Sampo Group's Results for January-September 2018

**) the comparison figures contain a non-recurring profit item from the change of Topdanmark's accounting status from an associated company to a subsidiary of EUR 706 million. Excluding the item Topdanmark's result would have been EUR 90 million for January-September 2017 and third quarter of 2017 EUR 37 million.

The figures in this report are not audited. Income statement items are compared on a year-on-year basis whereas comparison figures for balance sheet items are from 31 December 2017 unless otherwise stated.

Sampo follows the disclosure procedure enabled by the Finnish Financial Supervisory Authority and hereby publishes its Interim Statement attached as a PDF file to this stock exchange release. The Interim Statement is also available at www.sampo.com/result.

THIRD QUARTER 2018 IN BRIEF

Sampo Group's profit before taxes for the third quarter of 2018 was EUR 490 million (1,181) and earnings per share amounted to EUR 0.69 (2.01). Marked-to-market earnings per share was EUR 0.78 (2.04). Net asset value per share increased EUR 2.56 during the third quarter and was EUR 24.13.

Combined ratio for If for the third quarter of 2018 was 85.8 per cent (84.8). Profit before taxes amounted to EUR 211 million (202).

Topdanmark's combined ratio for the third quarter amounted to 79.9 per cent and profit before taxes to EUR 65 million.

Sampo's share of Nordea's third quarter 2018 net profit amounted to EUR 139 million (169).

Profit before taxes for Mandatum Life amounted to EUR 72 million (64). Premiums written decreased to EUR 152 million from EUR 207 million at the corresponding period a year ago.

BUSINESS AREAS

If

Profit before taxes for January-September 2018 for the If Group amounted to EUR 626 million (603). The total comprehensive income for the period after tax decreased to EUR 358 million (556). Combined ratio was 85.8 per cent (85.9) and risk ratio amounted to 64.2 per cent (64.2).

Net releases from technical reserves relating to prior year claims were EUR 129 million (68) in January - September 2018. Return on equity amounted to 16.4 per cent (24.6) and the fair value reserve at the end of September 2018 was EUR 461 million (519).

Technical result amounted to EUR 463 million (463). Swedish discount rate used to discount the annuity reserves decreased to a new all-time low at -0.40 per cent and had a negative impact of EUR 5 million on the third quarter profit. Insurance margin (technical result in relation to net premiums earned) remained at 14.5 per cent (14.5).

Large claims were EUR 19 million (48) higher than expected in January - September 2018 and EUR 18 million higher than expected in the third quarter of 2018. In business area Commercial large claims were EUR 22 million worse than normalized and in business area Industrial EUR 3 million better than normalized. Sweden and Finland had the worst development.  The forest fires in Sweden in the beginning of the quarter had only a marginal impact on the result - approximately EUR 4 million.

Gross written premiums amounted to EUR 3,595 million (3,621) in January-September 2018. Adjusted for currency, premium growth was 3.1 per cent. Growth was positive in all business areas and in all markets except Finland.

Cost ratio improved to 21.6 per cent (21.8) and expense ratio to 16.1 per cent (16.2).

At the end of September 2018, the total investment assets of If amounted to EUR 11.9 billion (12.2), of which fixed income investments constituted 82 per cent (84), money market 6 per cent (3) and equity 12 per cent (13). Net income from investments amounted to EUR 182 million (173). Investment return marked-to-market for January-September 2018 amounted to 1.3 per cent (2.8). Duration for interest bearing assets remained at 1.4 years (1.4) and average maturity was 2.6 years (2.7). Fixed income running yield without taking into account the FX hedging cost as at 30 September 2018 was 1.6 per cent (1.5).

If's solvency position is described in the section Solvency.

Topdanmark

On 30 September 2018 Sampo plc held 41,997,070 Topdanmark shares, corresponding to 46.7 per cent of all shares and 48.7 per cent of related voting rights in the company. The market value of the holding was EUR 1,650 million at 30 September 2018.

