Sampo Oyj (SAMPO) Earnings Call Transcript

Good morning, everyone, and welcome to Sampo Group's Conference Call on the second quarter '26 results. My name is Mirko Hurmerinta, the Interim Head of IR at Sampo. I'm joined on the call today by Group CEO, Morten Thorsrud; and Group CFO, Lars Kufall Beck. The call will include a short presentation by Morten and Lars, followed by Q&A. A recording of the call will later be available at sampo.com. With that, I hand over to you, Morten. Please go ahead.

Thanks, Mirko, and good morning, and a warm welcome to Sampo's Second Quarter Results Conference Call on my behalf as well. So Sampo delivered strong first half and second quarter results, driven by broad-based and durable top-line growth, disciplined underwriting, and continued cost efficiency improvements across the Group. Our first half like-for-like growth amounted to 3% and accelerated to 5% in the second quarter. This was supported by our Private and SME lines in all markets, which I will cover in more detail shortly. Combined with stable strong margins in a favorable claims environment, the top-line growth translated into an underwriting result growth of 7% in the first half and 5% in the second quarter on a currency-adjusted basis. The operating EPS increased by 12% in the first half and by 6% in the second quarter. Meanwhile, our investment returns saw a healthy rebound during the second quarter, and our solvency coverage remained robust, of which Lars will elaborate on in a moment. Following the strong first half performance, we have adjusted our full-year outlook upwards, both when it comes to insurance revenues as well as for the underwriting result. Now let's take a closer look at our key segments with a focus on second quarter development. Our largest business area, Private in the Nordics, saw continued robust top-line growth of 5% in the quarter. While the growth rate has slowed down a tad from previous quarters, it has become increasingly more volume-driven. During the second quarter, we saw increase in customer count as well as in the number of objects and object sales in all countries, while retention remained high and broadly stable. To me, this underlines the breadth and durability of our organic growth, which continues to be supported by our consistent efforts and initiatives to improve our digital customer journeys. To give a few examples of our digital initiatives during the second quarter, our If mobile app reached 1.8 million downloads across the Nordics, meaning nearly half of our household customers now use the mobile app to manage their policies and report claims. In fact, during Q2, we reached our operational ambition of more than 70% of claims being reported digitally by the end of this year. We also expanded our AI-powered virtual agent, IfGPT, from Denmark into Sweden and Norway. And at the same time, we also launched an If Vet app in all Nordic countries, which allows pet owners to contact vets 24/7 free of charge. Turning to the U.K. In the U.K., the pricing environment has remained competitive and on the somewhat softer side. However, we've seen further stabilization in pricing trends, and we remain well positioned to accelerate our growth when the cycle now turns. Nevertheless, I'm pleased to see that even in this somewhat softer market environment, we have continued to find carefully selected pockets of growth, supported by our investments in data, pricing capabilities, as well as in product innovation. In the second quarter, we added around 180,000 customers, representing 13% growth year-on-year and 4% over the quarter. This drove the like-for-like top-line growth in our U.K. business to 7.6%, up from 1% in the first quarter. At the same time, we delivered strong margins within our target operating range, supported by continued operational efficiency. Moving to Nordic Commercial, which was our fastest-growing segment in the second quarter with an 8.6% like-for-like growth, another proof of our diversified and durable organic growth. The growth was supported by improved traction in our SME portfolio, which saw accelerated growth of more than 5% in the quarter and a good increase in the number of customers. Further, the second quarter's performance was propelled by several larger customer wins. One of these was a major personal insurance agreement in Denmark that provides access to comprehensive healthcare for 40,000 pensioners. This is an exciting expansion into a new segment and not only demonstrates our strong position in the personal insurance market, but also underlines the sustained structural demand for complementary healthcare beyond also the working-age segment. Given that there are over 1 million pensioners only in Denmark, we look forward to assessing this opportunity and opening up this new market field. Now Lars will continue with some reflections on the investment performance and on our balance sheet.

Thank you so much, Morten. It has been somewhat of a ride in the financial market in the first half of 2026. And following the very unsettled first quarter we saw, the second quarter saw a sharp rebound both in the equity and fixed income assets. And that, of course, also naturally reflected to our investment portfolio. On top of the continued stable interest and dividend income we see, our core portfolio saw net gains of EUR 240 million, and that's roughly evenly split between fixed income and equities in the quarter. This was partly offset by a soft development in our 2 legacy assets, NOBA and Nexi. And just as a reminder, the market value of Nexi is reported with a 1 quarter delay, meaning the second quarter figures here reflect the asset's actual performance in Q1. All in all, the total net investment income stood at EUR 360 million, which more than offsets the mark-to-market-driven net loss that we saw in Q1. If we turn to the Solvency development in Q2, that remains strong and unchanged from the first quarter. This was, of course, driven by a strong operating performance, offsetting the slightly negative market effects, which ended up being smaller than we had initially anticipated. The main driver for the negative market effects was the symmetric adjustments, which increased to nearly 9% in the quarter, up from 5% last quarter. And hence, it is now almost maxed out under the current solvency regime where it can maximum be 10%. This is an important figure to keep in mind when looking at our solvency; with a 0 symmetric adjustment, all else equal, our solvency ratio would have been 180%. So I'm naturally very happy with the 174% solvency with the symmetric adjustment being where it is at the moment. And also, just as a reminder, we deduct 90% of our operating result from our own funds each quarter. So the Solvency coverage fully reflects our distribution commitments to our shareholders. So with that, I leave it back to you, Morten.

