Earnings Transcript for SAXPY - Q1 Fiscal Year 2023

Sami Taipalus: Good afternoon, everyone, and welcome to the Sampo Group First Quarter 2022 Conference Call. My name is Sami Taipalus, and I’m Head of Investor Relations at Sampo. I’m joined on the call by Group CEO, Torbjorn Magnusson; and Group CFO, Knut-Arne Alsaker; and CEO with Morten Thorsrud. The call will feature a short presentation from Torbjorn followed by Q&A. A recording of the call will later be available on sampo.com. With that, I hand over to Torbjorn. Please go ahead.

Torbjorn Magnusson: Thanks, Sam, and welcome, everyone. We have enjoyed a very good start to 2023 in all important ways with solid value-creating results across all our operations. Profit before taxes increased by 30% to €359 million after adjusting for IFRS 9 in the comparison period. The very short summary of the quarter would be the one on this page, I guess, with the underwriting engine of our group in the Nordic region, creating a very positive backbone to our results, then with our digital skills, interacting with the underwriting to give satisfactory growth in premiums and underwriting profits, both in the Nordics and the UK then with good investment returns without excessive risk taking and low exposures to, for instance, commercial real estate. Just to give you one number upfront to the running yield for FP&C was now 3.5% in the first quarter and the consequence, of course, of these business results being a very strong development of the balance sheet KPIs, of course. You will also be aware of our structural AGM proposal to separate Mandatum from the rest of the group. Looking more in detail at the core of this, the P&C operations, we have another quarter with rate increases of 5% to 6% ahead of claims inflation in the Nordic. Nordics, where we have 3% to 6% claims inflation in all lines and on average between 4 and 5 the market behavior in the Nordics continued to be competitive but rational. If P&C’s combined ratio improved by 1.5 percentage points to 82.4% and premiums grew by satisfactory 6% on a currency adjusted basis, leading to underwriting profit growth of 10% per year-on-year. The outlook for if P&C’s combined ratio has been improved to 82% to 84% as we have renewed roughly half of the commercial and industrial books and built more comfort about claims inflation for the rest of the year. There are now quite a few trade union wage agreements, just above 4% in the Nordics, several of them with the same number for a second year. Retention rates have also stayed very high in all segments. Then moving to the UK, the market is reacting to the poor profitability they reported in 2022. Market-wide price increases accelerated over the first quarter, allowing Hastings to deliver 39% premium growth, mainly as a result of higher average premiums. Rising prices are also translating into greater cross customer churns naturally. That creates more opportunities to win new business for us. Meanwhile, the strong momentum continued in the Home book as well with 36% growth year-on-year to almost 450,000 customers. Having said that, however, loss cost trends in the UK remain challenging. The first quarter saw adverse weather driving spicing claims frequency and continued high claims inflation that weighed on Hastings margins. I brought one slide on one of our growth segments, Personal Insurance, just to give some more flavor to our business developments. This covers health, accident and sickness in various forms and as products with an important service element, digital integration is key. We have been able to grow this book by some 10% in 1 year, selling both to private customers and corporate ones. The growth is most pronounced in Sweden and Norway and covers a whole range of products, which are often an addition to an existing relationship for property or motor before. This now is a summary slide of our performance versus targets. And suffice it to say that If P&C is doing really well with a brief comment that quarter quarterly cost ratios always vary a bit and that we will reach the full year target for that. And then Hastings has started the year above the full year combined ratio target with more than normal winter losses, and of course, some underpricing from Q2 and early Q3 last year, even for us, earning its way into our results. We expect to reach the 88% target for the full year, but possibly not by a huge margin. Turning then to strategy. Sampo’s Board proposed on the 29th of March to separate Mandatum from the group. This would make Sampo a pure-play insurance group in line with our strategy and enabling higher and more resilient returns on capital. However, I believe that the demerger will also benefit Mandatum by enabling it to pursue growth more vigorously. The proposal will be considered by the AGM next Wednesday. In the meantime, Mandatum saw almost €300 million of net inflows in the first quarter, up 16% year-on-year despite the uncertain environment. And this follows a strong 2022 when it delivered positive net flows in each and every quarter and Mandatum’s unit-linked and third-party assets have now grown by 5% – another 5% to €10.8 billion. And with that, I return the word to you, Sami.

