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Edited Transcript of SAMAS.HE earnings conference call or presentation 6-Nov-19 2:00pm GMT

Q3 2019 Sampo Oyj Earnings Call

Turku Nov 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Sampo plc earnings conference call or presentation Wednesday, November 6, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jarmo Salonen

Sampo Oyj - Head of IR & Group Communications

* Kari Henrik Stadigh

Sampo Oyj - CEO, President & Member of Group Executive Committee

* Knut Arne Alsaker

Sampo Oyj - CFO & Member of Group Executive Committee

* Morten Thorsrud

If P&C Insurance AS - CEO

* Torbjörn Magnusson

Sampo Oyj - Member of Group Executive Committee

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Conference Call Participants

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* Blair Thomson Stewart

BofA Merrill Lynch, Research Division - Head of the UK and European Insurance

* Jakob Brink

Nordea Markets, Research Division - Senior Analyst & Sector Coordinator

* Jan Erik Gjerland

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

* Johan Ström

Carnegie Investment Bank AB, Research Division - Analyst of Financials

* Jonathan Denham

Morgan Stanley, Research Division - Equity Analyst

* Jonathan Peter Phillip Urwin

UBS Investment Bank, Research Division - Director and Equity Research Insurance Analyst

* Kevin Ryan

Bloomberg Intelligence - Analyst

* Matti Ahokas

Danske Bank Markets Equity Research - Head of Equity Research of Finland

* Per Grønborg

SEB, Research Division - Research Analyst

* Sami Taipalus

Goldman Sachs Group Inc., Research Division - Research Analyst

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Presentation

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Jarmo Salonen, Sampo Oyj - Head of IR & Group Communications [1]

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Ladies and gentlemen, welcome to this conference call on Sampo's Third Quarter 2019 results. I'm Jarmo Salonen, the Head of Investor Relations at Sampo. And with me at this call, I have Kari Stadigh, our Group CEO and President; Torbjörn Magnusson, who will be Group President and CEO starting 1st of January next year; Knut Alsaker, Group CFO; and Morten Thorsrud, CEO for If P&C.

We'll have the same procedures as always. But before handing over to Kari, I'll just remind you that you can follow this transmission on sampo.com/results. And a recorded version will also be available later on at that same address.

With these notes, I'll hand over to Kari.

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Kari Henrik Stadigh, Sampo Oyj - CEO, President & Member of Group Executive Committee [2]

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Thank you, Jarmo. Welcome to the conference call on my behalf as well. As you are all well aware of, I'm stepping down as Group CEO by the end of the year. Therefore, I'm going to hand over to Torbjörn for the comments on our Q3 results in a moment.

Before that, I want to comment shortly on our new guidance on the dividend. We have for many years been committed to a yearly increase of our dividend. Also, in our Q2 conference call, I was firmly behind continuing that good tradition, if necessary, even bridging it if our group internal dividends didn't sum up to an adequate amount.

However, 2 things have changed since our August call. The main thing being, of course, Nordea's new communication, the payout ratio of 60% to 70%, significant write-offs and new group targets. The second thing was ECB's communication in early September, rates will stay lower for longer. My view on interest rates bottoming out was wrong.

It became obvious that to continue to propose an increasing dividend for Sampo or bridging an annually increasing dividend was not in the best interest of our shareholders. It is also worth remembering the dividend of EUR 0.56 already distributed as Nordea shares, and this, in itself, reducing the number of shares on which our internal Nordea dividends is based. Thus, a new guidance for the Sampo dividend was needed.

It is the duty of the management to react swiftly to news of this magnitude. Our dividend guidance for next spring still maintains our status as a dividend stock, with a dividend yield of roughly 6%.

This is my main comment on the dividend and now I hand over to Torbjörn on the Q3 results.

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Torbjörn Magnusson, Sampo Oyj - Member of Group Executive Committee [3]

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Thank you, Kari. This has been a somewhat unusual quarter for Sampo. We have both had some significant onetime events, both in [Olean] and Sampo as well as very strong developments in our insurance operations.

Let me first comment on the more exceptional actions and events. As we had planned and communicated, we have, this quarter, distributed 55 million Nordea shares to our shareholders as a dividend. And as a consequence, our ownership in the bank came down to just below 20%.

The aim of this was to terminate the regulation of Sampo as a financial conglomerate, since the capital commitment we had to make for Nordea was about to become as economical as it was illogical.

After the approval by the Finnish regulator in October, Sampo's now an insurance group, also for regulatory purposes with a strong solvency ratio. The process was well-executed and with an outcome that aligns the regulation of Sampo with how I strategically view the group.

