Sampo Oyj (SAMPO) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to a very sunny Stockholm for this Sampo Group Virtual Q&A Session. My name is Sami Taipalus, and I am the Head of Investor Relations at Sampo. On the agenda today, we have short statements from our Chair, Bjorn Wahlroos; and from our CEO and President, Torbjorn Magnusson, followed by live Q&A. We aim for the event to be as interactive as possible, so please make sure that you submit your questions to us so that we can put these to the speakers. You can submit questions via chat in either English or Finnish. A recording of the event will later be available on sampo.com/qasession. While you're starting putting questions, please let me point out that although this event is taking place at the same time as the Sampo Group Annual General Meeting, it is not legally a part of it. [Interpreted] And now the same information in Finnish. [Foreign Language] [Interpreted] Okay. Let's move on to the presentations. Our first speaker today is Chair of the Board, Bjorn Wahlroos.

Good afternoon from Stockholm and welcome to this event, which as you heard just a moment ago, we or I cannot refer to as an AGM, but I'd like to call it a virtual AGM. So welcome, everybody. We are convening here on the occasion of what is our virtual AGM and therefore, my comments will focus on the year that was although of course I'll try to make a few sort of views ahead as well. The year 2022 was another very good one for Sampo. Financial results are very little short of excellent. That is something I should with some humility perhaps say we have come to be almost used to. What is special about the year 2022 is of course that it really became the year within which we gave a physical content to the new strategy, which the Board enacted some years ago, primarily in conjunction with appointing our new CEO, Torbjorn, who will be appearing here in a few moments. That strategy of course is focused on making Sampo a pure play insurer with a strong focus on Nordic P&C. And the year 2022 became very clearly the year in which the strategy took a giant leap ahead, primarily of course because in the year '21 and '22, we of course divested ourselves of our holding in Nordea. The last transaction occurred only about a month ago where because of the strong demand in the market in conjunction with our transaction, we were actually able to double the number of shares we were able to sell and thereby actually take down or sell off all of our Nordea holding. That was not the only thing that happened last year, which I should of course point out was 2021. We acquired the remaining 30% of Hastings and as a consequence, our U.K. operation is now a fully owned subsidiary of the Sampo Group. And we managed to marginally increase our holding in Topdanmark where otherwise we tend to be of the opinion that it is so richly valued by markets that we really can't find it in ourselves to pay a premium on buying more shares. So therefore, don't expect us to move on that in the very near future. However, the whole structure of the group now is insurance, primarily general insurance with Mandatum and its life insurance tagged on to that producing, as I mentioned already, excellent results. However, the times ahead of course are very little short-term challenging in the sense that we have both a fairly dramatic shift in the undercurrent of capital and money markets taking primarily the form of apparently rising interest rates, reflecting the fact that we are already recording inflation that's way off the target spectrum of central banks. And we are also recording inflation expectation for the medium term that is significantly higher than the 2% that central banks seem to be targeting. That challenge while presenting us with a changing picture in most capital markets is still of lesser concern to Sampo than for many of our peers for the very simple reason that Sampo will not suffer from rising interest rates due to the very simple fact that we are, as many of you would know, are not required by our main regulators to match assets and liabilities. And as a consequence, our assets have a much, much shorter duration than have our liabilities. You might go as far as to say that we benefit from rising interest rates, at least we do so in terms of our reinvestments, which can now start to occur on levels where we're actually earning some interest on our fixed income investments. In the somewhat longer run of course, this will require us and all of our peers to revisit our investment policies because it is a foregone conclusion that investment markets ahead will be a bit more challenging and at the very least will be different from what they've been over the last 4 or 5 years. Now the other main challenge of course comes from geopolitics. We have of course all been shocked by the Russian effort at or Russian role into Ukraine. I was trying to avoid the word invasion because of course it didn't turn out that way fortunately because of the heroic resistance of the Ukrainian people and their armed forces. However, of course the situation in the Ukraine and the blatant aggression on the part of Russia has changed the environment in Europe and nowhere more so than in energy markets. Without going into details of that, I think it's important for me to point out that Sampo fortunately already almost 10 years ago sold off its only significant asset in Russia. We have -- that was an operating asset, a very small P&C operator and we have -- virtually we have no investments into Russia. We have no direct exposure at all and we have only very limited indirect exposure via some of our Scandinavian P&C clients. So all that is good. However, that doesn't solve the whole question because of course it is likely that European markets will remain in a state of some turbulence because of the uncertainties associated to the Ukraine and we will closely monitor that. Those would be my general remarks on the occasion of this virtual Q&A AGM, whatever it is. I hope next year I will have the opportunity to see you all at a regular physical AGM in Helsinki because next year will be my last AGM as Chairman of Sampo. After an enormous number of years with Sampo more than 20, more than I care to remember, I have today and I will today announce that I will no longer stand for reelection next year. That decision is absolutely final. And as a consequence of course, I will take great pleasure in having the opportunity to take farewell of you all in a proper way in a proper physical AGM in Helsinki. So with those words, thank you very much for listening in and I will now take questions.

