Sampo Group's Results for 2018 SAMPO PLC     

SAMPO PLC       FINANCIAL STATEMENT RELEASE          7 February 2019 at 9:20 am

SAMPO GROUP'S RESULTS FOR 2018

Group's profit before taxes for 2018 amounted to EUR 2,094 million (2,482). The profit for the comparison year contains a positive non-recurring item of EUR 706 million because of the change in Topdanmark's accounting treatment. The total comprehensive income for the period, taking changes in the market value of assets into account, declined to EUR 1,034 million (2,146).

• Earnings per share was EUR 3.04 (3.96) and marked-to-market earnings per share was EUR 1.70 (3.79). Marked-to-market earnings were burdened by the weak capital market development. Return on equity for the Group amounted to 7.5 per cent (17.1) for 2018. Net asset value per share on 31 December 2018 decreased to EUR 20.60 (25.37).
• The Board proposes to the Annual General Meeting to be held on 9 April 2019 a dividend of EUR 2.85 per share (2.60). The proposed dividend payment amounts in total to EUR 1,583 million (1,444).  
• If segment's profit before taxes rose to EUR 848 million (818). Insurance technical result amounted to EUR 643 million (640) and combined ratio for full-year 2018 was 85.2 per cent (85.3). Return on equity was burdened by the decrease in the market value of investment assets and amounted to 11.2 per cent (21.3). Premiums grew by 2.9 per cent with fixed currencies.
• Topdanmark segment's profit before taxes was EUR 199 million (848). The comparison figure contains a positive non-recurring item of EUR 706 million arising from the difference between the carrying value and the fair value of Sampo's holding on 30 September 2017 when Sampo started to consolidate Topdanmark as a subsidiary. Combined ratio was strong and amounted to 82.3 per cent. Topdanmark's Board of Directors proposes to the AGM of 2019 a dividend of DKK 15 per share. If approved Sampo plc's share of the dividend payment is EUR 84 million.  
• Sampo's share of Nordea's net profit for 2018 amounted to EUR 625 million (616). Nordea's RoE, excluding non-recurring items, amounted to 9.7 per cent (9.5) and core Tier 1 ratio was 15.5 per cent. In segment reporting the share of Nordea's profit is included in the segment 'Holding'. Nordea's Board of Directors is going to propose to the AGM 2019 a dividend of EUR 0.69 per share (0.68). If the AGM approves the Board's dividend proposal, Sampo plc will receive a dividend of EUR 594 million (585).
• Profit before taxes for segment Mandatum rose to EUR 450 million (236). The profit includes the contribution of EUR 197 million from the Danske Bank co-operation agreement in the second quarter of 2018. Return on equity decreased to 8.7 per cent (13.3) because of the decrease in the market value of investment assets. The discount rate for with profit policies used for 2019 and 2020 is 0.25 per cent and 2.50 per cent for 2021.

*) 2017 figures contain a positive non-recurring item of EUR 706 million related to the start of consolidation of Topdanmark as a subsidiary, without which profit before taxes for Topdanmark segment would have been EUR 142 million.

**) of which non-controlling interests are EUR 91 million (23) for 2018 and EUR 14 million (23) for the fourth quarter of 2018.

The figures in this report are not audited. Income statement items are compared on a year-on-year basis whereas 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 Full-Year Financial Report attached as a PDF file to this stock exchange release. The Full-Year Financial Report is also available at www.sampo.com/result .

FOURTH QUARTER 2018 IN BRIEF

Sampo Group's profit before taxes for the fourth quarter of 2018 was EUR 451 million (436) and earnings per share amounted to EUR 0.66 (0.61). Marked-to-market earnings per share was EUR -0.22 (0.27). Net asset value per share decreased EUR 3.73 during the fourth quarter and was EUR 20.60.

Combined ratio for If for the fourth quarter of 2018 was 83.5 per cent (83.6). Profit before taxes amounted to EUR 221 million (215).

Topdanmark's combined ratio for the fourth quarter amounted to 81.1 per cent (82.1) and profit before taxes to EUR 29 million (52).

Sampo's share of Nordea's fourth quarter 2018 net profit amounted to EUR 98 million (126).

Profit before taxes for Mandatum Life amounted to EUR 66 million (56). Premiums written increased to a record high EUR 394 million (330).

BUSINESS AREAS

If

Profit before taxes for 2018 for the If segment was EUR 848 million (818). Combined ratio amounted to 85.2 per cent (85.3) and risk ratio was unchanged at 63.3 per cent (63.3).

