In the latest earnings call, Sampo Group (SAMPO.HE) announced a successful third quarter of 2024, marked by an 8% increase in underwriting profits and the integration of Topdanmark. CEO Torbjorn Magnusson emphasized the benefits of the acquisition, particularly for the company's Danish market presence.
Despite adverse conditions, such as tough winter weather and high claims, the company saw policy count growth in the U.K. and solid performance in the Nordic personal risks, property, and online sales segments. The integration of Topdanmark is underway, with synergy realizations expected to start in early 2025.
Key Takeaways
- Sampo Group reported an 8% increase in nine-month underwriting profits.
- Successful integration of Topdanmark is expected to boost Sampo's Danish business.
- Hastings in the U.K. reported an 11% increase in policy counts.
- Claims inflation is moderating, with a trend expected to continue.
- New car sales are low, but growth in other segments is mitigating potential impacts.
- Motor insurance constitutes about one-third of the If P&C book in the Nordics.
- Pricing dynamics in the U.K. show a decline in premiums, but Hastings maintains healthy margins.
- Net Promoter Scores in the Nordics have dipped, but retention levels remain stable.
- For 2025, Danish premium increases are projected at 4.3%.
- Hastings achieved a combined ratio of 86.5% for Q3.
- The company aims to generate at least €4.5 billion in deployable capital during the strategic period, with potential for share buybacks or additional dividends.
Company Outlook
- Expectations of synergy realizations from Topdanmark integration starting Q1 2025.
- Anticipation of ongoing solid growth in personal risks, property, and online sales in the Nordics.
- Plans to continue investing in Hastings for long-term growth despite rising operating expenses.
Bearish Highlights
- Challenges faced due to adverse winter weather and higher-than-normal large losses.
- New car sales remain low, which could impact the motor insurance segment.
- Net Promoter Scores have dipped in the Nordics due to price hikes.
Bullish Highlights
- Hastings' policy count growth in the U.K. benefits from a supportive market.
- Claims frequency reduction attributed to favorable weather and safer vehicles.
- Hastings' robust pricing strategy guided by data-driven models.
Misses
- Net financial results fell short of some estimates due to market fluctuations but were generally in line with expectations.
Q&A Highlights
- Discussion on pricing dynamics and customer retention in both the U.K. and Nordic markets.
- Explanation of high runoff levels in If P&C and Hastings' combined ratio performance.
- Clarification on premium financing APR adjustments and dividend policy consistency with operating results.
Full transcript - None (SAXPF) Q3 2024:
Sami Taipalus: Good afternoon, everyone, and welcome to the Sampo Group Conference Call on our Third Quarter 2024 Results. My name is Sami Taipalus, and I am Head of Investor Relations at Sampo. On the call with me today, I have Group CEO, Torbjorn Magnusson; Group CFO, Knut-Arne Alsaker; CEO of If, Morten Thorsrud, and CEO of Hastings, Tobias van der Meer. The call will feature a short presentation from Torbjorn followed by Q&A. The call will be recorded, and a recording will later be available on sampo.com. With that, I hand over to Torbjorn.
