Good afternoon everyone, welcome to the Sampo Group fourth quarter 2022 conference call. My name is Sami Taipalus, and I'm Head of Investor Relations at Sampo Group. I'm joined on the call by Group CEO Torbjörn Magnusson, Group CFO Knut Arne Alsaker, and CEO of If Morten Thorsrud. 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 you, Torbjörn. Please go ahead.
Thanks, Sami, and welcome everyone. I am pleased to be able to release yet again very solid figures for the quarter and the full year. Both the backward-looking cost and claims ratios, as well as the forward-looking retention and rate change numbers are overall very satisfactory, especially in the Nordics. Furthermore, in this main market of ours, we observe no changes to the market structure in the latter part of the year, no startups either from FinTechs or international insurers. The second leg of any insurance business investments also look promising, and we saw EUR 230 million in increased run rate profits from higher yields compared to 2021. The balance sheet looks very strong of course, and we plan for both the regular dividend based on the insurance operations, as well as an additional dividend and buybacks.
The last quarter has been a bit technical in accounting with a goodwill writedown for Topdanmark Liv and reallocation of non-life provisions. This does not in any way reflect a deterioration in the underlying development. For key developments in our P&C operations, they look very healthy at the beginning of 2023. We have actually not seen any meaningful increase in claims inflation in the quarter, and at the same time, the necessary rate increases are implemented in the market. There are comments in this slide about increased marketing at activity in certain areas, but we were actually very close not to include that comment. It has not had any significant effects. Claims inflation still varies between roughly 3% and 6% across the Nordic geographies and products. No product standing out with any extreme number.
We have focused more on customer satisfaction and corresponding growth in Q4 than increasing rates furthermore. In the Nordics, we also rearranged provisions a bit, increasing the Finnish discount rate more in line with reality, but still with a margin, but keeping the prudence in the regular reserves. Thus, the positive discount effect of EUR 218 million and corresponding negative reserve increase of EUR 103 million. All in all, we have kept our long-standing prudent stance on provisions at roughly the same level. The U.K., the premium numbers are quite extreme for us in the quarter, as we did not participate in the aggressive market behavior in Q4 2021. We have, of course, increased rates in line with the 12% claims inflation this year, so our total growth in Hastings in Q4 was a very high 31%.
This also reflects rapid growth in home insurance and growth in telematics, as well as the Multi Car product. Even if home insurance still is much smaller than motor for us at more than 400,000 policies, it's no longer a negligible line for Hastings. The U.K. market has, it seems, met but not exceeded the increase in reinsurance rates at the year-end now, which means that we still see average rates as somewhat inadequate in motor. As mentioned already, for the first time in many years, running yields have increased and contributed in a non-negligible way to our results. Underwriting still makes up the majority of our total profits before taxes, but the more normal, at least from a historic perspective, interest rates makes the underwriting discipline even more valuable. The running yield at If P&C was 3.2% and Mandatum 4 at year-end.
We have strived to lengthen maturities also in these beneficial surroundings since roughly the half year, average maturities are now just below two years for the same entities for If P&C up from one year just 12 months ago. This slide is a dull one, but let me comment briefly on two things. First of all, we continue to grow the underwriting profits rapidly, and the underlying combined ratio has improved in the Nordics, both from cost reductions and continued underwriting improvements. There's no change to that development. Secondly, the Hastings figures look a bit odd, much due to the same effects as previously in 2022 due to technical items having to do with our acquisition as well as the reinsurance structure changes.
We missed our target for the year by just below 2% for Hastings, which reflects the unusually tough winter in the UK, something not at all unique to us, of course. The more important remark is that the motor rates in general need to come up more than they have for this market to perform adequately in 2023. Needless to say, as part of Sampo Group, Hastings will never chase volumes unless rates are sufficient to meet our targets.
In the capital markets day in 2021, we introduced a new balance sheet framework. We have also tried to show a lot of discipline in this respect. With the conclusion yesterday of the EUR 1 billion buyback program and with the proposal today of a EUR 2.60 dividend plus an intended EUR 400 million buyback, we continue on this path. The remaining excess capital after this is by and large the capital tied up in the PE portfolios. A couple of words on the ongoing Mandatum evaluation that the board initiated in December. This, I think, came as no surprise after the last few years of strategic process. We are considering a broad range of alternatives, including a sale, demerger or just continue as is.
