Sampo Group's Results for January - June 2018

SAMPO PLC     HALF-YEAR FINANCIAL REPORT     8 August 2018 at 9:30 am

Sampo Group's Results for January - June 2018

Sampo Group's profit before taxes for January - June 2018 rose to EUR 1,153 million (865). The profit contains a non-recurring profit item of EUR 197 million related to Mandatum Life's co-operation agreement with Danske Bank. The total comprehensive income for the period, taking changes in the market value of assets into account, amounted to EUR 679 million (821).

-Earnings per share amounted to EUR 1.68 (1.34). Mark-to-market earnings per share were EUR 1.14 (1.47). The return on equity (RoE) for the Group was 10.2 per cent (14.1) for January - June 2018. Net asset value per share on 30 June 2018 was EUR 21.57 (25.37).

-Profit before taxes for the segment If was EUR 415 million (401). Combined ratio for January - June 2018 was 85.8 per cent (86.5). Return on equity was 9.4 per cent (30.5).

-Topdanmark segment's profit before taxes amounted to EUR 105 million in Sampo Group's consolidated accounts. This deviates from the pre-tax profit that Topdanmark reported on 20 July 2018 due to alignment of accounting principles in all Group companies. Combined ratio was 84.1 per cent.

-Sampo's share of Nordea's net profit for the first half of 2018 amounted to EUR 388 million (322). Nordea's return on equity was 12.0 per cent (9.9). Core Tier 1 ratio (excluding transition rules) strengthened to 19.9 per cent (19.5). In segment reporting the share of Nordea's profit is included in the segment Holding.

-Profit before taxes for the segment Mandatum was EUR 313 million (116). The figure includes the contribution of EUR 197 million from the co-operation agreement with Danske Bank. Return on equity amounted to 25.9 per cent (15.6). Premium income on own account increased to EUR 528 million (423).

Key figures	1-6/2018	1-6/2017	Change, %	4-6/2018	4-6/2017	Change, %
EURm
Profit before taxes	1,153	865	33	708	435	63
If	415	401	3	222	221	1
Topdanmark	105	52	101	45	31	44
Nordea	388	322	20	223	150	49
Mandatum	313	116	169	239	62	285
Holding (excl. Nordea)	-48	-27	77	-1	-29	345
Profit for the period	982	753	30	607	375	62
			Change			Change
Earnings per share, EUR	1.68	1.34	0.34	1.06	0.67	0.49
EPS (incl. change in FVR) EUR	1.14	1.47	-0.33	0.99	0.47	0.52
NAV per share, EUR  *)	21.57	25.37	-3.80	-	-	-
Average number of staff (FTE)	9,487	6,907	2,580	-	-	-
Group solvency ratio, %  *)	146	154	-8	-	-	-
RoE, %	10.2	14.1	-3.9	-	-	-

*) comparison figure from 31.12.2017

The figures in this report are not audited. Income statement items are compared on a year-on-year basis and 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.

Exchange rates used in reporting	1-6/2018	1-3/2018	1-12/2017	1-9/2017	1-6/2017
EURSEK
Income statement (average)	10.1508	9.9712	9.6351	9.5833	9.5968
Balance sheet (at end of period)	10.4530	10.2843	9.8438	9.6490	9.6398
DKKSEK
Income statement (average)	1.3630	1.3390	1.2953	1.2885	1.2904
Balance sheet (at end of period)	1.4026	1.3799	1.3222	1.2965	1.2963
NOKSEK
Income statement (average)	1.0582	1.0350	1.0330	1.0376	1.0456
Balance sheet (at end of period)	1.0990	1.0628	1.0004	1.0251	1.0072
EURDKK
Income statement (average)	7.4477	7.4468	7.4387	7.4373
Balance sheet (at end of period)	7.4525	7.4530	7.4449	7.4423

SECOND QUARTER 2018 IN BRIEF

Sampo Group's profit before taxes for the second quarter of 2018 was EUR 708 million (435). Earnings per share were EUR 1.06 (0.67) and mark-to-market earnings per share EUR 0.99 (0.47).

