Sampo Oyj (SAMPO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to this call on Sampo Group's 2019 results. I'm Jarmo Salonen, Head of Investor Relations at Sampo. And with me at this call, I have our group CEO, Torbjörn Magnusson; Head of P&C Insurance, CEO of If, Morten Thorsrud; and Group's CFO, Knut Arne Alsaker. Torbjörn will start with a brief presentation of the developments in Q4 and 2019. But before handing over to him, let me remind you that you can follow this call, sampo.com/results, and a recorded version will later be available at that same address. With these words, I'll hand over to Torbjörn. Torbjörn, please.

Thank you, Jarmo. This is the first time I present Sampo's results as Group CEO, and I'm pleased to be able to present a strong last quarter for 2019 with successful developments in all our business areas as well as in our investment operations. First and foremost, the P&C operations continue to excel at underwriting. The stability in combined ratio is the second to none as usual. In addition to this, the combination of a very low and all the time improving cost ratio, together with large investments in digital services, has also produced record growth for If P&C, over 5% growth for the full year. And the company is in a very strong position indeed in its markets at the moment. Topdanmark, our other P&C asset, had another strong year with a combined ratio of 84% for the full year. The company is very efficient, and it's rapidly building more digital services in the Danish market. In 2020, we will see the benefits of the distribution agreement with Nordea come into play also for Topdanmark. All our insurance operations, not least Mandatum, were helped by the favorable equity markets last year. Mandatum's unit-linked savings reached an all-time high last year as equity values appreciated substantially. At the same time, efforts to speed up the shrinking of the with profit book bore fruit, and the book is now some EUR 300 million, smaller than a year ago. A word or 2 on Nordea. Nordea has gone through a protracted period of difficulties and now has new management and new targets. As owners, it's gratifying to see that the new management shows a great deal of determination to work towards the new targets. And the results this morning were a first step in the right direction. One quarter is, of course, a very short time period, but still, the Q4 results included the progress on capital, progress on costs and high-quality income that looks very encouraging. Now to our dividend proposal and the new dividend policy. As we said in October, we were expecting to propose to the Board a dividend of EUR 2.10 to EUR 2.30 per share, and the Board planned to review our dividend policy in early February. The Board has now decided to propose a dividend of EUR 2.20 and has reviewed and updated our dividend policy. I'd like to provide some context to the dividend policy from my perspective. First of all, as a management team, we remain committed to an attractive dividend, and our dividend policy reflects that. We are focused on creating shareholder value and believe that it's best done over time by increasing the earnings of our operations and our holdings which, in turn, ultimately underpin the dividends to our shareholders. Consequently, it makes sense to link our dividend to earnings, and we wanted to acknowledge that by updating our dividend policy and committing to a payout that it increased from the previous at least 50% to at least 70%. Finally, an important part of the jigsaw. We have today also announced an updated outlook for our operations, and our business profile and returns support the new dividend policy, obviously, I might say. And from here, we look forward to growing our earnings and, with that, to paying an attractive dividend. The completed succession at Sampo is, of course, a very continuous one. All positions were filled internally. The management team has deep knowledge and skills in the financial sector with an emphasis on insurance. The world around us will offer both challenges and opportunities in the period to come. And the team looks forward to using these skills and the possibilities given by the balance sheet for the benefit of our shareholders. And with that, I hand back to you, Jarmo.

Thank you, Torbjörn. And operator, we are now ready for the questions, please.

[Operator Instructions] Our question is from Matti Ahokas from Danske Bank.

It's Matti Ahokas from Danske Bank. Two questions, please. Firstly, Torbjörn, you mentioned last year, I believe, that you wanted to see Sampo -- and you see Sampo more as an insurance-focused group. And some people have interpreted this that you might be considering divesting the Nordea stake. What's your take on this?

Pretty awkward timing to ask that, I guess, today, Matti. I was very pleased the new targets in the autumn, I was very much part of that. Today is a very strong step in the right direction. And I'm certainly not thinking about divesting the stake.

That's very clear. The second question is on the nonlife business and especially the business in Sweden, we've seen quite turbulent new car sales, and you obviously have a fairly big exposure to the motor insurance segment. Would you say that now in Q4, the situation has normalized? Or are still -- are we still seeing the kind of ripple effect from the tax changes that we had in 2018? And how should we look at the motor insurance in Sweden in 2020?

