 8%- 16% underwriting profit growth in 2025 versus 2024. 8% is more of a, you know, if we have a bit of bad luck in the second half, which is always possible in P&C insurance, whereas 16% would represent neutral luck, but good continued execution against our targets. Two more things to add that aren't strictly related to the outlook.
First of all, as I mentioned, we've announced a new EUR 200 million buyback program this quarter. That is funded out of profits we made already in 2024. As I'm sure a lot of you know, we've been waiting for this Nobia IPO to happen this year. It didn't happen before the summer. We're hoping that it's going to happen in the second half. If it does indeed happen, then the board will look to top up the buyback program to return the proceeds from that IPO because we don't have any need to retain them. Finally, a brief mention as well is that this was the last quarter of our current CEO, Torbjörn Magnusson, who will be replaced with the current CEO of If Morten Thorsrud, from the first of October, to be exact, but he will be presenting the third quarter results. That is all I had to say.
Let's jump into the question. The first one, your combined ratio is well below your long-term ambitions. You also showed here 85%, and I guess, and I know it's only a first half year and you are an insurance company. The question here is 2025 just a good year? I think it's a wise way to ask, are you actually needing to look at your long-term ambitions, or is this just a good year with very low large claims and very benign weather claims?
The answer is yes and no. We do have some good fortune on both weather and large claims so far in the first half this year. I wouldn't necessarily assume that this is a run rate number that we're at. Our target, as you mentioned, is below 85. Some of the good luck that we've had in the first half, we've used to strengthen the conservatism on our balance sheet. It hasn't necessarily all fully flowed through. At the same time, if you look at the underlying development, we improved the underlying combined ratio by around 60 basis points in the second quarter, so 0.6 percentage points. Mostly driven by expenses. We're managing a significant expense ratio improvement, but also driven by good pricing against claims inflation.
Is that the general inflation coming down a little bit faster? I think we start to see pretty benign inflation numbers in the Nordic region. I know it can go up again, but is that a part of the answer?
Yeah, it is. I mean, in insurance, we are exposed to a slightly different basket of services and goods than what the general economy is. The mix, it's like taking a cut out of the overall inflation and looking at that. It is right that also our claims inflation number, as we call it, has been trending down broadly in line actually with the overall CPI. There is a benefit from that, and that's a better development than what we'd assumed when we set the prices that are enforced on the policies that we have right now. Some of it is indeed from that. Some of it is actually from things like the claims handling initiatives that we have in Topdanmark as well. It's a mix of a couple of different things.
I guess the important thing here is that now, when the market looks at our margins, they don't project forward the luck that we have. Most of our valuation is obviously on future earnings. The fact that we have a bit of luck this year on weather and large claims is great, but really this underlying improvement that we're delivering is what drives the value in the stock and what the investors tend to be very focused on.
Perfect. There's a question here. How much of the growth is coming from prices, and are they ahead of inflation?
Yeah, the prices are still a little bit ahead of the inflation. We are a very disciplined underwriter, and we always want to make sure with inflation. We never want to miss on the underside. We'd rather be a little bit too disciplined than to miss inflation because it's very difficult once you miss inflation. You have to catch up, and that really upsets customers. We'd rather be cautious upfront and then maybe miss a few new customers and be as straight as we can with the ones that we have. We are a little bit ahead of claims inflation still. Claims inflation is at 4%, and I'm talking Nordics now. Claims inflation is at 4%, and we're maybe a percentage point or something like that above that on pricing. The growth is coming from high retention, so high renewal rates for our customers.
It is coming from these price increases, but it is also coming from an increase in volumes. There are a bunch of different areas where we're adding new customers, particularly in Norway now actually, because a lot of our peers are having to increase prices much more than us because they're having to go through this process of repairing their margins. That's an opportunity for us to be more competitive, but also in other areas, including Sweden, Finland, and some parts of the Danish market as well.
You mentioned the retention rate, so there's a couple of questions here. How is the retention rate in Topdanmark compared with the whole of Sampo Group after the takeover? Sometimes you can experience some hiccups, so a little bit of indication on whether that's actually not happening.
It's not happening to any significant degree. There's always some customers who churn almost just for this reason that you write a letter to them, and they remember that they have an insurance policy. There's no material churn related to the transaction. Topdanmark's retention compared to the Nordic Business as a whole is quite similar to the If business. It's similar rates of retention. This is one of the things that we liked about the company and continue to like about that business. It operates in many ways similarly strategically to If, and retention is one of those sort of focus areas. In Denmark alone, actually, Topdanmark has had higher retention than the If business had historically.
There's the higher retention rate. How much is that your own initiatives, and how much is it about competition? I think a way of asking, have you seen any changes in competition, or is it still a little bit benign, and everybody is still adopting to a higher inflation level, and that is kind of helping maybe the retention rate a little bit?