We have been waiting for Nordea to present their updated business plan and new financial targets. Now the rapid appointment of a new CEO made it possible to do things in the right order and get him involved at an early stage. And if you allow me to talk as Nordea's Chairman for a moment, I was pleased with the presentation Nordea made 2 weeks ago, and it was the result of a significant amount of work done by the Board of Nordea, the new CEO and his management team altogether.

Nordea's business plan is about better execution, better customer experiences, enhanced operational efficiency and, as a result, better shareholder value creation. It's a credible and realistic plan, with the right actions and targets that produced uncertainty for Sampo and for other shareholders for the coming period.

We have recently communicated how we see next year's dividend for Sampo and that the Board will review the dividend policy over the months to come. Kari already covered the background to this. The dividend has been and will always be important for Sampo and for our owners. Obviously, our dividend needs to be based on the earnings in the businesses that we own and the dividends that these businesses upstream to Sampo Plc. This is nothing new.

With the change in dividend policy in Nordea, expectations of a dividend from Sampo are between EUR 2.1 and EUR 2.3 per share next year, it's a straightforward communication, which aligns profit expectations and dividends.

I see our communication from the 24th of October as a prudent one, but with the best interests of our shareholders in mind with respect to long-term value creation, which has always included securing a strong balance sheet for this group.

This has also been a quarter with business as usual for Sampo. So as usual, we have today released a great set of results for our insurance businesses, the combined ratios of the P&C insurance operations that we own are excellent. And as you have seen, the operating environment for Nordic P&C is still very good.

Competition from recent entrants without competitive advantages has faded, and If P&C had growth for the first 9 months of 5%. This is very much due to market-leading web offering and a successful transition into an omnichannel distribution world.

In Mandatum, further, the result this year is very good due to high investment returns. The transformation of the company's balance sheet is continuing, with growth in unit-linked reserves and continued reduction of old with-profit reserves. We have taken various initiatives during the third quarter to strengthen the company's balance sheet, given, of course, the impact from the low interest rate environment.

Then for Topdanmark, I think the only thing to say is that we have become so used to the company performance that a non-life combined ratio of just above 80% for the year so far and continued double-digit percent growth in unit-linked life business almost passes without anybody noticing. However, with the investment in IT that the company is making, combined with the exceptionally strong underwriting culture, we see possibilities for further continuous improvements.

For Nordea, Q2 results -- Q3 results was obviously affected by a number of one-offs, which we were already well aware of. But looking at the underlying business, I think it was a decent quarter, where we saw some small positive effects from increased spot business volumes and activities on both net interest and net commission income and the market shares for the mortgage businesses is back roughly at the back book levels in all countries.

Then lastly, one thing is undoubtedly special with the quarter we're already well into, not only for Sampo, but for me, personally, and for Kari. This is Kari's last few weeks as CEO of Sampo Group. I want to thank Kari for the enormous support that you have given me during the last 18 years and for the belief that you have shown that creating shareholder value can be done owning insurance businesses. This was certainly not a commonly held view 18 years ago.

We have worked together for an exceptionally long time, so the CEO transition here is a very continuous one. I, obviously, share many of your core values Kari, including a focus on people and equally on accessing maximum information in the markets and the importance of a strong balance sheet, but equally, on not hoarding capital unnecessarily.

So thank you, Kari, and I'm certain many of you others on this call wish you all the best for your retirement.

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Kari Henrik Stadigh, Sampo Oyj - CEO, President & Member of Group Executive Committee [4]

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Thank you.

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Jarmo Salonen, Sampo Oyj - Head of IR & Group Communications [5]

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jakob Brink from Nordea.

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Jakob Brink, Nordea Markets, Research Division - Senior Analyst & Sector Coordinator [2]

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I have a few detailed questions. I hope that's okay. But on Page 24 in the slide package, could you just highlight or give us a bit more details on how the equity -- or the sensitivity equity prices, hence, also, I guess, Nordea, is actually working? How much of this is Nordea? And maybe just a bit more detail on that would be helpful.

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [3]

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Okay. I can start to entertain that maybe, Jakob. What we show on Page 24 is our equity exposure, including Nordea, but it's also including the symmetric adjustment under Solvency II, which gives us a buffer for a reduction in the first 20% top in share prices, which obviously, is reflected here on this page, since we're showing minus 10% and minus 20%, which gives a fairly limited sensitivity.