Net asset value per share decreased EUR 2.70 during the second quarter of 2018 and was EUR 21.57. The net asset value was reduced by the dividend of EUR 2.60 paid in May 2018.

The second quarter combined ratio in If was 85.1 per cent (85.7). Profit before taxes amounted to EUR 222 million (221).

Topdanmark's combined ratio for the second quarter amounted to 83.7 per cent and profit before taxes to EUR 45 million.

Sampo's share of Nordea's second quarter 2018 net profit rose to EUR 223 million (150).

Profit before taxes for Mandatum amounted to EUR 239 million (62). Premiums written increased 47 per cent to EUR 285 million from EUR 194 million at the corresponding period a year ago.

BUSINESS AREAS

If

Profit before taxes for January - June 2018 for the If segment amounted to EUR 415 million (401). The total comprehensive income for the period after tax decreased to EUR 132 million (395). Combined ratio was 85.8 per cent (86.5) and risk ratio 64.0 per cent (64.5).

Net releases from technical reserves relating to prior year claims were EUR 103 million (32) in the first half of 2018. Swedish discount rate used to discount the annuity reserves decreased to -0.31 per cent and had a negative impact of EUR 13 million on the second quarter profit. Technical result increased to EUR 306 million (294). Insurance margin (technical result in relation to net premiums earned) amounted to 14.5 per cent (14.0).

Large claims were almost in accordance with expectations and ended up less than EUR 1 million (17) worse than expected in the first half of 2018. Large loss development in BA Commercial was EUR 15 million worse and in BA Industrial EUR 14 million better than expected. Geographically Sweden and Finland had a negative large loss development in the second quarter.

Gross written premiums were EUR 2,701 million (2,706) in January - June 2018. Adjusted for currency, premium growth was 3.4 per cent compared to corresponding period a year ago. Growth was positive in all business areas and all markets, except in Finland.

Cost ratio amounted to 21.8 per cent (22.0) and expense ratio to 16.3 per cent (16.4).

On 30 June 2018, the total investment assets of If P&C amounted to EUR 11.7 billion (11.5), of which fixed income investments constituted 83 per cent (84), money market 6 per cent (3) and equity 11 per cent (13). Net income from investments amounted to EUR 119 million (127). Investment return marked-to-market for the first half of 2018 was 0.5 per cent (2.4). Duration for interest bearing assets was 1.5 years (1.4) and average maturity 2.7 years (2.7). Fixed income running yield without taking into account the FX hedging cost as at 30 June 2018 was 1.6 per cent (1.6).

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

Topdanmark

On 30 June 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 1,575 million at 30 June 2018.

The AGM on 12 April 2018 decided to pay a dividend of DKK 19 per share. Sampo plc's share of the dividend payment was EUR 107 million.

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 - June 2018 result release published on 20 July 2018.

Topdanmark's profit before taxes for January - June 2018 amounted to EUR 105 million.

Topdanmark's premium income rose to EUR 1,364 million. In non-life insurance premiums earned increased 2.2 per cent and in life insurance gross premiums increased 20.2 per cent.

The second quarter of 2018 was impacted by substantially less rainfall than normal. As a consequence of the dry weather, there was a high level of fire claims and a lower level of damages than normal caused by rainstorms. The level of large-scale claims (claims exceeding DKK 5 million by event after refund of reinsurance) increased DKK 63 million to DKK 67 million in the first half of 2018.

The combined ratio was 84.1 per cent in the first half of 2018. The expense ratio was 16.9 per cent.

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

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

Associated company Nordea Bank AB

On 30 June 2018 Sampo plc held 860,440,497 Nordea shares corresponding to 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 8.49 per share. The closing price as at 30 June 2018 was EUR 8.25.

The following text is based on Nordea's Second Quarter Report 2018 published on 19 July 2018.