In 2018 EUR 173 million (111) was released from technical reserves relating to prior year claims. Return on equity decreased to 11.2 per cent (21.3) and the fair value reserve on 31 December 2018 amounted to EUR 234 million (519).

Technical result was EUR 643 million (640). Insurance margin (technical result in relation to net premiums earned) was stable at 15.1 per cent (15.1).

Large claims for If were EUR 29 million (46) worse than expected for the full-year 2018. In BA Industrial they were EUR 2 million worse and in BA Commercial EUR 26 million worse than expected in 2018. In the fourth quarter of 2018 the large claims were EUR 10 million worse than expected. Sweden and Finland were most impacted by the large claims outcome.

Swedish discount rate used to discount the annuity reserves was at -0.41 per cent (-0.13) at the end of 2018 and had a negative effect on the full-year results of EUR 19 million. In Finland the discount rate for annuities was kept at 1.2 per cent during 2018.

Gross written premiums amounted to EUR 4,502 million (4,526) in 2018. With fixed currency rates premiums grew 2.9 per cent. All business areas and all countries, except Finland, had growth. Premiums in BA Private grew in all markets including Finland. The growth was highest in the Baltics, 6.5 per cent, and in BA Industrial, 5.0 per cent. In BA Private the premium growth amounted to 2.4 per cent and in BA Commercial 2.6 per cent.

Gross written premiums grew by 4.0 per cent in Sweden, 4.2 per cent in Norway and 2.3 per cent in Denmark. In BA Private Sweden the premium growth slowed down significantly in the second half of 2018, because of the changes in taxation of new cars introduced as of 1 July 2018. In Finland the premium development improved towards the end of the year but remained negative for the full year 2018 and was -1.3 per cent.

Cost ratio improved slightly to 21.9 per cent (22.0) and expense ratio remained at 16.4 per cent (16.4).

On 31 December 2018, the total investment assets of If amounted to EUR 10.9 billion (11.5), of which fixed income investments constituted 88 per cent (84), money market 2 per cent (3) and equity 10 per cent (13). Net income from investments amounted to EUR 229 million (216). Investment return marked-to-market for the full-year 2018 was -0.8 per cent (2.6). Duration for interest bearing assets was 1.4 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 31 December 2018 was 1.7 per cent (1.5).

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

Topdanmark

At the end of 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 1,704 million at 31 December 2018.

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).

The Board of Directors recommends to the AGM of 2019 a dividend of DKK 1,350 million (EUR 181 million), i.e. DKK 15 per share. If the AGM approves the proposal, Sampo plc share of the dividend payment is EUR 84 million.

The following text is based on Topdanmark's full-year 2018 result release published on 24 January 2019.

Topdanmark's pre-tax profit amounted to EUR 199 million (848). The comparison figure contains a non-recurring profit item of EUR 706 million, i.e. the difference between the carrying value and the fair value of Sampo's holding on 30 September 2017 when Sampo started to consolidate Topdanmark as a subsidiary.

In non-life insurance premiums earned increased 1.7 per cent to EUR 1,223 million (1,208). The level of large-scale claims increased in 2018. Compared to 2017, the level was approximately EUR 15 million higher, thus deteriorating the claims trend for the Topdanmark Group by 1.2 percentage points. Weather related claims amounted to EUR 1.2 million, which was approximately EUR 22 million lower (DKK 161 million) compared to normal level.   

The combined ratio amounted to 82.3 per cent in 2018. The expense ratio was 16.3 per cent.

In life insurance gross premiums increased 19 per cent to EUR 1,354 million (1,109) in 2018. Unit-linked contracts represented 94 per cent of new sales in 2018.

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

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

Associated company Nordea

On 31 December 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 8.76 per share. The closing price as at 31 December 2018 was EUR 7.27.

Nordea's Board of Directors is going to propose to the AGM 2019 a dividend of EUR 0.69 per share (0.68). If the AGM approves the Board's dividend proposal, Sampo plc will receive dividend of EUR 594 million (585) from Nordea on 8 April 2019.

The following text is based on Nordea's full-year 2018 result release published on 6 February 2019.

2018 featured challenges in terms of revenues. Net interest income was down 7 per cent in 2018 compared to 2017 driven mainly by margin pressure and the deconsolidation of the Baltic operations. In recent quarters, the level has stabilised, and towards the end of the year, Nordea saw volume growth and stabilising blended margins. The FICC trading environment has been challenging throughout the year, and the worsening market conditions in the fourth quarter further weighted on net fair value as well as fees and commission.

