Sampo Oyj (SAMPO) Earnings Call Transcript

Good morning, everyone, and welcome to Sampo Group's Conference Call on the Third Quarter '26 Results. My name is Mirko Hurmerinta, Investor Relations Manager at Sampo. I'm joined on the call today by Group CEO, Morten Thorsrud; and Group CFO, Lars Kuffelbeck. The call will include a short presentation by Martin 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.

Thank you, Mirko, and warmly welcome to the Sampo Q3 conference call from my side as well. And perhaps thank you for taking time to participate in this meeting at a time when there is a lot of other interesting things happening in the world around us. But on Sampo then, the third quarter was once again a statement of our strong performance, driven by broad-based top line growth and strong margins across the group. Our like-for-like GWP growth accelerated to 6%, up from 5% in the second quarter. The performance is strong in all the largest divisions, with 6% growth in Private Nordic, 7% in the U.K. and 7% in commercial Nordics where growth in SMEs stand out with a staggering 9% growth in the third quarter. The growth is also increasingly volume-based which is good to see now that inflation is tapering off a little bit. So we see a growth in a number of customers and number of objects in all of these 3 divisions. Meanwhile, our insurance revenue increased by 9%, supported again by positive development in all our segments. This time, perhaps also good to highlight industrial, where we benefit from a change in business mix following our derisking actions in property and lower reinsurance prices that are now more visible in the insurance revenue line. The improved traction seen in the second quarter and even more in the third quarter, brings our year-to-date, like-for-like GWP growth to 4% and insurance revenue growth to 8%. Combined with disciplined underwriting and another quarter of favorable severe weather and large claims development, our underwriting result increased by 9% on a currency-adjusted basis in the third quarter. Operating EPS increased with 8% year-to-date, whilst a more moderate 2% in the third quarter isolated. The latter was on one hand, driven by higher underwriting results and a positive effect from our recent buyback programs. But on the other hand, largely offset by lower realized investment gains than in the prior year comparison period. Following the strong 9 months performance and on back of robust growth and also favorable claims development throughout the year, we had once again adjusted our outlook upwards for the full year. On the insurance revenue side, we increased slightly up to now EUR 9.75 billion to EUR 9.85 billion. And on the underwriting side, the adjusted range from 1,550 to EUR 1,625 million to now 1,600 to EUR 1,650 million. The new outlook indicates 7% to 9% top line growth and 8% to 11% underwriting result growth year-on-year. Needless to say, I'm, of course, extremely happy with a very strong performance over the first 9 months of this year. While, again, we had an excellent quarter, and there will be a lot of things to highlight in each and every segment I thought I should still reflect a little bit on the longer-term performance as we now are approaching the end of our current strategy period. As you can see from this page, we have ticked every box so far. And I'm very confident that this will also be the case when we close our books for 2026. Since 2024, we have delivered 8% top line growth and 11% underwriting result growth on average. If you use the midpoint of our 2026 outlook, we are set to deliver about 40% underwriting profit increase over this 3-year period. While the favorable claims environment in terms of benign outcome on severe weather and large claims had a positive contribution, the growth was primarily driven by our broad-based and durable top line growth. At the same time, our underlying margins have remained strong and even improved a bit thanks to our disciplined underwriting and consistent cost efficiency improvement. This has been further fueled by the strong delivery of Topdanmark synergies that have been realizing well ahead of our initial expectations at the time when we announced the acquisition. The headline figures have been driven by strong performance on our key operational ambitions. For example, in the U.K., we have seen 20% underwriting result growth on average, which has been well above our initial ambition of 10% to 15% growth. Same thing with Personal Insurance, which has been enjoying double-digit like-for-like top line growth. I'm really pleased to see at this time, our retention has remained high and stable with impressive customer satisfaction score. And consequently, we have also been able to grow the number of customers as well as the insurance objects in all key segments. That said, none of this was achieved due to any exceptional circumstances, M&As or other one-off effects. This is rather a result of consistent investments in our operational capabilities, cost efficiency and customer propositions over a much longer period. And importantly, this would not have been possible without our dedicated and talented employees across the group and also the strong support from our partners. All in all, I see us being well positioned to continue building on this strong foundation and further leveraging our scale and operational pole positions in a vast number of areas to deliver superior value to our customers and as a consequence, also substantial value to our shareholders. Then switching focus a little bit and talking more about some exciting balance sheet items where I will hand over to Lars.