The market conditions that Nordea saw at the beginning of 2018 have continued, characterized by persisting historically low interest rates, relatively low market volatility and with a further accentuation of macroeconomic and political tensions, especially with the escalating trade war between the USA and China as well as Europe creating more uncertainty in the global economy.

In the Nordics, Nordea is seeing signs that the economic cycle is starting to reach a peak level. As always, the bank maintains its risk discipline and business selection with a long-term perspective and hence feel comfortable in delivering, whether in a weak or strong economic cycle.

Business momentum gradually started to improve during the first half of this year. Net interest income stabilized and improved over the quarter. Margins remain under pressure in the household segment, but Nordea sees improving volume growth, both among corporates and households.

In net fee and commission income, Nordea had a very strong start to the year within the corporate advisory and capital markets businesses while the bank had an outflow within the asset management operations. Costs decreased by 8 per cent in local currencies compared to the second quarter of 2017 and 3 per cent compared to the previous quarter. This is a direct result of the cost initiatives Nordea has embarked on. In addition, total cash spending decreased by 13 per cent compared to the second quarter of 2017.

Credit quality continued to be strong with a loan loss level of 10 bps. As sanctions towards Russia may negatively impact the financial situation of some counterparties we have made a collective provision of EUR 69 million in respect of the Russian credit portfolio.

Nordea's reported Common Equity Tier 1 (CET1) ratio has again reached an all-time-high level of 19.9 per cent and its management buffer is at 2.4 per cent, well above the target level of 0.5-1.5 per cent.

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

Mandatum Life

Mandatum segment's profit before taxes for January - June 2018 amounted to EUR 313 million (116). The profit includes a contribution of EUR 197 million from the co-operation agreement with Danske Bank. The contribution is booked in Other operating income. The total comprehensive income for the period after tax reflecting the changes in market values of assets increased to EUR 185 million (111). Return on equity was 25.9 per cent (15.6).

Mandatum Life Group's premium income on own account grew 25 per cent to EUR 528 million in the first six months of 2018. Unit-linked premiums rose to EUR 465 million, i.e. 88 per cent of total premiums.

Net investment income, excluding income on unit-linked contracts, amounted to EUR 123 million (256). Net income from unit-linked contracts was EUR 14 million (262). In January - June of 2018 fair value reserve decreased to EUR 533 million (599).

Mandatum Life Group's total technical reserves amounted to EUR 11.5 billion (11.6). Unit-linked reserves rose to an all-time high of EUR 7.1 billion (7.1) at the end of June 2018. The amount corresponds to 62 percent (61) of total technical reserves. At the end of the second quarter of 2018 with-profit reserves amounted to EUR 4.4 billion (4.6). Reserves related to the higher guarantees of 4.5 and 3.5 per cent decreased by EUR 118 million to EUR 2.5 billion in January - June 2018.

Mandatum Life has overall supplemented its technical reserves with a total of EUR 284 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. In the second quarter of 2018 the rate used for 2021 was lowered by 0.25 percentage points to 2.50 per cent. Discount rate applied for the segregated fund is 0.50 per cent.

On 30 June 2018 Mandatum Life Group's investment assets, excluding the assets of EUR 7.1 billion (7.1) covering unit-linked liabilities, amounted to EUR 6.1 billion (6.3) at market values.

The assets covering Mandatum Life's original with profit liabilities on 30 June 2018 amounted to EUR 5.0 billion (5.2) at market values. 44 per cent (42) of the assets was in fixed income instruments, 14 per cent (16) in money market, 29 per cent (28) in equities and 13 per cent (13) in alternative investments. The investment return marked-to-market for January - June 2018 was 0.4 per cent (4.6). The duration of fixed income assets at the end of June 2018 was 2.3 years (2.0) and average maturity 2.5 years (2.2). Fixed income running yield without taking into account the FX hedging cost was 2.5 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, 3 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 - June 2018 was -0.5 per cent (0.9). At the end of June 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 was 2.3 per cent (2.1).