Sami Taipalus: Thank you, Torbjorn. Operator, we’re now ready for the Q&A.

Operator: [Operator Instructions] Our first question comes from Alexander Evans from Citi. Please go ahead.

Alexander Evans: Firstly, when I just look at the risk ratios by segment, it looks like industrial is driving a lot of improvement here and private seeing some deterioration. Is it possible to give a bit of color on sort of what degree of that is large claims or lower large claims and what degree of that is underlying patterns that you’re seeing by segment? And then just on your slides, you sort of highlighted the Nordic wage agreements that you’re agreeing. Is it possible to give a little bit of disclosure on what sort of level you’re at there and how that translates to expectations. And finally, just a little bit intrigued, if I look at your headcount, for example, 24% of employees are coming from Hastings, yet when you look to sort of 2025 consensus PBT, the contribution of the group is only 9%. Obviously, this is a little bit of a simplistic way to look at it. But what’s sort of the reasoning between this big mismatch here given that you’re investing and sort of the returns that the market is expecting or I mean, do you think consensus is not really in the right ballpark there?

Torbjorn Magnusson: I’ll just take the last question. It’s not possible to have a relationship between a number of employees and country. I mean take, for instance, Norway versus Finland, Norway is much, much bigger for us than Finland in terms of premium volume, but Finland has more employees. It just depends on so many things, average premiums, what you write, how much is outsourced and not – so that – what is important is to follow the cost ratios for each and every market and line and business area.

Morten Thorsrud: Good. And then Morten here, I will try to address the two first questions. When it comes to the underlying improvements, it is actually very much coming from the private segment as well. What is driving profitability in the large corporate segment is the fact that we have less large claims this quarter than what we assume being normal and also compared to last year’s outcome. So we are reporting, as you’ve seen, 30 basis points risk ratio improvement. And I would say it’s sort of quite even improvement in private and commercial of that 30 basis points. On top of that, of course, come our targets of some 20 basis points cost ratio reduction. And further, you could also say that in addition to this comps, normalization after COVID that we have not included in the estimates. So that’s kind of also come on top. When it comes to wage increases in the Nordics, there’s been a number of big union negotiations where the increases are between 4.3 and 5.2 sort of between Sweden, Finland, Norway. It gives us now more visibility on rate increases in 2023 and also some of these have been 2-year agreements giving us also more visibility on wage increases in 2024. And that, of course, makes it easier for us to predict future inflation sort of in particular related to the wage element in the claims cost.

Torbjorn Magnusson: So just to avoid misunderstandings, these are agreements in general in the Nordic societies rather than just for our employees.

Operator: We will now take our next question from Youdish Chicooree from Autonomous Research. Please go ahead.

Youdish Chicooree: I’ve got just three questions, very quick questions, please. The first one is just on the underlying risk ratio. I think we’ve been used to seeing improvements of 50 basis points or higher in recent years. I was wondering whether going forward, should we be expecting a more flattish trajectory, as you, for example, seek to grow or maintain your market share? That’s my first question. And then secondly, just on claims frequency in Motor. I understand there was some normalization in Q1. I was wondering whether you could tell us where motor claims frequency sit in your various markets compared to prepare levels and whether it’s fully normal or whether there could be a drug going forward. And then finally, just on personal an accident, considering you have a slide on that, what is the growth potential there? And what have you changed there so far that has driven the 10% growth so far?

Morten Thorsrud: Let me comment on the first one and I’ll leave the two others to you more generally. There’s no specific target for us for the underlying risk ratio. And it’s for each and every situation segment market is a balance between growth, of course, and improving profitability. It’s also relatively difficult to try to have a yearly quarterly pattern of this. So we’re not predicting anything. And finally, I need to caution you a little bit comparing this number between companies depending on whether they include the current year or not and other differences and definitions. So this is what we do always try to balance to increase the most value we can.