Sampo started to consolidate Topdanmark as a subsidiary from 30 September 2017. In Sampo Group's segment Topdanmark Sampo plc's share of Topdanmark's purchase price allocated to customer relations is amortized over a period of 10 years leading to a quarterly amortization of around EUR 5 million, net of tax (included in Other operating expenses).

Topdanmark reports its stand-alone financials based on the same accounting principles as they have reported in the past. Sampo reports Topdanmark segment in its consolidated accounts based on accounting principles that are adjusted to be in line with accounting policies of Sampo, because Group companies are required to have similar policies. This leads to differences in numbers reported by Topdanmark as a listed company compared to the segment Topdanmark as part of Sampo.

The following text is based on Topdanmark's January - September 2018 result release published on 22 October 2018.

Topdanmark's profit before taxes for January - September 2018 amounted to EUR 170 million (796).

Topdanmark's net premiums rose to EUR 1,908 million. In non-life insurance premiums earned increased 2.2 per cent and in life insurance premiums increased 14.1 per cent. In non-life insurance the personal segment accounted for a 1.9 per cent increase, and the SME segment accounted for a 2.5 per cent increase. In life insurance unit-linked contracts accounted for 95 per cent of new sales in January - September 2018.

There were no weather-related claims in January - September 2018 and the level of weather-related claims was EUR 16 million below the assumed level. The level of large-scale claims (claims exceeding DKK 5 million [EUR 671 000] by event after refund of reinsurance) increased to approximately EUR 14 million in January - September 2018, representing a 1.3 percentage point increase in the claims trend.

The combined ratio was 82.7 per cent for January - September of 2018 and the expense ratio was 15.9 per cent.

At the end of September 2018, the total investment assets of Topdanmark, excluding life insurance assets, amounted to EUR 2.9 billion, of which fixed income investments constituted 62 per cent, money market 11 per cent, equity 5 per cent, real estate 6 per cent and other investments 16 per cent. Investment return marked-to-market for January-September 2018 amounted to 0.6 per cent.

Topdanmark's solvency position is described in the section Solvency.

Further information on Topdanmark A/S and its January - September 2018 result is available at www.topdanmark.com.

Associated company Nordea Bank Abp

On 30 September 2018 Sampo plc held 860,440,497 Nordea shares corresponding to a holding of 21.2 per cent. The average price paid per share amounted to EUR 6.46 and the book value in the Group accounts was EUR 8.65 per share. The closing price as at end of September 2018 was EUR 9.40.

The following text is based on Nordea's January-September interim report published on 24 October 2018.

Third quarter revenues were disappointing and also characterized by seasonality. Growing lending volumes improved the net interest income but was offset by margin pressure mainly in household segment. Low activity has impacted our ancillary income, and low spreads, interest rates and volatility impacted capital markets income. Assets under management grew EUR 4.5 billion from the previous quarter to EUR 311.5 billion, driven by performance.

Nordea's cost efficiency programmes continued to deliver in the quarter through both a lower number of staff and lower other costs. Credit quality remains very strong; in this quarter Nordea has made some smaller collective provisions related to agriculture in Denmark. CET 1 ratio improved by 40 bps to 20.3 per cent, driven by a reduction in REA and an increase in the CET1 capital.

On 9 October the European Central Bank (ECB) informed Nordea Bank Abp of the minimum Pillar 2 levels of own funds applicable during the transition period (from 1 October 2018 until the ECB has issued a decision establishing prudential requirements prepared in accordance with the 2019 Joint Decision on Capital concerning Nordea Group, expected in Q4 2019). The forecasted CET1 ratio for the fourth quarter of 2018 will change to 15.4 per cent, and similarly expected to reduce the associated transitional CET1 capital requirement to 13.7 per cent, thus leaving the nominal management buffer at a largely unchanged level.

Nordea is delivering on its cost plan and, for 2018, expects to reach a cost base below EUR 4.8 billion, to be further reduced in local currencies in 2019. For 2021, Nordea expects the cost base in constant currencies to be approximately 3 per cent below the 2018 cost base. Repeating revenues in 2018 are unlikely to reach the 2017 level, and Nordea still expects to report higher net profit in 2018 versus 2017.