Thank you so much, Morten. The third quarter of 2026 was another volatile quarter in the capital markets, and this time more on the fixed income side. While our investment portfolio continued to deliver very solid interest and dividend income, the sharp increase we saw in interest rate during the quarter led to sizable mark-to-market losses this time around. However, remember that these are short-term effects and higher interest rates enable us to reinvest at higher yields, supporting investment returns in the long term. In fact, our average deal rate on new fixed income investments during the quarter was 4.2%, slightly above our running yield at the end of Q3. During the quarter, we also continued to reduce our ownership on Nova by successfully selling just short of 15 million shares, generating EUR 111 million in gross proceeds. Overall, both of our legacy assets, Noba and Nexi had a positive contribution to our net investment income, which was nice to see. Moving to the solvency development, which was quite straightforward also this quarter, strong operational performance and some extra on top of that from the market effects and the sale of Nova shares. This was partly offset by the other items bar on the chart. This includes a number of various different factors. One of these is the underwriting seasonality, as expected, which tends to be positive in the first quarter of the year. and then unwinding into negative effect towards the end of the year. Also, the VAT part of the IT-related intangibles impairment that we announced in September had a small negative effect as well as the coupon payment on our hybrid debt. Then we also added some further prudency to our reserves, partly reflecting the prevailing uncertainty regarding claims inflation outlook due to the higher oil prices and that, in turn, increases our insurance risk SCR. Overall, though, I am very, very happy with the 175% solvency coverage that includes the full 90% distribution accrual particularly given that the symmetric adjustment is still quite high. And as a reference, with 0% symmetric adjustment and all else equal, our solvency would have been 179% for the quarter. For those of you who made it to Page 21 of our Q3 report, you will have noticed that we will make some changes to our operating result and operating EPS key figures in 2027. Firstly, to avoid any confusion with the new IFRS 18 line item operating profit, we have decided to rename these key figures to Core Results and Core EPS effective from the beginning of 2027. At the same time, besides the naming a few other changes will be made to the calculation of the new core results. Interest expenses on RT1 note will be included in the key figure as they have cash effect. And then to have an even more consistent treatment of mark-to-market effects, certain derivatives will be excluded. And finally, the fixed tax rate that we use for this metric have for simplification reasons, been increased from 21% to 22%, to better reflect the actual effective tax rate we see. As you can see from the right-hand table, the impact of these changes is not material. And I'm sure that some of you have already figured out that announcing these changes now might indicate that we will also continue to have an EPS metric as a financial targets in the next upcoming strategy period. And by doing it this way, we don't have to spend time at the upcoming investor update explaining and introducing the core EPS concept. That was all from my side this time around, and back to you, Morten.