Torbjorn Magnusson: Good. Then I’ll follow on the motor claims frequencies. First of all, of course, we see normalization now after COVID. Last year first quarter, we had still some COVID effects, although we did not estimate them explicitly last year. But you will remember that we still had a bit of COVID effects in Q1 2022. So of course, there, we see a normalization now sort of into 2023. Then on top of that, it’s been a winter with quite a lot of snow and challenging driving conditions in Norway and Sweden. So frequencies are clearly up in Norway and Sweden compared to sort of last year and also compared to what we would assume being a normal winter. When that is said, sort of one should also bear in mind that there has been less wind storms in the Nordics. So it’s kind of some positive, but not more than affecting property than motor. But again, I would say sort of motor frequencies normalizing now fully after COVID but a bit of inter-effects in Norway and Sweden. When it comes to Personal Insurance, this is sort of a natural part of our business. But these products are a little bit different compared to motor insurance, for instance. These are products that to a certain degree, has to be sold. And car insurance, you buy because you have a car and sort of it comes quite automatically, whilst a lot of the personal insurance products needs to be actively sold. And there, of course, we benefit from having the largest customer base in the Nordics and a very efficient distribution setup. So we’ve seen sort of in the material that growth quarter-over-quarter is 12%, and we’ve been extremely successful in cross-selling to our existing customer base. This is also a product area sort of where penetration is still not extremely high. So you can say it’s a fairly immature market where the general penetration of these products will increase over the next 5 to 10 years. So it’s a market where we expect it to basically outgrow the other P&C insurance products.

Youdish Chicooree: Are you able to give us a rough idea where profitability is like on this?

Torbjorn Magnusson: We have similar profitability targets here as we have on [indiscernible] property.

Operator: We will now take our next question from Faizan Lakhani from HSBC. Please go ahead.

Faizan Lakhani: The first is on liquidity. So when I look at your current liquidity, it’s up €2.5 billion, of which €1.7 billion is earmarked for the dividend as a buyback. And then based on your disclosure on Slide 13, it sounds like there’s another sort of €250 million coming from Mandatum that leads to liquidity around the €1.1 billion, €1.2 billion mark. Does that leave you with further room to redeem debt simply based on liquidity that you have? So my first question. The second question is, again, on the Mandatum demerger. If I look at the leverage position on data in your demerger plans, it’s fairly modest at 15%. Can you be further actions taken to optimize that and delever? And my final question is on solvency. You still have Nexeon Nordax within the Sampo Group. How much of that could provide further solvency benefit? Or from your example, how many euros are left that can be distributed for [indiscernible].

Torbjorn Magnusson: Alright. Thank you for question. It’s Torbjorn here. In terms of the liquidity position of sample P&C, the liquidity position do leave room for further deleveraging if we decided to do so in terms of, for example, an upcoming maturity, we have later this year and our decisions related to around that. So the answer is yes, it does. In terms of the leverage of Mandatum, I’m not sure I heard your question if it was related to further optimization on the Mandate balance sheet, but the lower leverage position on Mandatum stand-alone is also coming from the fact that Mandatum in connection with the demerger is repaying Sampo an RT1 grandfathered RT1, which is currently a part of Mandatum stand-alone solvency position. Doesn’t change the solvency or leverage position of the remaining sample but it increases the liquidity in the remaining sample when that loan is repaid. In terms of excess capital, [indiscernible] is not right now, an immediate consideration for us in terms of additional distribution. We have an ongoing buyback which we want to finish. And then, of course, all the exact details of capital will return to when the demerger is actually happening. Obviously, the numbers we have given you today are performance based on Q1 numbers. But what we’ve said before in terms of excess capital and the contribution of the PE portfolio, that still holds, which now in terms of the proposal of the transaction, will both add to potential changes in Mandatum’s excess capital in the future if, for example, Saxo is sold and also holds for the remaining sample where the two investments that remains in Sampo PLC will add, of course, to the liquidity, but also the excess capital when that – those investments are exited.

Faizan Lakhani: Okay. And sorry, just to clarify, on the demerger plan on Page 26, is it correct to say that there’s €83 million worth of long-term debt after you transferred the debt back to Sanborn. Is that the correct way to sort of understand that on the Page 26?

Morten Thorsrud: Yes, that is a result of how a demerger is structured where basically the debt-to-equity ratio needs to be the same in both the – on both balance sheets. So there will be a synthetic debt in Mandatum, which basically is related to the debt position that Sampo currently has, which – with similar – and the reason it is synthetic, it’s to make it similar in terms of currencies and maturities and will, over time, I mean, in line with the related debts in Sampo being repaid to Sampo.