Remember, Mandatum provides some dividend support for the group and also is gradually, but at a high pace, growing a business which is more less with-profits and more present day business. This sub sentence of possibility for support for the dividend for the group is in no way intended as an indication of the end result of this process, just to be clear. We carry out this evaluation as usual at high speed and expect to be able to provide a concrete update before the end of the first quarter. With that, Sammy, we open up for questions.
Yes. Thank you, Torbjörn. Operator, we're now ready to start the question and answer session.
Sure noted. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the first question from line Faizan Lakhani from HSBC. The line is open now. Please go ahead.
Thank you very much. I have three questions. The first one was on your potential excess capital left on your balance sheet of two. Ties up with your comment around 800.
Sorry, Faizan. We can hear you very badly. You'd sort of dropped off the line there.
Okay, one second. Sorry about that. Can you hear me now?
Now we can hear you again.
Sorry. I just start again. I have three questions. The first one was on the excess capital that you have. One hand you suggest that there's EUR 2 per share based on the PE stakes, but on the other hand, you mentioned that selling down any PE.
Sorry, Faizan. You keep cutting out all the time. Operator, can we move on to the next question and we'll come back to you, Faizan, if you just rejoin the queue.
On the current year reserve adjustment. What pockets has that gone into?
Sure. Noted. We will take the next question from line Jakob Brink from Nordea. The line is open now. Please go ahead.
Yeah. Sorry if I take your question then, but my first one was actually also on the excess capital. The last year, I think, Nordea, we talked about the leverage rates, which seems to be your most binding requirement now, being at 30% roughly after the payout. Back then, we also talked about you being willing to let it drift above 30 for a while because you basically had the cash or the liquid assets as well. It seems like you have changed that strategy. When you, Torbjörn, talk about the last two years being tied up in the PE stakes, at least if you look at from a solvency perspective, you do have those EUR 2 already present. What is it that has changed in your sort of way of looking at the leverage rates of being sort of across debt instead of a net debt approach?
Good afternoon, Jakob. I don't think I would agree that we have changed everything, anything. The reference last year was more in the order of things. If we have a leverage that goes slightly above 30 for a while and a plan to take it below our target, we would be fine with that. What we now have done is decided to return EUR 1.7 billion in capital, including the planned buyback. That brings the solvency, as you alluded to, comfortably above the 170%-190% range.
I would also say that the leverage, we are comfortable with landing at slightly below 30%, with the old accounting regime and 1%-2% lower as we speak, since that's the benefit of on equity of the new accounting regime. The decision on the buyback, the planned buyback and the dividend we have done is not related to any the fact that we have a constraint as such, which is here and now. It's in line with our communication to do gradual capital return, and we just concluded a sizable buyback and we have today announced further sizable capital distributions.
Fair enough. Just to make clear for my sake is, would you agree that if we take from a Solvency II perspective to 210 versus 170, if you take the bottom end, that's around one and a half billion euros? The same if you would include your sort of net liquid position so basically take a net debt instead of a gross debt leverage rate. That would be roughly the same. so even without selling the PE stakes, you would have at least EUR 2 per share today, which you have then chosen to save for later. Is that correct?
Not sure I followed all of it. Maybe one thing, I wouldn't necessarily say that we define excess capital above 170. We have a capital management framework with a target range of between 170 and 190. An excess capital would more be above 190 than 170.
Mm-hmm. Okay. That's still EUR 1 billion then, roughly.
I think we still have a comfortable capital position and would say that we do have excess capital, which of course, some of that needs to be monetized in terms of the private equity stakes. We are after all distributing EUR 1.7 billion. To distribute more in terms of liquidity, we need to monetize some of the private equity stake or do other things to get liquidity up to the group.
Jakob, on slide 17 of the investor presentation, you've got the position on the solvency without selling the PE assets. There we point to EUR 0.8 billion of headroom on the solvency.
Mm-hmm. Yeah. So that's down to 190%.
Correct.
I guess you do have the liquidity though. If you look at the PLC balance sheet, you have EUR 2.5 billion, which would also be EUR 800 million more than you pay out.
