Good afternoon, everyone, and welcome to the Sampo Group Nine-Month 2021 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 and President, 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/result. With that, I hand over to Torbjörn. Please go ahead.
Thanks, Sami. I'm pleased to be able to present another quarter of solid results for Sampo, as well as continued good tempo in our strategic activities. The basis for our operations is, of course, the excellent underwriting margins in P&C that have further strengthened this quarter. There have been no important changes to market structure or customer behavior, so our outlook continues to be a very positive one. When it comes to the process of reducing our stake in Nordea, we have managed to bring it down to just over 6% the other week, supported by very strong developments at the company itself.
As is well known, our M&A appetite is very limited, so it made sense to start a buyback program immediately after the previous sell-down and to indicate management's wish for an extra dividend in excess of EUR 2 per share after the last one. We want to achieve a balance between buybacks and dividends as a result of our discussions with our owners. On the next page, the key number, I think, is the 19% increase in underwriting profits, which far exceeds our targets. It reflects both growth and improved margins even after adjusting for COVID effects and the Hastings acquisition. The next page is, I think, a very complicated but transparent way to say two things. Again, as in the previous quarter, there is no longer any significant segment in If P&C in the Nordics with inadequate rates. No such significant segment.
Secondly, and as a consequence of this, the frequency of claims are down as a percentage of premiums. In other words, rather, the underlying combined ratio is 1% better than a year ago. Maybe one word on the next page on If P&C's premium development. If has continued to grow its number of customers at roughly the same pace as in the past couple of years. As you have seen in the past, and quite pronounced this year, there is some volatility tied to the number of car sales in the Nordics. If P&C has by far the biggest market share of premiums for new cars, and when this number fluctuates, for instance, due to tax changes in one or two countries, then there is a little volatility to our overall growth.
It's normally better to look at a year-to-date number or numbers for more than one quarter if one would want to try to predict the future growth numbers. Continued growth in the number of private customers, and now this quarter, also in the number of Commercial Clients, and no important changes to last quarter in this respect. On this page, and otherwise, the fundamental development in the Nordic insurance market, as in many other markets, continues to be digitalization of sales, service, claims, and internal administration. This is an area where If P&C excels constantly wins prizes and gains customers from traditional channels. These graphs just show that the development has by now come quite far and in no way stopped.
A quarter of all sales are done on the web for us, a little bit subdued, actually, because of the lower interest in this year for travel insurances. The channel is similar in size now to call centers, and the car dealers are other two largest sales channels. Moving on to Hastings, we have kept a disciplined attitude to the market, trying to find growth opportunities less dependent on price, but also accepting somewhat less growth. We are very well prepared for the GIP reform and trust that we will be able to meet this without any turbulence from our side to our customers. I'm also happy to see that our home insurance book continues to grow even though it's still quite small. I have already commented on our simplification agenda, and the group is already now clearly dominated by the remaining insurance assets.
We published a balance sheet framework in February, and we see no reason to change this for the time being, and the basic dividend policy also remains in place with the insurance part of that dividend as the long-term stable part. Finally, just a slide to remind us about our financial targets in an environment where the Nordic market has consolidated one step further since they were published and where COVID now has faded to lower levels. Sami, back to you.
Thank you, Torbjörn. That concludes the presentation. Operator, we're now ready for the Q&A.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad now. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes on the line of Youdish Chicooree from Autonomous Research. Please go ahead. Your line is now open.
Good afternoon, everyone. I have three questions, if I may, please. The first one is on pricing in Commercial and Industrial. There was a slowdown in growth in the first quarter. I understand that was due to a large contract and few renewals during the quarter. I was wondering whether you could share your outlook on pricing for 2022, whether you would expect a repeat of strong renewals over the past couple of years. That's my first question. My second question is on the new car sales. I think for the year, I think you say the sales are up 12% for the nine months.
Could you tell how the current levels compare to 2019 and whether, you know, there's still some room for recovery as we move into 2022? Finally, my last question is on claims inflation. Just wondering whether there has been any change in your inflation expectations in the past quarter. If possible, can you just remind us the line of business where you've seen the higher levels of increase year to date, please?
Maybe, Morten, if I take the inflation question.