Torbjorn Magnusson: Thanks, Sami, and good afternoon, everyone. Much of Sampo's success and stability over the past decade has been built on continuous and constant deliveries of Nordic synergies. Our organization is used to always working with finding the next process and system to optimize cross-border and then the next and then the next. And there's considerable optimism and energy in the organization now that we get the new opportunities to employ our pan-Nordic structure with Topdanmark. It certainly also gives us new business opportunities locally in Denmark, where our presence has been too small in history and diversification improves with all of this, of course. The integration process has started at high speed. A joint Nordic management team is in place and both the regular customer service and the synergies work is run by the people, who will be measured by the results. We will report first on integration costs in Q4 and then from the first quarter next year on synergy realization. There are no new numbers on this slide, only a few weeks after the integration started, of course. From a more legalistic perspective, the squeezing out of the last remaining shares has been completed and Topdanmark is delisted. Today, we also take the next formal step in the process by selling Topdanmark from Sampo to If P&C, and we expect the legal integration work to be complete sometime in mid next year. Since the acquisition has been so much discussed over the years, it's tempting for me to mainly talk about it. But however, it's still a limited change to Sampo structure. So let's turn to the very solid performance of our regular business. Overall, nine month underwriting profits increased by 8%, driven by -- both by good developments in the number of customers and rates. The development is better than our target despite the challenging winter this year in the Nordics as well as more losses than normal -- large losses than normal. We will always have a little volatility in our quarterly numbers, less so in the annual ones and Q3 2023 contained rather bad weather, so I'll abstain from commenting on the face value quarterly improvements. Both our Nordic and our U.K. businesses are running at very good speed since some time. In the U.K., first, even though this year, we are a little helped by a supportive market in general, our timing has been excellent, and we have been able to exploit the fact that our profit level is much better than average and the total live policies count is up by 11% year-on-year. The extraordinary premium growth numbers for the U.K. in general will, of course, fade for the market as a whole in the coming period, but we are still very well placed to reap profits as well as customer growth from the good work in the past year. The U.K. market behavior so far this year is quite rational, gradually reflecting lower frequencies and moderating severities rather than a few aggressive optimists changing market behavior or anything like that. I finally think that the doubled profits before taxes for Hastings with cautious reserve bookings speak for themselves. Second, turning to the Nordics, we have solid growth in our prioritized segments, for instance, 11% in personal risks, 6% in property and 10% in private online sales. These segments make up some 40% of If P&C. The total is moderated again by some of the lowest car sales in a decade and the fact that workers' comp premiums in Finland come down a bit when the economy is slow. At the moment, I see no trend towards lower growth numbers, especially since our 89% retention for private lines holds up really well. The only more important change in the Nordic market, I think, is the continuous change to digital direct sales and services over the years. Price comparison websites have not been able to gain any important foothold at all. Claims inflation is very gradually moderating now 4% on average, more in motor, less in property, but our expectation is not that it will reach lower in the very near future. And our pricing reflects this. There are variations between geographies and subsegments, of course, as usual, but we're able to price for at least claims inflation. Since this is the first time Topdanmark is not reporting separately, let me also just very briefly comment that it's pleasing to see Topdanmark contributing better to growth now than in the early 2020s. Organic growth of 7.5% plus the Oona Health acquisition, that's quite good numbers and a bit of weather in Denmark this quarter, some rate increases in motor is all business as usual for Topdanmark. There's always a lot going on in our group in terms of underwriting and services, and I seldom comment on specific actions. Let me this time make an exception and mention two key topics. The first one has to do with our dislike for volatility. As you are aware, the large corporate market has been improving rates wise for a few years, driven by us and by others, and we have been able to get much better attritional loss ratios from this. Large losses are, of course, more random to their nature. But in the present market, we're now able to be selective in our choices of the largest risks or in the line sizes we take there, reducing volatility without sacrificing our leadership in this segment. This exercise has been going on since the beginning of the year and has worked out as planned. This does not mean that we will never ever have any negative large loss deviations, but the volatility will definitely be reduced. On the right-hand side of this slide, another key action. We have made a special study again of profitability and working with electric vehicles. This type of car is now making up some 11% of our motor book in the Nordics, so no longer small. And the work underlines the importance of pricing with all information for these vehicles just as for all other types of engines. This information that you need to use, of course, includes the age of the car, where the car is driven, the individual brands and model and much, much more. Since several years, we have the same profitability targets for EVs as for combustion engines and hybrids, and the very firm conclusion, as you can actually see from the graph here, is that we have the same profitability for EVs as for other cars since several years. So, in summary, the third quarter of 2024 was a financially stable quarter with continued very positive momentum in the Nordics and accelerated growth in the U.K. Finally, it was also a quarter when we completed Sampo's transformation that we initiated in 2020. And with that, Sami, we open up for questions.
Sami Taipalus: Yes. Yes. That concludes the introduction, and let's move over to the Q&A section of the call.
Operator: [Operator Instructions] the next question comes from Ulrik Zurcher from Nordea. Please go ahead.
Ulrik Zurcher: Hi, thank you for taking my question. You say near term that the rate increase claims inflation picture will not change much. So, I interpret that as the picture will basically be unchanged throughout '25. I was wondering if that was correct interpretation? And number two, I was wondering if there's any differences in the Nordics with the required price hikes between retail and commercial SME customers? Or is it more by product, as you mentioned, Torbjorn?