The expense result in the first half of 2018 amounted to EUR 13 million (14). Risk result amounted to EUR 10 million (15).

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

Holding

Holding segment's profit before taxes for January - June 2018 rose to EUR 341 million (295), of which EUR 386 million (322) relates to Sampo's share of profits of associated companies Nordea and NDX Intressenter AB: EUR 388 million and EUR -2 million, respectively. NDX Intressenter AB's loss was due to the costs of making a bid for Nordax and then delisting it. Segment's profit before taxes excluding the associates was EUR -46 million (-27).

On 8 February 2018 Nordic Capital Fund VIII ("Nordic Capital") and Sampo, through NDX Intressenter AB  announced a recommended mandatory public cash offer to the shareholders in Nordax Group AB (publ) to acquire all outstanding shares in Nordax. At the end of the acceptance period on 21 March 2018, the Offer had been accepted by shareholders representing a total of 23,044,054 shares in Nordax, corresponding to 20.77 per cent of all shares and votes in the company. Sampo's ownership rose above 20 per cent and Nordax became an associated company to Sampo plc.

The acceptance period was extended to 5 April 2018 in order to give remaining shareholders an additional possibility to accept the Offer. At the end of the extended acceptance period NDX Intressenter controlled a total of 109,816,242 shares, corresponding to 98.98 per cent of all shares and votes in Nordax. As previously communicated, Nordic Capital and Sampo hold 63.75 and 36.25 per cent, respectively, of the shares and votes in NDX Intressenter following the completion of the Offer. Sampo plc started to consolidate NDX Intressenter as an associated company in March 2018.

Sampo plc's holding in Nordea Bank was booked in the consolidated balance sheet at EUR 7.3 billion. The market value of the holding was EUR 7.1 billion, i.e. EUR 8.25 per share, at 30 June 2018.

In addition, the assets on Sampo plc's balance sheet included holdings in subsidiaries for EUR 3.4 billion (3.4).

OTHER DEVELOPMENTS

Mandatum Life's cooperation with Danske Bank

Mandatum Life disclosed on 27 October 2016 that it would use its right to sell the insurance portfolio distributed by Danske Bank's Finnish branch network to Danske Bank or a third party appointed by Danske Bank. As a result of the valuation process, conducted by external valuators, the value of the insurance portfolio as at the 31 December 2016 was determined to be EUR 334 million. After the correction for the theoretical result since 2017, Mandatum Life would have received EUR 297 million at the end of 2018.

Mandatum Life and Danske Bank agreed on 24 April 2018 to continue their co-operation and that the transfer of the insurance portfolio agreed earlier will not take place. The agreed transaction was subject to confirmation of the tax treatment.

The companies received a negative pre-ruling on the tax treatment of the transaction on 29 May 2018. Despite the ruling Mandatum Life and Danske Bank agreed on 19 June 2018 to continue their co-operation as agreed in April 2018. The parties of the transaction will appeal against the pre-ruling and Sampo believes the argumentation is well founded. If the tax treatment remains negative, Mandatum Life's financial risk is EUR 13 million.

Danske Bank paid the agreed transaction price of EUR 197 million in late June 2018.

Shares and share capital

The Annual General Meeting authorized the Board to repurchase a maximum of 50,000,000 Sampo A shares. The price paid for the shares repurchased under the authorization shall be based on the current market price of Sampo A shares on the securities market. The authorization will be valid until the close of the next Annual General Meeting, nevertheless not more than 18 months after AGM's decision.

Sampo plc did not repurchase its own shares during the first half of 2018 and at the end of June 2018, neither Sampo plc nor its Group companies held any Sampo A shares.

Solvency

Group's conglomerate solvency ratio (own funds in relation to minimum requirements for own funds) amounted to 146 per cent (154) as at 30 June 2018.

