Good afternoon, everyone, and welcome to the Sampo Group's third quarter conference call, third quarter 2022 conference call. My name is Sami Taipalus and I am head of Investor Relations at Sampo Group. I'm joined on the call today by Group CEO, Torbjörn Magnusson, and Group CFO, Knut-Arne Alsaker. The call will feature a short presentation from Torbjörn, followed by Q&A. A recording of the call will later be available on sampo.com. With that, I hand over to Torbjörn. Please go ahead.
Thanks, Sami, and good afternoon, everyone. The third quarter 2022 was very much a continuation of the successful and robust developments we have seen this year and in 2021 at Sampo. We have very strong operational momentum in our businesses and very much benefit from the digital capabilities we have built over a number of years. At the same time, we have been positioned for higher interest rates and benefit from this in our balance sheet in fixed income returns and in discount rates for our liabilities. In the Nordics, claims inflation develops as we expected, more or less exactly after Q2, as it has stayed closer to 4% than 5%. We do not at the moment see any dramatic change or development in motor repair costs, in building materials or wage inflation.
We continue to be able to increase rates a little more than that, keeping the very high retention rates we've had for a period. In fact, these retention levels are a more important key to our good volume figures, maybe even than sales. In general, the Nordics has remained rational, pricing according to expected inflation for the different segments in the insurance industry. As regards profitability, we have for the past 12 months been able to meet claims inflation with rate increases than in the Nordics. This is true also throughout Q3, and the resulting combined ratio behaves very much as expected. This quarter, we've had a few more large claims than budgeted, but really nothing dramatic that would indicate any trend for the future. Of course, we now have no COVID effects.
On the other hand, we have lifted discounting rates cautiously in the turbulent world around us. Taking these volatile but relatively small items into account, If P&C's combined ratio for the quarter is a very satisfactory 81.6%, and the underlying development is stable and positive. The outlook is strengthened for the full- year to 80%-82%. Business-wise, for If P&C, the year has continued very much as we outlined in the investor update in London last month. We gain customers in the digital channels, notably also in the SME segment, but still suffer from the extremely low car sales as the close collaboration with the car industry is an important channel for us. The total is thus, as already mentioned, I think, a positive 7% growth for the nine months out of which, say, two-thirds is rate increases.
In the U.K., claims inflation has stayed elevated but without deteriorating significantly from the second quarter. In response, we have implemented further price increases that have limited our motor insurance growth. However, our pricing discipline has ensured that margins remain where they must be, and we delivered an 87% operating ratio for the quarter. As for previous quarters, we benefit from the situation for home insurance that evolved from the GIPP reform, and we continue to grow in that segment quickly. There have been some positive rate adjustments in the U.K. motor market in Q3, and Hastings continues to develop very strongly in terms of technical abilities, so I look with optimism to the future of Hastings. All in all, in P&C, our group combined ratio for the quarter was a satisfactory 82.4%, well below our 86% target.
I said initially that we benefit from higher interest rates in several ways, and here's a slide with some numbers. The yearly running rate, running yield increase in If P&C's profit of EUR 120 million is certainly significant, and we have ample room to continue to increase duration. Secondly, an increase of the discount rate in Finland to 1.25% gave EUR 43 million in Q3. Thirdly, for Mandatum, it's pleasing to see the running yield reaching the average guaranteed rate in the with-profits book. Another interest rate sensitive element is, of course, the solvency ratio of Mandatum, which now reached a record 282%. Business-wise, to mention that also Mandatum had strong momentum despite the tumultuous markets, and they had positive net flows into capital-light fee products during the third quarter.
Turning now to our capital, our solvency ratio has continued to increase in Q3, now reaching 256%, the biggest quarterly increase coming from underwriting profits, of course. We estimate roughly EUR 2 per share in excess capital remaining, mainly from the Nordea exit. In these times, it seems sensible to continue with the gradual returns of these. We will announce the board's proposal for further capital returns together with the full year results in February early next year. Furthermore, we expect another EUR 2 per share or so to be freed up once we sell the PE assets. Further than this, we will continue to work on enhancing capital efficiency always with all the tools we have, and I hope we will see some effects towards the end of next year from the work on our group internal model.
Finally, with a simple slide detailing our good progress compared to targets as background, I just want to express my satisfaction that the board has decided today to work towards a dual listing in Stockholm in the second half of this month. Given of course the necessary approvals and market conditions, but I think this is a very natural step for us and will facilitate ownership for investors in what is our biggest market operationally, at this point in time. I finish there and open for questions. Sami.