True, true. We do have liquidity left, absolutely. Now we have decided on this dividend to be and planned buyback. It's a gradual return. Could we have sort of paid out a little bit more? Probably could argue that we could. Doesn't mean that this is sort of the last time we announce a capital return. Like I also said many times before, a buyback takes the time a buyback takes. You can't speed up a buyback just because you announce a larger buyback than the planned buyback we announced today.
No. I think I get it. Thanks. On the underwriting, there's been some talk, I think, in the market for what the underlying claims rate or combined rate is actually doing in this quarter. Stripping out for all the extra stuff that we can't see, but you can see, what would you say is sort of the development of the underlying combined ratio claims ratio year-on-year, please?
I'll start and then leave the details, the insights to Morten. There's been no dramatic or significant change on previous years. We've had a good development for several years with growth due to our long-standing investments in IT and the web. We have also been able to improve the underwriting also this year, stripping out the volatile items, as you can see from one of the pages in the package, say 0.5% for the year and also been able to improve the cost ratio 0.3%. Virtually the same development as we have seen for the past few years underlying.
Yeah. Then the more detailed figures, underlying improvement 80 basis points, 30 basis points from cost reductions, which of course is important to bear in mind. It's part of our sort of long-term strategy of always reducing that. Then the 50 basis points on the risk ratio. I think the full year underlying improvement of base 80 basis points is sort of what is really representative. Doing underlying combined ratio on a quarterly basis is always a lot of sort of smaller volatility that they influence. I think the 80 basis points that you see on the full year is really what's representing the underlying improvement.
Thanks. Given the price initiatives you have done and the claims inflation, which I guess seems to be leveling off a bit, would you then expect something similar in 2023, or is that too optimistic?
No, I don't want to speculate too much about sort of the future development. Of course, we are implementing price increases now between 5%-6% into 2023. We have seen inflation so far 4%-5%. It is correct that it's cooling off somewhat. Motor seems to have reached sort of the level that we expected, and property clearly leveling off and even seeing some reductions as we see some of the raw materials even being reduced in price. Again, don't want to speculate too much about sort of future development on underlying. I think we are clearly pricing in order to really take care of the inflation that we have seen and sort of anticipate in the market. I think we feel very comfortable about that situation.
Morten, you're not gonna get off the next year without having improved the cost ratio once again, of course.
That's again, as I said, the long-term strategy of always improving that with 20 basis points, which of course is important part of the underlying improvement.
Last question from my side. Reinsurance, how have your program retention levels and pricing changed? What would be the potential negative impact to combined ratio in 2023 from reinsurance prices having gone up?
Yeah. The reinsurance market was finally hardening. We expected it to harden already a year ago, but now it was finally hardening. Thinking it's important to bear in mind that that's a positive for us. It's helping us driving up rates in the large corporate market and being the largest insurer in the Nordics, of course, we benefit from, in a way, a hardening reinsurance market. We have slightly increased our net retention from 250 to 300 million SEK. But as a more flippant comment, you can say that over the last 10 years in euros, it's been more or less unchanged. We have 27.5 million EUR as net retention today, which was exactly the same we had 10 years ago, actually.
Price increases, the brokers report 20% to 50% price increases on the reinsurance renewals. We are in the very, very low end of that range. This was fully anticipated for us, so we have already included this in the pricing for 2023.
I usually quote the number, Our total reinsurance spend for the core programs are to the tune of EUR 70 million, something like that. You can compare that to the overall, If premiums and figure out whether that has an importance or not.
You said 20% or the lower end of the range starting with 20?
Yeah. I said that that range in the market in terms of increases, 20%-50%, we were towards the lower end of that range, yeah.
Yeah. Okay. Thanks a lot for your answers.
Thank you. We will take the next question from line, Youdish Chicooree from Autonomous Research. The line is open now, please go ahead.
Good afternoon, everyone. Thank you for taking my questions. If I could ask you about just the competitive environment. I get the point that there has been no dramatic change. I mean, you've mentioned it several times, but I think in your slides you talked about some market activity in some areas. Maybe you could elaborate on that to start with. Secondly, on the UK, on Hastings, I mean, you know, you changed the quota share reinsurance last year. It's a bit hard for us to work out the earned premium dynamics versus, you know, the rating actions you've taken and claims inflation.
I was wondering, could you tell us, like, you know, is the first half probably like a difficult half when you can back, get back to the operating ratio, or do you think that's achievable? Thank you.