Thank you, Lars. As mentioned in the beginning, following the strong first half year performance, we have adjusted our full-year outlook upwards. We now expect to achieve 7% to 9% insurance revenue growth and to deliver 4% to 9% underwriting result growth. The underwriting result range reflects the strong first half year performance and also includes what we know about July claims development, particularly regarding the big residential fire in Drammen in Norway. Our preliminary claims estimate from this fire is around EUR 15 million, primarily affecting our Private Nordic segment. To conclude, the second quarter represented another extension to our track record of delivering durable and broad-based organic growth at resilient and strong margins, in line with our promises to our shareholders. With that, I leave it back to you, Mirko.

Thank you, Morten and Lars. Operator, we are now ready for questions.

[Operator Instructions] The next question comes from Vash Gosalia from Goldman Sachs.

I have 2 questions, please. One is on U.K. motor. So it feels like the messaging that's coming out of Sampo is somewhat different from the other players in the U.K. market who are already alluding to price increases, whereas you're suggesting that the price is still stabilizing and relatively soft. So I was trying to sort of understand the comment there and what is it that you are seeing in the market? If you could give us a little bit more color as to how do you expect the U.K. motor market to develop, that would be quite helpful. The second one is on basically your commercial insurance segment, Nordic Commercial, wherein I just wanted to get a sense of, one, your growth in the second quarter seems definitely very good, but it's driven by these one-off large deals that you have. Can we sort of extrapolate that into 3Q, 4Q? Or should we again expect a bit of a normalization going forward? That said, the other question or more broader question I have on the commercial insurance space is basically, can you give us a little bit more color on the competitive landscape there? And the reason I ask this is basically yourself and your Nordic peers seem to be stepping away from large commercial business in the Nordic region, but yet you talk about competitive intensity or pricing pressures, and this is common across the board. So I'm quite curious if everyone is stepping away from business, where does this competitive intensity come from?

Good. I think I'll try to answer to these questions. First, U.K. motor market, the market situation and pricing is clearly improving, just to be clear on that. So you could sort of say that Q1 was definitely an improvement compared to Q4 and Q2 being an improvement compared to Q1. We still would like to see further price increases in the U.K. market. And we're not sort of saying that the cycle has turned fully yet, but clearly an improvement. And we are implementing price increases and also pricing for slightly higher inflation expectation and getting that through in the market. So an improvement. But I think it's a little bit too early to say that the cycle fully has turned. But we're super happy about the development. And again, we are able to write and grow our business focusing on the 88% to 90% operating ratio target. When it comes to Nordic Commercial, I think in a way, you could say that the growth that we reported after Q1 was probably more of a normal situation than the growth that we reported in Q2. So I see that we have strong growth momentum, and I think you see that with more than 5% growth in the SME segment, good growth in the number of customers. So I think that we have good momentum also into the third quarter in the Nordic Commercial segment. Competitive landscape, first of all, we are not stepping away from the large corporate segment. We are sort of still committed to that. It's a segment where we expect to make similar returns and similar profitability as we have in Private and Commercial in the Nordics. So we are still committed to that market. Then competition in the large corporate and of the commercial market is, of course, a little bit affected by the international reinsurance market. But of course, the reinsurance market is a bit softening and part of that benefit is passed on to the large corporate customers. But apart from that, no new competition situation on sort of the more SME market side. So a stable competition there, I would say.

So can I just actually follow up on that one? So is it fair to then say like assuming that the reinsurance market stabilizes from here on, you should then see probably slightly higher growth in the Commercial segment because your headwinds are sort of gone?

I think I would sort of distinguish between what we call commercial and what we call industrial, large corporate. So what we call commercial is really sort of predominantly SME and where the international reinsurance trends are not really that visible. It's more similar to the Private market. So the impact from the international reinsurance market and those trends are more visible in our Industrial segment, so the large Commercial segment. And again, I mean, it's hard to say anything about the future. But again, there's been, from our perspective, very favorable reinsurance terms that, of course, is a benefit that we partly can pass on to customers and particularly in the property area.

The next question comes from Daniel Wilson-Omordia from Morgan Stanley.