Sure.
You pick up the two first ones. When it comes to inflation, basically it is one of the most important parameters, of course, for non-life insurance, and we monitor that at every meeting. However, there was an increased inflation, increased pricing in property materials in the summer that has basically gone away. At the moment, we do not see any increased inflation at any part of our book. We have long-term agreements, so we have the time to increase prices were that to happen. Of course, everyone's talking about it, but as I said, we have long-term agreements as a big purchaser of these things, so we would have the time to increase rates if need be.
All right. Thank you.
Yeah.
Across the portfolio on average, what is it tracking around, what, 3%?
Probably a little bit less than that at the moment. Morten?
All right. Thank you.
I'll comment on your first two questions. When it comes to pricing, we've had pretty high price increases in the commercial segment now for more than two years. We expect that to continue somewhat also into 2022. Obviously the inflation element that was just now discussed, of course, influence part of the commercial business. We do expect still significant price increases in commercial, perhaps not fully on the levels that we saw in the two previous years, but still fairly high price increases, so in commercial still. That is very much also the same in industrial. It's been a really hardening market, not only in the Nordics, but also globally for large corporates, and we expect that also to continue somewhat into 2022.
When it comes to your questions on new car sales, I perhaps could point out that we are in particular sort of dependent on the new car sales in Sweden, where we have this Car Damage Warranty concept. In Sweden, the new car sales is still not back on the same level. You asked about sort of the potential compared to 2019 in Sweden, again, which is the country that drives most of these growth for us, actually. There is still quite some potential in returning back to 2019 levels.
All right. Great. Thank you very much for your answers. Very clear.
Our next question comes from the line of Jakob Brink from Nordea. Please go ahead. Your line is now open.
Thank you, and good afternoon from my side. I have a few questions. I'll take them one at a time if that's okay. The first one I think is to maybe you, Knut. Just to understand, so when you rebook Nordea in the fourth quarter, should we then expect you to take it up to market value in the fourth quarter, or how exactly is that accounting gonna happen?
Yeah. Like we talked about, when we announced the sell down below 10% the other week, we expect to translate from booking Nordea as an associate to booking it as according to IFRS 5 discontinued operation. We will, by doing so, basically stop consolidating Nordea's profit in our accounts. That is one of the accounting changes, meaning that from about the day we sold by end of October, there will be two months in Q4 and also going forward where that 6.1% that we still own will not represent a profit line in terms of what that represents of Nordea's profit in our P&L. We will also reverse the impairment on the 6.1%, which we did last year.
I think, Jakob, you referred to the right number of 8.9. That will create also a P&L impact in Q4. On your last question, whether or not there will be a point in time where we also will mark it to market value depends on a few accounting technical considerations in the IFRS framework. It will not be where we start, but there could come a point in time where we need to do so. That we then of course will revert to later. And it's not necessarily so that that will happen before we sell it.
If we were to account the debt at fair value, there will be an additional positive impact of between EUR 8.90 and whatever share price Nordea had at that particular day.
Okay. In the fourth quarter, only the reversal of the impairment.
If nothing else happens i n terms of our considerations around the governance we still are a part of in Nordea, for example. Also just to remind you, in terms of your estimates for Q4, there will be two months in Q4 where we will not consolidate our share on Nordea's profit.
Yeah. Okay. Very clear. Thank you. Next question on the most recent sell down here in end October. As far as I recall, you said that you will increase and extend the buybacks, but it also said that you will have to wait for approval at the AGM for approval of those payouts, i.e., both the dividend and the extended buyback. My question is why would you need to wait with extending the buyback until the AGM? I guess you have a running approval from last AGM.
No true. We do, but we also have a buyback program ongoing and working hard and successfully on that one in terms of the buyback we started there in the beginning of October. Our plan is of course to what we tried to say is to add to the buyback program that we currently have ongoing. I would expect the buyback program that we have ongoing to run up until the AGM we have in May.
Okay. Because I guess you do have a board meeting before end of May.
We do have board meetings on a regular basis. This is not on sort of for the board to buy more than we currently are doing. That has to do more with the volumes, the turnover volumes on the various exchanges that we use to buy back Sampo shares.