I can comment the first one. I think it's quite exaggerating saying that we see any changed behavior in the Nordic market. It's sort of quite often we see a bit of marketing campaigns and different types of activities towards end of the year. I think this is no change in the market at all.
All right. Okay. Got it. Thank you.
As I said on Hastings, it's part of Sampo Group, so we price according to what we need to meet the targets, and we have done so in 2022. We would expect, hope that the market will follow, otherwise we will find it increasingly difficult to increase our market share, of course, by the usual dynamics. Having said that, I'm impressed that Hastings has been able to keep up their top position in the price comparison websites, even with higher prices. There's some, there's obviously something to the brand and the way that they do business that is very skillful.
Oh, great. Can I also follow up just on the UK, please? You know, there are some, you know, at least some suggestions in the market that there's been a quite material improvement in pricing for both, you know, new business and renewals in January. Are you able to comment on that, please?
I think it's, there's lots of public statistics in the UK. Rates have improved in the second half of 2022. You could say that that's good. We don't see that as quite enough, but the general position is better now, better, but not adequate now compared to six months ago. An early indication of the rate increases at the beginning of the year is that they reflect the increases in the reinsurance prices that we just discussed here, but not more.
All right. Right. Got it. Interesting. Okay. Thank you very much.
Thank you. We will take the next line from Tryfonas Spyrou from Berenberg. The line is open now, please go ahead.
Hi. Good afternoon there. Just have one question on the Mandatum. Did you mention in the slide that a listing could give shareholders control over the valuation. I'm just wondering if this could also create a risk, for example, from a potential overhang on the shares, given that you could be perceived as potentially looking to sell the stake at some point. Wouldn't a potential sale be a better option here? Presumably, the latter will result in a more immediate cash infusion and more value creation. Thank you.
I think I could follow roughly half of your question, unfortunately. Anyway, on Mandatum, I don't think that we wish to comment more than that at the moment we have all options open, and it's reasonable after just a little bit more than a month's exercise here. We'll return to this during Q1.
Okay. Thank you.
Thank you. We will take the next question from line Alexander Evans from Citi. The line is open now, please go ahead.
Hi, thanks for taking my questions. First I just wanted to circle back on Jakob's point about the adjusted risk ratio outlook, because I think before you were saying pricing increase was 5% in Nordics and claims inflation was 4%-5%. It now looks like you're saying pricing is 5%-6% and claims inflation is the same. Are you implicitly saying that, you know, margins are gonna improve going forwards there? Secondly, just around the sort of geographies that you're seeing in the combined ratio improvement, is that sort of 20 BPs underlying improvement consistent across all the geographies that you're seeing there? Then just finally, just if there's any update on, you know, discussions on PE timelines and anything that you could give on that. Thank you.
Yeah. I'll start with the underlying improvement, just repeat that again. I think the fair view there is to look at the full year 50 basis points risk ratio improvement and 30 basis points cost ratio improvement, so 80 basis points in total. I would say that that's sort of the representative number for 2022, and it's more. Most of the improvements is in large corporate and commercial and then a smaller of it in private, but clearly improvement in all areas. When it comes to inflation and pricing, the 5%-6% is what we are implementing now, obviously then looking forward into 2023.
Then the 4%-5% inflation is what we've seen historically in a way, sort of through during 2022. We are not expecting really inflation to increase further from this level. We are seeing that inflation in motor is now stabilizing. It's been increasing throughout the year exactly as we forecasted. It's been now stabilizing somewhat, and the same we have seen for a while now even on property. Of course the big uncertainty when it comes to inflation in 2023 is the wage development in the Nordic region, but that is a fairly controlled sort of development since it's mainly done through the big union negotiations. Yeah, I think that's what we can say about pricing and inflation.
Thank you.
Thank you. We will take the next question from line Blair Stewart from Bank of America. The line is open now, please go ahead.
Afternoon. Thank you. Couple of questions left from me. Firstly, has the higher interest rate effect, fully earned through now, in 2022, or would you expect more of that to come through in 2023? Second question is, I wonder if you can give any color on the reserve addition that you made, I think 0.8 points. What was going on there? Is that just reflecting inflation or something else? Finally on Mandatum, I know you're not gonna say much, but to what extent is the lost dividend a consideration with respect to the coverage of your insurance dividend should you decide to spend Mandatum without any proceeds coming to Sampo? Thank you.