I've got a couple here, mainly around, I guess, costs, both on the Nordic side and the U.K. side. So your cost ratio in Q2 improved 10 to 20 bps this quarter. Just wondering what still gives you confidence in the 40 bps cost ratio improvement that you guide for in the year. So yes, what gives you confidence around that number? And then secondly, in the Private U.K., the cost ratio has improved now quite strongly for the last 2 quarters. Just wondering if you see this as sort of a trend that we can continue to expect? What's driven this? And more broadly, I guess, do you think that the expense efficiency around the U.K. can be better from here in a general sense? Just curious on your thoughts on that.

Yes. When it comes to the Nordic region and the Nordic cost ratio, we remain committed and strongly believe in the 40 basis points improvement, which is partially then fueled by synergies from the Topdanmark integration, reaching EUR 73 million now after Q2. So -- and then quarterly development on cost is something that we don't really focus that much on. It could be differences in when some expenses are being invoiced and stuff like that, that affect the quarterly ratio. So we more focus on the full-year development and again, strongly committed to the 40 basis points improvements that we expect to see for the next few years in the Nordic cost ratio. When it comes to the U.K., also there sort of the cost ratio can always be a little bit volatile from quarter-to-quarter. But it's correct to assume that we have an efficiency potential that we are gradually taking out in our U.K. operation. So we have a positive outlook for sort of the development of the cost ratio there over time. Of course, we are growing and with scale comes, of course, potential efficiency improvements. And although we grow the number of live customer policies with 13%, of course, we're not growing manning in a similar manner. So we do see sort of underlying efficiency improvements in the U.K. business.

The next question comes from Vinit Malhotra from Mediobanca.

So I have 2 questions that I can raise here. One is Swedish new business, new car sales, sorry. It seems that when we were tracking this data in July, we saw a much better print. I'm surprised it's not been noted by you, but I'm curious if you have also seen it and you agree with that data. And then so that could mean some kind of a slightly more positive effect or at least less drag from this line. Second question is on the underlying 30 basis points. Would you say that improvement by a while, would you say this is a little better than you would have expected because I think you were indicating a little more conservatively or cautiously with the Q1 results? So if anything interesting here would be very grateful.

Yes. I haven't really seen the July new car sales figures in Sweden, if that's what you were pointing out. I think the Q2 new car sales was just slightly positive. So limited development really in the Swedish market in that respect. So the story still is that when new car sales will pick up in Sweden, it should support us on growth. And it's still a little bit of a headwind to us. So when we report around 5% growth on Private, it will be 6% when excluding the Swedish mobility. Then when it comes to the 30 bps underlying improvement, I think we've been sort of improving the risk ratio with around 20 to 30 basis points for quite a while now. And I think we were starting to say that there is, of course, a limit to how long this will last. Otherwise, the combined ratio will be extremely low. So yes, perhaps slightly better than expected, but not a big change yet.

The next question comes from Nadia Claressa from JPMorgan.

I have 2 questions, please. The first is just on Private U.K. I think the message that underwriting margins remain in line with your target level is clear. But could you perhaps elaborate on this? And is this driven more by the cost efficiencies as you discussed previously, Morten? The reason I'm asking is because if we look at the loss ratio stand-alone, it has increased 3.8 points at H1. So just keen to understand where the new business written now sits? And second, going back to commercial, in particular, SMEs, I think growth has improved there, as mentioned, quarter-on-quarter, but it is still below the 6% ambition as of H1. So should we be expecting a pickup closer to this target rate over the next few quarters? Or based on your current view, do you think that the market dynamics are just too competitive and therefore, it's not really supportive of this ambition at the moment?

Yes. Thanks. I think when it comes to the U.K., it's all about pricing and price sophistication. So the support that we get on the cost ratio side is helpful, but it's much more important to efforts that we put into improving on the data side, improving our pricing models. And we've done quite some investment in this area also in this year, perhaps in particular on the data side. And with that, of course, we find new segments where we then expect to reach the 88% to 90% operating ratio. So I think it's more that sort of that is driving, again, price sophistication. And then, of course, a slightly more positive market, slight increases in premium levels, of course, is starting to help as well. When it comes to commercial and SME, I think, yes, 5% is not too far from 6%. We've been up and around sort of the 6% figure sort of for a few quarters. I think first quarter, as I mentioned, was a little bit special in that respect. And I think we see a little bit of more normalization now in the second quarter. And we believe that we have a very strong position in the SME market. That market is becoming more digital and customer behavior is starting, of course, to mimic the behavior that we see in the Private market. So gradually, we expect to see that all of the investments we made in digitalization start to pay off also in the SME market.

And I think lastly, I think on the U.K. Private, just to make sure, I mean, the worsening in the loss ratio that we have seen in Q2 is exactly as expected because it's just a natural consequence of the lower rate levels that we saw from Q2 onwards last year now fully earning through in the book. So that's what's driving that deterioration.

Combined with seasonal, of course, patterns.

The next question comes from Emil Immonen from DNB Carnegie.

I was a little surprised maybe by the mention of IfGPT in the report. So maybe you could help me understand what is the tool really used for? What is the goal of using that tool? Do you have any metrics supporting efficiency improvements or something along those lines?