Torbjorn Magnusson: Many of our longer-term agreements with suppliers are struck around about the 1st of January. So, saying that nothing will change for the full year 2025 is a bit early. But in the very near future, in the next six months, I have no information that contradicts what you said. And Morten, would you have more information?
Morten Thorsrud: No, I could just add on the Nordic differences when it comes to price increases. Obviously, motor is higher than property, and that's sort of across the Nordics. And then in terms of countries, Norway has been standing out, partially driven by weak currency that sort of fuels inflation. And that sort of means that Norway have pretty high price increases. Then looking forward in Denmark, we have this special situation where you use an index sort of for your pricing, and that's going to be very high actually next year. So next year, we see also very high price increases in Denmark.
Ulrik Zurcher: Is the motor situation, is that the same for like commercial car parks and stuff like that as it is for retail?
Morten Thorsrud: Yes, that's quite similar. I mean a larger part of the commercial motor fleet is passenger cars, but company-owned. So, it's quite similar.
Ulrik Zurcher: Okay, thank you so much.
Operator: The next question comes from Vinit Malhotra from Mediobanca (OTC:MDIBY). Please go ahead.
Vinit Malhotra: Yes, good afternoon. Thank you. I hope you can hear me clearly. So, first one is just on the -- just a broader topic of new car sales affecting premium growth. And in the scenario that this doesn't really change very quickly, I mean, will it affect how you think about underwriting strategizing? I mean, do you think -- will it bother you too much if new car sales don't pick up and the private sales growth is lower? So that's my first question. Will it affect your behavior in the market? And second question is just on the U.K., in the Hastings commentary, there's comments on benign claims frequency in 3Q. Could you help us quantify or indicate how much of that was a positive effect in the 86.5%? Thank you.
Morten Thorsrud: I could start then by commenting on growth per line of business. Year-to-date, we have 11% growth on personal risks. We have 6% growth on property and 4% growth on motor. Yes, low new car sales, of course, give us a lower growth on motor, but I think it's not necessarily a problem if this situation is -- continues sort of into '25, '26. We still see very good growth in other lines of businesses. Motor is about 1/3 of the If P&C book in the Nordics. So, it's important, but again, we are also growing in the other areas. Then that is said, of course, the new car sales now is on a very low level compared to sort of historic numbers. So one would expect it to go up again, but it wouldn't change our approach or behavior in any way.
Torbjorn Magnusson: And then Tobias is somewhere.
Tobias Van der Meer: Yes. So let me give you a bit of color on claims frequencies. So the industry data that's available suggests between a 5% and 10% frequency change year-on-year versus the equivalent period in 2023 for the industry. And there's a lot of volatility in that, but what we can see in our numbers is three dynamics. Firstly, the weather. So, 2024 weather has been more favorable than 2023. So that's contributing a bit to the frequency reductions. Secondly, it does look like the trend of safer cars and safer roads, the long-term trend is continuing. And therefore, that trend has been hidden by COVID, the post-COVID era and then inflated frequencies in 2023. And it feels like across the market, we're returning to a more normalized level of frequency, more in line with historical averages with a slight downward trend. So that's the safer cars and safer roads part of the dynamic. And then thirdly, and specific to Hastings, we took significant underwriting actions in 2023, including introducing new data sources and new models that were deliberately designed to, in really simple terms, avoid bad drivers and attract more good drivers into Hastings. And from our analysis, it looks like those initiatives have paid off handsomely with a safer book contributing to the overall operating ratios, both for the full year and Q3 as reported today. Not going to unpick all the operating ratio dynamics for one quarter, but can reaffirm what Torbjorn said earlier that we continue to book a cautious loss ratio and take a cautious approach to reserving and are still able to produce the good results that we've shared with you today.
Vinit Malhotra: Great, thank you, Toby. Thanks.
Operator: The next question comes from Jan Erik Gjerland from ABG. Please go ahead.
Torbjorn Magnusson: All right, why don't we take the next question.
Operator: The next question comes from Vash Gosalia from Goldman Sachs. Please go ahead.
Vash Gosalia: Hi, thank you for taking my questions. Two for me, please. First is within the U.K., could you throw some light on the pricing development at Hastings? Basically, market data suggests that prices have been going down, but not entirely sure if that's the case at Hastings. And second question is in the Nordics. For a few periods now, the NPS and the retention levels have been going down. So, could you please throw some light on why that is and how -- what can we expect there?