Thank you, Torbjörn. Operator, we're now ready for the Q&A.
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star two. We'll pause for just a quick moment to allow everyone an opportunity to signal for questions. We'll take our first question from Faizan Lakhani from HSBC. Your line is open. Please go ahead.
Hi, this is Faizan Lakhani from HSBC. Thank you for taking my questions. The first is on the PE stakes that you've mentioned and potential capital you've freed up. More immediately, it appears that Saxo Bank is coming up for IPO. Would you look to dispose of the full stake in that situation? And if so, would the correct way of thinking about it be that that would release about EUR 130 million worth of SCR, given that your stake's about EUR 340 million? And the second question is on Mandatum. You know, you're on a clear path to transition to pure non-life there. How does Mandatum fit into that picture? Are you happy with the current mix and model, or is there something you could do on that front? And my final one is on liquidity.
I'm sorry, I know I've asked this question in the past. I understand there's plenty of liquidity in the various segments, but at what point does liquidity become a constraint when thinking about, you know, returning capital? Thank you.
Knut, I think they're all yours.
Yeah. I think I missed the full second question, but I'll start with the first. Saxo is as you know working on the listing. You probably shouldn't expect us to in the short term sell our full stake in Saxo from that work. Let's first see if that project succeed and then you shouldn't expect that to mean that we can exit the full stake. In terms of the capital treatment for Saxo and all the other PE assets we have, it's roughly in line with what you said, depending a little bit on sort of equity charge.
Roughly in line with what you said about half or so of the sort of market value which is the capital commitment we need to take.
On Mandatum then, we're a happy owner. They are a very successful company in the Finnish life insurance market. Obviously we will try to optimize capital in Sampo Group and that's the whole story.
In terms of liquidity, it becomes a bit of a philosophical answer I might give, but still, this is how it will work. I mean, we obviously hold assets to cover our technical liabilities as well as the capital on any balance sheet that is required from a solvency perspective. If that capital that we need to hold reduces because of lower capital requirement, it's of course covered by assets which we can sell to create liquidity. In some ways, I would say that it never becomes a concern, because if we didn't have sort of assets, proper assets that covered our capital, we would have a challenge in the first place.
Of course, there's limits to how much we can create of excess capital with the current liquidity we have. We can't plan for that liquidity pool before it materializes, so to speak, in terms of lower capital requirement and a possibility to free up these assets.
Thank you very much.
We'll take our next question from Jakob Brink from Nordea. Your line is open. Please go ahead.
Thank you and good afternoon. Two questions on rates to start with. Running yield in If 2.7%, could you tell us what is the reinvestment yield and how quickly should we expect to get to that level? Secondly, maybe just trying to look at the Finnish discount rate, currently 1.25. Looking at your duration in If, which of course are quite long in Finland, it seems like 1.25 is still relatively low.
Could you maybe give us some clarity on is this 1.25% the sort of the new run rate or is there scope for more increases? That was my two questions on interest rates, and then I have one more afterwards, please.
Okay. Good afternoon, Jakob. It's Knut-Arne here. On the. You're right that the running yield increased to 2.7%, sort of up from 2.4% or so in the second quarter. 2.1%, sorry, in the second quarter.
The reinvestment yield is as you say 4.2 on the stuff that we've done, which means that the running yield would probably continue to increase not to the same magnitude as we had in the third quarter, but towards 3% at the end of the year. That is obviously an estimate from my side and depending on how rates develop in the fourth quarter. That would be a reasonable expectation from my side towards the end of the year. On the Finnish discount rate 1.25, of course, this is related to an accounting regime which we currently have, where this discount rate is set a bit discretionary, but obviously over time should follow market rates.
Now we're entering soon into IFRS 17, where discount rates on all liabilities, certainly also the long duration liabilities which you are referring to, would be the market rates. Which means that that level currently, without giving you our exact discount curve on the IFRS 17 that we will revert to, would clearly be at a higher level than 1.25%. The reason why that's not the level today is that it's not exactly how the accounting regime for financial discounting works under IFRS 4. We couldn't use even the same rate as we would use under IFRS 17.
No, I know. I know it's different in Finland.
I was just simply trying to figure out if there would be one more step up in Q4 before you enter into IFRS 17.
