Company Reports

In the first quarter of 2024, Sampo Group continued to price ahead of inflation, with rate rises of 5%-6%, versus claims inflation of 4% to 5%, sticking with a premium of 1%. While in this quarter the company has placed more importance on the top line than is typical of Sampo, with 10% currency-adjusted growth, that hasn’t come at the expense of underwriting, with an improvement in its undiscounted combined ratio from 88.4% to 87.3% quarter on quarter. That is despite the absorption of 6% of severe weather claims over the quarter, an increase of 4 percentage points versus the same period in the prior year. Retention in property and casualty has slipped over the year to 89%, a deterioration of 1%. Nonetheless, we think the strength of the business is a bit better than it was last year.

Sampo is an efficiently run Nordics-based personal lines insurer that tends to focus on improving its underwriting quality year on year by holding on to customers for longer and therefore paying less in acquisition costs. The digitalization of its operations and extraction of expenses, scale, and negotiation power with its partners have also helped. Sampo has a long-term track record of increasing its prices ahead of the prevailing rate of inflation. The business tends to invest a little under EUR 100 million a year to achieve these goals. We think the savings the company has generated from these investments have more than covered their costs and more than covered the existing returns the business has generated. In other words, we believe these investments have been value-accretive.

Sampo is an efficiently run Nordics-based personal lines insurer that tends to focus on improving its underwriting quality year on year by holding on to customers for longer and therefore paying less in acquisition costs. The digitalization of its operations and extraction of expenses, scale, and negotiation power with its partners have also helped. Sampo has a long-term track record of increasing its prices ahead of the prevailing rate of inflation. The business tends to invest a little under EUR 100 million a year to achieve these goals. We think the savings the company has generated from these investments have more than covered their costs and more than covered the existing returns the business has generated. In other words, we believe these investments have been value-accretive.

Sampo Group has reported EUR 1.314 billion net income, or EUR 2.62 EPS, for 2023 under the new IFRS 17 reporting standard. This is slightly below the EUR 1.464 billion, or EUR 2.81 per share that we forecast, but aided by 4.4% insurance revenue growth and assisted by investments in service and digital. The board is proposing a EUR 1.8 per-share dividend to be paid to shareholders for the earnings generated over the last year. This is made up of a EUR 1.6 normal dividend and EUR 0.2 special dividend. The board is also proposing a buyback of 50 million shares that we have incorporated into our forecasts. After rolling our model into the new accounting regime and incorporating these distributions, we are raising our fair value estimate to EUR 43.50 per share. We maintain our Medium Morningstar Uncertainty Rating and narrow moat rating.

Sampo is an efficiently run Nordics-based personal lines insurer that tends to focus on improving its underwriting quality year on year through holding on to customers for longer and therefore paying less in acquisition costs, the digitalization of its operations and extraction of expenses, scale and negotiation power with its partners, and through an ability to select lower-cost customers in terms of claims or customers that are willing to pay that little bit more in price. Sampo has proved this ability year on year and tends to invest a little under EUR 100 million a year to achieve these outcomes. We think the savings the company has generated from these investments have more than covered the cost of capital and more than covered the existing returns the business was generating. In other words, we believe these investments have been value accretive.

Sampo Group has reported a net income of EUR 941 million for the first nine months of 2023. We maintain our EUR 40 per-share fair value estimate and narrow moat rating and reiterate that we believe shares are currently fairly valued.

On Oct. 2, Sampo completed the demerger of its life insurance business, Mandatum, with Mandatum being admitted to the official list and Sampo shares now trading without ownership of Mandatum. Sampo shareholders have received one Mandatum share for every Sampo share that they held as at Sept. 29, 2023. This leaves Sampo as a business that is purely focused on property and casualty insurance and gives Mandatum, as well as Sampo, greater strategic and financial independence to pursue its own strategy. The demerger also reduces market risk exposure and earnings volatility for Sampo.

Sampo has reported profits before tax of EUR 722 million for the first six months of the year, or EUR 1.13 per share. That puts Sampo on track to realise EUR 2.27 in earnings per share for the full year, as per Refinitiv-collected consensus. Our full-year estimate is for a pretax income of EUR 1.6 billion, so perhaps we are a little ahead.

We are initiating coverage of Sampo with exemplary capital allocation, a stable moat trend, a narrow economic moat, and Medium Uncertainty Rating. Our fair value estimate is EUR 40 per share. Sampo generated an average return on equity of 13.5% over the last 10 years. We believe Sampo will earn an average return on equity of 14.5% over the next 10 years. Our stage two forecasts use a 12% average return on equity. We apply a 9% cost of equity in line with what we apply to other personal lines insurance businesses.

Sampo is an efficiently run Nordics-based personal lines insurer that tends to focus on improving its underwriting quality year on year through holding on to customers for longer and therefore paying less in acquisition costs, the digitalization of its operations and extraction of expenses, scale and negotiation power with its partners, and through an ability to select lower-cost customers in terms of claims or customers that are willing to pay that little bit more in price. Sampo has proved this ability year on year and tends to invest a little under EUR 100 million a year to achieve these outcomes. We think the savings the company has generated from these investments have more than covered the cost of capital and more than covered the existing returns the business was generating. In other words, we believe these investments have been value accretive.