Thank you, Lars. Before moving to Q&A, I would like to take a few minutes just to revisit some of the market dynamics of the Nordic P&C insurance market. Since there has been, once again, some concerns regarding what AI may or may not change in the future. And frankly, some of the arguments that we've seen have felt a bit strange given the market that we operate within. Starting with the fact that yes, AI will most likely have an impact on distribution in the future as consumer behavior continues to evolve. Although this is nothing new to us, as we have been part of shaping this development for more than 2 decades with our consistent investments in product innovation, process optimization and in particular, digital distribution to drive better customer outcomes. We will, of course, talk more about AI at our investor update. So now I will rather focus on the things that make the Nordic P&C insurance market different from many other markets and on the things that will not change due to AI. Unlike many other markets, in the Nordics, P&C insurance is increasingly a service product not a commodity where price is all that matters. That said, Nordic customers are highly conscious of the value they receive for the money. No one is willing to overpay for value they don't get. For our customers, the value comes in form of easy-to-use services, good digital setup, user-friendly mobile app, wide coverage and simply the fact that when not if something happens, but rather again, when something happens, they can trust that we are there to help a lot. I'm saying and stressing then, not if, because claims do happen regularly in the Nordic region. They're often fairly small but frequent our customers have a claim more frequently than every second year on average, meaning, again, of course, that there will be a lot of customers that have more frequent claims than this, of course. And that's totally fine as our business model and customer promise in the Nordics is that it helps a lot. Further, part of the service aspect is that customers usually bundle their insurances under the same provider. It's good to have 1 insurer, it's good to have 1 service provider. On average, our households customers have more than 4 policies with If. Last time I checked my If mobile app, my household had more than 10 policies, which is actually not uncommon. This is, of course, something that supports long-lasting customer relationships and high retention. But succeeding in this market requires creating value, of course, for the customers. In the end, that is all that matters. One key figure I'm very proud of is the one on the right-hand side on this page, showing how likely our customers are to recommend us after they have a claim. Turns out, those are the most satisfied customers that we have. Staying on the claims side. It's important to note that while large parts of the customer journeys will become increasingly digital. The claims resolution will remain fundamentally physical. Cars need to be repaired, leaking pipes needs to be fixed and broken ankles needs to be treated. As I already alluded to, Nordic P&C insurance is a service business and customers appreciate the convenience. This means for most part, this is not a cash settlement business. In fact, over 70% of motor claims are repair services procured on behalf of our customers, where we already have negotiated the price and the terms and then we paid the repair shop. We handled the hassle so that the customers don't have to. Hence, efficient claims selling from start to finish with superior customer service requires scale, advanced operational capabilities, and an extensive partner network. To sum up, I'm very confident that with our customer-centric with our customer centricity built into our DNA and our sustained focus on innovation. We are more than well positioned to continue our superior service and create value for our customers amid evolving technology trends. So finally, a quick reminder on the upcoming investor update on the 17th of November in London. We will provide more insight into our operational priorities and financial ambitions for the next strategic period. Looking forward to meeting all of you at that event or also on roadshows that we will have after the investor update. And with that, I hand it over to you Mirko.

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

[Operator Instructions] The next question comes from Youdish Chicooree from Autonomous Research.

My first question is on the Nordic industrial segment. I was wondering whether you can -- whether there was a reversal of growth in the was thanks to some one-off contracts. Are there the growth is durable, especially you go into the 1/1 renewals next year? And then secondly, on the -- on your private U.K. division. You described the market as the pricing environment are soft, but you still growing policy by a decent number, like 4% in [indiscernible] in 1 quarter and 2% in home. So I was wondering whether you can share with us the kind of price increases you are implementing at the moment in Motor & Home? And then maybe broadly comment on the market, whether there's been an improvement maybe in the past months.

Good. I'll try to cover these two. Nordic Industrial small positive GWP growth in the fourth -- third quarter should bear in mind that this is a quite low sort of ready or small quarter in terms of renewals in industrial. So any small movements would give kind of an impact there. So wouldn't read too much into that. However, what we try to highlight a stress a little bit is rather the growth in insurance revenues, so on the net side where we, of course, partly see benefit from a softening reinsurance market, so more attractive to us in that respect. And also the fact that the derisking was larger on a gross side than on the net side and also that industrial is growing in other lines of businesses than property. So liability, cargo, employee benefits. But the small top line growth in the third quarter isolated, I would not read too much into it. It's a fairly limited renewal quarter anyway. On private U.K., I would say that the market is gradually improving. We see prices coming up on renewal and then we see still, of course, quite a bit of competition on new sales. We still expect and we like to see that the market continue to improve going forward. But of course, we are starting to come out of the situation where we have significant headwind from sort of year-on-year pricing levels. We are growing absolutely in the market. This is partly and perhaps even mainly a result of investments that we've done in more data, better pricing sophistication that have enabled us to, in a way, increase our underwriting scope and be more competitive in certain pockets of the market. We still right to meet the 88% to 90% operating ratio. So our growth is very much dependent on not only the pricing in the market, but also sort of how sophisticated and good our pricing models are. So yes.