Operator: And our next question comes from Tryfonas Spyrou from Darren Dirk. Please go ahead.

Tryfonas Spyrou: I have two questions. The first one is on the rate increases of 5% to 6%. You said they’re running slightly ahead of trade inflation. I was wondering if you could help us understand if there any porters of business or geographies which you can are better priced in areas which are not articulately priced on a relative basis in the Nordics? And the second is on Hastings, loss ratio was up 11 points year-on-year. I guess can you help us unpack this a little bit in terms of what is the impact of the weather and what is underlying movement. Did you claims inflation at as perhaps comment as to when do you think Hastings will get back to achieving a other question in the UK?

Torbjorn Magnusson: Okay. I’ll try to answer the first one, if I heard your question correctly. The 5% to 6% increases that we have, that’s sort of Nordic average, commercial lines, so commercial and large corporate being slightly above this and then private sort of being in the lower end of this. But we are seeing sort of a fairly large price increases sort of throughout the board sort of and in all Nordic markets. So it’s not sort of significant differences. And then in the Baltics, the price increases are well above this. So that’s sort of a little bit of a separate market, but they have also seen inflation numbers, sort of consumer price inflation of about 20% historically, but again, commercial and industrial, a bit about the 5% to 6% and private in the lower end.

Morten Thorsrud: Is it difficult to hear your question about Hastings. I think it relates to the high premium increase compared to last year.

Tryfonas Spyrou: Loss ratio.

Torbjorn Magnusson: The loss ratio. Yes, well, and in a way that they go hand in hand as of course, the reason for the high premium increase is the high increase in renewal rates, the much higher new premiums, the low – they had the higher sales this quarter. And yes – and those facts will, of course, drive down the loss ratios going forward provided the claims inflation doesn’t pick up again.

Morten Thorsrud: And if I should just add, Torbjorn, on the 11%, you alluded to the 4% impact of weather in Q1. Obviously, that impact in the loss ratio in terms of percentages is higher because it’s all claims, while in the operating ratio for Hastings, we include the retail revenue. So that ratio impact become different.

Tryfonas Spyrou: Is it fair to assume then that the 4% is the weather and the remaining difference is due to sort of transition in terms of the increase in the loss ratio year-on-year?

Morten Thorsrud: Since we talk about the 4% increase in – or impact on the operating ratio is related to weather, that means that an 11% on the insurance company’s balance sheet, a lot of that is weather. Then of course, there are some of the pricing actions that we have taken, which also shows in the top line that still has not earned through in terms of also the loss ratio when you compare to last year.

Torbjorn Magnusson: And finally, just a reminder that, of course, even in the UK, loss ratios are higher in Q1 and Q4, but that’s not visible because people don’t publish Q1 and Q3 full reports.

Operator: And our next question comes from Stuart Blair from Bank of America. Please go ahead.

Stuart Blair: Two or three quick ones. On the prior year development, it’s been quite bumpy quarter-on-quarter under the new disclosures, and we’ve seen about 2.3 points of PYD in Q1. I just wonder, given the constituents that are in that number, if you can provide any rough guidance as to whether that’s a reasonable base for going forward, whether it’s going to be a couple of points or higher or lower than that? And then I know you hit doing that, Torbjorn, so please bear with me there, but just an idea. And then on Hastings, your confidence of getting near that 88% operating ratio, is that really just as the price rises that you’ve put through earned through or is there more work to be done to get to that 8%? And finally, just maybe for Knut-Arne, the remaining PE assets within sample, are those around $1 billion, I think just trying to deduct what you previously said they were worth, but [indiscernible], about €1 billion. And I guess, you throw in a final one, would you expect any further transactions between Mandatum and the group before demerger such as another dividend or such that I suspect not, but to check.

Torbjorn Magnusson: Morten hoping that you will...