Yes. Morten Thorsrud here. I think if you look at the car sales in Sweden for 2019 as a whole, it's actually quite stable compared to 2018. However, we've seen quite some movement from quarter-to-quarter. And in the fourth quarter, new car sales in Sweden was up by some 50% compared to fourth quarter 2018. So I think depending on tax changes. Of course, you can see these changes from kind of one quarter to another. But I think it's more fair to look upon this on a full year basis. And then you see quite a stable situation actually.

And they should continue into 2020 as well.

That's hard to predict. But I think 2018, 2019, fairly stable development in terms of new car sales at least.

Our next question is from Sami Taipalus from Goldman Sachs.

Sami from Goldman Sachs here. So my first question, just coming back to the dividend policy. It also mentions buybacks. I'm interested to know what the parameters you'd look at here on the buyback side. Is this linked to capital or exit earnings? Or what are the things that might trigger a buyback? And then my second question is on the industrial P&C business. Could you comment a little bit on what you saw at the 1st of January renewals here? And second, also related to this, I think you've said before that it's a business that you're interested in longer term. But given that some of your peers appear to be -- have plans to pull back a bit, do you see a chance to potentially take a bit of market share here?

The buyback. We're, as a management team, committed to paying an attractive dividend. And we believe that our owners are interested in that. Buybacks in the history of Sampo has been used very infrequently. I think the last time was probably 2011 maybe, when the share price was very weak.

Okay. So are you saying that this is something that you would only -- the trigger for this would only be a weak share price? Or are there other potential triggers as well?

That's obviously a Board decision, but that would be my expectation.

On your question on industrial growth, Sami, what we saw last year was quite a good combination with increased volume stemming from increased turnover with key clients, increased shares on some of the more structured [ NAV ] programs that we participate at. We clearly saw some price increases in the large corporate segment, and we had a record high retention in that segment. When it comes to new sales, it was more of a normal situation. But those are the very positive factors, the very positive outcome in terms of growth for industrial in 2019. And we pretty much see in the same development when looking at the first development -- the first renewal. So quite a favorable development in the industrial market. Of course, needless to say, with these growth rates, just now we are somewhat growing market share. But of course, if you look upon this over the longer period, we've been going up and down in volume here.

Okay. But you're happy with the returns, obviously, that you're getting in the market given that you're willing to take on a bit more volume.

Okay. Our next question is from [ Michael Hoffman ].

The questions -- the first one is on the stakes. You mentioned more insurance, you've got the list of stakes you built up mostly in banking and payments apart from the Viking deal which is in the [ season one ]. So I just wondered if there's a change there, if you're going to stop doing these more banking stakes or going to sell them or -- just to get a feel for that. And the other one is on the remittance from Mandatum. So excluding the one-off in 2018, that remittance is flat. In the past, you said that reducing back book means that you can have less allocated capital to Mandatum. So I would have -- expect is the wrong word, but I was kind of thinking, maybe you could say just Mandatum could have paid more to the parent, and I just wondered if there's a moving part I'm not seeing.

Michael, it's Knut Arne Alsaker here. On the first part, in terms of the investment portfolio in the holding company, it had, as you will have seen from the changes in the fair value reserve, in the comprehensive income by segment in our report, a really good year in 2019. So the return was strong. And obviously, we could, at one point in time, decide to sell and take some profit also in that portfolio as we do in other investment portfolios throughout the group. When it comes to Mandatum, I'm not exactly sure I got your question, but the release of capital from the runoff of the with profit book is still happening, so to speak. We released more than EUR 200 million last year of the highest guaranteed products and then also some additional of lower guaranteed products. And that did release capital to the tune of 100 and -- between EUR 100 million and EUR 150 million. There is no change there. The possibility for us to pay dividends from Mandatum remains. And we said that we expect Mandatum to pay a dividend now in March of EUR 150 million, which was about in line with what we expected it to do when we started 2019. So everything according to plan in Mandatum when it comes to the capital release and the dividend for the last year.

Next question is from Blair Stewart from Bank of America.