And this is assuming that our equity portfolio, including Nordea, moves in line with the global indices, which is the symmetric adjustment is based on. That's what we show on this particular page.

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Jakob Brink, Nordea Markets, Research Division - Senior Analyst & Sector Coordinator [4]

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So what if Nordea would move differently than the world index?

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [5]

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If Nordea specifically would go down, obviously, that reduction in market value would impact own funds. And roughly 40% of that reduction would reduce the SCR, assuming that Nordea was the only stock that went down and global markets otherwise remained unchanged.

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Jakob Brink, Nordea Markets, Research Division - Senior Analyst & Sector Coordinator [6]

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Okay. Then on the -- it looks like the reduction in with-profit guarantees or reserves year-to-date or year-on-year is somewhat larger than what it has been in recent quarters. I remember, I think, at the Analyst Day in August, there was a presentation talking about you would try to speed up that reduction. Is that what we're seeing the results of now? And should it continue, i.e., the higher base?

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [7]

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Yes, that's what you see the result of now; the reduction that we have year-to-date is the highest reductions we've had in any of the years where this has been in run-off and roughly EUR 200 million of that reduction is related to the 3.5% and 4.5% guarantee. And I would expect that to remain and probably end up in the year somewhere EUR 250 million to EUR 300 million in total, where the majority of that will be the high guarantee product.

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Jakob Brink, Nordea Markets, Research Division - Senior Analyst & Sector Coordinator [8]

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EUR 250 million to EUR 350 million, okay.

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [9]

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EUR 250 million to EUR 300 million.

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Jakob Brink, Nordea Markets, Research Division - Senior Analyst & Sector Coordinator [10]

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EUR 300 million, okay. And then on the -- and as far as I can calculate, the goodwill amortization on Nordea is relatively large here in Q3. I don't know if that's anything to do with the sell-down of shares or is that a new level?

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [11]

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No. There's no special in the goodwill amortization in Q3, the -- our -- the goodwill, we don't -- our goodwill related to Nordea doesn't change. Obviously, we have a lower stock of Nordea shares. So of course, that is reducing our holding and book value of Nordea, the 55 million Nordea shares is proportionally reducing the book -- the total nominal book value of Nordea, since it's not, no longer on our balance sheet.

But there are no other special things going on in terms of our goodwill and intangibles related to Nordea.

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Jakob Brink, Nordea Markets, Research Division - Senior Analyst & Sector Coordinator [12]

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Great. And then just finally, on non-life. So the very strong Swedish combined ratio now for 3 quarters in a row, or even better than it used to be for 3 quarters, is -- I think you said last quarter, that, that was due to relatively high run-off gains on motor TPL. Is that same -- still the same going on?

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Morten Thorsrud, If P&C Insurance AS - CEO [13]

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Morten here. That's correct. It's still very much reserve releases from motor TPL affecting that in Sweden.

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Operator [14]

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And the next question comes from the line of Matti Ahokas from Danske Bank.

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Matti Ahokas, Danske Bank Markets Equity Research - Head of Equity Research of Finland [15]

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Two questions on the non-life business as well. Firstly, a topic you've talked about quite frequently is the impact of lower interest rates. But then when you look at the running yield of If, in particular, it has actually been extremely stable.

I was wondering, could you shed us some light on what's behind it? Is this purely technical? Or does it reflect kind of different investment mix to, for example, Norway rates are higher? And how do you see this going forward?

The other question is regarding also Sweden and the non-life business. The profitability has been very strong, but so has also the premium growth. So I was wondering, Morten, if you could talk a bit and elaborate on the kind of dynamics on the market. How come premiums are growing so much as they are?

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Morten Thorsrud, If P&C Insurance AS - CEO [16]

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Shall I just start with the running yield question of the -- the maturity profile of our fixed income book lately have been fairly stable, meaning that we haven't had a lot of fixed income maturities over the last couple of quarters, and will not have in Q4 either. So that has helped to keep up the running yield in If and also in Mandatum actually.

Obviously, with the interest rate environment we have, the reinvestment yield, this is lower and on many of the reinvestments we do, obviously, the yield is more sort of between 0 and 0.5 percentage points, slightly higher if we take a bit of credit risk, but it's lower than the running yield. But again, that has been kept up and will probably be kept up for a couple of more quarters due to the maturity profile of the fixed income portfolio.

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Matti Ahokas, Danske Bank Markets Equity Research - Head of Equity Research of Finland [17]

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But it will still come down in 2020 if rates stay at current levels?