The volumes we have.
Okay.
Yeah.
Fair enough. I get it. Last question from my side on the underlying combined ratio, given your new disclosure here. I mean, if we adjust for prior year gains, weather, large claims and COVID, it's around 86%, I think, for the first nine months of this year. Going then into next year, do you see any reason why you would not continue to improve around 1% on that 86%?
Well.
Yeah, I think.
Morten, let me just state that we always try to improve, and we have certainly promised to improve the cost ratio every year from now to eternity. I say that for your benefit, Morten. With adequate rates, there is less need, of course, to improve the combined ratio than with inadequate ones, and especially the ones we had in Commercial and Industrial going back some years.
Yeah. Then to add on to that, of course, our target, as you know, is to be well below 85% combined ratio in this sort of strategic period. That of course is including run-off gains. But that said, sort of we have a very excellent situation with strong profitability in all business areas, all countries. Right now we're pricing somewhat ahead of inflation. That's what we've been saying. Then of course, not promising a specific underlying improvement, we have a strong profitability, so.
Yeah. Okay. Thank you very much.
Our next question comes from the line of Michael Huttner from Berenberg. Please go ahead. Your line is now open.
Thank you. Good afternoon. Stunning results. I had actually four questions, but they're really short. The first one is on the cash remittances from If. I understand it's going to be around EUR 650 million this year, 2021. It used to be higher, I think about EUR 700 million. I'm just wondering if the strong growth you're seeing, how is that impacting cash flow?
Very short of cash at the holding level. May I put it that way?
It's a pull thing, it's not a push thing. Okay. Okay. Completely irrelevant. Okay, cool. Thank you. On the growth outlook, I think you've kind of answered it, but you referred to look at the longer trends, nine months, et cetera. At nine months, we're at 4%, I think. I was just wondering if there's any reason to think it should change from this kind of level.
No, I think again, you're right, Michael. We have 4%, 4.1% growth for the first 9 months, which I think is a strong and good performance. Then we are one of the few companies that report gross written premium. Most other companies report some form of gross earned or net earned premium. I think it's better to report on gross written premium because it gives you sort of more insight on what you can expect for the future. That's also why you can kind of see some movements in individual quarters. I think the 4.1% growth that we have year-to-date is more representative of the growth that we actually see in the business.
Let me also add that we have a target for underwriting growth. There will always be a trade-off for us between pricing rate increases and growth. You know, we're not gonna give targets for both at the same time. We will optimize the value that we see in the market.
Absolutely, yes. That's your skill. Thank you. You have a chart, a lovely chart, which shows the discount rate used in Sweden, Norway, and Finland for your reserves, and Sweden - 0.6% at the moment. Can you give us a feel for the sensitivity, how much reserve release we could see if, say, the discount rate is changed by 1% or something?
Yeah. I would without going into it on a call here with all the details in the various countries. If you have a look at the disclosures that we do in our risk management report as of year-end 2020, Michael, you will find sensitivity numbers for changes in discount rate in that report. If it's not clear, it's available on our website. If it's not clear that we can have sort of a more follow-up later after the call. There's good sensitivity tables, which I would refer you to in that annual report, and that sensitivity has not significantly changed.
I think this is the first time that we've got the question, what would happen if rates go up or even down? Yeah.
My last question, a very cheeky one. I always thought you would buy Top, and you haven't, and you've kind of signaled with a dividend and a buyback, an extension of buyback that it's kind of low interest. Can you explain, I know you've talked about it in the past, but it seems such a compelling thing to do. Why not?
That's also a different way of asking a question, I think. Yes, we would like Topdanmark, all of Topdanmark to be part of the group, and there would be some synergies in different areas. On the other hand, we're also shareholders. It has to be a good deal. We haven't done it.
Just to follow up, is there, looking back, is there a period? How can I put it? Just to get a feel for when you would think it might be interesting. Is there a period when I can look back and say, "Oh, at this stage, it might," I don't know.
I don't think that anyone here will volunteer an answer to that, I'm afraid.
Okay. Thank you so much. Thank you.
Our next question comes from the line of Per Grønborg from SEB. Please go ahead. Your line is now open.
