Sampo Oyj

Jarmo Salonen – Head-Investor Relations Kari Stadigh – President and Chief Executive Officer Peter Johansson – Chief Financial Officer Torbjorn Magnusson – Head-P&C Insurance

Jakob Brink – ABG Matti Ahokas – Danske Bank Michael Huttner – JPMorgan Paul De’Ath – RBC Thomas Seidl – Bernstein In-Yong Hwang – Goldman Sachs Blair Stewart – Bank of America Youdish Chicooree – Autonomous Steven Haywood – HSBC Vinit Malhotra – Mediobanca

Ladies and gentlemen, welcome to Sampo’s Conference Call on Full Year 2016 Results. I am Jarmo Salonen, Head of Investor Relations at Sampo.

And with me at this call, I have our Group CEO and President, Kari Stadigh; Head of P&C Insurance, Torbjorn Magnusson and Group CFO, Peter Johansson. As become tradition, we’ll start with Kari’s presentation highlighting the most important developments last year.

Before that, let me remind you that you can follow this call live at sampo.com\result. And a recorded version of the call will later be available at the same address.

I’ll hand over to Kari now. Kari, please.

Thank you, Jarmo. Welcome to the conference call on my behalf as well.

Sampo Group had for the full year 2016 an excellent result, especially given the low interest rate environment, which burdens the investment return of the insurance assets as well as the deposit margin for Nordea. For Q4, we report an all time high EPS of EUR0.84.

Our performance in the quarter was very strong, its combined ratio at 85.6% was the best ever Q4 result. Nordea reported very good numbers and Mandatum Life premium income rose to a record high EUR446 million in the last quarter.

Good performance in all main business areas. For the full year 2016 it reports the best ever combined ratio of 86.1% even without the positive one-offs.

Also efficiency and operations improved as the cost ratio was all time low at 22.1%. In Nordea one can see also very strong development and especially the capital generation is impressive, resulting in the record high quarter ratio 18.4% at the end of the year.

Nordea also increases the dividend even if it’s ever so slightly. But we as an owner appreciate it greatly.

Mandatum Life continued to increase its unit-link business and unit-link reserves where record high at EUR6.4 billion. Also unit-link premiums were on the record high level.

We continue to increase the reserves for lowering the discount rates and the reserve stand now at EUR273 million. The highest ever number as well.

This solid development throughout the Group has given us the chance to propose an increase dividend at EUR2.30, the dividend will increase EUR48 year in a row and as always we remain committed to follow that graphically beautiful line, while increasing dividends. However in more modest way, we use to be and we are going to be a dividend stock.

Thank you, Kari. And operator, we are now ready for the questions please.

It’s Jakob from ABG. I have two questions please.

The first one is regarding non-life insurance and the underlying combined ratio. I know we have discussed this for the past two quarters and I think you’ve said there is no particular reason for the deterioration.

But again, in the third quarter, we see adjusted for large claims, run-off claims and discounting that the so-called underlying is deteriorating a bit year-on-year. Is this anything, we should worry about?

We see the same in TRIC, for example. Secondly, also a bit regarding the same.

Some of your peers still talking about that they’re adding to reserves, despite a fairly high gross run-off gains. Can you maybe tell us a bit more about your reserve strength here after 2016, and given your reserve for leases in 2016?

Thank you.

Underlying combined ratio, Jakob, the combined ratio will always vary within non-life and we, of course, meet all variations with price level changes. If you look at our markets, there is no particular price level changes in Finland, in Denmark or in Sweden.

There is, however, some price erosion in the Norwegian market and some price erosion, and I’ve said previously that the Norwegian combined ratios in the market will move upwards rather than downwards. And there is also a bit of price erosion that I’ve commented on in large corporate business – industrial business for us.

There’s no drama around this and it’s not a big change, but of course it keeps us on our toes and we have to meet this with price increases and more underwriting and segmentation work. On the reserving issue, we have absolutely no change to our reserving policy from last year, the year before that or five years ago and we have absolutely no change in our philosophy to be fairly and prudently reserved.

Could I just come back to what you just said about increasing prices and how far are you in this repricing to new claims levels. Is that something you just started or is it just the ongoing process?

That’s just the ongoing process. As I mentioned, there is no drama around this.

So there are no really large price jumps or hikes in any market at the moment.

Okay. Many thanks.