Loan losses in the coming quarters are expected to be lower than the long-term average. For three consecutive quarters, Nordea has seen customer satisfaction improve in Sweden with considerable improvements in the last two quarters. In Norway, Denmark and Finland the turnaround took place as a stepwise improvement during 2017, while 2018 has been a year of consolidation and small steps forward.

Further information on Nordea Bank Abp and its January-September 2018 result is available at www.nordea.com.

Mandatum Life

Mandatum Life's profit before taxes rose to EUR 385 million (180) for the first three quarters of 2018. The total comprehensive income for the period after tax reflecting the changes in market values of assets amounted to EUR 232 million (163). Return on equity amounted to 22.5 per cent (15.6). At the end of September 2018 fair value reserve was EUR 522 million (599). Net investment income, excluding income on unit-linked contracts, amounted to EUR 196 million (310). Net income from unit-linked contracts was EUR 130 million (335).

On 30 September 2018 Mandatum Life Group's total technical reserves amounted to EUR 11.5 billion (11.6). In January - September 2018 with profit reserves decreased to EUR 4.3 billion (4.6). Reserves related to the higher guarantees of 4.5 and 3.5 per cent decreased by EUR 174 million to EUR 2.5 billion (2.6) during January - September 2018. The unit-linked reserves increased to EUR 7.2 billion (7.1), which corresponds to 63 per cent (61) of total technical reserves.

Mandatum Life has overall supplemented its technical reserves with a total of EUR 261 million (325) due to low level of interest rates. The figure does not take into account the reserves relating to the segregated fund. The discount rate used for the rest of 2018, 2019 and 2020 is 0.25 per cent. For 2021 the rate is 2.50 per cent. Discount rate applied for the segregated fund is 0.50 per cent. In the third quarter of 2018 no reserve strengthening was made.

Mandatum Life Group's investment assets, excluding the assets of EUR 7.2 billion (7.1) covering unit-linked liabilities, amounted to EUR 6.0 billion (6.3) at market values at the end of September 2018.

The assets covering Mandatum Life's original with profit liabilities on 30 September 2018 amounted to EUR 4.9 billion (5.2) at market values. 47 per cent (42) of the assets are in fixed income instruments, 10 per cent (16) in money market, 29 per cent (28) in equities and 14 per cent (13) in alternative investments. The investment return marked-to-market for January - September 2018 was 1.4 per cent (5.7). The duration of fixed income assets at the end of September 2018 was 2.6 years (2.0) and average maturity 2.7 years (2.2). Fixed income (incl. money market) running yield without taking into account the FX hedging cost as at 30 September 2018 was 2.7 per cent (2.8).

The assets covering the segregated fund amounted to EUR 1.1 billion (1.1), of which 78 per cent (77) was in fixed income, 4 per cent (6) in money market, 12 per cent (11) in equities and 6 per cent (6) in alternative investments. Segregated fund's investment return marked-to-market for January - September 2018 was 0.0 per cent (1.8). At the end of September 2018 the duration of fixed income assets was 2.6 years (2.6) and average maturity 3.2 years (3.3). Fixed income (incl. money market) running yield without taking into account the FX hedging cost as at 30 September 2018 was 2.4 per cent (2.1).

Mandatum Life's expense result was EUR 20 million (21) and risk result to EUR 15 million (21).

Mandatum Life Group's premium income on own account amounted to EUR 681 million (630) for January - September 2018.

Mandatum Life's solvency position is described in the section Solvency.

Holding

Holding segment's profit before taxes for January - September 2018 amounted to EUR 482 million (464), of which EUR 524 million (491) relates to Sampo's share of January - September 2018 profits of associated companies Nordea and NDX Intressenter. Nordea's share was EUR 527 million and NDX Intressenter's EUR -3 million. Segment's profit excluding the associates was EUR -42 million (-27).