First question on our favorite topic of underlying combined ratio, Torbjörn, the adjustments that we can make from the disclosures we get suggest that for the full year, the underlying combined ratio was broadly stable. And in Q4, it looks like it deteriorated a little. I wonder if you can just give us a little bit of color on that. I know we're not able to do all the adjustments that would be necessary, but one would have expected there was -- this pricing at or better than the claims inflation that, that might have improved. And secondly, just interested in your comments around Denmark. With the rollout of the new systems, what impact that might have on that business going forward? And then finally, just on growth outlook, the growth, I think, 5.7% and higher than that in Q4 [ discrete ] is impressive. I wonder if you expect that going into this year as well.

I'll take the middle one and then give you a better shot than with me on the underlying combined ratio with Morten. But on Topdanmark's new systems, I don't think that we should see that as a revolution around the corner. But the Danish market is very -- has been very slow at picking up Internet web sales services. And Topdanmark has not invested enough to lead the market there and are investing heavily in that. And you will see this year, for instance, a number of products being made available on the web there. So it's a gradual development, but we're investing quite a lot -- or Topdanmark is.

Sorry, Torbjörn, is it only in [ proper ]? Or is it also in your own Danish operations that the IT investment's increasing?

Yes, I can comment on that. We are rolling out the -- a new base system and currently doing that partially in Sweden and also starting up in Denmark. So that means that in Denmark, we have a little bit deep -- you could say that we have a little bit of double IT costs right now kind of still having to maintain the old legacy systems and then, at the same time, rolling out a new core system. Then to your other questions, I guess, the topic of underlying improvement is probably one of your favorites, perhaps not necessarily ours. I think...

No, probably I loved talking about it in the past. So I'm hoping for a good answer from you.

No, but I think it -- there are so many moving parts. So it's kind of really hard to do a proper statement on that. I think we are really happy about the current profitability level, delivering 84.5% in combined ratio. We see a good competitive situation. We have said throughout 2019 that we are pricing somewhat above inflation, mainly due to the fact that there is a bit of repricing within the Commercial segment. So I think that's what we can say about it. We have, also as you've seen, published an outlook for 2020, which is 1% lower than the outlook that we published at the same period last year. Then finally, to your question about growth. We report, as we mentioned, 5.7% growth in 2019 for the full year and then 8.5% for the fourth quarter stand-alone. Proportion of the growth is coming from increased retention rates, in particular, in the private segment. So we do believe that we have a little bit of a tailwind given that we've seen clear improvement in key customer metrics, and that will give us also a good competitive situation in 2020.

Okay. Great. Just want to come back on the Danish situation. When would you expect to not be running with dual costs in [ '19 ]? What might the impact of that be? Presumably fairly modest given it's a small operation but now may be worth knowing.

Hard to put the exact date on that, but it takes a couple of years to roll out the current base system that we roll out, and then you need to close out -- close down the existing or the legacy systems. So it is -- it takes some few years, but we are progressing according to plan.

I think the -- maybe the relevant answer, Morten, is that you know very well that we are committed to improving the cost ratio by a couple of small percentage points every year, and this will contribute to that, and we stick to that promise.

Our next question is from [ Pierre Kimber ] from [ ACB ].

Three questions from my side. The first relates a bit to Blair's question. When we listen to your peers, in this context, probably Tryg being the most relevant, they have talked about weather-related [ case ] being very benign in 2019. Are you seeing the same picture? I know you don't report on the topic.

It's a bit different from country to country. So I think on the Nordic level, I wouldn't necessarily say that the weather was more benign in 2019 than '18. We've seen some key events in Sweden, for instance, in '19. So it's not a big difference, as I see it, between 2018 and '19 on the Nordic level. And then again, there is clearly variations when you go down on a country level.

Of course. My second question related to your new dividend policy, basically the key question is any ambitions of showing an annual increase in dividend going forward. Or should we look more for a Topdanmark [ look-alike ] dividend that fluctuates with earnings? Should we expect a reset from the current EUR 2.2, which is approximately 100% payout? You're only promising to pay out above 70%. That doesn't really sound like Sampo, but still, I have to ask the question.

Sampo is a much bigger animal than Topdanmark. We get diversification on a number of levels, I mentioned, compared to Topdanmark. Our ambition is, you're quite right, to increase earnings and that the dividend will reflect those earnings, but I also expect that to be more stable than for Topdanmark.

But we report seeing a declining dividend. That is not as ruled out any longer as it was in the old days. Is that correctly interpreted?

[ I didn't catch that ].