Let's see how rates develop. Of course, if rates develop as they have developed throughout the year, that could of course be a possibility. There's not a restriction on our side because we're transitioning in that next quarter into IFRS 17 to not increase it further. We should follow the current sort of accounting rules, so to speak.
We have been in no way aggressive when lifting to 1.25? No.
Oh, exactly. Just one question also, Torbjörn, you mentioned, I think you have ample room to keep increasing duration. What did you mean by that?
Duration is still shorter than the liability matching duration.
Is that something we should expect in connection with. I know you'll come back in December with IFRS 17, but is this basically.
No, I was just saying that we have that opportunity if we would like to do that.
Okay. Fair enough. Thank you. Let me just see one final thing. Oh, yeah, on investments as well. I was just looking at the If in your report and your rating split within fixed income, and obviously some is higher rated than others. Could you give us some sense of how maybe the lower rated fixed income classes are performing in these turbulent markets, please?
Ultimately, is there any risk of you having to do impairments at some point?
I mean, some of the high yields we have actually been the best performers lately. But it's broadly in line with sort of what you already know in terms of Nordic fixed income performance. But also related to my comment on the high yields, the impairments in Q3 were limited. It was roughly EUR 50 million for the group, and around half of that was If, which I think was your question. Almost nothing of that impairment in If was related to fixed income.
It was some smaller impairments, totaling in If and included in the Q3 AFS result, of around EUR 8 million or so, mainly related to the equity portfolio.
Okay. Very good. Thanks a lot.
We'll take our next question from Tryfonas Spyrou from Berenberg. Your line is open. Please go ahead.
Oh, hi. Good afternoon. Thank you for taking the question. I was just wondering if you can maybe give us some color on the outlook for sort of If P&C's combined ratio for next year. Appreciate there are various moving parts hitting Q3, but you gave a really long table showing the adjusted combined ratio, and you talk about pricing being 9% claims inflation. Everything else being equal, should we expect that to continue into Q4 and going into the next year? Thank you.
I didn't catch the last part of your question, but maybe it doesn't matter. We have now an outlook for the full year of 80%-82%. We're saying that we're increasing rates actually with a slight margin above the claims inflation, which is the main prediction for next year that we can make at this point in time for P&C. That should, of course, lead to slightly lower combined ratios, not least together with the promise that we will always, in every year, reduce the cost ratio. I mentioned also in my introduction that the market so far in the Nordics has behaved rationally in the face of slightly higher. I mean, the claims inflation is not that high in the Nordics.
In many periods of my life, I've seen relatively high numbers compared to this. A rational market so far, and certainly we will continue to behave rationally.
Okay. That was very helpful. Thank you.
We'll take our next question from Blair Stewart from Bank of America. Your line is open. Please go ahead.
Thanks very much. Good afternoon, gents. I've got two questions, starting with excess capital. You talked about 3-4 per share, which is at the top end, about EUR 2 billion or so. Using the midpoint of your range, your 170-190 range, I estimate 58 points of excess capital, which gets me to that EUR 2 billion number. However, if you sell your private equity stakes, I'm assuming you would reduce your SCR by around EUR 500 million, which would obviously increase your capital surplus. I estimate comfortably over EUR 3 billion. I just wonder what's wrong with my thinking there. If you could comment on that.
Secondly, I really don't want to complain about an 82% combined ratio in any manner, but just looking at the private segment in the quarter, it was about two points higher than the previous Q3. Is that just usual quarterly volatility, or is there something more underlying that's just led to that two-point deterioration in the private segment? Thank you.
Good afternoon, Blair. Let me see if I got your question. I don't think there was a lot of wrong with your thinking. We have a solvency ratio at the end of Q3 of just shy of 240%. If you take the mid-range of the solvency target range of 170-190, as you said, that gives you just shy of 4 EUR. In other words, we sort of have 3-4 EUR in excess capital. That comes from, of course, different areas in the group than only Nordea, which isn't even a part of our solvency calculation even more.
It comes from the private equity assets, but also some other areas where there's excess capital, so to speak, can be related to. What we try to indicate in terms of the surplus from Nordea and also the private equity is what we have already done in terms of materializing the excess capital. In other words, also creating liquidity and what, which is Nordea, and also the fact that we have said that we will sell the private equity stakes. One thing is relating it to the solvency, which is calculated now with the risks we have. That's not including Nordea. The other one is sort of the actions we've taken and the return of excess capital, which obviously is a liquidity consideration as well.