And could you share the price increases you're implementing? If possible, please.

We're not commenting on the price increases such. But of course, we are clearly pricing now for the inflation that we expect to see going forward. We don't publish any specific on that.

The next question comes from Ulrik Zurcher from Nordea.

And I apologize. It's a bit boring this time. But I was just focusing down on the cost ratio in the Nordics. It looks maybe like you're heading more for 30, 20 bps improvement and 40 bps improvement is that correct? Or -- and then I also like just on the cost side, I'm wondering, are there any sort of new investment needs or cost inflation items that we should be aware of in '27? Or do you still think you can improve a bit on the cost ratio next year?

The underlying improvement is definitely there. And of course, still being largely fueled by the synergies from the Topdanmark integration. There is a little bit of accounting effects back and forth, slightly different accounting practices in the previous Topdanmark accounts compared to sort of how we do the accounting in samples. So some kind of fluctuations like that. But clearly, underlying performance is in line with the 40 basis points. Then, of course, we're also, at the same time, doing investments in particular, sort of strengthening also the distribution setup. But I think, again, largely, we focus on the underlying cost ratio improvement that is there and where we also expect it to come in 2027.

Yes, that makes sense -- sorry, I just forgot something here. No, that's it for me. Thank you.

The next question comes from Vash Gosalia from Goldman Sachs.

I have 2 potentially 3. One is just quickly on your discount that seems to be a bit large for this quarter. Could you just help us understand what's really driving that? And what should we expect going forward? Second one, is just on the SME growth rate in the Commercial segment. Now while you have reported 9% in this quarter, but it seems to be a bit volatile across the quarters because you had something like 7% 1Q, 5% 2Q and 9% 3Q, but you keep on flagging that this particular part of the business is more aligned or more into the private segment? So can you help us understand the volatility there? And third one, just can you help us understand the change or the impact on your combined ratios from mix shift between product lines and geography.

I'll leave the discount rate first to Lars, and then I'll try to address the other ones?

Yes, absolutely. Yes, you're absolutely right, Vash, that the discounting effect in the Nordic risk ratio that was 4% in Q3, that is somewhat high, and it's also higher than the run rate level we would have all else equal expected. Approximately half of the 1% increase that we saw from Q2, that was driven by the actual change in interest rates while the other half is pretty much explained by reserve movements, One of the things we have done in Q3 is that we continue, of course, to closely follow up and monitor the development on workers' comp in Denmark following the Supreme Court ruling that we saw. And what we have been doing in this quarter is to reassess the events not in data reserve when it comes to which accident years we actually believe that will be mostly impacted by this. So we haven't changed the size of it, but we have changed the distribution across accident years during the quarter. And that does have an impact in terms of giving us a somewhat higher discounting effect in the quarter than what we would, all else equal, have expected.

Then on the SME growth, first of all, of course, you know this, but this is gross written premiums. And of course, gross written premiums is always more volatile than insurance revenue as it's sort of just exactly what we write in this quarter. So if you have a little bit strong quarter compared with a little bit weak quarter sort of the year before, for instance, you will get some volatility. Then when it comes to the SME market, you've seen a strong development there over time. I think quite many quarters, we've been around 6%, 7%. And the outlier was probably in the start of the year where it was a little bit softer. So yes, 9% is perhaps a little bit on the high side. But again, we see really strong traction in this market. To the combined ratio mix, obviously, the biggest impact for us is Nordic versus U.K. In the Nordics, we have a combined ratio sort of in the low 80s, whilst in the U.K., we focus on the operating range 88% to 90%. So of course, that is having an impact, but that you know. Apart from that, we have the same targets within the Nordics between the different segments and different markets. So there, you shouldn't really see any large combined ratio effect from growing more in one segment and other. We have the same targets for all the segments in the Nordics.