Torbjorn Magnusson: Tobias, will you try the first one?
Tobias Van der Meer: Yes, happy to. So, pricing dynamics, just to reset the scene, prices went up very significantly in 2023, both for the market and for Hastings, but we priced up earlier than most others, as we saw the claims development that we did in 2023. And so, we've been able to take a more growth-oriented approach, having priced earlier than others in 2024, and you see that reflected in the numbers. Because of the lower frequencies and improving severities by lower claims inflation than we saw in 2023, the market is acting rational and reflecting that in lower prices. So, prices have continued to come down by small amounts for quite a few of the months in 2024 so far. And if this makes sense, because we're now lapping the period last year when prices went up a lot, you can, I think, infer that average premiums now are not growing very much anymore because of those two dynamics coming together. Having said that, the average premiums are still very healthy. The premiums we're seeing are still consistent with our margin -- target margins or better. And so we're still feeling like there's further growth opportunity for us to exploit as we look ahead, albeit we would say that Q3 was a particularly attractive period. And so those sorts of growth rates in terms of policy count, we wouldn't expect to see in Q4 or going forward.
Morten Thorsrud: Then comments on NPS and retention in the Nordics. NPS is mainly affected by fairly significant price increases. That's what we clearly see in the customer surveys. And of course, in many markets, you have year number two or even year number three with pretty high price increases. So that's obviously having a negative effect on the Net Promoter Score. Retention, however, is broadly stable in -- the commercial segment is very stable. In private, it has been ticking a little bit down, but it's now stabilizing, and we even see a slight increase in a few markets over the last few months. And the retention in private is on a historically very high level. So, it continues to be high retention in the Nordics also on the private business area.
Torbjorn Magnusson: And we are ready for the next question?
Operator: The next question comes from Jan Erik Gjerland from ABG. Please go ahead.
Jan Gjerland: Thank you for taking my question. Hope you can read them now. The first one is about volume versus price and the need for further profitability. How would you think when you price for the next year, would you sort of start to further increase the profitability? Or are you happy with the current one and want to do some volume growth on top of it? Secondly, on the workers' compensation in Finland, could you shed some more light into what happened and if that is going to be repeated again into '25? And finally, on the car frequency part in Denmark, can you shed some light into that topic on Topdanmark? Thank you.
Torbjorn Magnusson: So I'm going to give you a very general answer before Morten and maybe Tobias a bit more detail. But volume compared to price initiatives or thinking about that, there's always a segment or a tactical decision in each line, in each geography, in each -- for each product. We see what opportunities we have to maximize value. And that's the whole point of, for instance, having underwriting profit -- increasing the underwriting profit as the main target rather than running a race for the combined ratio to get to zero.
Morten Thorsrud: And I think I'll continue then with the two last questions. Workers' comp Finland, that's a funny product. It's the only product where we have runoff on premiums. So, what happened here was that we have something called adjustment premiums. In the beginning of the year, sort of we charge the clients based on expected salary levels. And then when we get sort of the updated real salaries sort of from the clients, we then adjust the premiums according to that. So then you could have a positive or a negative sort of adjustment premium if companies have employed more, if salary increases have been higher than what you have assumed and so forth. So, in the third quarter now, we had a negative adjustment premium, meaning that salary levels in -- with the companies that we insure on workers' comp was lower than what we had assumed when making the initial premium calculation. So that's on workers' comp, and that means that you -- well, one could have positive and negatives on this also going forward. Car frequencies, I think, nothing really special to comment on -- in the Nordics nor in Denmark in the third quarter. We see a pretty normal development again throughout the Nordics and also in Denmark in the third quarter.
Jan Gjerland: Okay. So nothing more to report. It sounds like you had some higher prices in Denmark. What is that going to be fixed?
Morten Thorsrud: Prices, of course, there are quite significant price increases in Denmark, which is also the case in other countries. In Denmark, it's not only in motor, it's also in other areas. There is a new legislation on workers' comp that drive up workers' comp premiums. And as I already mentioned, I think, we have a high index going into 2025. So premium increases in Denmark are quite significant now.