Blair, I'm not complaining about the combined ratio either actually, because as you know, we have increased rates in parallel with claims inflation. There shouldn't be a problem in the underlying combined ratio development, and there isn't. I'm very satisfied with this combined ratio. Compared to last year, we had no benefit from COVID. We had some 5% more in large claims because last year, Q3 was a low large claim quarter. We had a little bit better weather this year and a little bit more prior year gains. If you take those items into account, you can see that we actually have a slight improvement in the underlying combined ratio compared to last year.
Okay, thanks. If I can come back on the first one, Knut-Arne . On the assumption that you sell your private equity stakes for, you know, the equivalent of own funds, so your own funds doesn't change, your SCR would go down by EUR 500 million, let's say, in this example. Your solvency would then go to 290-something. The point I was trying to make is that even on a lower SCR, that would imply that you've got comfortably more than
EUR 2 billion of excess capital, it's probably more like EUR 3.5 billion. I just wonder what's wrong with that calculation.
No, I don't want to speculate in where we would be at the point in time we would sell the private equity assets in terms of solvency ratios. I'm not gonna say that then we would be at 290. If we were to sell the private equity stakes, it's absolutely correct that the SCR would go down. There's nothing wrong with that calculation. What I tried to say is that the Q3 number, where we indicate an excess capital based on our solvency capital framework, three to four is an absolutely correct number, and then we could discuss whether or not it's closer to four than three. There are some volatile items also in the solvency calculation as you know.
What we talk about in terms of returning excess capital is what we already have done in terms of actions. That is where we are left with a bit more than EUR 2 per share from the Nordea actions, and then when we take actions on the private equity portfolio, that would really realize about EUR 2 more per shares because that's basically the market value of the private equity stake.
Okay.
What you are saying, of course.
I think it's more like six for what it's worth, but we can debate that later.
Yeah, yeah. What you are referring to, and I would put it almost in a slightly different way, is that we do have possibility to work on our excess capital also after Nordea, which is already out from our SCR stack and the private equity stake. Because we have possibility to make our balance sheet even more efficient than it currently is.
Yeah. Yeah. Cool. Thank you very much.
We'll take our next question from Yu Fan from UBS. Your line is open, please go ahead.
Hi. Thank you for taking my question, sir. On the same slide that Blair Stewart mentioned, I mean, there's a fading column showing there's future actions. Torbjörn , you mentioned part of these future actions for excess capital is from internal model work and perhaps now there's some others coming from your repositioning your investment portfolio that's gonna reduce your SCR. Could you give us some color in terms of the extent of the SCR reduction going forward, please?
My comment in the introduction was probably saying that we have a much firmer framework around our balance sheet and our approach to the balance sheet in this planning period that we published in the capital markets day last year. We have shown that we try to find ways to make the balance sheet more efficient all the time. Obviously, we are working on the internal model. We have the PE stakes, and we will probably try to find more tools in the toolbox to continue that intense work to make the company more efficient.
Yes. I guess like, you know, if you keep reducing your solvency capital requirements, I guess like, I mean, from a return on risk capital perspective, it's very different to what you had before. Has that led to any sort about your ordinary or the insurance dividend elements going forward, should we start to think about if you are able to pay a bit higher than before on that?
I think.
In terms of the payout ratio.
I think the ordinary dividend is not necessarily directly impacted what we're talking about. We don't make more money on a sort of from our operations from an internal model. That would be purely to sort of get the geographical diversification included in our SCR. The combined ratio doesn't go down from that activity and that's of course the main part of the insurance dividend.
Of course, over time, if we're able to invest the fixed income portfolios in the non-life part of the business, which is the sort of majority of the non-life's operations, investment policy or investment allocation at higher rates, that would of course contribute to the earnings that we over time would generate from our insurance business. Making the balance sheets sort of more efficient or SCR more efficient from internal models, you shouldn't expect that to be positive for the insurance dividend.
Okay, thank you. I guess that also means that, you know, making it more efficient means that going forward you definitely can retain a bit less capital. Is that fair?
One way to make it more efficient would be to commit less capital. Yes. I mean, obviously if you have higher rates, they open up some possibilities to think about the ratio on the asset side versus liability side, which haven't really been available to Sampo for many years.
All right, thank you very much.
We'll take our next question from Jan Erik Gjerland from ABG. Your line is open. Please go ahead.
