Mandatum Q3'24 flash comment: Strong development in key earnings rows

Translation: Original published in Finnish on 11/12/2024 at 9:24 am EET.

Mandatum published a Q3 result that was slightly below our expectations. However, the miss was again due to quarter-on-quarter volatility in investment performance, and the Group's growth engine, the capital-light businesses, performed well ahead of our expectations. Therefore, our initial interpretation of the report is positive.

Asset management sales still doing well

The year continued strongly in the capital-light businesses. New sales of asset management, the Group's main source of growth, again performed well in a seasonally slower quarter, with net cash flows of 114 MEUR (0.9% of AUM) in Q3. The vast majority of sales were again to institutional and wealth management clients. As in the early part of the year, interest rate products were the best-selling products. As a specialist in fixed income investments, Mandatum continues to benefit from the current market situation where the popularity of fixed income investments has remained strong as interest rates have declined.

Mandatum's financial targets are to achieve an annual net cash flow of 5% of assets under management at the beginning of the year. This has already been achieved for the current year, underlining the good sales momentum. In addition to new sales, revaluations were also positive in the quarter, as expected, resulting in total client AUM increasing by just above 2% quarter-on-quarter and 18% year-on-year.

Profitability development was strong

Mandatum's fee and commission result in Q3 was well ahead of our expectations. There were no material surprises in assets under management or fee income, so a strong quarter in terms of performance appears to have been the result of improved cost efficiency. The report shows that the cost/income ratio has fallen by up to 4 percentage points over the past 12 months. Mandatum's Q3 fee result was 18.1 MEUR, clearly beating our forecast of 14.9 MEUR.

Term life results were also better than expected. This was positively impacted by one-time gains of around 3.3 MEUR from the transfer of the life insurance portfolio of personal lines customers to If P&C. In addition, expenses and claims rates developed favorable.

Investment performance explains most of the earnings miss

The investment result was lower than expected. In addition, the Group's other result was more negative than we had forecast. At least part of this is likely to be explained by exceptionally high interest costs, which appear to have been driven up more than expected by the temporary overlap of subordinated debt. These factors overshadowed the strong performance of the capital-light businesses, and the result that Mandatum's consolidated result ultimately fell short of our forecast. However, our initial interpretation of the report is skewed to the positive side, as the forecast was mainly driven by quarterly fluctuations in investment income.

As expected, there was no material change in solvency and Mandatum's Solvency 2 ratio was in line with the previous quarter at 224%. The solvency ratio is still above the group's target range (170-200%).