Good afternoon, Blair. Knut Arne here. In terms of effect from higher rates, there is a little bit more to come. In terms of the running yield, I would expect that to continue to tick upwards a bit during the next couple of quarters, not to the same tune as we've seen during the second half or so of 2022. To continue slightly upwards given the investments we are doing. Also before addressing your second questions on the effect of the higher rates, the reserve adjustment or the discount rate adjustment we know did under the old accounting regime wasn't up to the level where we will start 2022. There will be, you can say, an additional positive effect in equity from implementing IFRS 17 at an even higher discount rate.
I could add on the prudency. We always have had, as you know, a philosophy of having prudent reserves. This quarter we're moving some of that prudence from Finland to other countries, obviously driven by the fact that we have a rapidly increasing discount rate in Finland that gives us EUR 218 million in positive effect. We are taking EUR 115 million of that and moving prudency to other countries. In addition, it comes EUR 8 million in claims equalisation reserve, which on the waterfall in the presentation is classified as current year reserve strengthening.
We are as always, having prudent reserve and moving some of that prudency in the fourth quarter, which obviously makes the figures a little bit difficult for you to fully interpret, unfortunately.
If I should add Blair, just on the beauty of doing what we have done in Q4 and now we're going into IFRS 17 and 9 for that sake, of course, we will be mark-to-market in terms of interest rates, where interest rate prudency is a blast from the past. Now we go into IFRS 17 actually having reshuffled some of our prudency into the best estimate, which will continue to be prudency also under IFRS 17.
Okay. On my bottom, loss of dividend.
Well, Blair, it's very helpful that Morten has been able to grow his underwriting profit so much lately, that dividends can come from different sources, can't they?
Okay. When you say end of Q1, Torbjörn, do you mean end of calendar year Q1, so in the next six weeks?
Thanks for asking a question I hadn't thought about.
I mean, not just the Q1 results. You talk about end of Q1, right?
We're of course, as always working as quickly as we can, Blair.
Got you. Fantastic. Thanks guys.
Thank you. We will take the next question from Jan Erik Gjerland from ABG. The line is open now. Please go ahead.
Thank you for taking my questions as well. I have a couple of follow-up questions on the wage inflation levels, your reinsurance quota share in Hastings, and also the frequency we have seen in the Nordics. Have been any differences between the countries? Have Norway been worse than Sweden? Have it been Sweden been better than Denmark, et cetera, when it comes to frequency, especially on the motor side? How much impact is this in England on the Hastings side? Finally on discounting, maybe I've understood this totally wrong, but did discounting on the IFRS 9, IFRS 17 side, shouldn't that improve your combined ratio when you move into the next leg year, or shouldn't it? How much have you not discounted in your book so far versus what you have done?
Finally, on the buybacks, would it be fair to say that you could have more buybacks coming stemming into your AGM this year, or should we not think that could be an option at all?
Frequencies in the Nordics, that's obviously Morten's question, but, you know, there will be frequency variations for all gradual slow frequency variations for all products in all countries. Sort of summarizing that by country is an illusion. Morten, do you wanna say something clever?
I can try. Of course, I mean, first of all, frequencies have returned after COVID. That's of course, that's for sure. That you see also we have indicated, and that's roughly exactly as expected. In terms of development, we've seen little bit sort of harsh winter in Norway and Finland. What typically cause problems on the insurance side is if the temperature goes a lot up and down, you know, in Norway in particular, it's been sort of quite a varying temperature throughout December. That obviously has sort of had a certain impact on frequencies in Q4. There's nothing in the frequency development that is different than what we have expected so it's very much sort of developing as planned in all BAs.
On UK frequencies. Frequencies for us is of course, very much, something that we follow, closely monitor always, and price, try to price for. Now and then something more sudden happens, and we had more severe winter in the UK than is usual. There has been various interpretations of frequencies. Trains have not been running, people have driven more to the office, and therefore we've had higher frequencies. I think that's partly speculation, but I expect frequencies to come back to normal in the UK in Q1, but it'll be interesting to see when we have the numbers. Apart from that, COVID is long gone and numbers are normal and have stable developments. IFRS 17, Knut Arne.