Thank you. I have two questions as well. The first one is on your comment, Torbjörn, on the gradual payment of extraordinary dividend versus buybacks. Should we expect you to sort of continue to do buybacks in this magnitude, which you have not done for a long time now, and then expect a not as high extraordinary dividend for the Q4 and more buybacks down the road? Is that what you sort of tried to suggest with your comment? The second one is on the improvement you mentioned also that your pricing above the current inflation and that you have 50 basis points improvement. Should we then expect this 50 basis points to be the sort of the run rate going forward, or is this more flattish development with a higher increased frequency we should expect?
Thank you.
On the gradual distribution, it was more a reflection of the world around us. Thinking about buybacks in general, it has been appreciated by our shareholders, the fact that we don't only do dividends anymore. That is something that I think the board will take into account when they come with their proposal. 50 basis points, Jan Erik, in non-life insurance is not a huge number. I don't think that it is possible to extrapolate that precisely for us. I'm just reflecting on the fact that we still have a very rational market here, that we're able to price for inflation with a little slim margin, from a rather good starting point.
Of course, we will continue to work with the tools that are available to improve that even further, like better underwriting based on all the digital information that we have, like, reducing the cost ratio as we have for the past 13, 14, 15 years, et cetera.
How much did this private new sales sort of less make the combined ratio weaker this quarter? If you could shed some light into the lower growth in the new car sales, which I've seen for the last year. How should we think about that impacting the combined ratio in the private area, such which was mentioned also a little bit weaker than probably we thought.
There's no big difference in the profitability between the business that we sort of didn't write then in the car dealer channel. It didn't really change the combined ratio a whole lot. Of course, the growth in private was hit by somewhere between 1.5%-2% for the Nordic number.
Okay. Thank you.
We'll take our next question from Vinit Malhotra from Mediobanca. Your line is open. Please go ahead.
Good afternoon. Thank you very much for taking my question. Three questions, please. Firstly, I'm surprised with the commentary around new car sales because, at least from the slides, I can see slide eight, both 1H and nine months, it seems that Sweden, which is your key market in this area, shows a remarkable progress in 3Q, where, you know, 1H was -17%, but three- nine months is -12%. So I'm just curious whether you've already seen some relief there in Sweden or not. So just curious about that data point. Second is that in commercial lines, which is being also talked about at other Nordic insurers this quarter, could you comment on your portfolio a little bit?
Because obviously it's grown very well in 3Q, 11%, and also a 77% combined ratio, the best in the segment. Just any commentary there would be helpful. Last question is on the private equity portfolio sale. I'm just curious as to, you know, with rising rates and, you know, growth stocks, growth areas and these kind of assets not doing so well, apparently. Also European regulators flag risk of private equity write-downs next year. I mean, how do you foresee any issues in the environment? Do you think it's because you seem to be quite confident to project that sale happening next year. Any clarity on that would be much appreciated. Thank you.
On the car industry driven portfolio in Sweden, let me first say that this is not really a strategic problem, although it's a bit disappointing. We are dependent on the level of car sales, especially in Sweden, as you quite rightly point out. We don't expect people to avoid buying cars or abstain from buying cars sort of forever. Now, the number looks a little bit better for Sweden and in Q3 than for some of the other countries, but that's because car sales were low already in Q3 last year. Not a strategic problem. I find it a little bit encouraging to see that we have such good growth numbers without that and, you know, people will have to buy cars even more.
There will be even more reason to do that over time once the car portfolio of Sweden is not being renewed as it were. Commercial lines, I think I mentioned that we introduced digital sales last year there and started with the pilot, and it was really appreciated, and we've had a very good reception of that and then spread it over the Nordic countries. At the same time, we have correct and adequate pricing and quite normal large losses actually also. So good results and more digital sales and service than we've had in the past, which again, also in this area is an advantage for us. Then, I didn't quite hear all of your PE question.
The only thing that I can say, and Knut will add to this is that we are not confident about the exact timing of the disposal of those assets as we don't lead that process in any of the cases. Knut, you probably heard more.
Yeah, no. The commentary we made in splitting up sort of liquidity we already have available from the Nordea sale and sort of what we have said we will do eventually was not to sort of make both of those actions next year. I'm not at all sure that we will have exited all of the assets in Sampo plc by the end of next year. Let's see how things develop.
In terms of valuation of these assets, which I think was also a part of it, some of these assets we're talking about four or five listed companies in some ways, and then those small assets, I mean, the investment we have in Nexi although through a private equity vehicle, Nexi is also a listed company. So market values there are very much market to market in some ways. Then on private equity, of course, there is a little bit of a lag in terms of how that valuation is done according to our accounting principles and probably for all private equity owners, a lag or maybe three months or so.