Yes, thank you. First, a small question related to the Nordea stake, and what Jacob asked at the beginning of the call. You said that you will keep it at the current book value in the way you will report. If the Nordea share is up EUR 1 in the first quarter of 2022, will that have any visible P&L impact on your numbers or impact on your equity? Or will the book value simply be frozen?
That would depend on how we account for Nordea at that point in time. Obviously, we are in a trajectory on reducing our stake. What I described is how we will account for it now when we have fallen below 10%. IFRS 5 is basically an umbrella of different ways of accounting for the value of an asset that you plan to sell within 12 months, which is one of the criteria of IFRS 5. If we account for it like it does now, it will not. If we obviously have it at fair value, it will.
Okay. This will also imply that if Nordea is paying a dividend under the current account, that will not become visible in your P&L either.
Thank you, Per. That's a good reminder. I should have added that to my initial response. If we are owners of Nordea shares at the point in time where they pay dividend, that dividend will actually be recorded as a part of our profit.
Okay. The dividend go into profit, but the value adjustments will not. Okay, perfect. That is clear. Just a small clarification. The impairment you did back in 2020, that's approximately EUR 1 per share that will come back in the fourth quarter, so approximately EUR 250 million.
Yeah. Roughly that. We'll come back to you. Roughly that, Per. We had the book value of Nordea of EUR 8.21 in end of Q3. Nordea paid us a EUR 0.72 dividend, which s hould deduct from that, and then we have one month of profit from Nordea to add to that number.
Of course. Just in the big picture, the one-off adjustment will be approximately EUR 1 per share in the fourth quarter. My final question, your solvency capital, just a clarification, the EUR 13.4 billion, there has been no deductions of proposed dividend in that one. That's a clean number, and that will go down with the dividend you propose at the AGM or with the full year numbers. Is that correct?
That's correct. We have an illustration of the solvency ratio with accumulated dividend based on last year. Formally in the calculation of own funds, dividend is not deducted before it's actually proposed by the board t o the AGM. That's correct, Per.
I assume that at the same time, the EUR 750 million in buyback, they are not deducted now, but whatever is remaining will be deducted at the end, the EUR 750 million buyback.
That is actually deducted because the board has made a decision on initiating this buyback, and we have no other intention than to buy back EUR 750 million. If that very hypothetically were to be stopped, then we would need to add back some own funds with the residual.
Yeah. The EUR 750 million is deducted already full at the end of Q3.
Yes.
Perfect. Hopefully, I get my numbers right. Thank you.
Our next question comes from the line of Blair Stewart from Bank of America. Please go ahead. Your line is now open.
Thank you. Thanks very much. I've got three questions. Firstly, on the solvency capital requirement, Knut Arne. It hasn't gone down, which is a little bit surprising to me given that you've sold Nordea stock over the period. I just wonder what offsets have occurred so as your solvency capital requirement has not gone down, and should we expect it to go down given that you've sold more Nordea since the quarter. That's my first question. My second question is just on the roadmap really. You know, you obviously need to balance leverage, solvency, liquidity, et cetera, with excess capital. You've got a EUR 750 million buyback. You know, as with all buybacks, it goes at snail's pace.
You've indicated you want to do more. As you sell down, when you sell down more Nordea, a significant amount of money, how do you propose to put that money to work, without having to wait for an age, to deploy it via buyback? Would you consider some sort of special return, you know, a kind of bulk dividend and perhaps some share consolidation or such like, which emulates a buyback? My final question is just back to the business. How do you categorize wage inflation risk, on long tail risks where you can't adjust pricing very easily? I get from your comments you're not seeing wage inflation, but is that something that you're more worried about? If you do see wage inflation, how would you combat that?
I guess a higher discount rate, which you talked about earlier, would be one offsetting factor. I just wonder how you think about wage inflation for the business. Thank you.
Good afternoon, Blair. On your first question on the SCR, what we also enjoyed in the third quarter was a 20% value increase of Nordea. The fact that we sold 73 million shares in the beginning of September was actually fully compensated this in the SCR by additional market risk from the value increase on Nordea, and then there are some small other details, but this is the main driver. On the leverage and solvency liquidity balance, maybe I didn't fully understand your question. Of course what we as management announced, yeah, last week was an intention to pay at least EUR 2 in extra dividend and propose that to the board to take to the AGM.