Thank you, Nalle, for those opening remarks. So we will now start the first Q&A session where we'll be taking your questions from the audience. We have lots of questions already, but you can still submit more questions via the chat if you haven't already had the opportunity to do so. The first question is on geopolitics, Nalle. How do you see that the situation in Ukraine is affecting international investors' appetite or views on investing in Finland? Do you think it's having -- do you think that they're still there to invest in Finland?

As I mentioned in my opening remarks, for us at Sampo, of course this is almost a non-issue. However, of course the question of country risk is basically always there. It was interesting to note that during the first 2 weeks of the Russian attack on Ukraine, we could statistically identify some small negative residual in asset prices in Finland. But after the obvious lack of success in the Russian operation, that residual disappeared and it hasn't come back. Now since you're asking this question today, I should of course point to the fact that today of course is a very, very important day for us here in Scandinavia both here in Stockholm and in Helsinki because this morning the ambassadors of our 2 countries have submitted our application to join NATO to the General Secretary, Mr. Stoltenberg, which we're all very, very happy about. And it also I think bears reminding that the vote taken by the Finnish parliament yesterday was a record of sorts with 188 out of 200 members of parliament voting in favor of joining NATO. So it really is a strong opinion.

Great. And staying on the same topic, we have another question here about how the situation -- how you believe that the situation in the Ukraine is affecting politics more broadly I guess across the European regions and Finland?

That of course is an enormously complex question. We have all seen how on one hand the EU has really risen up to the task here with sanctions and with a unity that we are not really used to seeing from the EU. So that has really been tremendous. And it's also been great to see that questions relating to some sort of the remaining small bad blood about Brexit has been sort of swept away and Prime Minister Johnson has been operating in close cooperation with his colleagues on the continent. So all that is very good. Of course also the unanimity that I just referred to in the Finnish parliament is something quite interesting. It bears again reminding of course that Finland has somehow intuitively always prepared itself for this moment if I may say that. We have one of the strongest armies in Europe, which is kind of counterintuitive since Finland is a small country. But we have a tradition of defending ourselves and we've been lucky again. On one hand, we were fortunate ordering new F-35s just prior to the attack on the Ukraine. We've also been fortunate that when the Dutch and the German defense forces sold out their tanks, their Lear Pl. 284 and 286, Finland bought them. So we have the most potent tank force in Europe at the moment. I shouldn't laugh about that. It's very important. But of course all this changes the way in which Finns in particular look at the world and the geopolitical risks. We feel no fear about this. But it's also important for us now finally to take the full step to become a member of the Western Alliance, with which we have cooperated for a very, very long time both politically and militarily.

What about from a Russian perspective then? Obviously a lot of international corporations have now withdrawn from Russia as a result of this conflict. Do you think that there is any chance that they'll return anytime soon or how do you see that developing?

That is an even more complex question. I doubt that we will see any kind of return to what you might call normalcy in Russia before actually normal governance is or what might be termed or what might have some semblance to normal governance has been reestablished in Moscow and what that entails, I shy away from speculating on. But I would think it highly unlikely that President Putin can be a part of that system of governance. So there are some very big obstacles to overcome before one could even start to answer that question because obviously I think it's very likely, it's almost certain that sanctions will remain in force for a very long time because I think it's unlikely that under the regime of Mr. Putin, Russia will completely settle the Ukrainian crisis that it has itself created. And therefore, it's likely that sanctions will be in place and as long as sanctions are in place, I think it's very, very unlikely that international companies will want to stay in Russia and as a consequence, Russia faces a very dire economic future.