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 June 2018 If P&C Group's Solvency II capital requirement under standard formula amounted to EUR 1,898 million (1,938) and own funds to EUR 4,205 million (3,818). Solvency ratio was 221 per cent (197). S&P A+ rating capital charge for If P&C Group amounted to EUR 3,087 million (3,098) on 30 June 2018 and the capital base was EUR 3,658 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 213 per cent at the end of June 2018. On 30 June 2018 Topdanmark's Solvency II capital requirement under standard formula amounted to EUR 546 million and own funds to EUR 953 million. Solvency ratio amounted to 175 per cent.

Mandatum Life's solvency ratio after transitional measures on 30 June 2018 was strong at 194 per cent (182). Own funds of EUR 2,145 million (1,977) exceed Solvency Capital Requirement (SCR) of EUR 1,104 million (1,087) with more than billion euros. Without transitional measures, own funds would have amounted to EUR 1,739 million (1,555) and the solvency capital requirement to EUR 1,196 million (1,220) leading to a solvency ratio of 145 per cent (127).

Debt financing

Sampo plc's debt financing on 30 June 2018 amounted to EUR 3,535 million (3,177) and interest bearing assets to EUR 928 million (1,754). Interest bearing assets include bank accounts, fixed income instruments and EUR 492 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 June 2018 the interest bearing net debt of Sampo plc amounted to EUR 2,607 million (1,423). The net debt calculation takes into account interest bearing assets and liabilities. Gross debt to Sampo plc's equity was 50 per cent (41) and financial leverage 33 per cent (29).

On 23 May 2018 Sampo plc issued under its EMTN Programme senior unsecured floating rate notes of SEK 1,300 million  and unsecured fixed rate notes of SEK 700 million both maturing on 23 May 2022.

On 30 June 2018 financial liabilities in Sampo plc's balance sheet consisted of issued senior bonds and notes of EUR 3,341 million (2,884) and EUR 195 million (293) of CPs issued. The average interest, net of interest rate swaps, on Sampo plc's debt as of 30 June 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 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 86 - 88 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. Parent Company Sampo's contribution to risks is a minor one.

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. 

Uncertainties in form of major unforeseen events may have an immediate impact on the Group's profitability. Identification of unforeseen events is easier than estimation of their probabilities, timing and potential outcomes. Currently there are a number of widely identified macro-economic, political and other sources of uncertainty which can, in various ways, affect financial services industry negatively. Especially the political risks are at an elevated level at the moment.

Other sources of uncertainty are unforeseen structural changes in the business environment and already identified trends affecting business environment. These external drivers may have long-term impact on how business shall be conducted. Examples of already identified trends are technological development in general, digitalization and sustainability issues that may have profound effects on financial sector companies through the changes in client behavior and entry of new competitors.

SAMPO PLC
Board of Directors

For more information, please contact:

Peter Johansson, Group CFO, tel. [phone]
Jarmo Salonen, Head of Investor Relations and Group Communications, tel. [phone]
Mirko Hurmerinta, IR and Communications Specialist, Media Relations, tel. [phone]

Press Conference and Conference call

Sampo will arrange a press conference at GLO Hotel Kluuvi (Video Wall cabinet, 2nd floor, Kluuvikatu 4, Helsinki) today 8 August at 12:30 pm Finnish time. The press conference will be held in Finnish.

An English-language conference call for investors and analysts will be arranged at 4 pm Finnish time (2 pm UK time). Please call tel. [phone] or [phone]. The conference code is 007504.

The conference call can also be followed live at www.sampo.com/result. A recorded version will later be available at the same address.

In addition, the Supplementary Financial Information Package is available at www.sampo.com/result.

Sampo will publish the Interim Report for January - September 2018 on 7 November 2018.

Distribution:
Nasdaq Helsinki
London Stock Exchange
The principal media
Financial Supervisory Authority
www.sampo.com

Half-Year Financial Report January - June 2018

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Source: Sampo Oyj via Globenewswire