The next question comes from Nimrat Kaur from Bank of America.

If I can get back to [indiscernible] question on the cost ratio. In the private Nordics, we saw nearly 50 bps of worsening in the cost ratio despite you're saying the synergies from the top Denmark acquisition. So if you can give a little bit more color on like what's going on there and what we should consider going forward? And then the second one on the reserve strengthening you mentioned for that has a small negative impact. What does that relate to? And how should we think about it going forward for that as well?

Yes. I'll try to address the cost ratio again. If you look at the development on private and commercial, you will see that private is jumping up commercially is going down. And I think on the cost ratio, we need to look at the totality. There is some changes to allocations. There are some changes to portfolios, again, as a result of the Topdanmark integration. So that is not a real underlying development, but just how portfolios are being kind of moved from 1 business area to another or how cost is being booked with 1 business area versus another and how that has been changing. So unfortunately, until sort of -- until the Topdanmark business is kind of firmly into also the comparison figures then there is still a little bit of volatility on the segments on this. Again, I would more look at the totality and the underlying development. Then solving on, Lars?

Yes. Thanks a lot for the question. I mean Sampo has always had a very prudent approach to reserving. And I think a testament to that was also clearly how we dealt with the work comp ruling earlier this year. But given the current uncertainty regarding claims inflation or inflation in general, due to the higher oil prices and the conflict we see in the Strait of Hormuz, and the fact that we also had another quarter of so-called good luck with lack of severe weather and large claims, we did take the opportunity to add some prudency -- further prudency to our reserves. I think as we do that, we do not change our risk margin. That stays stable at the 85th percentile. So what we do is we actually add reserves to the book. And that means that from a pure modeling point of view, as reserves go up showed us the reserve risk in our partial internal model. And hence, all else equal, that does increase our solvency capital requirement to -- related to reserving. So it's a model question rather than anything else.

Understood. And if you mentioned claims inflation and everything, do you give any view, what's your view on the Nordics claims inflation in 2027, more the past wages property, et cetera?

No. I think apart from what we already said that inflation is slowly coming down. It's still a little bit elevated. We, of course, have a tight eye on the inflation and inflation development. But we don't give a precise guidance. And it's varying a little bit, of course, from country to country in the Nordic region. Still highest inflation obviously in Norway driven more by just wage increases domestically.

The next question comes from Hans Rettedal Christiansen from Danske Bank Markets.

Firstly, you mentioned the sort of improved momentum in Q3 on insurance revenue private lines. And then you also say that it's increasingly volume-based. So I was wondering, just in terms of how you're pricing, is it more aggressive than before given that you're able to take volume? And then secondly, also on Norway, specifically, how you're seeing sort of price competition there given that we're coming from exceptionally high levels of price growth?

Yes, let's start with that one. Absolutely no change to our pricing sort of philosophy and behavior. We focus on pricing risk correct and we focus on having stable prices to our customers. That's the way that we also will have, of course, good retention. So no changes in that respect. In terms of market dynamics and Norway, as you mentioned, there's been high price increases now for quite many years in the Norwegian market. We see that we have extremely high new sales in the Norwegian market. But we also see that of the first year customer, the churn is somewhat higher. So again, retention is very good with our existing customer base. But the customers you've been in the market on a first year basis, churn is higher. So of course, after 3 years of almost like double-digit price increases, a certain part of the market is churning more. I think that is largely playing even to our strength as we have a very efficient and digital distribution model.

And then I guess my second question is because you elaborated a bit on AI towards the end. And thanks for the number of sort of the degree of bundling that you have with policies or more, I guess is, it's an answer you're probably not going to give me, but I was wondering, in sort of the bundling equation. Can you talk a little bit about the degree of kind of that customers get when they bundle and especially from -- with regards to kind of AI bots and how that can be difficult to replicate?