Morten Thorsrud: Start to talk a little bit about prior years. So let’s see where it takes us. First of all, of course, IFRS 17 doesn’t change at all our reserving practice as such. What changes, though, is that a certain part of the prudence that we have is now explicitly modeled through the risk adjustment reserve. And you see that sort of build up on a current year basis, 1.6% this quarter. And of course, that risk adjustment reserve will also be run off sort of over time. So that will sort of give us a certain runoff gain sort of – but it’s basically sort of the same sort of effect that you’ve had previously that we’ve been prudent in the way that we’ve been reserving and that’s kind of giving us some reserve releases. Again, now some of this is more explicitly modeled through the risk adjustment we serve. Then of course, over the last few years, we’ve had some more special effects, of course, prior to implementing IFRS 17, interest rate movement has given us back in time losses and then in more recent history sort of gains on the run of gain. Of course, that’s not going to be the situation under IFRS 17. And we also had a history of releases in particularly in the Swedish motor third party claims sort of – and that’s also sort of more part of the history. But again, you should expect us to be – continue to be prudent in our reserving and then over time, that should give us a certain runoff gain.

Torbjorn Magnusson: Then on Hastings, no, I guess, rocket science. The winter, I hope, will not repeat itself during the year. Pricing versus claims will be the major decisive factor for the combined ratio going forward during the year and of course, also choosing the right balance between new business, writing new business and profits. So business as usual, in other words, Blair.

Knut-Arne Alsaker: And Blair, the remaining assets has a balance sheet value of roughly €600 million as of the end of Q1 and in terms of additional transactions between Sampo and Mandatum, given that we published the prospectus today with the details of the decision made. There is no other planned transaction of any materiality as we speak between Mandatum and the rest of the group. There could of course be smaller transactions, if you like, or adjustments as a part of the separation planning, but not material for neither of the companies.

Stuart Blair: Thanks very much. And the €600 million coupon, is that just a book value that hasn’t been repeat.

Torbjorn Magnusson: That has what – that hasn’t been written up. No, we didn’t write up those assets in Q1, obviously, this mark to market, but particularly Nordax, of course, it’s according to our own valuation model. So, it’s mark to market by using mark to multiple.

Morten Thorsrud: So, we had two adjustments in the portfolio in Q1, as you will have seen from the holding segment in our formal report. One related to Nexi, which remains in sample. That was a negative adjustment and one related to Nando [ph] in which is proposed to go over to Mandatum, that was also a negative adjustment in Q1. We did not write up anything in Q1.

Stuart Blair: Thank you very much guys. Appreciate it.

Operator: We will now take our next question from Vinit Malhotra from Mediobanca. Please go ahead.

Vinit Malhotra: Yes. Good afternoon. Thank you very much. I hope you may hear me clearly. So, maybe two questions. One is linked to growth and one is linked to Mandatum’s strategy. On growth, if I can ask the industrial line number though still single-high digit. It’s quite much lower than recent quarters and what the market is telling us about how pricing is very strong. So, I just wanted to just check with you whether you actually slowed down some of the exposures volume growth in industrial, maybe in Denmark, the Slide 7. I have a comment about Denmark. I just want to check if anything remarkable to point out there. Also on private line, the – thanks for the slide on the new car sales I am just wondering how much of important in Sweden and also in all Nordics of course. But how much is it real? Because if you think of versus 1Q 2017, for example, it’s 20% or lower, even now. And I was just surprised that it’s still so poor because at least in recent quarterly call, we have seen that the pressure was easing a bit. So, I am just curious if there is actually an impact? And how do you see your sales changing in anything less? And then on Mandatum piece, I mean one of the things that got people buy in the demarcate an inorganic plan kind of a hint, entering you said Mandatum of the fleet to have weaker risk growth. Could you just comment a bit about whether there is an organic approach on Mandatum you think you could comment on to understand that.

Torbjorn Magnusson: Yes, I will start and Morten will start commenting a little bit on the growth. The large corporate segment had about 8% growth in the first quarter. Yes, it’s a little bit lower than last year, but I would say that last year was quite exceptional with both growth in rates, significant growth in insured values and also some growth in number of clients. Now, this growth that we have in large corporate segment is more is purely driven by rate increases. So, I think we are very happy about sort of the situation and the growth that we see in the large corporate segment. Then if I understood your other part of the growth question correctly, that was related to motor and private lines, we are still seeing a negative effect of the low new car sales in Sweden, where we have the car damage warranty construction that is a 3-year contract in essence. If you adjust for that, the growth in private would be 7.5%. So, it has a fairly significant impact on the private growth. So, excluding the Swedish mobility business, then the Nordic growth in private is 7.5%. And it would push the growth of – if in total, up to 6.7%. So, I think all-in-all, a very strong start of the year with really strong growth in all business segments.