Yes, good afternoon. Matti Ahokas from Danske Bank.

Two questions, firstly, also on the non-life side Torbjorn, if you could give us a breakdown of the all of the run-off gains in the fourth quarter that would be great. And then I can see that you’ve actually been increasing your Topdanmark after the offer, just out of curiosity, what was the price you paid for this and should we expect for you to increase the stake further.

Thanks.

I’m sorry, Matti. The last you were cut.

We didn’t hear the last question here. Could you repeat the second question?

The second question was regarding Topdanmark, I see that you’ve increased your stake slightly into Topdanmark takeover offer expired. What was the average price here and should we expect you to increase your stake further from the current levels?

I’ll take the first question and Matti, you know well that we do not give the breakdown of that run-off.

This is Peter, Matti. Yes, you’re correct.

You’re the first one that notice that we have increased the stake and we bought some. For the first time in a very, very long time, we were offered a block slightly over 0.5 million shares and the average price on the block was DKK177 roughly.

DKK177 per share. Matti, could you hear us?

Could hear us, Matti or there was some noise on the line.

I could hear you fine. The only thing Kari there, if you could just tell that is this an indication that you are interested in increasing the Topdanmark stake further if opportunity arises?

We have always been interested to increase our shareholding. However, we have great limitations in when we can buy and we are only interested to do that at the right valuation.

Got it. Thanks.

Fantastic. Thank you so much.

In August, you had this lovely presentation on motor insurance where you said the motor insurance trends in Scandinavia were better with lower claims. Could you maybe provide an update on that?

I was hoping that you might also say that, as a result of these trends, your margins have gone up, but it seems, from the previous questions, actually margins have come down. I don’t know if you could comment on that.

And then, on the Top, when you’ve purchased the Top, they switched from buybacks to dividends, how much more dividend will that allow you to pay to yourself to your own shareholders? Thank you.

I wasn’t present at the presentation around motor trends, but of course the motor trends are really long-term and there’s been no change in this past two quarters around those. When it comes to the margins in motor again no big changes, I think the biggest change there is what we’ve talked about for the past, maybe eight quarters that we had insufficient profitability in the Swedish market, which we addressed in a continuous business as usual way by increasing rates and we are now at satisfactory levels for motor in the Swedish market.

On top dividends, we haven’t made up our mind yet. We have indicated to the market that we are considering whether we would ask the AGM to stop the buybacks.

And of course, when we communicate that we are considering this that means that there is a high likelihood that we would do that. So if the share buybacks from Topdanmark would be stopped, then of course, this would be done at the AGM.

And only after the AGM would then the new Board communicate to the market dividend policy. I don’t know what the new Board would communicate but normally Nordic insurance companies, they have quite stable dividends.

However, for Sampo’s dividends to Sampo’s shareholders, these numbers are not that important. We are committed to slowly gradually increase the dividend and that stays and it’s not dependent on our internal dividends from Topdanmark.

Thank you. Understood.

I think on the motor trends, I was really hoping, but I understand if you were not present. I wasn’t there either.

Thank you very much.

Hi there, and couple of questions please on kind of your view on the outlook I guess. I mean firstly, I think you’ve made it clear a couple of times already on this call that you’re looking for a slow gradual increase in the dividend going forward and obviously that was also the guidance for this year and then it went up 7%, which isn’t really slow and gradual in my book unless I’m just getting my numbers wrong.

And, I guess, is there any kind of guidance you can give on what you mean by slow and gradual? Is that less than 5% or just some kind of steer on that would be good.

And then, the second point was on the outlook you’ve got in your release. You talk about you expect 2017 to be a good year in terms of operating earnings.

But then, you also talk about that they will face challenges in terms of interest rate environment et cetera. So, could you give any more color on what you would see as a good result.

Is a good result flat in this environment or would you be expecting growth in earnings going forward? Thanks.

Well, I think that Sampo has always painted a picture where we appreciate stable and predictable earnings with low volatility. So the left drama, you can see our numbers the better.

However, I think that we are living in very unusual times and there are going to be many significant political decisions that have to be done in Europe during the year. So in this uncertain environment, I can’t give you a better guidance then more of the same, that’s our approach.

So I don’t – what was your first question? Your first question was on…

Is on the dividend growth.

Growth in dividends. Yes, growth in dividends.