Private equity returns, as you well know, is not really mark to market, meaning that you very easily said without making any forecast based on our reported numbers today. You get the current quarter's return into next quarter's investment result.
Okay, sure. Very clear. Thank you very much.
Okay.
We'll take our next question from Jaakko Tyynelä from SEB. Your line is open. Please go ahead.
Yes, good afternoon. Jaakko Tyynelä here from SEB. You mentioned the rate hike somewhat above 5%. I assumed that this is still driven by the industrial and commercial. Could you give any color on the rate hikes on the private side and are the hikes kind of sufficient to cover the current inflation?
The rate increases for all lines and all mass market lines, private or commercial, is between 3% and 6% at the moment, and there is basically no big difference between commercial and private. Maybe slightly more on commercial than private. They are in all segments, separately reflecting the claims inflation that we see.
Okay, thanks. That's very helpful. On the rate hikes in Hastings, how your kind of current rate compare to the rivals and their rate hikes? Are they hiking prices in a similar magnitude that you are? If they're not, are you able to keep the kind of volume base flat or continue with increasing that?
That would be wonderful to know in exactly, wouldn't it? There's a lot of information in the U.K. In Q3, we increased according to our knowledge and expectation about the claims inflation. We do not see. Our estimate is that the market is not quite adequate after Q3 when it comes to the rates. Of course we underwrite the business that we can, and we're actually doing. We've done quite well. We have a flat development of the number of customers in motor. Then because of this very special situation in home, we have the very rapid development in home insurance. For Hastings, this is not a bad situation, actually.
Okay. Very good. Thanks. That's all from my side.
We'll take our next question from Youdish Chicooree from Autonomous Research. Your line is open. Please go ahead.
Good afternoon, everyone. Thank you for taking my questions. Three questions if I may, please. The first one is on prior year reserve releases. I mean, if I exclude adjustments to the annuity discount rates, the releases are around 2%, which is quite low compared to recent years. I was wondering whether this is a new run rate going forward, given where inflation is or whether, you know, you've probably taken the opportunity to actually to be more prudent in your reserves. That's my first question. Secondly, I wanted to ask you about the group excess capital. I think on slide 15, you have denoted an area of future actions. I guess securing an approval for your group internal model is one of them.
I was just wondering if you could tell us a bit, your thinking around the timeline. Is that something that can be done in 2023, or is that most these future actions relate more to, you know, the next strategic plan, so to speak. Finally on Hastings and the U.K. motor market, the loss ratio reported for the nine months was, you know, slightly weaker than the 76% you're targeting. Sorry, the less than 76% you're targeting. You know, within that, I think in the third quarter specifically, it was more like 81.5%, so quite weak relative to where you want to be.
I was wondering whether, given what actions you're taking, whether achieving that target is possible in the fourth quarter or in 2023. Those are my three questions. Thank you.
Let the former actuary say just one word about reserves first. That is. Well, there's actually two of us here. Anyway, prior year gains, I think in Q3, we actually only had 1.4%, prior year gains in excess of the discount rate change.
Right. Okay.
Is that a future run rate? No, we've never had such a thing. We never had a target for this. But we do like to have strong reserves. You will have seen very few quarters in the past.
10 years, if any, where we've had negative prior year results, and we like it to keep it that way.
All right. The Nordea actuary here. In terms of growth in excess capital and future actions. It is, I realize, a bit of a philosophical graph there with no specific timeline, but a good one because there will be. There is, in terms of timeline on an internal model, we have a dialogue with regulators. I would, as Torbjörn also confirmed, I would hope that we could talk to you about the impact of an internal model in Sampo towards the end of next year, since we relate to our strategic period, towards the end of this strategic period. It doesn't mean that this nice-looking light blue graph here will not continue also into our next strategic period. Let's see where we are when that time comes.
In terms of the loss ratio in Hastings, you're absolutely correct that that was above 76% in the third quarter. It's been somewhat volatile during the year, as you have seen from our reports, currently now a bit above 77% for the nine months. Of course, the fact that this is above 76% is a reflection of what we have talked about throughout the year, that prices should increase in U.K. motor because of inflation.
Having said that, of course, what we are really focused on, just given Hastings business model, which isn't only underwriting profit, is the operating ratio, and the 88% target where we are spot on after nine months and where we also have repeated that target for the full year.