That's obviously an indication of doing more than what you said you call just snail's pace buybacks. Also use dividend as an extra dividend on top of the ordinary dividend as a tool for returning capital.
Finally, on the wage inflation risk, the best way to meet that will always be to keep a strong balance sheet, and we do fairly prudent, with the emphasis on prudent maybe. Of course specifically, it is usually so that the wage inflation would go up in tandem with discount rates, and we have of course chosen where we can choose to use very low discount rates for liabilities.
Have you disclosed what your wage inflation assumptions are in the past by any chance?
Never.
Okay. I guess just on the second question, can I turn now, the point, it was more of an observation of having to balance various constraints, but the kind of main point was to say that once if and when you sell the remaining Nordea stake, it just lumps on even more excess capital. I just wonder at that point what your thinking is in terms of returning that swiftly.
Yeah. Let's now we just announced an at least EUR 2 extra dividend last week and of course we as a management team are committed to staying behind that announcement. Then let's return to additional consideration from us as a management when there's a question about what we're gonna use proceeds of 6.1% on Nordea shares for.
Cool. Thank you.
Our next question comes from the line of Jan Erik Gjerland from ABG. Please go ahead. Your line is now open.
Thank you for taking my questions. I have some couple of questions as well. On the first one on IFRS 17, when the margin on your sort of long-term requirement and liabilities is going to go away, would that change your view on your sort of your strong balance sheet thinking as you referred to just on your typically long tail business, like the wage inflation, et cetera?
Thank you, and good afternoon. I look forward to the day I will give you all a presentation on IFRS 17. To answer your question, joking aside, there is nothing in IFRS 17 and balance sheet impacts in terms of the financial impact studies we now internally have done for years that makes me worried in terms of a changed view on balance sheet strength.
Is it so that you may release more on your long-term releases from being forced to do so because you don't need the same kind of margin as you have today maybe?
Let's come back to the exact numbers, but there's a couple of different things as you know, on IFRS 17. I mean, one is the sort of introduction of sort of best estimate liability in the reserves, and you could argue whether or not that is already there. You have a specific risk adjustment and to actually talk about the combination of those two and relating it to our IFRS 4 reserves and at that point in time, Solvency II reserves. Let's revert to that when we present our numbers later next year.
I repeat what I said, there's nothing in neither the transitional effects nor the longer term balance sheet impacts of IFRS 17 that makes me worried that we would have a different view of the strength of our balance sheet nor our reserves for that sake.
Okay. A couple of questions on If P&C. How would the repricing timing be when it comes to your contractors and the deals you have done with them? Would that actually affect your pricing and your wish to take on more customers and be maybe more price aggressive in the marketplace until then you reprice? Or how should we think about that during 2022 and as you have long-term contracts with your contractors?
Morten.
No, I think that Jan Erik is something that is happening each and every day, right? This is a very mixed picture in a way. A lot of contracts in a lot of different areas, some of them being longer in its nature. Of course, I mean, some of these are negotiated some few every month, right? It's a gradual sort of movement. There is nothing that is now changing on an overall picture in such a large extent that it makes us act any differently than we've done in the past. Having a close eye on inflation, making sure that you price for future inflation, that's kind of core of our business.
It's something that we've always been doing. Of course, negotiating with contractors is just a part of that.
I've been in the insurance industry for quite a few years now, and the one time where there are more rapid changes to inflation assumptions is court awards on liabilities. We haven't seen any such changes in the Nordics. I struggle to remember even one in the past 10 years.
Okay. Finally, could you shed some light to the weather effects, how it has hit the industrials as well as the private? Was there any particular happening in Norway where the risk ratio went from roughly 55%-60% this time around just Q and Q?
Yeah. First of all, we don't really sort of report on weather. We kind of more report on sort of what we consider to be events. That's sort of what we try to account for is more the decisive events in the market. In this quarter, there were two events, one in Germany, of course, the flooding there that impacted us somewhat on the industrial business, and then also a flooding in Gävle that was impacting us somewhat, hitting, of course, mostly the private business area. We have said that sort of all in all, this is about 2.2% above what we saw last year.
