Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sampo Oyj (SAXPF, Financial) reported an increase in operating EPS by EUR0.02 compared to last year, despite harsh winter conditions and large losses.
- The underlying combined ratio adjusted for volatile short-term effects continues to improve at a steady pace of 0.5 percentage points per annum.
- Hastings' results in the U.K. market have improved substantially due to rate increases, with profits rising to EUR71 million for the first six months.
- Sampo Oyj (SAXPF) has achieved healthy growth in SMEs, with over 8% growth in the commercial sector for the quarter.
- The company has obtained all necessary regulatory approvals for its bid for the remaining half of Topdanmark, marking a significant step in its group simplification process.
Negative Points
- Claims inflation in the Nordics remains around 4%, with higher inflation in motor claims and lower in property claims.
- The U.K. market has seen high claims inflation, particularly in bodily injury and repair costs, which continues to be a challenge.
- The company faces potential volatility in the P&L due to a mismatch in asset and liability durations, especially if interest rates fluctuate.
- Sampo Oyj (SAXPF) experienced modest premium growth in Finland, impacted by the loss of a few larger commercial industrial clients.
- The financial leverage of the company remains relatively close to 30%, indicating limited capacity for further debt reduction in the near term.
Q & A Highlights
Q: The first question is on Slide 7, which shows the undiscounted underlying combined ratio on the group level. That has improved 2 points year-on-year, Q2. When I back-out the Hastings improvement from the east to Denmark sort of numbers we have, I get around 13.5 points improvement, which is quite significant. So I guess my question is whether my math is correct. And if so, is it fair to assume that you kept that in reserve. And is it to do with sort of [ stock ] management?
A: Yes. On the first one, you are right that the underlying improvements in Hastings this particular quarter was significant, also really, really good for the first half year compared to last year, which, of course, was a year where rate increases was the focus of intention and results in the beginning of the year, in particular, were more benign. And you are also right that the improvement of the reserve strength and the balance sheet in Hastings has continued into Q2, as I also touched upon when commenting on the Q1 results for the U.K.
Q: The second question is on sort of more on the macro side and given the assets through the half. Obviously, there's a little bit of a mismatch in your balance sheet. The duration on the asset side, this is sort of 2.5 years, liability side the LIC is on 6.25 years. So is there a risk if interest rates come down to see some volatility in the P&L? And do you prefer to expect the benefit on the asset side not to fully offset the headwind from the liability side? So any comments on that. And whether that will going to have any impact on solvency in any way?
A: In terms of the second question on duration matching, we have a slide on Page -- I think, Sami, its 26, if I remember correctly, in terms of our sensitivities. Yes, 26 in the investor presentation in terms of our sensitivities, where you will see that we are fairly well matched in terms of a 100 basis point up or down on the interest rate curve, assuming a parallel shift, I should say. Despite the duration mismatch, because we have clearly more fixed income assets than we have liabilities. We're also fairly well matched in terms of currency movements. Of course, what you can have is a situation like you had -- have in Q2, where short and long rates moved in a slightly opposite direction, which in Q2 gave us an additional positive compared to what is slightly simplified sensitivities would indicate. But overall, given the over allocation we have to fixed income on the asset side, we're fairly well matched, I would say.
Q: Two questions, please, on the -- just something I read in the press release, one in the U.K., one in Norway. And one quick accounting check question, please. So the first one is on Norway, I mean I noted in the press release that you said there were some changes to deductibles as well along with pricing. And I'm just curious that is that something a bit new because my understanding has been in the past that you haven't mentioned deductible much, you just mentioned pricing. So is that new? Or is it just something that has been mentioned now and has always been going on?
A: No, it's a fairly simple answer really in terms of just reference to a couple of different things which is included in underwriting decisions. I mean one thing is, of course, to have the right price for the right risk and then also terms and conditions in general where -- deductibles is a tool to use if there is a risk, or an unprofitable part to have, a lot of tiny claims because deductibles are too low, then deductibles have to be reviewed from time to time as well.
Q: Then on the UK. Also, from reading the commentary, it feels like you could rather maybe even cut some pricing to get -- or reduce pricing to get some growth. And I'm just wondering whether you think the time is right? Or is there a risk there. I'm just curious to hear your thoughts on whether even this understanding is correct.
A: On the UK, just briefly. One important thing to just remember about the U.K. market is the high price elasticity we see. In other words, we see relatively big volume changes depending on small to medium-sized changes in pricing. And what that means is that -- the way the process works in Hastings is we set our target margins. And any leeway or room we have above those target margins, we then either keep it as extra margin or reinvest in volume by passing it through to consumers in the form of lower rates to take advantage of those high elasticities. And what we've seen in the recent period is high market elasticities, lots of customers shopping around, and therefore, small price changes leading to big extra volume gains for Hastings. And margins that are ones that we're happy with, where there's some room given the claims environment in the U.K. over the last 6 months, to invest some of those excess margins in the form of volume growth. So I hope that gives you a bit of color on the dynamics we've been seeing and how that's impacted our pricing approach in the first half of the year.
Q: And just on the accounting side, the GDP growth, which we all focus on, is great, but the insurance revenue growth is a bit slower, I think also in 1Q. Is there something to note there that we probably should think about?
A: These two things over time will, of course, track. Then there can be a difference between gross written premiums and net insurance revenue also in terms of changes in reinsurance program. But with the same reinsurance program sort of not impacting gross and net, these 2 things will track over time. Then, of course, in the beginning of the year, continuing into the second half, gross is higher than earned since a lot of the renewals on the corporate side happens in the beginning of the year, which then will be earned as insurance revenue over the full year.
Q: First one is on the growth in the personal insurance or personal risks. Could you elaborate a little bit on what type of products? Is it pregnancy products? Is it throughout the whole of the Nordics? Is it better in Sweden, better in Norway? Could you shed some light into that kind of risk the increases in the growth from that product alone?
A: So the growth in personal risks is throughout the Nordics, less so in Denmark. I don't have a split off the top of my head on sickness, accident, health, expat insurance, but is throughout the Nordics.
Q: Secondly, the quota share in the U.K., which is touched upon, what is the level today? Is it 1/3 roughly? And what's the intention
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