Okay. So we've obviously seen a lot of shifts in geopolitics recently. But the other area where there's been a bit of a strain as you referred to in your opening remarks is on the economic side. We have a fair few questions on that as well. And the first one is on inflation, which has returned to levels we haven't seen for a long time recently and central banks are trying to combat that. Do you think, Nalle, that the central banks will be successful in taming inflation?

They certainly will. The question is just how long it will take. I should start by saying that, at least to me as I've sometimes referred to myself as an unreconstructed monetarist, this comes as no big surprise. We have been adding money to the markets for a number of years by virtue of very low interest rates and even more so by virtue of enormous asset purchases by the central banks. We now have both -- the world's 2 leading central banks have order of magnitude 8 trillion respective currencies of assets on their balance sheet and that therein of course lies the answer to your question because the question is not can we tame inflation because obviously we can tame inflation, it's actually quite easy. All we have to do is curtail the money supply and that we can do by massive asset sales if we want to. However, there is a cost associated with this because if we or rather the central banks would misjudge the balance in those markets and would oversell, would flood the market with bonds out of their portfolios, the risk of a very serious economic setback is obvious. So it's a balance. Inflation will be tamed, but I think it's unlikely it will be tamed very soon at least not if tame should be interpreted to me will we return to a 2% level, which is the target, right. I don't think we will return there anytime soon. I think one of the most important statements in this debate was Chairman Powell's comment let's retire the word transitory. There's nothing transitory about this. We have seen money supply increase dramatically over a number of years relative to, particularly during the pandemic, relatively lackluster real performance. We know from monetary theory that, that will ultimately cause inflation. That's where we are. And now the question is how skillful will central banks be in sort of balancing their anti-inflationary policies, namely their asset sales and their interest rate increases, against real economic performance so that they won't be causing a deep slump. I think particularly the Fed that I have a lot of trust in should finish by saying this is nothing to be very worried about. I'm old enough to remember a time when I earned more than 20% on my American money market account. This was in March of 1981 when obviously a very junior professor in the United States. So if you've earned more than 20% per annum on your money market account, this is nothing.

Good. That's reassuring. And obviously I guess this is having some implications on the investment markets and from an investment perspective. You've referenced this already a little bit in your speech. But how do you see -- what impact do you see this having on investment markets and how do you think that investors should be positioned looking into this?

Well, to me, it's a foregone conclusion that interest rates will go up and I'm not only talking of sort of short-term rates, which will be eventually raised by central banks. We've already seen the Fed raise their overnight rate to I think 75 basis points to 100 basis points. And I'm absolutely sure the ECB will follow suit within 2 months perhaps even raising it by a full 50 basis points in its July meeting. What I'm also talking about is bond yields and we've seen now bond yields take a fairly dramatic shift where we've gone out of negative territory and we're now up to triple-digit basis points on most medium to long-term bonds in euros. I'm pretty sure that this development will continue. There is -- to an economist, there is no equilibrium that contains sort of 5% or 7% inflation and bond yields that are sort of 100 basis points or 150 basis points. Obviously we will have to have positive real interest rates also in the longer run and as a consequence, bond yields will have to rise. Now what follows from that is a more complex question. As I mentioned already for those who do not hold a lot of long-dated bonds like Sampo, this creates an opportunity to sort of rebalance your fixed income portfolio and actually start earning higher running yields on it. For those who hold very long bond portfolios, I just hope they're booked to maturity because I think we're going to see quite a lot of losses in those portfolios in terms of mark-to-market. What that means for equity markets is still a more complex question. We've already seen what sort of amounts to very long-dated issues in equity markets, namely tech stocks take a pretty hard hit. Most tech stocks are down by 25% to 30% and quite a few tech stocks are down by 50% particularly when you look at the medium-sized listed techs. So in a sense, you might say the hit has been there already and there is some stability in tech markets now over the last couple of weeks after these big falls. So it might be that we've had enough, we'll see. The big question of course is what will happen to the more traditional stocks and they of course split broadly into 2 categories. There are those like financials, banks and insurers like Sampo, who should actually to some extent benefit from higher interest rates and then there are those who certainly do not. Overall of course discount rates will go up and that is never good for any asset values. But it's very much a sectoral question. Some will benefit, most will probably face some challenges, but we've already seen that the sort of equity markets have adapted to this to some extent, particularly in the high tech area. So going forward, very difficult to say more than what I've sort of speculated on so far.