Nordea continues to deliver on its cost efficiency plans with costs below EUR 4.8 billion for 2018, excluding the goodwill write-down in Russia of EUR 141 million. Nordea is well on track to reach our 2021 target to reduce costs by 3 per cent compared to 2018 and in 2019 the target is to have lower costs than in 2018, adjusted for non-recurring costs in 2018 and 2019. Common Equity Tier 1 capital ratio was 15.5 per cent, in line with Nordea's expectations and well above the required level of 13.9 per cent.

Mandatum Life

Profit before taxes for Mandatum Life in 2018 amounted to EUR 450 million (236). The profit includes the contribution of EUR 197 million from the Danske Bank co-operation agreement in the second quarter of 2018. The total comprehensive income for the period after tax reflecting the changes in market values of assets amounted to EUR 112 million (188). Return on equity amounted to 8.7 per cent (13.3).

Net investment income, excluding income on unit-linked contracts, amounted to EUR 232 million (376 ). Net income from unit-linked contracts was EUR -259 million (405). During 2018 fair value reserve decreased to EUR 352 million (599).

Total technical reserves of Mandatum Life Group were EUR 11.2 billion (11.6). The unit-linked reserves were EUR 7.0 billion (7.1) at the end of 2018 . Unit-linked reserves corresponded to 62 per cent (61) of total technical reserves.

With profit reserves continued to decrease as planned during 2018 and amounted to EUR 4.2 billion (4.6) on 31 December 2018. With profit reserves related to the higher guarantees of 4.5 and 3.5 per cent decreased EUR 209 million to EUR 2.4 billion at the end of 2018.

Mandatum Life has overall supplemented its technical reserves with a total of EUR 232 million (325), of which EUR 193 million is allocated to years 2019 - 2021. The figure does not take into account the reserves relating to the segregated fund. The discount rate used for 2019 and 2020 is 0.25 per cent. For 2021 a rate of 2.50 per cent is used. Discount rate of segregated liabilities is 0.50 per cent and discount rate reserve of segregated liabilities amounted to EUR 250 million (261).

At the end of 2018 Mandatum Life Group's investment assets, excluding the assets of EUR 7.0 billion (7.1) covering unit-linked liabilities , amounted to EUR 5.6 billion (6.3) at market values.

The assets covering Mandatum Life's original with profit liabilities at the end of 2018 amounted to EUR 4.6 billion (5.2) at market values. 49 per cent (42) of the assets are in fixed income instruments, 9 per cent (16) in money market, 27 per cent (28) in equities and 15 per cent (13) in alternative investments . The investment return marked-to-market for 2018 was -2.4 per cent (6.5). The duration of fixed income assets at the end of 2018 was 2.5 years (2.0) and average maturity 2.8 years (2.2). Fixed income running yield without taking into account the FX hedging cost was 2.7 per cent (2.4) on 31 December 2018.

The assets covering the segregated fund amounted to EUR 1.0 billion (1.1), of which 77 per cent (77) was in fixed income, 5 per cent (6) in money market , 11 per cent (11) in equities and 6 per cent (6) in alternative investments. Segregated fund's investment return marked-to-market was -1.9 per cent (1.8). On 31 December 2018 the duration of fixed income assets was 2.5 years (2.6) and average maturity 3.1 years (3.3). Fixed income running yield without taking into account the FX hedging cost was 2.4 per cent (2.1).

The expense result rose to a new record. The expense result for life insurance segment amounted to EUR 35 million (33) and risk result to EUR 33 million (35).

Mandatum Life Group's premium income on own account increased to EUR 1,074 million (960). Premiums through Danske Bank channel was EUR 78 million during 2018. Premiums from unit-linked policies increased to EUR 976 million (850).

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

Holding   

Holding segment's profit before taxes amounted to EUR 618 million (576), of which EUR 621 million (616) relates to Sampo's share of Nordea's and NDX Intressenter's 2018 profit. Nordea's share was EUR 625 million (616) and NDX Intressenter's EUR -4 million. Segment's profit excluding the associated companies was EUR -3 million (-40).

Changes in market values of derivative instruments and currency exchange rates can cause volatility in the net investment income and finance cost lines.

Sampo plc's holding in Nordea Bank was booked in the consolidated balance sheet at EUR 7.5 billion. The market value of the holding was EUR 6.3 billion, i.e. EUR 7.27 per share, at 31 December 2018. In addition the assets on Sampo plc's balance sheet included holdings in subsidiaries for EUR 3.4 billion (2.4).

Sampo plc has during 2017 and 2018 made five investments (Asiakastieto, Intrum, Nets, Nordax and Saxo) amounting totally to approx. EUR 1 billion. Of these holdings Nordax (NDX Intressenter) is treated as an associated company, and other investments as financial assets.