IFRS 17, Jan-Erik. Well, you're right. There's a little bit more discounting under IFRS 17 than what we've had previously since all reserves will be discounted. As I think we said when we had the IFRS 17 brief a couple of months or so ago, the impact on the combined ratio it will be around 1%, and that's a positive number with the current rates. Of course, just since we're talking about technicalities, the effect of changes in discount rate will no longer be a part of the combined ratio, but what will be a part of the finance result, the net finance result.
Exactly.
Yeah.
It means that the changes you've done now is sort of improving the combined ratio this time around, and then it stays there while the change to the 1 percentage point you're referring to will not change the combined ratio lower into the IFRS 17. Is that understood correctly?
Not sure I got your question right, but what we now have done will not change the effects we talked about on first December. We still will have a positive effect from discounting on our combined. The second part of my answer was more related to future changes in discount rates under IFRS 17. In other words, the mark-to-market valuation of liability changes in the interest rate levels, the curves will not be recorded in the combined ratio, the change in itself. That will be a part of the net finance result. There's nothing we have done now which in any way materially changes what we talked about on first of December, I think that presentation was.
Very clear. Thank you.
Let me just reiterate what we have done here. Since under IFRS 17, there is no prudency with relation to discount rate. You can't choose another curve than the market curve for rates. That prudency possibility, if I should call it a silly thing like that, will be removed. Of course, to have a prudency in your best estimate since that is not only one number, but a range that is still possible. We have taken some of the prudency out of the interest rate discussion and moved it into our best estimate where it will remain also now under IFRS 17.
Very clear.
On the buyback, should I... it's customary to, for the board to, in Sampo to go to the AGM and ask for an approval of doing buybacks. Without front running any AGM proposal, I would personally guess that that will happen also this year, which means that it would be possible to do more buybacks for Sampo in the future.
Perfect.
One buyback at a time like we always do.
The Hastings reinsurance quota, have you changed that first of January?
Yes. It's gone down to 30%, so not a big change. We did a big change last year. This year for strategic reasons, we didn't. Strategic meaning buying reinsurance in the best way, not strategic for Sampo. Of course, we don't really need that reinsurance program, for Sampo's solvency or anything.
Finally on the wages, would you put some four-ish percentage points into the inflation for Nordic workers?
Let's see. I guess what people sort of anticipate is somewhere around that figure, but let's see. Of course, for us on the insurance side, we have also a number of sort of contracts that are negotiated. I mean, to a fairly large extent, we also have a fairly good view on what's, what we are gonna pay our suppliers. That means that we can sort of manage inflation in a good manner and make sure that we price and continue to price and stay ahead of the curve.
Morten is so implicit about this. I mean, he has renewed many of you have renewed many of your supplier contracts already for the year. Then it's if claims, if wage inflation would be higher, that's actually their problem for 2023. I don't expect that to be the case, Morten is.
This is as is always is.
Yes.
So it's, It's just business as usual.
Thank you very much. That was all my questions.
Thank you. We will take the next question from Faizan Lakhani from HSBC. The line is open now. Please go ahead.
Thank you very much. Can you guys hear me?
Yeah.
Yeah.
Fine. Sorry about that earlier. Most of my questions have been answered, I just wanted to follow up, firstly on the reserve adjustment that you've done. I appreciate the rationale behind it, I'm just trying to think about it as a starting point because if you've increased your calendar year loss picks, would it be fair to say that the risk ratio that we start off with for 2023 would be 64.5 rather than 64.3? That's the first question. The second is, I know you can't say too much on Mandatum at this stage, how much does Mandatum contribute to the diversification benefit and solvency ratio?
My third and final question is on Hastings. There are a lot of moving parts and pricing has obviously changed a great deal over the course of the year. What is the starting point or the exit loss ratio that we should be using to sort of forecast 2023?
I'm a little bit uncertain if I understood your question on the risk ratio. Given the numbers that you mentioned, I interpret it like you're pointing at the current year effect of the reserve changes, which is what we call claims equalisation reserve. When we increase prior year's reserves with EUR 150 million, we also need to set aside a claims equalisation reserve, and that claims equalisation reserve is always booked on current year. That's kind of a technicality more than anything else. When we are reducing the reserves as a result of the discount rate increase, we are not releasing any claims equalisation reserve because that's purely sort of technical. As long as you increase sort of the reserves, you also set aside sort of a claims equalisation reserve. It's a purely technical thing, and it's nothing that you should put into the underlying.