Morten Thorsrud: And on Mandatum, I think it was a bit difficult to hear you, I am afraid. But if it was about the growth and the word vigorously that I used for growth, Mandatum is of course, a lot of growth business. The unit-linked business is growing even with us. The asset management certainly so also expanding a little bit into other Nordic countries and were there to be an opportunity for non-organic growth, that would make a lot more sense, of course for them to pursue that outside of our non-life strategy as a constraint.

Vinit Malhotra: Okay. Thanks Morten.

Operator: [Operator Instructions] Our next question comes from Michele Ballatore from KBW. Please go ahead.

Michele Ballatore: Yes. Thank you for taking my questions. So, sorry for stressing again on the investments, cut can you maybe give us some details about what stage are the investment in Nexi and Nordax, let’s say, in terms of – and also I know that this question is more for Mandatum management. But even that Saxo Bank and Enento have been transferred to Mandatum, does this change the investment horizon for these two investments? And the other question is about the, let’s say, the cooperation that you mentioned in the past in terms of the application of the as things know how to the rest of the group? Thank you.

Torbjorn Magnusson: Well, Nexi and Nordax, there is no change to the horizon there. And of course, in the case of Nexi, we are a co-investor and we are not able to decide or even be party to their discussions necessarily about the exit point. Nordax is a little bit closer to us. But again, we are a co-investor and we don’t decide about when there is a chance to exit those. And if you would think about the consumer credit business in 2023, whether that’s a likely exit year, well, your guess is as good as mine, but maybe not extremely positive. And then the horizon for exit doesn’t change as such, when assets move to Mandatum, they are still in the same constructions as they are with us.

Michele Ballatore: Thank you.

Operator: And we will now take our next question from Jan Erik Gjerland from ABG. Please go ahead.

Jan Erik Gjerland: Thank you for taking my question. It’s regarding Mandatum and the sort of the profit before taxes, which is €32 million on a standalone basis and €37 million on a group level in Sampo. How should we think about this relates to cash earnings and the capital that they can actually distribute at the end of the day. Of course, the change in ending the guarantee business is still the same, even being a separate company. So, just understanding more about the €32 million versus sort of the dividend capacity, this new company is being granted. I am sorry I haven’t been reading the new prospectus today.

Morten Thorsrud: Alright. Jan Erik, yes, in terms of the Q1 result as such and the €32 million there is really no change in how I would think about the sort of dividend capacity for Mandatum over the next years. As you know, a part of the dividend capacity from Mandatum, which will not change after demerger, it’s coming from an annual earnings and part of the dividend capacity is coming from capital release from the with profit, which absolutely still holds. We have had the dividend from Mandatum of €150 million in the last few years. And in the prospectus, you will find some comments about indicative targets for Mandatum’s dividend for the next 3 years, which will not change to the down side, the number I just mentioned to you, meaning that following this quarter’s result, and the demerger, the total dividend capacity for the group has absolutely not changed. It just also, of course will be split into shares.

Jan Erik Gjerland: Perfect. Second question is about the sort of the underlying normalization in the Nordics from [indiscernible] Morten mentioned. How has this looked in Finland and also the weather in Finland versus sort of around the Q1, which is a winter quarter. It seems like both in Finland and Denmark probably have less severe outcome than we probably thought. So, how was actually those two markets looking if you can shed some light to that part?

Knut-Arne Alsaker: Yes. That’s – it’s very correct exactly what you say and Erik. Finland has had what we would consider a very normal winter. So, the only thing we see in there is sort of the expected normalization after COVID, but apart from that, a normal winter. And then Denmark has had rather on the positive side, sort of a quite benign weather this winter. So, perhaps even a bit better than a normal winter in Denmark. So, it’s a little bit mixed picture sort of throughout the Nordics.

Jan Erik Gjerland: And finally, on the snow in the Mount [indiscernible], would you be worried about any flooding coming through this year, or is still there the sort of civilian authorities more prepared this time around than what you have seen historically?