Okay. Shifting gears slightly, another area where we're getting a lot of questions is Nordea. Obviously Sampo was an owner for a long period of time, but exited recently with a gain of EUR7 billion and a 9% annual return. Are you satisfied with the Nordea investment and would you invest again in a bank?

Well, I'm very satisfied with Nordea as a bank over this holding period. The problem is not really Nordea. Nordea hasn't really underperformed. Actually it has outperformed the European bank sector over our holding period with some margin. When you take a look at some of the big European champions, Deutsche being the obvious sort of comparison, you can see how dismal the situation can be. But there is another question involved in the question you're presenting and that of course is we might of course back in 2008, 2009 decided to make Sampo something different from a financial services holding company. We might have gone the sort of Warren Buffett route and say let's start to buy industrials instead. I'm not sure I could have convinced my Board back then to do it, but probably I could and as a consequence, of course I would have made more money than 9% per annum. So while the EUR 7 billion you mentioned and the 9% per annum is not bad, it's an okay long-term return not as good as we're used to in Sampo, but still it's okay. Clearly one could have done better. So Nordea has done well. The banking sector has not in general done well and we could have become a more diversified sort of investment or holding company getting a better return. However, we are now facing a lot of debate from our investors who actually want us -- or we have in the years gone by had a lot of comments from them wishing us to focus on insurance. So in a sense, we would probably have exited those investments at some point in time as well. So you can speculate about it. Summing it all up, it was an okay investment. No regrets there. But of course banking as a whole in Europe has not been great.

Okay. Good. And then there's a couple on capital returns here, which is obviously a matter close to many investors' hearts. Sampo is engaged in quite a lot of buybacks recently whereas in the past, it's been -- the capital returns have been more focused on dividends. How do you see that balance there and what benefits do you see with distributing capital through buybacks rather than dividends?

They obviously both have a place on the menu when you have as much capital to return as Sampo has had recently. That's why our AGM today will approve of the record dividend of EUR4.10 per share and that's why we just concluded our buyback program for last year and will institute a new one. Obviously the more specific answer of which one should be preferred depends on your position as a shareholder and investor because there are tax issues involved. An international investor not located in the U.K. would typically face a 15% or in some cases even a 30% withholding tax on the dividends whereas of course if he is set up in a company which doesn't tax him for capital gains, he may actually prefer buybacks because that will allow him to sell. That will provide more liquidity in the market, which will allow him to sell his stock without tax consequences. So there is no general answer to this question as a whole. At Sampo, in the -- we have typically shied away from buybacks in the past when we were -- sort of we had a broader investment outlook where we bought assets on a broader spectrum. Now with the focus on insurance and particularly P&C insurance, it is pretty obvious that we've had excess capital that we really shouldn't have on our books. And therefore, we have gone almost all-in both in terms of dividends and buybacks.

Okay. And then a follow-up on capital returns and a lot of shareholders are asking whether Sampo could pay dividends quarterly or half yearly and what the reason is for why that hasn't been the case in the past?

I think the main reason really is tradition. You don't typically pay quarterly dividends in Scandinavia. Dividends are usually paid annually. When I was a young man, it was even legally very complex. It was I think impossible to pay quarterly dividends. Today it's quite possible. There are somewhat differing views on this. To me, it's not a big issue one way or the other. I never really understood the debate. And as a consequence, I'd like to pass on the question and say it's certainly possible. I'm not sure all of our shareholders really want quarterly dividends, but there are some of them vocal who want them. So it's an ongoing debate and I really don't have a big sort of heavy opinion on the matter.

Good. Okay. Then a couple of questions that are more specific to yourself I suppose. You've recently been making quite a lot of transactions in Sampo shares. Could you tell us a little bit more about what lies behind those transactions?

Well, in a way first of all, it's estate planning broadly speaking. I've been transferring assets to my children and I prefer to transfer the most long-termed assets in the portfolio, which typically would be the Sampo shares since we plan to hold on to a Sampo overweight even after a year from now I leave the Chairmanship. But that's really not quite the full story because we have from time to time bought Sampo shares as well and that has to do with the fact that we've restructured the family office quite significantly. We have built up a very big portfolio of private equity and private debt investments. And associated with that, there are some sort of liquidity restraints, which means that we really should have a fairly big cash buffer to sort of move cash around. But in this interest rate environment, I've actually put my money where my mouth is or I've actually practiced what I preach to some of our investors. We've used Sampo as a liquidity reserve as well since it is a fairly safe haven with good liquidity. So some of the purchases are really related simply to liquidity surpluses whereas a few of the sales have had to do with -- and certainly the derivatives transactions have had to do with the fact that we needed some liquidity for our private equity and private debt investments. So it's really not anything more than that. The family owns today I think some 3.7 million, 3.8 million shares of Sampo stock and we plan to hold on to that for quite some time.