Sampo plc's holding in Nordea Bank was booked in the consolidated balance sheet at EUR 7.4 billion. The market value of the holding was EUR 8.1 billion, i.e. EUR 9.40 per share, at 30 September 2018. In addition the assets on Sampo plc's balance sheet included holdings in subsidiaries for EUR 3.4 billion (2.4).

Sampo announced on 2 October 2017 that it will buy 19.9 per cent of shares in Saxo Bank Group for EUR 265 million. At the same time, Geely Financials Denmark A/S, a subsidiary of Zhejiang Geely Holding Group Co., Ltd, announced that it will increase its stake to 51.5 per cent in Saxo. The parties of the transaction have now received all the regulatory approvals required. Thus, the transaction will be completed as agreed.

OTHER DEVELOPMENTS

Changes in Group management

Peter Johansson, 61, will retire from Sampo's Group CFO position as of 1 January 2019. On 8 August 2018 the Board of Sampo plc nominated Knut Arne Alsaker, 45, as the new Group CFO as of 1 of January 2019. He is currently CFO of If P&C Group and a member of the Sampo Group Executive Committee. Knut Arne's CV is available at www.sampo.com/governance/executive-committee/knut-arne-alsaker/.

Shares and share capital

The Annual General Meeting authorized the Board to repurchase a maximum of 50,000,000 Sampo A shares. Sampo plc did not repurchase its own shares during the first nine months of 2018 and at the end of September 2018, neither Sampo plc nor its Group companies held any Sampo A shares.

There were no notifications of changes in holdings of the major shareholders during the third quarter of 2018. However, Sampo plc received 2 notifications from Capital Income Builder after the end of the reporting period. CIB's share of the total number of shares and related voting rights had fallen below five (5) per cent. The details of the notifications are available at www.sampo.com/flaggings.

Internal dividends

Sampo plc received EUR 107 million in dividends from Topdanmark on 17 April 2018. Mandatum Life paid a dividend of EUR 150 million and Nordea a dividend of EUR 585 million to Sampo plc in March 2018.

On 25 September 2018 Mandatum Life paid an additional dividend of EUR 150 million to the holding company.

If P&C decided on 5 November 2018 to distribute a dividend of SEK 7 billion (approx. EUR 675 million) to Sampo plc.

Solvency

Group's conglomerate solvency ratio (own funds in relation to minimum requirements for own funds) amounted to 148 per cent (154) as at 30 September 2018.

On 28 September 2018, Nordea received the 2018 joint decision on capital (JDC). Nordea has voluntary committed to maintain the CET1 capital requirement of EUR 21.7 billion communicated in the 2018 JDC until Nordea receives the 2019 JDC. The estimated Risk Exposure Amount (REA) increase of EUR 36 billion in the fourth quarter of 2018 mainly stems from migration of existing items from Pillar II to Pillar I. As communicated earlier, for Nordea these decisions imply an unchanged nominal capitalization level.  

The underlying risks for Sampo Group have not changed, but Sampo's share of Nordea's capital requirement will increase in 2019 because of increasing Pillar I capital requirement for Nordea after the re-domiciliation to Finland. A higher REA and the application of the systemic risk buffer in Finland (2 per cent buffer requirement in the first half of 2019 and 3 per cent from 1 July 2019) will increase Nordea's capital requirement for Sampo accordingly.

In the fourth quarter of 2018 Sampo will also start using the partial internal model (PIM) SCRs of If Sweden and Topdanmark in Group's conglomerate solvency (FICO). The effect of this change will most likely be a EUR 400-500 million reduction in Group's total minimum requirement. There will not be a similar reduction in the Group's Solvency II SCR where the Standard formula (SF) SCR will still be used.

The combined effect of these changes after the full application of the systemic risk buffer in the first half of 2019 is difficult to estimate but it will likely be negative to Sampo's solvency ratios.  