The correct understanding is that it's for the underwriting years 2021 and prior, and therefore it's just more how it looks optically rather than what happens to loss ratio.
Yes. Yes Yeah.
Right. Okay.
I try and do Hastings. Let's put it this way, Hastings, the starting point for this year is that we feel that the market in motor is slightly inadequate in terms of pricing. I'm not gonna give you a number, but this means life is not only numbers, so people... We have been able to keep our live customer policy count stable despite this during last year and we have, of course, priced at the level we feel we need to for the claims inflation and the developments. When it comes to home, we didn't have any back book, which was helpful, so we aim to continue to be able to grow in home insurance.
Another backdrop to the development in the UK is, of course, that last year we had the GIPP reform that for 12 months reduced the incentive to change insurer. This year we don't, so I think that we would expect to see churn to increase a little bit in the UK market this year, maybe not back to 2020, but higher than last year, and that will be for the benefit of Hastings.
When it comes to the capital synergies between Mandatum and the rest of the group, let's revert to that discussion if needed, when we have concluded on the strategic review. The reason why I'm saying that is that is of course dependent on how the balance sheet of Mandatum and the rest of the group looks from time to time, which would impact what I would assume that you would be using that number for.
Thank you very much.
Thank you. We will take the next question from line. Vinit Malhotra from Mediobanca. The line is open now. Please go ahead.
Yes, thank you very much. Good afternoon. Just three very quick ones from me, please. One is the slide 17, the excess capital in the future, the return, I think you have tied it down to the PE, the private equity portfolio. I think in the past, there also used to be a hint of something called future actions. Has that been taken out or you just left out and it's still a topic? I'm just trying to explore if there's no sale of private equity or whatever, then there might be some other things happening. Is that the third question? Second question is the industrial use, less than 20% per year. We've heard some of your Nordic peers at least, exiting, withdrawing from this business for a while.
Obviously, this is doing well for you, 20% growth, good profit. Do you see this as an opportunity? Who are you competing with? Just any feedback or comments would be very helpful. Last question is inflation. I think investors are pointing out that, you know, you were expecting inflation to go up in the fourth quarter, but clearly it hasn't happened. Would you agree it has been better than expected? Is it because of property peaking? Is this likely to be that, you know, we can celebrate a bit the peak of inflation behind us? Thank you.
I can start with the first. I think you asked about the link between our excess capital and then the PE portfolio. Was that?
No, no.
No.
The question was that there was in the past used to be something called future actions as well. I'm just even if I go back to the third quarter slide.
We just haven't included those future actions on the slide this time. There's no change in the pipeline or anything like that.
Was that on?
It was on the queue. Yeah. It was on things like the capital model, for example, a partial internal model.
Oh, yeah, that. Yeah. No, okay, sorry. That. There's no change in the ongoing work we are doing in that preparation. It's not because we have changed our mind or anything like that. It's just like Sammy said that it's not on the slide. That's the only reason we could have included that call sort of on this slide as well, absolutely.
No, no, thank you. Just checking that.
The line was a little bit bad, but I think your second question was about the strategic position on the large corporate market. That's a book of business that has been sort of good and profitable for us historically. Obviously now we see an even much better situation than I would say in a long, long time with the record high sort of rate increases due to sort of general hardening market, of course, both in the Nordics and internationally. Also that we're seeing some capacity sort of withdrawn from that part of the Nord market, both in terms of Nordic players reducing focus on this and also some of the international players reducing their presence in the Nordics.
I think the outlook and situation in the large corporate segment is very good and clearly improved over the last few years. The question on inflation, I would say that inflation developed in the fourth quarter very much as expected. I think we've been talking about a motor inflation that gradually was increasing throughout the year, mainly driven by increased spare part prices, and that was the situation. They did increase during the year and then ended up more or less exactly where we expected them to end.
On the property side, I think we all also on the third quarter was signaling that it was slowing down and more stabilizing, and that's what we have seen also into the fourth quarter and even with some effects of reduced inflation in property as we see raw material prices coming down. So as I would say, that sort of inflation is developing much as expected, where we end up with a total inflation then between 4% and 5% for sort of the If Group.