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Morten Thorsrud, If P&C Insurance AS - CEO [18]

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I think it will definitely still come down in 2020.

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [19]

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Then to your question, Matti on Sweden and growth. We report 4.3% growth for the Swedish business year-to-date and 7% in the third quarter stand-alone. We do see quite a good growth in net number of customers in Sweden, in particular, in the business that are private.

On top of that, in Q3, we also see increased car sales. And if you recall, we had a special situation last year where a lot of the car sales took place in the first half of the year due to tax changes, so now we are comparing toward a quarter -- third quarter last year that was a bit weaker as a result of that. But still, we do see good growth in number of customers, again, in particular, in the private segment in Sweden.

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Matti Ahokas, Danske Bank Markets Equity Research - Head of Equity Research of Finland [20]

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So this is not a reflection of significant price adjustment, it's more a question of volume?

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [21]

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No, it's more a question of volume. Price increases are more natural, I would say, perhaps more normal in Sweden, a bit higher in commercial than in private, but nothing kind of special.

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Matti Ahokas, Danske Bank Markets Equity Research - Head of Equity Research of Finland [22]

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Got it. And all the best to your many future endeavors, Kari.

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Operator [23]

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And the next question comes from the line of Per Grønborg from SEB.

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Per Grønborg, SEB, Research Division - Research Analyst [24]

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Two questions from my side. First of all, industrial, you're growing 14% year-over-year. Can you put some light on what you're seeing out in the marketplace? We know that a number of other Nordic competitors are leaving this market, but what are you seeing going forward from here?

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Morten Thorsrud, If P&C Insurance AS - CEO [25]

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Yes. We do see good profitability in our industrial business, and we've been doing things so far for many, many years. So the industrial business is a key part of our business, a natural part of our business.

We do experience quite strong growth this year. It's driven by several factors, one being increased turnover with a number of our clients; another one being price increases in the portfolio as such.

And then we also have some one-off effects with some larger projects, construction projects that could typically inflate the GDP figure and typically earn more over time.

And then we see a high retention rate, a very high retention rate in the large corporate segment, which I guess is reflecting a little bit that some other players have a bit more negative view on this segment. But again, we see good underlying profitability in this segment and are happy about the growth that we see.

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Per Grønborg, SEB, Research Division - Research Analyst [26]

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Okay. My second question relates to Mandatum. You show in the report that you have provided EUR 227 million for low rates. Taking into account that, that's approximately 1% of your -- sorry, taking into account the size that you book and where interest rates are currently, it does look like you have provided a lot, taking into account that yes, this is not that very, very long tail businesses, but it's still businesses you will have on your book for, I guess, on average, 6 to 8 years still to come.

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [27]

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If I got your question right, this EUR 227 million, if I should describe what it includes, then it's including discounting all the 4.5% guaranteed liabilities that we have, down to 3.5%.

And in addition to that, it includes discounting all liabilities, down to 0.25% for this year, next year in 2021; and all liabilities down to 2.5% discount rate in 2022. After that, there's no discount rate per se and the average guarantee on Mandatum's liability is slightly above 3%.

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Per Grønborg, SEB, Research Division - Research Analyst [28]

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I think in the light of you're also stating that your reinvestment yield is now down to a level of between 0% and 0.5%, there seems to be a potential significant need for putting reserves aside for these guarantees, if you don't see a sharp rise in interest rates within a couple of years.

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [29]

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Sure. The -- after 2022, the guaranteed rate is just above 3%. That can be met in different ways, obviously, with an investment return with the portfolio Mandatum didn't have. But you're right. Some of that will need to be -- meet the guarantees.

Or alternatively, Mandatum is making roughly a 30% risk result and 30% -- sorry, EUR 30 million risk result and EUR 30 million expense result per year, roughly, today. And in 2022, 1 year cost of Mandatum's guarantee with the run-off profile it now will have will be EUR 60 million.

So in 2022, with 0% investment return and the current risk and expense result, Mandatum's profit will be 0. But the risk and expense result in 2022 will still be enough in itself to meet 1 year's guarantee. My apology, I should say, 2023. In 2022, we actually need a little bit less than EUR 60 million. We need EUR 45 million.

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Operator [30]

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And the next question comes from the line of Jonny Urwin from UBS.

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Jonathan Peter Phillip Urwin, UBS Investment Bank, Research Division - Director and Equity Research Insurance Analyst [31]

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Just 1 focus area really, around the attritional loss ratio, mainly the expectations going forward. So I think you guys are making the point again today that pricing is, on average, in line with claims inflation and, in some markets, ahead, mainly Norway. So I mean, all else being equal, should we expect that attritional loss ratio to improve from here?