Jan Gjerland: Could you just shed some light into the indexation increase? Is that 5%, 10%, 15%?
Morten Thorsrud: 4.3% for next year in Denmark.
Jan Gjerland: Thank you.
Operator: The next question comes from Antti Saari from OP Markets. Please go ahead.
Antti Saari: Hello. Thanks for taking my question regarding Hastings. the top line development is impressive, but operating expenses have been growing for the last two years very rapidly -- even more rapidly than top line. So there doesn't seem to be that much operating leverage. What should we expect regarding this going forward?
Torbjorn Magnusson: You're wasting money, Tobias?
Tobias Van der Meer: Thank you for the question. As you can imagine, when I get from the Board relatively frequently as well, the response is twofold. One is, of course, there is a strain of writing lots of new business and growing the company. We have to pay the price comparison websites and the setup costs and sales costs of new policies being written that have all within a period of more rapid growth, have all contributed to the growth and expenses as well. The second part is very deliberate investments in new capabilities that we've made over the last couple of years to make sure that Hastings is not just successful in 2024 or even 2025, that consistent with Sampo's long-term ambitions, Hastings is set up for success over the long term. And the business cases that the teams have presented us with in pricing, in anti-fraud, in digital, in claims and many more areas around the company are so attractive that for now, we've decided to keep investing in them. I guess as we look ahead then, the balance of where our expenses will go will depend on three things. Firstly is how much we continue to grow and that strain of new business and the extent to which it continues. Secondly, the business cases we get presented with by the teams and to what extent we continue to get excited by them, albeit I would say that at least for now and 2025, the business cases continue to look very good and have great paybacks and returns, and therefore, I'm very happy to continue to invest. But thirdly, we do expect the organization to become more efficient through the investments we've made over the last few years in digital and technology and automation. And we would expect particularly the call center costs within Hastings to gradually start to come down over time. And that part of it, we're confident, will happen. How it will net out against those other two dynamics is harder to tell, but that's the way we manage the business is to focus on achieving that operating leverage in the costs that we think are not key to our future and separate that out from the areas where we see investment opportunity and growth opportunity.
Torbjorn Magnusson: And as a background to everything that Tobias said, let me offer the combined ratio of Hastings for Q3, 86.5%.
Antti Saari: Exactly. Yeah, very clear. Thanks. That's all for me.
Operator: The next question comes from Jaakko Tyrvainen from SEB. Please go ahead.
Jaakko Tyrvainen: Good afternoon. I'm Jaakko here from SEB. A question on the high level of runoffs again in If P&C. Was there something special to note behind this? Or has -- the inflation has been more moderate versus your expectation at the time when the reserving?
Morten Thorsrud: No, it's nothing in particular sort of normal volatility in a quarter, I would say, and coming from different lines of businesses and also different countries. It could be noted, however, that, bear in mind that, we are having also runoff of the risk adjustment reserve, not all of our competitors do the risk adjustment reserve accounting the way that we do. We build it up on the current year, and then we have always then a certain gain on the runoff side from running it off. So, you saw, for instance, in Q3, that risk adjustment reserve on current year was 1.5%. So that will automatically give us a certain runoff gain over time.
Jaakko Tyrvainen: Okay. Good. Thanks for that. Then on the Hastings, you probably already touched this a bit, but pricing seem to be flattening or actually declining. At the same time, it seems that you are taking more and more market shares. Are you basically pricing over versus the current market? Or it just gained market shares coming in with the other actions you are doing?
Torbjorn Magnusson: Tobias?
Tobias Van der Meer: Yes. So I guess our basic approach in Hastings is that we try and let the data and the models do the talking. So I guess I don't sit and make a decision on the market environment in my ivory tower and decide whether we're going to push for growth or not. We have models that are designed to assess all the time at a micro segment level, what our current performance is, how we expect claims to develop over the next year or longer than that, what the market dynamics are, including price elasticities we see, how much volume we gain or lose if we adjust our prices, again, at a micro segment level. And it's the working of those models that decides how we respond to competitive prices to claims inflation and make sure that we hit our target margins going forward. And so, the color on this year and those dynamics is that on balance, we've seen more micro segments where we create shareholder value by targeting more growth than we've seen segments where we create shareholder value by increasing our prices. And that's a dynamic that's been very prominent, particularly at the end of Q2 and into Q3, and hence, the growth that we've experienced during this more recent period. I would say that the more recent data is suggesting a more balanced picture as a combination of us looking at all those micro segments. And we'll continue to assess those market opportunities at the segment levels and let the model do the talking, as we look ahead. Overall, again to reiterate, we're happy with our target margins, still comfortable hitting them at these pricing levels that we're at, at the moment in Q4 and still confident that there are growth opportunities for us to go after, just not as many or as obviously as they were at the end of Q2 and Q3. Okay, that's very good. Thank you all from my side.