Maybe, Knut, it's worth saying that it's easier also for us to follow the combined ratio or operating ratio because there are the technical changes, and we also changed the reinsurance program. That target and that number is easier to see as a continuation of previous numbers.
All right. Okay. Thank you. Thank you very much.
We'll take our next question from Jakob Brink from Nordea. Your line is open. Please go ahead.
Thank you. I just have one follow-up. Finance cost in Hastings after the debt buyback, it drops quite a lot, the finance cost. Is this the new level or is there some sort of one-off related to Q3 that makes it lower than we should expect going forward?
There is a few other moving parts in the finance cost in the holding company than just the pure debt payment or payment for debt that we have. You are of course right. There will be a reduction in the funding costs for the holding company, but it's not a reflection of the debt buyback. We did that debt buyback in September. It's a fairly I would say a very small impact, particularly for that EUR 500 million and change that we bought back in September in our Q3 result.
There is a few other moving items as well in there, in terms of some derivatives positions we have in place, et cetera.
Okay. Fair enough. Actually just one more question on the liabilities, the with-profits liabilities in Mandatum. I see they dropped around 16% year-over-year. Is there according to your slides any discounting impact in that, or is that just basically you working with the with-profits and getting them to switch to unit-linked or similar?
No, that's straight nominal numbers.
Okay. Thank you.
We'll take our next question from Jan Erik Gjerland. Your line is open, please go ahead.
Yes, thank you for taking my follow-ups. I have just three ones. The first one is the reinsurance program, which you touched upon, Torbjörn, in Hastings. What should we think about that for 2023 when it comes to level of reinsurance? The second one is in Mandatum, potentially profit sharing. When should they sort of start to expect you to have above the roughly 3.1% guarantee levels you are, is it during 2023, or is firstly in 2024 you can see run rates or running yields being above that? Finally, on the large loss change in budget, it seems to be a technicality when it comes to this stuff.
Is it anything we sort of missed out on the large loss that it looks like it came out much weaker this quarter than it actually should have been if you have not changed your budget? Could you just shed some light into what happened between the nine months, the six months on the Q3 numbers? Thank you.
I'll take the reinsurance and the large losses and leave Mandatum to you, Knut. On the reinsurance program for Hastings, we're in the middle of the negotiations. Can I just not tell you exactly what we're aiming for? Of course, we will not get more cover at least. That's for certain. Then maybe not is the right time to reduce the program even further. We'll see. Large loss, I think that level of detail was a bit unnecessary. We of course change the large loss budget when we see that as necessary because the portfolio has shifted or increased, reduced, and we've done that a number of times over the past 10 years, for instance.
On large losses, we, as you know, as we've said every quarter, we've had a couple of almost three years now with really good changes to rates in the large corporate book. We can see that from the attritional losses, the ordinary losses, because the loss ratio for those is at a very good level. I have no concern about these. The three large losses we had in this quarter were run-of-the-mill, normal, one machinery breakdown and a couple of large fires in the Nordics. Nothing special, not at all.
On profit sharing or bonuses in Mandatum, you should not see any bonuses in Mandatum in 2022 except for some marginal small single-digit EUR numbers in that closed book, which we from time to time call Nova S, which has some slightly different features than the main business in the old Mandatum structure, but it's really small numbers. I would say that no bonuses for this year. What happens with all kind of financial variables for the future, we'll have to revert to.
Just to shed some light, if we were to have a run rate around 3.25, then if that's something we should think about as a potential, is it so that you then have an opportunity to take out a bonus above the 3.1 average? It's down to the individual portfolios, et cetera, and also the individual policyholders to get or even myself to take the bonus out of that? Is that how we should think about it in the future?
Yeah. Guarantees needs to be met on an annual basis. So that annual, that guarantee we need to meet this year, we have had to meet it every year also during this super low interest rate environment. The principle of fairness in Finland and the sort of reading of that and spirit of that is that bonuses should be paid based on longer term returns. Of course, we've had a number of years where we have met our guarantees while still had rates which have been significantly below the guarantees and the returns we've had from that.
Absolutely. Okay, thank you.
There are no further questions on the line. Please proceed.
All right. Thank you everyone for your attention today. Let me just remind you that we're planning to host a IFRS 17 session on the 1st of December with Knut-Arne Alsaker, our CFO. That's all for today. Thanks very much.