Of course, one have to think about, okay, what happened last year? Last year, not much happened, actually. We had a small storm in Finland, giving us a EUR 2-3 million sort of loss. So, 2.2% sort of more on the Q3 standalone sort of weather claims or events than really, as we like to call it.
Yeah, these are then into the different kind of customers from this kind of country. That's why probably Norway and Sweden is a little bit upwards on the risk ratio then.
Yeah.
Yeah. Okay, perfect.
In particular, of course.
Just one very-
The German one sort of hitting industrial sort of will hit different customers in different countries.
Exactly. Thank you.
Yeah.
Just very at the end then, the weaker return in the quarter, is that something we should be worried about? Or if you still have a good room, sort of cushion on your booked return. Could you just shed some light into what happened? Are you positioned for higher rates as you have been in the past, or are you equal weight, or how should we read your
Yeah. Let me just clarify. When you refer to weaker returns, is it AFS investment returns that you refer to?
Yeah. Yeah, you booked some - 0.3 percentage point in the non-life business, investment return, in the quarter.
ark-to-market basis
I just wanted to shed some light into that. You also have some low booked return in the quarter.
The investment returns on the mark-to-market basis in Q3 was, of course, quite muted compared to the previous quarter. It's right, it didn't add much to the kind of total comprehensive income. Just developments p articularly in August, September of equity markets. Then we know that some of that is of course, again, back in October. When it comes to the AFS investment return, there was nothing really special. We have a fairly low running yield of 1% and a bit on fixed income.
We have around SEK 90 billion fixed income, so that's maybe EUR 100 million or so per year. If you divide that in four and if you basically get to the Q3 AFS result, which meant that we didn't have a lot of contribution from other parts or portfolio because we didn't really sell any equities which generated a sales gain and a profit, nor did we receive any dividends.
In the last few quarters, we have both reduced our equity exposure and taken some exposure with profit on some names. We also have had, of course, a couple of quarters where we received dividends from the companies we own. So that AFS return across the board, also in Mandatum, is a bit volatile from quarter to quarter. In terms of your question on duration and whether or not we are positioned for increased rate, yes, the duration in the group and in our businesses has gone down during the year.
It is lower than it was in the beginning of the year, obviously, meaning that we are very much sort of positioned for increasing rates if that were to happen. Also, of course, with significant cash elements in that in our investment portfolios in our subsidiaries.
Perfect. Thanks a lot for your answers.
Our next question comes from the line of Thomas von Boguslawski from Svenska Yle. Please go ahead. Your line is now open.
Oh, thank you. Good afternoon, everyone. I have a couple of questions for Torbjörn Magnusson, probably mainly about your strategic agenda concerning Nordea.
You have substantially reduced your stake in Nordea during the past year, but I'm wondering, do you have a target date or, let's say, approximate target date when you're counting on selling or having sold the rest of the remaining stake in Nordea? At what point do you think that Sampo will no longer be a shareholder in Nordea?
The target is to have materially reduced our holding until September 2022. This has obviously gone faster than that and we would have a specific reason to keep shares in Nordea. That's the background to it.
Okay. As you have proceeded faster than originally planned, are you still satisfied with the price that you have obtained per share over the past when you've
The reason we-
When you reduced your stake in Nordea.
The reason we gave ourselves until September next year is of course that we wanted to optimize value creation in this exiting process, and I think that we've done that in a good way.
Okay. Thank you very much.
Our next question comes from the line of Michael Huttner from Berenberg. Please go ahead. Your line is now open.
Adam, 2 and maybe half. The EUR 200 million debt hybrid from If reduction in at the group level in December, is that part of the EUR 800 million, which I think you have on slide 19? Even though I think like even though.
Oh, Michael, that's not the part of the EUR 800 that we have on that slide. It's a part of the EUR 1.2 billion a little bit further to the left, if I remember correctly.
Brilliant. That's very clear. Thank you. On the private equity, can you say when you'll get the cash from Nets, something like that, and also Bank Norwegian?
No, I can't say exactly when we will get the cash. We still are an owner.
It's quite a protracted process, it seems.
