Sampo Q&A

In this blog post our IR Team answers private investors’ questions that we received by email and through social media. Thank you for excellent questions and active conversation!

Nordea is going through a major IT renewal. Does the other Group companies, especially If, face similar projects in the near-term?

There is no need for large IT projects for other Sampo Group’s companies in the near-term. If has constantly updated its IT systems towards one pan-Nordic systems for years. As the largest P&C insurer in the Nordics, If has strong resources for IT investments.

Would Sampo consider share buybacks as part of its distribution policy?

Buybacks are one option that can be considered if the Board of Directors considers Sampo’s share to be clearly undervalued.

What are the key political risks for Sampo?

All kind of risks that cause turbulence in the fixed income and stock markets affect Sampo Groups investment activities. From an operational point of view, political risks in our home markets, in the Nordics are relatively small. Main risks are potential changes in taxation and regulation in the finance sector.

How Sampo is prepared for the retirement of its key people?

Sampo has detailed plans in case of changes in personnel when the time comes.

What are the biggest surprises that have happened in Nordea since Sampo invested in it?

Obviously, the biggest surprise has been the significantly tightened regulation in the banking sector. This has required major investments, particularly in compliance. In addition, the changes in regulation and taxation, which were the reasons for Nordea’s re-domiciliation, were surprising. Another one is that no one would had guessed that interest rates stay so low for so long period.

Why does Sampo not increase its stake in Nordea?

Nordea has an US branch which is under the local regulation. If Sampo would increase its stake, there is a risk that Sampo would be interpreted, in accordance with the US Bank Holding Company Act, as a bank holding company. This would increase regulation and limit our operations.

Sampo’s top management has said that it is difficult to find good investment opportunities in this market environment. However, there are several small technology companies in the market. Would Sampo consider investing in them, at least from a R&D point of view and explore if there is any technological innovations for Sampo’s businesses to benefit from?

In strategic, larger-class mergers and acquisitions Sampo’s core competence is in the Nordic financial and insurance sector. However, our latest investments, Saxo and Nets, are in fact, true fintech companies. Nets is a pioneer in digital payment technology and Saxo Bank focuses on online trading technology. The same applies for Asiakastieto as well. In addition, from a pure financial point of view, we have invested in different kind of companies, including technology companies. Our largest investments are listed in our Annual Report.

What is Sampo’s view on the future of the banking sector in five years horizon?

The technological development will change the industry. However, we believe that the traditional banks will continue to play a key role as recipients of deposits and lenders. Different kind of fintech companies will complete the offering and find business opportunities for example in transfer of payments, which is relatively low-margin business for traditional banks.

What comes to the changes in the industry, one key factor is the increased regulation. In the ever tightening regulation environment, the winners will be small and agile niche players, or as Kari Stadigh, the CEO and President, says “commandos” and in the other hand, “large armies” that have enough recourses to carry the regulation burden and, on the other hand, ability to benefit from the economics of scale. In addition, the new players have to evaluate how much regulation they can or are willing to handle.

As the largest bank in the Nordics, Nordea has an advance compared to its many peers. Nordea operates in all Nordic countries and thus, it is a wanted partner in the eyes of fintech companies.

What are Sampo’s main competitors?

If’s competitors are all Nordic P&C insurance companies and many of them operate locally only in one country. Main competitors are OP and LähiTapiola in Finland, LF and Folksam in Sweden and Tryg and Gjensidige in Norway. In Denmark, If and Topdanmark compete against Tryg and Codan.

Mandatum Life’s main competitors are companies that offer life insurance and wealth management products and services in Finland, for example OP, Nordea, LähiTapiola, Fennia, Evli and eQ.

Nordea competes against Nordic and local banks. Larger competitors are, among others, Handelsbanken, SEB, Swedbank, OP, Danske Bank and DNB.

How is Sampo going to grow its profit in the coming years?

We will keep up the good work and continue to develop our subsidiaries. Growth in the number of customers create a good base for profit growth. Nordea’s contribution to the Group’s profit is significant. In addition, we believe that our latest direct investments in Saxo Bank, Nets and Nordax will create value for our shareholders in the longer-term.

It is important to note that the fixed income markets have a significant impact to our investment activities, because the majority of the Group’s portfolio consists of fixed income investments. We estimate that if the yield curve increased by one percentage point throughout, our financial benefit would be approximately EUR 600 million. The benefit would be generated from higher discount rates for technical provisions, higher running yield and improved interest margins for Nordea.

Instead of investing profits, why does Sampo pay such high dividend?

Sampo has profiled itself as a dividend company and our shareholders expect us to pay high and stable dividend. In addition, we have very strong balance sheet, which gives us ability to pay high dividends.

What comes to investment opportunities, the current market environment, particularly the low interest rates make finding good opportunities quite challenging.

Why Sampo has invested so heavily in fixed income?

Especially If has very large weight in fixed income. It can be explained by two factors: dividends and credit rating. When it comes to return on equity, our objective is to keep If's balance sheet light and efficient. However, at the same time, the high credit rating and ability to pay large dividends require strong solvency. Thus, the risk profile of If's investment portfolio must be low. In addition, the group level profit performance benefits from the fact that If's profit is based on successful risk assessment and pricing i.e. underwriting rather than profits from investments. Mandatum Life, on the other hand, usually takes more equity risk.

Why does Sampo usually report its full year results and held its AGM later than most large-cap companies in Nasdaq Helsinki?

Sampo’s schedule for financial reporting are affected by the reporting schedule of the subsidiary Topdanmark and associate Nordea. We have to wait them to publish their reports before we are able to start working on our report. This will also push the AGM and dividend payment further the spring. Before we pay dividend to our shareholders, we wish to collect internal dividends from our subsidiaries and associates.

Sampo has increased its dividend nine years in a row. Would Sampo consider paying more dividend than it makes profit in order to keep dividend curve growing?

Sampo has a strong balance sheet and large amount of capital. If there is any troubles with internal dividend flow, we can release some capital by decreasing the buffers.

Digitalization and automatization increase safety. How this trend affects insurance companies, is there still need for insurances in the future?

Technological development, digitalization, automation and artificial intelligence will change the insurance business and thus, affect the evaluation and pricing of risks. However, there will be need for insurances, because accidents happen. Devices break, ankles wrist, employees get sick and homes will be broken into in the future as well.

One of the key questions is how self-driving cars will change the car insurance businesses.

“Digitalisation and automation have already changed the insurance business – and this transformation is gradually gaining momentum. Although digitalisation and automation fortunately contribute to greater security, they also usher in new kinds of risks. For instance, as electric cars become more common, there might be an increase in unexpected accidents, as the vehicles are more silent and battery charging can pose new fire risks. Equipping vehicles with more automation technology will probably lead to a greater need for different kinds of product liability and cyber insurances. As a result of digitalisation, human activities are becoming not only increasingly automated, but also strongly networked. In the future, due to digitalisation and networks, a traffic accident might result from a system crash and have a broad impact on different locations, instead of being merely a traditional collision. The nature of damages is also constantly changing, from physical damages to financial threats such as interruption of operations. As an insurance company, our task is to identify new, increasingly complex risks and develop solutions for their management for our customers – this is a major focus for us at If”, says Matti Sjögren, If’s Liability Risk Management Specialist

It is also important to note that technological development will also create new business opportunities (for example cyber-insurances) and help insurance companies to improve their services and to enhance their processes. Automation and artificial intelligence improve and speed up the service by streamlining the assessment and pricing of risks and compensation processes. If is in the forefront of this development.

Sampo’s IR Team
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