Okay. Perfect. And then the final question that we have time for is you mentioned in your opening remarks that this will be your last year as Chairman of Sampo. What do you see as the most important points on the agenda for this final year and perhaps more importantly, from your personal perspective, at least what you plan to do afterwards?

Well, the most important thing on my agenda for this year of course is to finalize the arrangements on the succession. I don't want to overestimate the significance of the Chairman of Sampo. We have a highly able competent and determined CEO who takes care of most things here. But it is a good idea to have a Chairman to talk to and a Chairman who understands how to sort of maintain a productive communication with his CEO. So the most important thing is to sort of finalize succession. I think I would have continued to say then of course there is the execution of our strategic commitment. Now largely we have executed most of that. So that takes certainly sort of backstage to the succession question. Finally, you asked me about my personal plans. Well, I may have in a way already answered that question in saying that the job as Chairman of Sampo is not quite as difficult as it may sound because we have a highly competent staff of people who actually run the group. And as a consequence, Sampo hasn't really taken up that much of my time. It's not like I'm always sort of working for Sampo. I've had quite a lot of time off from Sampo. I will also resign my other major chairmanship in Finland of UPM-Kymmene next year. So of course combined, that will still give me some extra time. I've also in a way indirectly answered your question what will I do with that extra time because I made reference to the quite sizable family office we have built up, which I'm running together with my children, primarily my son, and of course that will take time. And as I surrender the chairmanships, I will be less conflicted in running the family office so I will spend a little more time on that. And then of course I have 2 more installments of my memoirs to write.

Perfect. Well, that was the last question. Thank you for extensive and interesting answers as always, Nalle.

Next on the agenda, we have the opening remarks from CEO and President, Torbjorn Magnusson.

Good afternoon, dear shareholders and other participants. Sampo Group's businesses have delivered excellent performances across the board in 2021. The core business, P&C Insurance, performed particularly well exceeding all targets as you can see from this slide. Momentum has remained strong into 2022 supported by disciplined underwriting, by high customer satisfaction and strong retention. It's very encouraging to see that our largest business, If P&C, was also the best performing operation in the first quarter delivering then a 7% growth at record underwriting margins at the same time. If's strong performance is the result of consistent operational work and investments over a long period of time, particularly in digital capabilities and customer focus. In addition, competition in the Nordic P&C insurance remains rational allowing us to price for claims inflation while higher interest rates are supporting investment income as discussed by our Chairman just now. Given our position, I am confident in our ability to continue to deliver excellent results also against a more challenging macroeconomic backdrop. At the start of 2021, we laid out an agenda for more -- for simplifying the structure of Sampo Group and we have executed this diligently since then. The biggest single achievement of course is the exit of Nordea, which we have concluded well ahead of schedule. Sampo is now a pure insurance company focused mainly on Nordic P&C business, which is encouraging and logical since this is where we have the strongest and most unique capabilities. The sale of our Nordea holding also reduces the equity risk and the resilience as the market risk has been reduced. We will continue to look for opportunities to improve returns by allocating more capital towards P&C insurance although this process I suspect will be more gradual going forward. Finally, let me say a few words on capital management. Our ambition at Sampo is to operate with a resilient, but also efficient balance sheet. Therefore, we are committed to returning excess capital as defined by our balance sheet framework and targets to our shareholders. Following the sequence of sales of Nordea shares, we have already executed 2 buyback programs and proposed a large EUR4.1 per share dividend to the ongoing AGM. We plan to stay on this disciplined path. Hence, management will propose to the Board that a new buyback program is launched with the proceeds from the most recent Nordea sale. To summarize then, we have operations in excellent shape and a strong momentum in our markets. We have a strong balance sheet and we are committed to disciplined capital management. And with that, I look forward to taking your questions.