It's both. You know your own initiatives are also related to how you handle competition. What we tried to do in this inflation cycle, if I talk big picture, was to be very early with reflecting inflation in pricing. We'd rather do it preemptively in more reasonable steps so that we never end up with this position where we have to write to our customers and make really high increases. That's when people generally get really fed up and look for a new insurance company. We've tried to do it in nice, digestible steps for our consumers. I think we've been quite successful with that. I think that's a big reason for why we're seeing high retention and positive customer flows in quite a few areas now. Some of our competitors fell behind a little bit maybe in the beginning, and then they've been taking big steps after that to try and catch up. That tends to irritate customers.
I know you had a busy summer last summer. We just spoke about it. Someone is asking, will you again have a busy schedule? Are you seeing any other candidates for M&A in Denmark specifically here? Maybe you can also elaborate a little bit about the Nordic, or are you pretty much done with the larger one? There's not many possibilities out there. A little bit of thoughts about that.
Larger one, I think we can exclude. There's just nothing large left anymore. We have basically 20% market share in pretty much every market. Doing a really large deal on top of that, adding another 15% market share as we did with Topdanmark, the competition authorities would have something to say about that, I think. That we can exclude. Eventually over time, could a smaller deal be possible in the Nordics? Maybe if something interesting turns up, you never know. I wouldn't want to exclude that. M&A is always opportunity-driven. We don't have our eye on anything right now. Let's see. The future is a long time.
Perfect. You actually mentioned a little bit about your financial income, and that was part of the beat here. There's a question here. Is the financial income at H1 a good proxy for the full year, meaning can you just double up on this bottom line now? Has there been some large movement on the interest side, share side, or something like that that is giving you a better than expected financial income, and we shouldn't just times that by two for the full year?
That is a very good question. Every financial period always has large movements because we have a big balance sheet with a lot of assets and a reasonably big chunk of liabilities as well. You have some one-offs in every period. I would say net we've had some luck in the first half. I wouldn't just double it up. That comes from, in the second quarter, equity markets. Most of our equities are invested in the Nordics, but we also have some funds in Asia and the U.S., for example, that did really well in the second quarter. We have an interest rate move that, because the liability side is also counted into our net financial result, was particularly favorable for us. I wouldn't quite go as far as doubling it.
Because you don't guide on that item, is that correct? You only guide on the operational side?
That's right. That's right. That's right. We don't do a guidance, for the very specific reason that you can have some quite significant one-offs either way there. What I would say though is that the market tends to react less to those movements than what it does to movements in the underwriting profit. Really, most of our valuation is based on the underwriting profit and the insurance services result, and much less is attributed to the investment result.
Perfect. How big a part of your private business is digital only, and do you have ambition on how high that can go?
Yeah, really pure digital only. We're talking about a quarter of sales is digital only. If you include things that work digitally but isn't digital only, like where customers maybe price up a policy on the website but don't quite feel like they just want to go through and click through and buy it online, they see the price, they see the policy, they call our customer centers and say, "Hey, I priced this up." I think the really impressive thing here is that these are all very cojoined. The person that they speak to can then see that, "Oh yes, this policy exists," and they can very quickly and easily close that. Same with partnerships. The partnerships are often very directly integrated into our IT system. It's very easy, even if you're buying via a partner, to deal with us.
The impact of digital is much bigger than this 25%. One of the reasons it's only 25% is actually Denmark, because we're relatively low in Denmark, whereas in some of the other markets, we're quite a bit above this 25%. I think that's a number that's going to continue to go up. It's been going up, and I think it's going to.
Do we have any ambition? I don't know whether you want to give it. I guess that is some explanation also on the lowering of the higher margins.
Yeah, we do have an ambition on that. It's not cast as a % of total sales. It's cast as we want to sell EUR 175 million per year of new sales. Remember, only about one-tenth of our total premiums is new sales, but EUR 175 million of new sales in 2026, purely online. That's an increase of 30+% over the three years leading on to that. It's a fast pace of growth to get to that. You know, we're seeing that people are really more and more coming online.
It's not only the digital side, you know, the infrastructure needs to be there. It's also the product, right? Because if you have complicated products or it's not in, you might say, in boxes, then you actually need a more fine-tuning of your insurance. You're also moving ahead there to kind of screen, or not, to streamline your products so they are actually digitally very sellable.
Absolutely. I mean, most of that work, at least for our standard retail products, has been done a while ago. Maybe a little bit less in Denmark than in the other countries, but you're absolutely right. You need to have a product that fits on the digital interface. It needs to be easy for the consumer to understand so you feel comfortable with buying it and you understand what you're buying. That's super important, of course. You need to have the systems in place to be able to handle that. We're investing, we've invested more than EUR 1 billion over the last decade into improving these types of processes. We're actually investing more now than we've ever invested before in digital development. This is a process that will continue into the medium term.
There is a question on the share buy program. I think you answered the second part, but let's just reiterate it. The current share program, in what timeframe does this run and can there come more this year?