I think its better that we stick to this comment that we have – that we just want the dividend growth to be esthetically beautiful and gradually increase. And I think it’s clear that I don’t see an uptrend from the present level.

So I probably see it slowing gradually down the increase.

Okay, thanks.

Yes, thank you, good afternoon. Three questions; first, one Nordea, I think I do remember from your Chairman saying that the Dodd-Frank Act is a major issue in potentially increasing your stake in Nordea.

So my question is, if the Dodd-Frank Act is now coming down, would that basically allow you and would you consider further increasing your stake in Nordea? First question.

Second question, with rising interest rates, how do you see the likelihood of you disposing Mandatum to another buyer? Is it now a better environment to sell a life business.

And the third question, interest rate is slightly moving upwards over the past years, pricing in the Nordics has compensated almost fully for the low interest rates. Now with interest rates going up, do we expect basically that prices gives back some of those improvements, just as they have done over the last years.

Thank you.

Well, before we go over to pricing, maybe I could comment the interest rates in general. This is a relative game, some people are better positioned on raising interest rates than others.

We at Sampo, we feel that we are going to benefit significantly from raising interest rates compared to the peer group. And why is that?

I think there are two main reasons: one is that we are not fully matched with our asset liability, matched – we are not fully matched there. So, we have a very short duration.

And of course, some of our colleagues who have a much longer duration in an growth raising – if interest rates grow, then they will take mark-to-market hits on that. And then our relative performance will be much better.

Then, we have also discounted part of our liabilities with very, very conservative interest rates. For instance in Finland, I think that we have the lowest discount rates of the peer group.

So, also here we will gain compared to our colleagues in the industry. And of course, if we think of an insurance company, then we have one additional thing and that is that big part of our business is Nordea and of course, all banks will benefit greatly from at least from a steepening yield curve, if not only raising interest rates.

So, I think we are a perfect hedge against the development that you described, but when or how that will come that we have to see. On Mandatum Life, I don’t think that for us this is at all an interest rate play, how we view the ownership of Mandatum.

We have a very big project ongoing this year there, when we negotiate the sale of the Danske portfolio to Danske Bank and that wasn’t – the decision wasn’t based on interest rates, neither is the rest of the portfolios destiny decided by interest rate, it’s more other issues, market development in our domestic market. On Nordea, yes, there have been movements there have been several movements over the years when we would have loved to buy more Nordea.

It has been clear because many times if we look how stable Nordea’s result development has been and how volatile the share price development has been. There has been very many opportunities where you should have been buying shares.

Unfortunately, we have not been able to do that because we can’t increase our shareholding in Nordea because then we have the risk of Sampo being treated as a U.S. bank holding company and that we don’t want to happen.

Whether what will happen with Dodd-Frank Act, I don’t think that these types of things are settled in weeks after a new President. So we have to wait and see the nitty-gritty details and see how much room this would allow us, of course, the fact is that there was a possibility to buy more Nordea, that would be an attractive opportunity for us depending on when and how it materializes.

Okay. And on pricing?

I have very little to add. We’re basically trying to compensate for price erosion, as I just described, rather than speculate an increasing rates going forward.

Okay. Maybe one follow-up on Mandatum.

So the EUR125 million dividend you get from Mandatum, is that also the type of dividend that we expect once you have sold the Danske portfolio?

Yes, I think that the sale of the Danske portfolio, it makes the balance sheet of Mandatum more robust. So if we had a need to increase the dividend for Mandatum, it could you give some room for that.

But as we haven’t had any need for more capital to the parent, it’s not something that we have right now on the table. Our intention is to distribute this spring, the same EUR125 million as we distributed last year.

All right, very clear. Thank you very much.

You are most welcome.

Hello good afternoon, thank you for taking my question. I have two; firstly, Torbjorn, I know you didn’t want to comment too much on the reserve release in P&C.

But just the fourth quarter number, 3.8 percentage points on the combined ratio, that seems like quite a high number when you look at it versus your history. I know we had the Swedish MTPL release in the first quarter.

But is there anything noteworthy around the fourth quarter reserve release? Is it part of an annual review or just – I mean is that something we can extrapolate going forward this discounted level of reserve release.

That’s my first question. And secondly, on your dividend payments.

It seems like, in contrast to the past, where you left a bit of headroom on your announced dividend per share versus your internal dividend. You seem to be paying out basically all of it this time around.