Torbjorn Magnusson: Let’s see. I am – I think refraining from speculating, but there is a lot of snow still left. So, still good skewing conditions for us Norwegians. I am not too worried, but I mean it’s impossible to predict, of course.

Jan Erik Gjerland: Thank you for taking my questions.

Operator: We will now take our next question from Jaakko Tyrvainen from SEB. Please go ahead.

Jaakko Tyrvainen: Good afternoon. It’s Jaakko from SEB. I would like to ask about the Nordics P&C and the improved visibility for ‘23 wage inflation. Do you see me to further continue pushing the rate hikes? And perhaps a follow-up on that one, have you seen any market participants yet to become more active or aggressive in their pricing or campaigning?

Morten Thorsrud: Yes. I think the effect of what we see is that, first of all, we have now, as I said, more visibility. But at the same time, it means that we are expecting a situation with somewhat elevated inflation throughout 2023 and into 2024. So, it’s probably sort of a situation that is a little bit prolonged, and may be continuing then to expect, yes, inflation around the figures that we see now, which is sort of quite okay and something that we are fully able to price for. Then I think, of course this type of inflation is something that all players need to price for. And I think we see that basically, most players have been doing that or will need to do it sort of because with the 5% to 6% sort of claims inflation, you simply need to price for it. So, we do see that the market continued to be rational and that kind of competitors are pushing through the needed price increases.

Jaakko Tyrvainen: Okay. Good. Thanks. Then my second one on Mandatum, and the investment return was it negatively impacted by the finance reflector turbulence we saw during the quarter, or would you call that Mandatum performed according to your own expectations versus related to market perhaps?

Morten Thorsrud: I would say they performed according to our expectations, absolutely. Then of course, in the net finance result, there are a positive from the performance on the asset side. And then there is a negative from the fact that, that rates went somewhat down across Mandatum’s rate curve, which to a large degree, not fully, but to a large degree, offset the positive investment income from the asset side.

Jaakko Tyrvainen: Okay. Thanks. Then final one regarding the group solvency at the Mandatum demerger, you indicated that the group could be perhaps geared with the lower slowed buffers. Could you talk a bit on your thinking there? Are you going to stick into your comment ranks of solvency buffers, or how should we think that going forward?

Morten Thorsrud: We haven’t published a new capital management framework today. We will do that later this year. But the demerger in itself does make it possible to reduce that range and meet the midpoint of a range downwards. Then of course, on the side, I think I have mentioned this before, on the side of ratios, the demerger in itself is reducing the group SCR, so just the capital commitment as such without any ratio goes down. And it, of course also can go further down if we get an approved internal model on the P&C business, an internal model would never have covered a life business in the group.

Jaakko Tyrvainen: Okay. Good. Thanks. That’s all from my part.

Operator: And we will now take our next question from Jakob Brink from Nordea. Please go ahead.

Jakob Brink: Two questions, please. On – maybe I missed it in all the disclosure, but I was looking for the leverage ratio of the Sampo Group post demerger. Could you help with that? Just what debt level should we deduct in equity as well? And then my second question on the dividend capacity of Mandatum that we talked about before or you talked about before. I noticed that the with profit or legacy liabilities are down 18% year-on-year, which I think must be a record. Is there anything specially going on this Q1? And in that sense, if sort of this elevated reduction level could continue, what kind of implications could that maybe have for dividend capacity? Thank you.

Torbjorn Magnusson: Jakob, we haven’t published a pro forma leverage for the sample – for remaining sample post the demerger. But Mandatum has a lower leverage. The impact on the leverage ratio would as of Q1 have been somewhat negative, pushing the leverage ratio upwards, but still not above our target, which is below 30%. So, it’s not a leverage concern, but it would be in a slight increase in the leverage ratio. And we will, of course return to that when we have all the financial details exactly of the demerger because this might, of course, change and be different numbers, which – since things will develop in terms of financial markets and profits and what have you up until the demerger date. The dividend capacity of Mandatum related to the with profit, there is really nothing that’s special that has changed over the last few quarters in terms of the pace of the release of the with profit liabilities, meaning the runoff of the with profit liabilities, the sort of run rate of that have been completely according to plan of some €150 million to €200 million per year, nothing special neither in Q1.