Okay. Thank you Very much.
Thank you. We will take the last question from Jakob Brink from Nordea. The line is open now, please go ahead.
Thanks a lot. Just forgot one question. On the, I see you have increased the duration of If P&C's investment assets by almost a year over the past half year or so. Looking at your development in your solvency bridge, market risk have come down around EUR 380 million or so from Q2 to Q4. Is that due to this increase or, also how much of that sort of change in your SCR is related to Topdanmark sale of the life business, which I guess must have had EUR 200 million or so positive impact? If you could just clarify and maybe give some more details here would be appreciated.
Yeah, no, it's true that we have increased duration, obviously coming from us reinvesting in durations with three, four years duration than what we had before, three, four years maturity than what we had before of very short term. That has gradually increased, although not a lot. It takes a while before duration increase when you have a large portfolio like we have in If to reinvest. As we always do, we take gradual steps. In other words, it hasn't had a material impact on the market effects on our solvency, that duration increase, I would say.
Some, and of course we also have done these reinvestments with slightly higher average credit exposure than what we had before, which has a slight positive effect as well. When it comes to the big market effect moves in lately, it's basically the symmetric adjustment that has moved the market effects up and down, and in the last quarter, clearly in the negative direction. I think we combined a lot of different market effects on one of the slides there to be minus 8%, minus 9% is the symmetric adjustment. The rest is netting off slightly positive.
The positive effect from Top, the life sale is included in what we call other and then there's a few other technicalities in that other as there always is. In that column you will find the effect from the life sale of Top. Which is slightly different than what it would be in Top because of the way that Top's own funds and SCR is consolidated on a group level.
Just coming back to the, to the symmetric adjustment. I thought it had gone up from 31 to 36 and what was it? 33 or something the quarter before. I guess that should have had a negative impact or led to an increase in your market risk, but it's come down.
The symmetric adjustment I think went from -8 to -3 during the quarter. It come down which means that it's a negative effect since this time it was on the minus side of that pendulum between -10 and +10. It means.
Yeah, exactly, but your.
It means that market risk equities increased since we could deduct a higher symmetric adjustment end of Q3 than we could end of Q4.
Okay. Maybe I'll take that afterwards. I'm not quite sure I understand. If the symmetric adjustment goes up you have a higher.
Jakob, let's take this one offline afterwards.
Okay, fair enough. Just one small question then. I see you bought more of Denmark shares in the quarter. Is that correct? What should I read into that?
That was a tiny amount. Don't read anything into it.
Okay, fair enough. Thank you.
Thank you. We will take the next question from Jan-Erik Gørlund from ABG. The line is open now, please go ahead.
Before Jan-Erik starts, I think this is the last question we can fit in this hour today. Go ahead, Jan-Erik.
Perfect. thank you. Just one final then on Mandatum, on the running yield. On page 7 you show that it's 4% versus the guarantee of 3.2. How much of the EUR 230 million increase in sort of run rate of pretax profit is stemming from Mandatum's profit sharing, if you can shed some light to that?
You mean from the with-profits portfolio?
Yes.
It's most of it since unit-linked would be the customers' money. This would all be sort of the with-profits assets that we manage as part of our own equity, of course, in Mandatum and managing the with-profits assets. It's not including unit-linked assets in that calculation.
Just to be clear.
Of course.
Just to be clear Jan-Erik.
But the twenty.
The most of the EUR 230 million comes from If, of course.
Yeah.
From Mandatum is what Knut Arne mentioned.
Yeah. About 75% or so is coming from If.
Okay. Inside those two third there's no profit sharing element, it's just the pure element of earning more on the equity inside Mandatum?
Yeah. Yeah, yeah, this is a calculation of the.
He means bonuses.
You. No, no. There, there's no. Okay, bonuses. No, there's no bonuses in there. There, there's nothing you need to deduct.
No, no, this profit sharing or whatever you take to call it when you take everything above 3.2.
Oh, no.
Is those included in the EUR 230?
You don't need to think about that. This is the number that is a number we meant to say will come to the bottom line.
Okay. Thank you.
Okay.
Thank you.
Thank you all for your attention today. That concludes our conference call. We look forward to seeing everyone on the road soon. Thank you very much.