With that, we move to our next live Q&A session. Please keep sending us questions that we can put to our speakers via the chat boxes in either English or Finnish. I'm joined now by Torbjorn of course as well as our Group CFO, Knut-Arne Alsaker; and Mirko Hurmerinta from the Sampo IR team, who will help me in asking questions. Let's start by an operational question that we received for you, Torbjorn. Sampo has a lot of underwriting focused targets and underwriting profits and combined ratios, but no top line targets. What potential do you see for top line growth and where do you see that coming from in the near future?

Well, first of all, I think that we've had quite decent top line growth in the past few years and especially if you compare us to our peers. Secondly, we do in fact implicitly have a top line target as we have a target for underwriting profit growth. So that includes growth. And I see quite -- I look quite optimistically at this since we have a situation, a beneficial situation. We have built up investments in digital distribution, digital service, digital sales over a decade, which is a bit longer than most of our peers and the services that we offer are certainly market leading in the Nordics. So growth at the moment quite good and good prospects for the future.

Next question goes to Knut-Arne. As Nalle already pointed out, interest rates are on the rise with inflation. How will this affect Sampo? What is the mechanism on investment side and on the other hand on the liability side?

Sampo is very well positioned for increased rates. We have -- on the asset side we have a very short duration, which means that we can reinvest our fixed income portfolio quite quickly and then at higher rates as rate increases. And I should also say that we have quite a lot of rate instruments, which resets rate sort of every 3 and 6 months. So we will see a quite quick higher fixed income return in our P&L. Then on the liability side, a good portion of our technical liabilities are discounted currently at very low rates, which means that we over the years have needed to take losses through our P&L to strengthen our reserves, to take into account a decreasing rate path that will come back when rate increases as runoff gains and profits in our P&L. And because of these profits and because also of some technicalities and the capital requirements that we have for our insurance business, we will also see more own funds, more capital, higher solvency ratio. And higher rates will then contribute to excess capital in the group if and when rates continue to increase.

Coming back to you, Torbjorn, you mentioned briefly about the competitive positioning. What is it really that I guess cements Sampo's competitive position or Sampo subsidiaries' competitive position in the Nordic P&C markets? What competitive advantage do you see and what gives you confidence that you can defend your position?

One thing that is something we talk a lot about internally and have always talked about is our very strong underwriting focus. We have always focused to give each client exactly the right price and that is something that does not change for the insurance business. The market is such that the core competence that you need to have is complete underwriting focus, i.e., setting the right price for each client and customer. And that is something that we have spent a lot of time and effort building up, building into the genes of the company. On top of that, digitalization I already mentioned, started earlier than most of the others and have a very strong position today both in Nordics and actually in the U.K. And on top of that, I would say that in the past 5 years, If's customer focus looking at all the processes from the outside and in being very convenient for the customers and being able to grow as we have in the past few years has been a key development for us.

Okay. Then solvency side question for Knut. Our Solvency II target range is 170% to 190%. Now that Nordea is gone, we have reduced the market risk, could the solvency target be lowered a bit?

Well, what immediately changes with our solvency capital requirement, what has changed when we now have exited Nordea and because of the lower market risk you say, Mirko, we have a significant lower nominal capital requirement. So we need to hold less capital against the risk we carry, i.e. the excess capital which we will discuss with the Board in terms of additional buybacks. To lower the solvency range could potentially be done in the future. I wouldn't expect that range to change materially. But as we continue to make our balance sheet more efficient as we also have said we have plans to reduce market risk further when some of the investments, the assets that remain in Sampo plc will naturally be sold down the road, we could see a somewhat lower solvency range. But the sort of what creates the most benefit is actually to lower the nominal capital requirement not necessarily the range. And also we're quite comfortable with having a wide range because that obviously gives us some flexibility and some room for maneuver even within the capital management framework that we have.

Nalle mentioned in his remarks that inflation has increased and that it may not come back to the normal level or to the 2% at least immediately. What sort of effects have you seen from higher inflation in the P&C business and what sort of levers do you have to address this?

Well, in the business -- in the operational business in the Nordics, the effects so far have been more limited maybe than the media coverage, but we all expect higher claims inflation going forward. We have quite long-term agreement with our suppliers so this will be a gradual change and then we'll see where future inflation and claims inflation, which can be quite different, will take us. The change has been more radical in our U.K. business and I think that market has been a little bit surprised at the rapid change of claims inflation there.

Okay. Then question for Torbjorn on motor insurance. Cars are becoming more and more advanced in the future and maybe someday we will see fully self-driving cars. Will this be a challenge or an opportunity for an insurance company?