Jakob Brink: Okay. Just coming back to the first question, your answer on the first question, kind of a rough sort of ballpark, would that be – so I see Mandatum Holding has had an equity at the end of last year of around €1.3 billion. Is that the one we should deduct or is there any other sort of major changes we should do to that? And secondly, on the debt level, there is, of course the €250 million remaining debt. And then, I guess the €80 million or €80 million to €85 million that you leave with Mandatum, and I guess I should take that out of a sample remaining group as well. Would that be the main changes to do when calculating leverage?

Torbjorn Magnusson: The debt in Sampo as such, the external debt in Sampo will be unchanged remaining Sampo unchanged from the demerger that 84% is a synthetic debt with, of course can be used to repay our external debt. So, you could net that out as you alluded to. But it’s not – we will still report a gross debt, which is unchanged everything equal. Then of course, on the side of the demerger, as you will see in our disclosures in terms of when certain debt stacks mature, we have an upcoming maturity also later this year, which is not included in any of the considerations I gave you or in the actual or pro forma numbers we reported today. And a sort of payback of that is not included, that’s included at its full balance sheet value as of Q1.

Morten Thorsrud: In terms of what equity you should adjust you could use that number. That of course will be impacted by how profit in Mandatum is developing throughout the year. Any addition to a profit in Mandatum throughout the year will be added to the Sample Group equity up until the time of the merger. And we have not today announced an extra dividend from Mandatum prior to the demerger. So, the more profit Mandatum makes throughout the year will actually make the leverage impact in percentage terms, higher.

Jakob Brink: Yes, of course, relative to whatever it might be before the demerger...

Morten Thorsrud: As to what it would be in the demerger. So, that’s true.

Jakob Brink: Okay. That’s clear. Thanks a lot.

Operator: Thank you. And we have a follow-up question from Stewart Blair from Bank of America. Please go ahead.

Blair Stewart: Thank you. I had two quick ones. I noticed the NOK has been very weak against the euro. I just wonder if there is implications for inflation flowing through your Norwegian business? I am guessing a lot of spare parts and materials are manufactured in the country. So, if you comment on that, please. I know you have agreements that will protect you short-term, but if that doesn’t change, will there be any additional inflationary impact from the weak NOK. Can you talk just on the internal model since you brought that up, any idea on the timeframe for that? Thank you.

Morten Thorsrud: Yes. I will just start with the Norwegian kroner situation. Yes, the Norwegian kroner is on the almost historically sort of weak level. And of course, that can sort of have a spill or effect in increased spare part prices in Norwegian in particular. However, this is sort of not really a new situation. We have seen the really weak Norwegian kroner sort of for quite some time now. And again, that has been one of the drivers behind the inflation that we see in Norway. So, I think we are not sort of particularly concerned about this, but of course, something that we monitor. And of course, this will be included when we sort of estimate the claims inflation related to spare parts in Norway. But let’s see sort of how this develops, but yes.

Torbjorn Magnusson: And in terms of the internal model, Blair, I am afraid I need to stick to what I have said before. I can’t give you an exact timeframe in terms of the work done, I am very comfortable. There is lots of regulators involved in terms of evaluating an internal model for Sampo Group. So, that process will take some more time. I will come back to a more exact timetable when we have visibility, which makes sense to give you.

Blair Stewart: Okay. And I will take it from that. This is something that you have been working with regulators across the region for some time.

Torbjorn Magnusson: Yes.

Blair Stewart: Thank you. Superb.

Operator: And since we have another follow-up question from Vinit Malhotra from Mediobanca, please go ahead.

Vinit Malhotra: Yes. Thank you. We will keep it very quick. Just on Slide 11, please. The one where you talk about the UK, the Hastings claims from weather, I am just curious, is this somewhat linked to the push in the housing market, the home insurance market because what is it still mainly a motor issue this weather impact? I think you mentioned four points in operating ratio, just a quick clarification. Thanks.

Morten Thorsrud: Mainly an out ratio, not a reference.

Vinit Malhotra: Okay. Thank you.

Operator: Thank you. And it appears there are no further questions in the queue at this time. With this, I would like to hand the call back over to our host for any additional or closing remarks.

Sami Taipalus: Alright. Thank you everyone for your attention today, and we look forward to seeing you on the road soon. Thank you and goodbye.