I mean does that kind of cause you a concern around the potential flexibility you have and kind of headroom to absorb potential shocks going forward? Thank you.

Yes. Reserve release in the fourth quarter, I guess, I’m smiling a little bit when we start looking at quarterly movements of reserve releases.

There is nothing special around this and you shouldn’t make a trend of it. As long as we have low inflation, we are expecting to see reserve releases.

I’ve mentioned a round number a number of times, SEK150 million in a quarter, but that will vary. This time quite a bit of it came out of Norway, because the Norwegian market have seen few or low developments for bodily injury claims for a while and this was the result of that, but that’s nothing out of the ordinary.

On the dividend side, actually, if you look at the internal cash flows, we have taken a dividend of SEK2.8 billion from If before the December dividend of SEK5.8 billion and we will receive a dividend from Mandatum and Nordea before we pay out our own dividend. So internal cash flow has been more than EUR1.5 billion.

And the dividend is EUR1,288 million. So, there is a significant buffer.

I think it’s also important that when one paints a picture of an ambition to grow dividends every year, you need to have some leeway and some buffers to do that. So, we don’t feel at all any pressure that we couldn’t continue with this.

Otherwise, we wouldn’t be so confidently painting the picture. However the caveat is of course that we are not the decision makers.

It’s a Board proposal to the AGM always. But the management ambition is to continue with this as we’ve always done.

And also, if you look at the – also if you look at the capital buffer that we have in If, we could have taken a bigger dividend if needed.

Sure. Just as a follow-up, the EUR3.0 billion that you mentioned from If, I think in the last quarterly call you mentioned that that was basically used to finance the – I guess to transfer the Topdanmark shares to the Sampo Plc.

Is that still the case? I mean, we shouldn’t expect that to be a – something that’s available coming back to shareholders?

Yes, that’s part of the If funding packages of buying Topdanmark shares, and then partly we increased the leverage.

Okay, great. Very helpful.

Thank you very much.

Thanks very much, good after noon. I’ve got a couple left.

Just on investment income, I notice there was a small pick-up in the investment yield in Q4, the first time for a while. I just wonder if you can talk generally perhaps Kari about what’s out there at the moment and what you’ve been investing in.

And with regards to that, you’ve got a very large fair value adjustment reserves in both the life and P&C businesses and in theory, as interest rate or as fixed-income assets perhaps become a bit more attractive, would you be prepared to crystallize those gains, which are largely in equities over time. And just coming back to the first couple of questions on the P&C combined ratio and trying to – everyone tries to normalize it by taking out large loss experience and gains, but what – and again, sorry, prior year for several issues.

But one thing we don’t capture in that is the weather – has there been a difference in weather conditions and perhaps claim frequency that does not get captured in those adjustments between 2016 and 2015 that might allow for that one point or so deterioration, I guess, just been all the way I’ve seen this within like in a normal bones. Thank you.

So, first on investment yield. So I think that yes, we have been able to protect partly the running yield in our fixed income portfolios, but the fact is, it’s trailing downwards.

And also, the fact is that it’s increasingly difficult to find good investment objects. So, I don’t see that any positive movement yet there in the euro area.

So maybe the only way to deploy cash now is to find something attractive in the North American market and then secure the currency risk and you are still left with a return which is better than full cash. But those, now we are talking really low yields anyways.

So, the main task at this moment is to avoid negative or really low yields and stay put. Of course, we are going to see volatility and we have been shaving off equity risk now lately and we will continue to do that in this environment and then hope for some volatility, so that we can add equity risk back.

On the reserves, yes, we have been able to build up some reserves, mainly on the equity side, of course and I would say so that we are not really looking at the reserves as smoothening of the result. I think it has more to do with our investment stance.

So, at this moment, we are full on equity risk and therefore when equities are increasing in value, we are shaving off in order to maintain the present risk but not allow it to increase. On combined ratio and weather, I would turn over to Torbjorn.

I think both 2015 and 2016 have even few skiing opportunities in the Nordic regions and the comparison should really be with the years before when we had more snow and more winter losses.

Exactly Torbjorn, so that it’s obvious that we could have worse climate in the winter than we have had this year than last year.

Yes, these have been benign winters.

Yes, Just prepare for that.

Okay, thank you.