I think we've been so closely working with the car industry for decades that we have followed their changes year after year for the past 2 decades and we will continue to follow their changes to develop together with them. If you look at the history, if you look at the past 3 decades, the number of fatalities on our roads have come down in almost every country in Europe over that period. You would have thought, therefore, that it would be much cheaper to insure your car. But at the same time, as you point out, the value of the cars have become higher and the difficulty in repairing a car containing dozens of small computers is not getting cheaper. So we'll see where this takes us. It's a very gradual change and there's no other company at least in Europe that is more intimately working together with the car industry to develop products also for this situation.

Staying on the theme of motor insurance. You recently entered the U.K. motor insurance market and it appears to be going through quite a challenging period in terms of pricing. What do you believe is needed for this competitive dynamic to change or for the cycle to turn?

It feels very recent of course, Sami, but it's soon to be 2 years since we started acquiring Hastings. Last year was a year of change for the U.K. personal lines market with some regulatory -- large regulatory reforms and also the disappearance or so of COVID and the market reacted quite rationally to that. Now what we have seen this spring of course in the U.K. is more a quantum leap in claims inflation and inflation in general that is much debated in the U.K. and it takes some time for the market to react also to that. So we'll see how quickly that can happen. But it is -- I think it's not a surprise that it was a surprise to the market considering how quickly it happened.

And staying on Hastings, another question that we have is about your long-term vision and strategy for Hastings. What is it really that you're looking to achieve here?

Well, Hastings is a very unique -- was a very unique opportunity for us. We have not acquired many insurance companies outside the Nordics in the past. We have been presented by a number of cases, but always resisted because they still weren't good enough. Now Hastings was an opportunity to acquire a company: a really high quality, modern digitally leading insurance company in a transparent market at a good price. And we have acquired them just for that being a digital leader where we can have synergies with our Nordic operations in a market that we understand for the long term. This is not a buy and sell type of investment. This is something which we look at in the Board and see the development that is going very much as we planned. The company is developing well in a growth market as well, more than what we have in the Nordics. So I'm very pleased with that investment and with the long-term development of that company.

As we well know, the Nordics are a great market for P&C insurance companies for example compared to Central Europe. Why is that so?

I think there are a number of reasons. But one of the most important reasons is that we have really worked hard at keeping the cost levels low not only at Sampo and If P&C, but also in general in the market. So it's very difficult to come and compete with us from the outside considering that we have lower cost ratios than almost anywhere else in the world. Another thing that happened here very early was actually before digitalization was the emergence of call centers and telephones as the main distribution channel and that of course reduced the cost ratios, but it was also an early adoption of technology. And that in turn has led to the general digitization, which is at a high level here. So not that easy to enter our markets in the Nordics.

And you mentioned previously already regulation in the U.K. and there's a question more broadly about regulation in the insurance sector. You've obviously got a lot of experience from that in banking. How do you see insurance regulation developing over the next few years I guess both from a consumer regulation perspective for you, Torbjorn, but also maybe from a prudential perspective from your perspective, Knut-Arne?

Well, I think to begin with, one has to remember that banking and insurance are quite different. And the non-life insurance is 1-year contracts where our customers are not giving us a large amount of money that they hope to get back and have to be protected. They certainly have to be protected so that we can pay for their claims that will eventually happen and that's important. But I think the regulation over the past 10 years have now reached a more stable development for P&C rather than accelerating. I don't see that there's a new wave of regulation coming from the EU or elsewhere at the moment. But of course there is an accounting change coming.

Accounting change is coming and I think that will have a sort of significant impact on the perception of Sampo, but there's certainly a lot of investments and work we have to do to be compliant with the new regulations. And more broader in terms of capital regulation and the regulators in Nordic, I think we have a capital regulation, a Solvency II framework, which works very well. It works very well for Sampo and our businesses. There is and will always be adjustments to that regulation, but I don't see anything coming our way, which in any way will materially change the way we have to manage our business or talk for example about our solvency capital management framework or capital requirement. Nor do I see a big need in the way that Sampo currently is regulated. We're regulated by good regulators who do a proper job and which we have a good relationship to. So I would say it's a good and stable situation on the regulation side. But of course the new accounting regulation is a big investment for the industry, even more so for the life insurance industry than for us as a non-life insurance group.