Thank you. Okay. Thank you. Then my final question, I did look at the risk report. It shows the numbers and it shows the durations, and the numbers are huge. I just wanted to. Maybe that's why I asked, because you did say kind of offline, but I'm pushing my luck here. If I multiply it out, Finland and Sweden Motor and Workers' Comp Finland, I get a total of EUR 35 billion kind of duration times value of liabilities. If I put 1% on that, I get EUR 350 million. Is that the order of magnitude, roughly?
Yeah. If you just want the total number, it's not far from it. Then EUR 350 million-EUR 400 million would be a good total, yes.
In history, we have gone the other direction and we have never liked to go to do that, but it's been big numbers if you go through our, the events, if you call it that, when we've reduced the discount rate in Finland specifically.
I understand this kind of money kind of, which hit us when we had to do ISINs before and now could be kind of a bonus. Thank you.
Just as a reminder in terms of the current Solvency accounting framework, since I'm not gonna talk about IFRS 17 right now. There's a little bit different regulations in the four Nordic countries. Norway hardly have any discounted reserves. In the other three, and we're small in Denmark, and in turn, in terms of how that discount rate is changed. For a majority of the amount that you correctly calculated, don't expect it with the current regulation to be mark-to-market.
I understand. Okay. That's very helpful. Thank you.
Our next question comes from the line of Marcus Rivaldi from Jefferies. Please go ahead. Your line is now open.
Good afternoon, everybody. Thanks for taking my questions today. One question I had again about this, I guess the roadmap, but particularly in relation to debt. As of the end of the quarter, debt leverage is materially below your 30% target. But obviously reading between the lines is that that's maybe a temporary level that given that you've got to do further deleveraging, that leverage ratio would naturally creep up, unless you continue to take further debt out of the capital stack. I'm just wondering about how you think about the trajectory of that debt leverage metric. Would you be willing to see that move substantially lower, before sort of rebounding further as proceeds return to shareholders, over time?
Secondly, it says about the endpoint of the roadmap of restructuring the whole capital stack between equity and debt. Given that the debt leverage target is a 2021-2023 target, should I also assume that all debt should have been completed, and I suppose equity action should have been completed by the end of 2023. Then the final question I have is just thinking when we go beyond the end of all your capital reorganization, what the debt stack of Sampo would look like. Could you maybe sort of talk about the sense of mix between subordinated, senior and whether debt would sit mainly at Sampo plc level or at the subsidiaries.
Also finally associated with that, whether the debt at the Topdanmark level, which you do include, I think on slide 38, whether that is really part of your thinking here, given obviously you're not a full owner of that business and therefore perhaps the focus should really be more beyond parts of the group where you have full control. Thank you.
Hey, Marcus. That was all on the debt leverage. I'll try to see if I can address them all. On the first 25% leverage, according to our definition and of Q3, that's obviously a level we are in terms of just a percent we are very comfortable with, have no sort of plans to go below that. We have a target of below 30%, and we're not changing that. The reason why it's 25% is sort of, shouldn't say by accident, but we did have a maturity of shy of EUR 400 million in September. With the strategy we have, which other questions was alluded to as well, we paid that back and didn't refinance it. That's the main driver.
Now of course, we also did a little bit of buying back debt in July of shy of EUR 200 million. You should expect to see us do similar things when we have maturities, which we do have over the next couple of years. Those loans will mature and, as the world looks now, not be refinanced. That will obviously be reducing our leverage and keeping the leverage within our target range when the equity goes down when we do the capital returns, which we now have talked about earlier on the call. We do have the liquidity for that.
We don't need to sell anything to take care of those maturities in the next upcoming two years. Of course, if the market became turbulent, then we had an opportunity to buy back our own debt at good prices. We would also use such opportunities given the framework we have set. You had in terms of the debt mix, obviously what we are doing the main bulk of what is maturing and what we are buying back, all of what buying back is our senior debt. The weighting of hybrid capital in our debt stack would clearly increase.
That's also what we have, the situation we will have sort of end of 2023, which you asked about. Sort of exactly that mix and how we sort of think about hybrid capital, we will come back to. We currently have utilized what we should utilize of Tier 2 capacity, but have only used a very small part of our Tier 1 capacity, both on the current sort of own funds basis and also on a pro forma own funds basis, sort of taking out all of Nordea and all of our excess capital. I hope that answered your questions.