If, Topdanmark and Mandatum Life apply Solvency II rules in their regulatory solvency calculations. If Group companies use either partial internal models or standard model for calculation of their solo solvency position. Mandatum Life reports in accordance with standard formula for Solvency II. Topdanmark uses a partial internal model to report its stand-alone solvency position. In Sampo Group's conglomerate solvency calculation a standard model is, however, used for all insurance entities.

If P&C Group has an A+ rating from S&P which requires significantly more capital than Solvency II standard formula. On 30 September 2018 If P&C Group's Solvency II capital requirement under standard formula amounted to EUR 1,952 million (1,938) and own funds to EUR 3,760 million (3,818). Solvency ratio was 193 per cent (197). S&P A+ rating capital charge for If P&C Group amounted to EUR 3,119 million (3,098) on 30 September 2018 and the capital base was EUR 3,940 million (3,408).

Topdanmark uses a partial internal model to calculate the non-life insurance risk. This model, approved by the DFSA, provides the basis for including non-life insurance risks in Topdanmark's solvency calculations. Topdanmark's solvency ratio under the partial internal model was 235 per cent (204) at the end of September 2018. Topdanmark's Solvency II capital requirement under standard formula amounted to EUR 528 million and own funds to EUR 1,008 million. Solvency ratio amounted to 191 per cent.

Mandatum Life's solvency ratio after transitional measures amounted to 187 per cent (182) on 30 September 2018, despite the distribution EUR 150 million dividend to Sampo plc in September 2018. Own funds of EUR 2,067 million (1,977) exceed Solvency Capital Requirement (SCR) of EUR 1,103 million (1,087) with almost a billion euros. Without transitional measures, own funds would have amounted to EUR 1,667 million (1,555) and the solvency capital requirement to EUR 1,185 million (1,220) leading to a solvency ratio of 141 per cent (127).

Debt financing

Sampo plc's debt financing on 30 September 2018 amounted to EUR 4,142 million (3,177) and interest bearing assets to EUR 1,311 million (1,754). Interest bearing assets include bank accounts, fixed income instruments and EUR 496 million (496) of hybrid capital and subordinated debt instruments issued by the subsidiaries and associated companies. Altogether, excluding cash and equivalents, the fixed income instruments yield was over 5 per cent.

At the end of September 2018 the interest bearing net debt of Sampo plc amounted to EUR 2,831 million (1,423). The net debt calculation takes into account interest bearing assets and liabilities. Gross debt to Sampo plc's equity was 57 per cent (41) and financial leverage 36 per cent (29).

On 7 September 2018 Sampo plc issued under its EMTN Programme senior unsecured fixed rate notes of NOK 1,000 million maturing on 7 September 2028.

On 27 September 2018 Sampo plc issued under its EMTN Programme senior unsecured fixed rate notes of EUR 500 million maturing on 27 September 2030.

On 30 September 2018 financial liabilities in Sampo plc's balance sheet consisted of issued senior bonds and notes of EUR 3,950 million (2,884) and EUR 191 million (293) of CPs issued. The average interest, net of interest rate swaps, on Sampo plc's debt as of 30 September 2018 was 0.80 per cent (0.91).

More information on Sampo Group's outstanding debt issues is available at www.sampo.com/debtfinancing.

OUTLOOK

Outlook for the rest of 2018

Sampo Group's business areas are expected to report good operating results for 2018.

However, the mark-to-market results are, particularly in life insurance, highly dependent on capital market developments. The continuing low interest rate level also creates a challenging environment for reinvestment in fixed income instruments.

If P&C is expected to reach a combined ratio target of 85 - 87 per cent for the full-year 2018.

With regard to Topdanmark, reference is made to the profit forecast model that the company publishes quarterly.

Nordea's contribution to the Group's profit is expected to be significant.

The major risks and uncertainties to the Group in the near-term

In its current day-to-day business activities Sampo Group is exposed to various risks and uncertainties mainly through its separately managed major business units.

Major risks affecting the Group companies' profitability and its variation are market, credit, insurance and operational risks that are quantified independently by the major business units. At the group level sources of risks are the same, but they are not directly additive because of diversification effects. 

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