OTHER DEVELOPMENTS

Shares and share capital

The Annual General Meeting of 2018 authorized the Board to repurchase a maximum of 50,000,000 Sampo A shares. Shares are repurchased in other proportion than the shareholders' proportional shareholdings (directed repurchase). The maximum price to be paid is highest market price quoted during the authorization period. 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 made no repurchases during 2018 and has not purchased its own shares after the end of the reporting period.

Internal dividends

Sampo plc, Sampo Group's parent company, received almost EUR 1.7 billion in dividends from its subsidiaries and associated company Nordea during 2018. The following dividend payments were received:

- Mandatum Life; EUR 150 million in March 2018 and EUR 150 million in September 2018, - Nordea; EUR 585 million in March 2018,

- Topdanmark; EUR 107 million in April 2018 and - If; SEK 7.0 billion (EUR 675 million) in December 2018

On 6 February 2019 Nordea's Board of Directors announced that it is going to propose to the Annual General meeting to be held on 28 March 2019, a dividend of EUR 0.69 per share. With its current holding Sampo plc's share amounts to EUR 594 million. The dividend is proposed to be paid on 8 April 2019.

Topdanmark's Board of Directors proposed to the Annual General Meeting of 3 April 2019 a dividend of DKK 15 per share. Sampo's share of the Topdanmark's total dividend amounts to EUR 84 million.

A dividend of EUR 150 million is planned to be paid by Mandatum Life during the first quarter of 2019. If normally pays its dividend towards the end of the calendar year.

Ratings

Relevant ratings for Sampo Group companies on 31 December 2018 are presented in the table below.

Solvency

Sampo Group's capital requirement is dependent on the capital requirements of the business areas and the parent company. Sampo Group's capital requirement and the amount of group's own funds are calculated by both the conglomerate rules (FICO) and the Solvency II directive.

Until the end of 2018 the total minimum capital requirement under FICO rules was calculated based on the subsidiaries' standard formula capital requirements. At the year-end 2018 Sampo started using Partial Internal Model (PIM) Solvency Capital Requirements (SCR) for most of non-life insurance business of If and Topdanmark in FICO calculations. This decreased the total minimum capital requirement by approximately EUR 470 million in the fourth quarter of 2018.

In Solvency II Sampo Group has not, however, an approved Group PIM, although the PIMs of If and Topdanmark are approved by their respective local regulators, and therefore the Standard Formula SCRs are applied in Solvency II on a group-level. The treatment of Nordea's capital requirement in Sampo is similar under FICO and Solvency II and the effects of any changes are similar as well.

In the fourth quarter of 2018 Nordea's Risk Exposure Amount (REA) increased EUR 35 billion to EUR 156 billion stemming mainly from migration of existing items from Pillar 2 to Pillar 1 due to the re-domiciliation of the bank from Sweden to Finland. At the same time, the systemic risk buffer (SRB) decreased temporarily to zero per cent. As a consequence of these two effects, the nominal capital requirement for Sampo was EUR 3,779 million on 31 December 2018. However, the SRB has to be applied in Finland starting 1 January 2019 (2 per cent in the first half of 2019 and 3 per cent from 1 July 2019) which will increase Nordea's capital requirement for Sampo accordingly in 2019 and decrease the Group solvency ratio. As the situation develops Sampo will be looking into different measures to counter the impact.

Group's conglomerate solvency ratio (own funds in relation to minimum requirements for own funds) amounted to 147 per cent (154) as at 31 December 2018. The components of the calculation are described in the table below.

The Group solvency calculated according to the Solvency II directive amounted to 140 per cent (156) on 31 December 2018.

The insurance subsidiaries have since 1 January 2016 applied 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.

If Group has an A+ rating from S&P which will continue to require significantly more capital than the standard formula and therefore the use of standard formula has no practical implications on If Group's capital position. On 31 December 2018 If Group's pro forma Solvency II capital requirement under standard formula amounted to EUR 1,833 million (1,938) and own funds to EUR 3,599 million (3,818). Solvency ratio amounted to 196 per cent (197).

S&P A+ rating requirement for If Group amounted to EUR 2,949 million (3,098) at the end of 2018 and the capital base was EUR 3,149 million (3,408). On 31 December 2018 If Group's Solvency II capital requirement under partial internal model was EUR 1,305 million (1,510) and own funds EUR 3,599 million (3,875). Solvency ratio amounted to 276 per cent (257).