Yeah, you did. Thank you. Maybe if I just follow up. The reason I asked about the debt leverage, of course it is low and no one's got any concerns, frankly, about the level of leverage where it is at the moment. It's just a question when you've got so much liquidity on hand, why leave the debt outstanding if you don't need it? Why not take action and go after the debt sooner? Why wait? That's the question really.
No, no.
So even-
We are not waiting. We have already done two liability management exercises. The one a bit larger, the other one a bit smaller, because there are also holders of our debt which are not willing to sell. That is stopping some of the exercises. Of course we do have some consideration in terms of pricing and timing, but that's not of course an absolute truth. Like I alluded to, if we found our debt to be available and not at prices which we felt would send too much of a loss through our P&L, we of course could do more.
Wonderful. Thank you very much.
Our next question comes from the line of Derald Goh from Citigroup. Please go ahead. Your line is now open.
Thank you. Afternoon, everyone. I have three questions, please. The first one is on If P&C's cost ratio. At the nine-month stage, it's about 30 basis points higher year-on-year, which is tracking behind the target. Were there any specific drivers there? And does it change the outlook of the 20 basis points annual improvement going forward at all? The second question is on Hastings. Could you maybe comment a bit on the underlying performance in the third quarter itself? Because looking at the loss ratio, it's still really strong, which is pretty much flat at the first half level of 63%. Did you see any more frequency benefits or anything that might explain the really strong performance? Third, it's also related to Hastings.
Could you comment on the level of price reductions that you've seen in the market? Has it moderated compared to H 1, for example? Maybe anything more on the pricing actions that Hastings have done as well. Thank you.
Yeah. I can comment on the cost ratio first. As we always said, on the cost, you should look at the full year figure. Last year we ended up 21.5%, so that's of course our starting point for 2021. Again, our ambition is to reduce cost ratio each and every year by some 10-20 basis points. There are some volatility from quarter to quarter. We do of course absolutely no work in sort of splitting costs between quarters. I think if you look at the 21.5% full year last year, that's the starting point then. Again, we're committed to continuing delivering the 10-20 basis points reduction as compared to that.
On Hastings, of course, the performance is very satisfactory and the underlying performance is also very satisfactory, but we haven't given. It's not possible to give a separate number on the COVID effects there. We have also been able to continue to grow the number of customers by expanding the footprint a bit in the market and by taking initiatives that are not on price. When it comes to the level of price reductions in the market, you saw quite a bit of it early in the year, and then it's been more mixed since the late spring. There are no big price reductions as we speak.
I think that the bigger event in the U.K. market will be the GIP implementation on January 1 and let's say the first six to nine months of next year, because at the moment everyone's preparing for that. It is quite a big change for many competitors. Less so for Hastings with a much smaller back book with much lesser price walking than the average in the market, it seems. Even though there are price changes, small ones in the market at the moment, everyone's preparing for the first half of next year.
Great. Can I quickly clarify more, then just on the cost ratio again? I mean, at nine months, you know, you're sitting a bit higher. Are you saying that the improvement is there a catch- up in Q4, or are you saying that, you know, over the next three years, you know, there'll be a catch- up in 2022 and 2023 from the 2021?
No, it's just that some cost items vary sort of when they're kind of booked from one year to another. I mean, you might have large marketing campaigns in the second quarter one year and then the third quarter next year. Movement year-over-year on a quarterly basis doesn't really make sense. We had 20.7 after nine months last year, but ended up at 21.5. Again, that's the reference that you should use sort of when thinking about the full year, that we should come in 10- 20 basis points below 21.5 basis points . Then we're at 21.0 basis points so far this year.
Again, the outlook as we have sort of stated is that we will continue to deliver these 10-20 basis points reduction in cost ratio going forward.
Yep, got it. Thank you.
Good.
Thank you. We have no further questions registered. I'll hand back to the speakers for any final remarks.
Thank you, operator. This concludes our call for the day. Thanks, all for participating, and we look forward to speaking more with you in the near future.