Operator: The next question comes from Amalie Zdravkovic from Deutsche Bank (ETR:DBKGn). Please go ahead.
Amalie Zdravkovic: Yes, hello, good afternoon. This is Amalie from Deutsche Bank. Thank you so much for taking my questions. I have two, if that's okay. Firstly, on the net financial result, it's been moving around a bit for If due to market moves and actually missed relative to consensus. I was just wondering if you have sort of any color to add on this? Or how it looks going forward also on a quarterly basis? And then second, there's been a lot of news flow recently around premium financing in the U.K. And I was just wondering if you have anything new to add from Hastings perspective on premium financing and the APRs you charge. Thank you very much.
Unknown Executive: On the net financial result, I think we were sort of broadly in line with many estimates. Then there were a couple that have high estimates using our sensitivity tables. And of course, our sensitivity tables represent a 100 basis point parallel shift, which wasn't the case in this quarter on the net investment result. And that probably made the estimates a little bit difficult to make accurately. There were absolutely nothing special in the net financial result for this quarter, which was not in line with our expectations given the significant drop in short rates and then a slightly more modest rate towards the longer end of the curve.
Torbjorn Magnusson: And Tobias, can you comment a bit on prime -- premium financing?
Tobias Van der Meer: And on premium finance, yes, we've brought down our APR slightly during the year. They are in line. That has had no impact on our margins or our target margins. And hence, despite that small movement down in the APR, we've been able to produce the sorts of results that we have this year, including Q3...
Torbjorn Magnusson: You're cutting out a little bit, Tobias. Okay. All right, okay. Perfect. Amalie, did you have another question? Or were you done?
Amalie Zdravkovic: No. I mean -- sorry, can I just clarify? I think you cut out for me, but -- so you brought the APRs down slightly during the year, and they're sort of now more in line with the rest of the market -- or sorry, you cut out after that sentence.
Tobias Van der Meer: Apologies. But yes, brought them down slightly in line with the market now.
Amalie Zdravkovic: Thank you very much. That's clear. Thanks.
Operator: The next question comes from Jan Erik Jan Gjerland from ABG. Please go ahead.
Jan Gjerland: Thank you for taking my follow ups. Regarding the insurance or the dividend -- the insurance dividend and the solvency and the share buyback ongoing these days, how should we think about the upcoming full year when it comes to you having the insurance dividend capacity last year? Would you now think without being sort of an insurance company only, just think about the regular dividend? Or would you sort of be looking at your old history when it comes to the dividend policy and what you're expecting going forward? And finally, with your sort of increased EPS and operating EPS going forward, should we shed more light to that level when we're thinking about the future expectations for dividend than your past history? Thank you.
Unknown Executive: In terms of dividend decision each year, it's, of course, a decision for the Board. And we have the dividend policy, which we have, which says that it should be at least 70% of our operating result. In other words, the result we're reporting excluding the mark-to-market volatility in our net finance result. Now in terms of dividends going forward, you should think about the regular dividend as the dividend that we intend to pay in line with our dividend policy. And it would be natural to think that, that grows in line as a principle with the improved operating result or the improvement in the operating EPS that we have as a specific target. Then on top of that, it would be natural to refer to our target of generating at least € 4.5 billion of deployable capital during the strategic period. And excess capital sort of between that € 4.5 billion and the accumulated regular dividend that we will pay during this period could either be used for share buybacks or extra dividend depending on decisions that we will make when such excess capital is being generated.
Jan Gjerland: Okay, thank you. Very clear.
Operator: [Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments.
Sami Taipalus: Okay. Well, no further questions. So the call concludes there. Thank you, everyone, for listening.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.