Topdanmark calculates most of its non-life and health risks and their respective solvency capital requirement by a partial internal model approved by the DFSA. Other risks are calculated by Solvency II SCR standard formula. Topdanmark's solvency ratio under the partial internal model was 196 per cent (204) at the end of 2018.

On 31 December 2018 Topdanmark's Solvency II capital requirement under standard formula amounted to EUR 534 million and own funds to EUR 872 million. Solvency ratio amounted to 163 per cent (166).

Mandatum Life's solvency ratio after transitional measures remained strong despite the dividend payment and the negative capital market development and was 176 per cent (182) on 31 December 2018. Own funds of EUR 1,740 million (1,977) exceed Solvency Capital Requirement (SCR) of EUR 990 million (1,087) by EUR 750 million. Without transitional measures, own funds would have amounted to EUR 1,348 million (1,555) and the solvency capital requirement to EUR 1,030 million (1,220) leading to a solvency ratio of 131 per cent (127).

More information on Sampo Group's capital policy is available in the Risk Management Report 2018 published in March 2019 at www.sampo.com/year2018.

Debt financing

Sampo plc's debt financing on 31 December 2018 amounted to EUR 4,067 million (3,177) and interest bearing assets to EUR 1,959 million (1,754). Interest bearing assets include bank accounts, fixed income instruments and EUR 489 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.

On 31 December 2018 financial liabilities in Sampo plc's balance sheet consisted of issued senior bonds and notes of EUR 3,943 million (2,884) and EUR 124 million (293) of CPs issued. The average interest, net of interest rate swaps, on Sampo plc's debt as of 31 December 2018 was 0.81 per cent (0.93).

More information on Sampo Group's outstanding debt issues is available at www.sampo.com/debtfinancing .

OUTLOOK

Outlook for 2019

Sampo Group's business areas are expected to report good operating results for 2019.

However, the marked-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 of 86 - 90 per cent in 2019.

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 business areas including the parent company Sampo plc.

Major risks affecting the Group companies' profitability and its variation are market, credit, insurance and operational risks that are quantified independently by the business areas. At the group level sources of risks are same, but they are not directly additive because of diversification effects.

Uncertainties in the 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 and potential wide-impact events. These external drivers may also have a long-term impact on how business shall be conducted. Examples of already identified trends are technological development in areas such as artificial intelligence and digitalization, demographic changes and sustainability issues that may have profound effects on financial sector companies as well.

DIVIDEND PROPOSAL

According to Sampo plc's dividend policy, total annual dividends paid shall be at least 50 per cent of the Group's net profit for the year (excluding extraordinary items). In addition, share buy-backs can be used to complement the cash dividend.

The parent company's distributable capital and reserves totalled EUR 7,792,358,111.04 of which profit for the financial year was EUR 1,668,757,866.27.

The Board proposes to the Annual General Meeting a dividend of EUR 2.85 per share to company's 555,351,850 shares. The dividends to be paid are EUR 1,582,752,772.50 in total. Rest of funds are left in the equity capital.

The dividend will be paid to shareholders registered in the Register of Shareholders held by Euroclear Finland Ltd as at the record date of 11 April 2019. The Board proposes that the dividend be paid on 18 April 2019.

No significant changes have taken place in the company's financial position since the end of the financial year. The company's liquidity position is good and in the view of the Board, the proposed distribution does not jeopardize the company's ability to fulfill its obligations.

SAMPO PLC Board of Directors

For more information, please contact:

Knut Arne Alsaker , Group CFO, tel. +358 10 516 0010 Jarmo Salonen , Head of Investor Relations and Group Communications, tel. +358 10 516 0030 Mirko Hurmerinta , IR and Communications Specialist, Media Relations, tel. +358 10 516 0032

Press conference and conference call

Sampo will today arrange a press conference at Restaurant Palace (10 ^th floor), Eteläranta 10, Helsinki, at 1 pm Finnish time (11 am UK time). Languages used at the press conference are English and Finnish.

To attend the press conference and for interview requests please contact Mirko Hurmerinta via e-mail, mirko.hurmerinta@sampo.fi.

An English-language conference call for investors and analysts will be arranged at 5 pm Finnish time (3 pm UK time). Please call +44 (0)333 300 0804, +1 631 913 1422, +46 (0)8 5664 2651 or +358 (0)9 8171 0310. The conference code is 69958632#.

The press conference and conference call can also be followed live at www.sampo.com/result . Recorded versions will later be available at the same address.

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

Sampo will publish the Interim Statement for January-March 2019 on 8 May 2019.

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

Attachment

• Financial Statement Release 2018.pdf