Good afternoon everyone. I’ve got two questions.

I was wondering if you could tell us a bit more about the competitive backdrop in industrial lines and whether we should expect an improvement from the premium declines we’ve seen in 2016? And secondly, I wanted to pick up on a comment you made about the Swedish motor market that you were happy – you’ve got the pricing to a level where you’re happy.

Does that mean the growth in Sweden should actually tail off from the 4% we’ve seen recently?

Industrial lines has been very competitive for a number of years also on back of soft reinsurance markets. And the reinsurance market seem to have still being somewhat soft this renewal season, but slightly less so at year-end and we have done better in the one-one renewals this year than 2016.

Swedish motor pricing, we have gained a number of customers and our internet offering has been well received and the developments of that has been well received in Sweden. We’re working hard at that.

But yes pricing increases helped, still helped in 2016 and will do less so in 2017.

Okay. Thank you.

Yes, thank you so much. I was wondering and it’s more a complement than anything because as a team you’ve done a fantastic job.

But in terms of succession planning, is there a kind of deadline or kind of dates where some management changes would be due and some of question we would need to ask more closely?

Well, I think that if we start off with me, the CEO, I could have retired when I turned 60 and I’m still here. The Board has asked me to continue and we have agreed that I continue for the time being.

I think that this is really fun, so why wouldn’t one continue. But seriously speaking, we have a very detailed succession plan.

So if anyone of us is left under a car, there is an immediate replacement and internally. So, if there were any changes in key positions, it wouldn’t change the culture or the management or the performance of the Company.

Got it. Thank you very much.

Thanks for taking my question. I just had one question left.

With regards to the approval of the partial internal model that you have in Sweden and then the potential movement of the Finnish subsidiary to a branch rather than being a subsidy, so that can come under the partial internal model as well. Does all of this mean that your solvency II ratio for If would go from 197% to 244% by getting these approvals all done and what kind of impact does that have on the Group solvency II ratio as well, please.

The process, it goes such that first we would have to do the branchification of the Finnish operation and then, if the regulator approves a partial internal model, it gives us more flexibility. It, of course, depends on what they accept on the internal model, so in a partial internal model, most likely of course, we would get the diversification benefit from Finland, but it’s too early to say how big that would be.

Anyway, on the Group level, it would still be a question mark, in the conglomerate calculation if we could us the partial internal model because the Baltic part is still outside the model. So most likely that the regulator would force us to use the standard model and from the If perspective, of course, it would give more flexibility moving around capital, but yet the rating regulation would affect that, the capital ratios would have to be much higher in practice.

But of course we wouldn’t be doing this unless we thought it’d be worthwhile.

It looked as big as Sampo was or – that’s I think important to point out that, yes we see benefits, especially in capital flow and flexibility but not to the magnitude that you just described.

Okay, that’s fine. Thanks very much.

Yes, thank you, I’ll try again, maybe I’m getting through now. So just quickly, from the P&C investment asset side I’ve noticed a small shift already in – like you’ve lowered the money market, for example, by three points in the fourth quarter.

I mean, is it a fair guess that now that you have enjoyed the benefit of short duration, you will be lengthening duration and so, we should look at some kind a yield pickup from that? So that’s the first question.

And second question is, just on the Danish combined ratio, I’m assuming this is some volatile industrial claims that led to that 98.5% kind of level in fourth quarter. Is there anything else worth noting there please.

Thank you.

Vinit, on your first question, the simple answer on less cash on money market is that If paid in December a dividend of SEK5.8 billion to the parent Company. So that lowered the allocation.

Yes, then I wouldn’t count on any yield pick-up yet. I think that – you must remember, we are now talking also Swedish Krona and Norwegian Krone and these types of currencies.

So, let’s not assume any good news yet, I can still see also the running yield trailing downwards marginally.

And its combined ratio, to be very specific, it’s mainly due to an impact from the settlement of some of very old large industrial claims that we unusually had to increase in the settlement.

Okay. Alright, is the settlement seasonally done in 4Q or with just a normal – is it just a seasonal thing that happens in fourth quarters or it just happen to be in fourth quarter?

These are very unusual, but for once we have the strength and reserves, when you settle them.

I mean it’s a small business so – year one settlement moves the needle.

All right. Thank you.

Thank you, operator. And thank you all for your attention.

Have a nice evening.