One question about the future. We of course have financial targets for '21 to '23. But in the longer term, where do you see Sampo in 10 years or 15 years?

I think we have set a target and a strategy for this period and we have come maybe further than people would have thought with this simplification of the group. We're now a pure-play insurance company where we're quite excited about the development of that industry in terms of digitalization, the collaboration with the car industry and also the possibilities to prevent losses for medium-sized and large corporate clients. So I think there will be a lot of development in that industry that we can lead and do exciting things with.

Good. Then we have a question on capital returns and capital management. You've proposed -- you've mentioned that you intend to propose to the Board to launch a buyback with the proceeds from the most recent Nordea sales. Could you elaborate a little bit on why a buyback rather than a special dividend? I don't know which one of you wants to address that one.

Well, I can talk. I mean it makes a lot of sense. As our Chairman pointed out, we have a number of owners with different tax positions and views on this and we try to meet the requirements and desires of both groups. We have just agreed. We have just had an AGM where a decision about the large extra dividend has been taken and we intend to launch a buyback program -- propose to the Board that we launch a new buyback program. So the capital situation we have asks for both methods I think.

And just to add to that. The experience of course we have now with 2 buyback program and the speed that we have been able to execute on those buyback programs given the liquidity we have and the Sampo share price of course means that we can look at the potential to launch a buyback even to the same size or larger size without the big worry that liquidity is a hindrance of executing such a buyback program promptly.

Staying on capital allocation and dividends. What kind of dividend growth can our shareholders expect from Sampo in the future?

Well, I hope they can expect a good dividend growth. But what we have said is that the insurance dividend should be nondecreasing, but of course we aim to surpass that handsomely.

And just a reminder of the mid-single-digit growth target that we have on the underwriting growth side, which of course forms an indication of the growth in the dividend complemented by capital returns from Mandatum, which of course is a part of the group which benefits on a relative basis the most from higher interest rates just to combine it with what we talked about earlier.

A bigger picture question for you, Torbjorn. What do you see as the most sort of important megatrends in the P&C insurance space at the moment? I guess we talked a little bit about mobility already, but are there any other ones that you'd like to bring forward?

I think it's pretty Interesting to listen to the debate over the years as I've been in the industry for quite some time now that topics come and go. And the one thing that people talk to a little about is what we mentioned earlier, the underwriting focus, being able to price accurately in smaller and smaller segments and using more and more big data as it's called today to use to do that. That I think is a trend, but it's something which we focus more on than most of the competition. So that's something that is important. And then in general of course even if we say that digitalization has become a big thing, we sell about 1/4 of our policies on the web and 1/4 not 75%. So we all expect that to continue to increase of course just to name 2.

And the elephant in the living room Topdanmark, what is the long-term vision and can we keep adding shares little by little every quarter or what we are going to do?

What happened in the past quarter was very small of course and that's not a way to take over the company. I mean Topdanmark is a great company with great underwriting focus. They truly understand that, which we dominate on the Board. There's no issue here and it's very richly valued. So there is no path to action at the moment and we're happy with that.

Okay. I think we have time for one more question, which is perhaps just to complete the picture on Sampo's M&A appetite. Could you just remind us what your M&A appetite is I guess both in the Nordics and in the U.K. and as well whether you'd be -- you'd consider entering any new markets outside of those ones that you're already in at the moment?

I guess in a way I already answered the last of your questions as I said that Hastings was a very unique opportunity and we've seen many opportunities over the past decade. So no, we don't intend to go elsewhere. We have a good balance I think. We are a Nordic company. We're a company that is dominated by Nordic assets, Nordic P&C insurance assets. We want to stay that way. But of course we want to develop Hastings and support that in every way we can. We're not going to go into other markets. We're not going to even go to other segments in the U.K. market. We are in a segment which we understand, can control, can underwrite. We don't want to go to for instance corporate lines in the U.K. And in the Nordics, we do now and then small investments most often from the platform of If P&C. That's not changed. But I don't see any grand opportunities in -- there are no grand opportunities in the Nordic P&C market.

Okay. Thank you, Torbjorn, and thank you, Knut-Arne as well both for participating in this Q&A session. Thank you to everyone on the line for sending in so many good questions for us to put to the speakers. Please feel free to get in touch with us in IR if there is anything that we have left unanswered at this point. We are obviously very happy to help you. And we look forward to interacting with you all soon again. Thank you and goodbye. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]