Yeah, so formally, the share buyback program runs until the 31st of October. We typically buy back around EUR 100 million per month in stock when we do this share buyback program. That's what we've done in the past. You obviously never know about the future, but that's what we've done in the past. It should be fairly easily complete. Yes, we will top this up with the potential proceeds from a NOBI IPO should it happen now when the IPO window opens again in the autumn. We're not going to be able to sell our whole NOBI stake in the first step in that. With an IPO, you usually have to start selling down maybe a third or half of your stake in the initial listing. You have to then be locked up for six, 12 months, something like that, before you can then continue to reduce your stake.
The book value for our NOBI investment is a little bit over EUR 400 million. We're talking about, if the IPO happens, an increase of a similar sort of order of magnitude to the EUR 200 million we've announced today. Let's see if that happens. IPOs are hard to predict.
Yeah, hard to predict. I don't know how to argue with that. I fully accept that. Let's turn actually on my paper a little bit to Hastings. I guess these lower prices must make it harder to grow in that country. I think you alluded a little bit to that, saying we are, because if you use those price portals, it's high prices that I guess drive a lot of growth. You'll get a higher price on your car insurance and drives us in there. That might go down. Is there something you can counter that with others, or is that the fully strategy that it's fully only on this price platform? Secondly, on Hastings, I knew in Q1 that you talked a little bit about that you also are starting to see some movement on house insurances there and whether that has continued here in the second quarter.
Yeah, I mean, to start with the first one, you're right in that the pricing in the U.K. market has been coming down, but from a very high peak in the last year. Pricing overshot, margins became higher than what I think is reasonable in that market for a period of time. Over this year, we've seen a lot of that get competed away in the market. We're now at the point where we were able to grow quite terribly still in the second quarter, but obviously the leeway of margins is now less than it has been for a little while. The trading conditions in the third and fourth quarter, we'll have to see what happens with the market pricing and claims trends before we can say very much about where growth is going to go there. We will be disciplined. It is true that it's a market.
We don't have any other channels there. Quite frankly, I don't think it would really help if we did because the people are clever enough to always look on price comparison websites. That's the, and it's like 90% of sales in the market. You kind of got it covered by being there. You can get periods. We've had periods since we bought Hastings where we didn't grow much at all for a number of quarters in a row. That's okay because we were protecting our margins, we were protecting the quality of our book, and still we've managed to more than double the business in the last five years. It's better to be cautious when the market is not there and protect your business because that means that you're then in a very strong position when the market does improve.
Can you remind us how big a market share? I guess that's also a part of it, that if you are a smaller one, it's easier to always be a little bit aggressive in the periods where it's good to be aggressive.
Exactly. We're at about 8.5% market share in motor insurance in the U.K. We have a higher market share of the new business on price comparison websites. If we just keep that market share gradually, the business would grow in any case. If you think about the capabilities that we have in the U.K., they're very much on par with the biggest players there. Our ambition certainly is to become one of those biggest players. They're more like 15%, 16% market share, even a little bit higher. We still see a long way to go potentially on that growth.
On the house insurance side, I think you mentioned something in Q1. I couldn't read so much here in the Q3 report. Is that done the same? Is that also the price comparison, or is that more like a car way because it's actually more comparable than a house insurance? A little bit thoughts about that and how that has developed.
Yeah, it's not quite as heavily skewed towards price and comparison websites as what motor is, but it is still most of the market. About two thirds of the market uses price comparison websites in home, which is a much higher share than it was even just five years ago. We grew by 35%, policy count by 35% in home insurance, year on year. It's an area we've been growing faster in home insurance over the last few years than in motor insurance. Partly that's down to us having a much smaller market share there, so we've started with a much smaller book. Our market share in home is really just a couple of percent, and that's allowed this high growth rate.
We also benefited from some regulatory changes a couple of years ago that's allowed us to accelerate that in a different way to what we've been able to do with motor. Yeah, we built up what is a pretty good book now, and we still see an opportunity to continue to grow that into the medium term.
On the claim side, it's still possible, and I can see in the numbers apparently to run with that low market share on the homeowner insurance and actually still have a decent claims. I would be a little bit baffled, but I guess that seems to be possible to have a claims process that still, with that low market share, still gives you decent margins. Is that correctly understood?
That's correctly understood. Actually, the main challenge that we have there is that the distribution cost in home, because the price comparison websites charge roughly the same commissions to sell home insurance policies as in motor, roughly the same pounds per policy commissions, despite the fact that the average premium in home insurance is much smaller than in the motor insurance business. You get a much higher % of the premium that you need to pay as a commission. For a smaller book, that is a challenge. If you exclude a couple of years ago when we were still learning the pricing, still learning the data, and so on, right now the profitability of the home book is good. The loss ratio, the claims ratios are good. We're not seeing any negative surprises there.
Perfect. I think that was the last question from the audience and from my side. Thank you, Sami, for taking us through your results and answering our questions. May everybody have a nice day.
Thank you.