And then I was also just hoping for you to make a comment around retentions. Growth is pretty good at the moment. You're getting rate as well. So what's happening to retentions? Is there anything you're doing there to perhaps lift retentions even higher? And anything you'd like to showcase?

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Morten Thorsrud, If P&C Insurance AS - CEO [32]

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Of course, as you know, we prefer to look at the total combined, and we report a total combined of 84.3%, which, of course, is a highly attractive combined ratio as such. When we look at the current year result, it's, of course, somewhat higher as this is partially supported by run-off gains and to a magnitude that is somewhat higher than what we've seen earlier.

We do see a certain underlying improvement if you look at the first 9 months, since you are having, in part of the business, price increases that go somewhat above what is expected inflation, that continues into Q4 as well. So on a current year basis, we do expect to see some improvement going forward.

When it comes to growth and retention, a larger part of the growth that we see comes from improved retention, particularly in the private segment, but we do see retention rate increasing in all markets and being actually at record high levels now. So that trend kind of continues.

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Jonathan Peter Phillip Urwin, UBS Investment Bank, Research Division - Director and Equity Research Insurance Analyst [33]

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All the best, Kari.

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Kari Henrik Stadigh, Sampo Oyj - CEO, President & Member of Group Executive Committee [34]

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Thanks.

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Operator [35]

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The next question comes from the line of Kevin Ryan from Bloomberg Intelligence.

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Kevin Ryan, Bloomberg Intelligence - Analyst [36]

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I just wanted to try and understand a little better the dividend guidance going forward. And around that, I wonder if you could tell us what level of earnings distribution for the dividend you're happy with? And also, how that ties in with the solvency level you're happy with?

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Kari Henrik Stadigh, Sampo Oyj - CEO, President & Member of Group Executive Committee [37]

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The guidance, if you read it carefully, it's actually only for next spring. And then we have said in the announcement that we will come back to that early next year on a proper dividend policy.

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Torbjörn Magnusson, Sampo Oyj - Member of Group Executive Committee [38]

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At solvency ratios that we would be happy with.

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Operator [39]

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And the next question comes from the line of Sami Taipalus from Goldman Sachs.

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Sami Taipalus, Goldman Sachs Group Inc., Research Division - Research Analyst [40]

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My first question is strategic. I mean, Torbjörn, you talked about sort of a will to return more towards an insurance focus in the past, and you mentioned your -- in your speech about more of an insurance focus as well, and you've announced the appointment of Mr. Wennerklint as Chief Strategy Office today, who also comes from a very insurance-focused background.

So I'm just wondering whether -- what we should read into this regarding Sampo's strategy going forward and potential implications for the stakes in Nordea and maybe also the investment portfolio held at holding company level. It would be great to hear any thoughts on that to start off with, please.

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Kari Henrik Stadigh, Sampo Oyj - CEO, President & Member of Group Executive Committee [41]

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I don't think it's any dramatic sign to be read into it, 3/4 or so of Sampo is now insurance operations. It's, by and large, thus an insurance-dominated operation, and we have an unusual amount of knowledge about the insurance business.

We need to keep it that way and continue to develop that business. And any further thoughts on the future, of course, I will return to next year.

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Sami Taipalus, Goldman Sachs Group Inc., Research Division - Research Analyst [42]

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Okay, great. Then just moving on to solvency ratio. If I just try to strip out the Nordea stake out of the group Solvency II ratio, it looks like the insurance-only solvency ratio would be quite low, actually. Is that something that you would see in your own calculations?

And then second, how optimized is the group Solvency ratio? If I remember correctly, and correct me if I'm wrong, it doesn't -- it includes If and Topdanmark and Mandatum at standard models. Is that right? And are there some other potential actions you could take to optimize the ratio further?

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [43]

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The answer to your first question, in terms of the insurance business stand-alone, the way I view the group now, it is an insurance group with a large holding in Nordea, which adds from a solvency perspective, market risk to our solvency calculation. It's an integrated part of the solvency to group SCR and own funds. So there's nothing really to stick out.

If I took the extreme case that Nordea should go bankrupt, and the value of Nordea should be 0, we would have a Solvency II ratio as of Q3 of slightly above 120%. So we would still be okay even in such a -- such an extreme scenario, which means that we are very comfortable with the solvency position and the capital position that we have today.

And we have a little bit more capital than we actually need from a regulatory purposes. And clearly, without Nordea going bankrupt, we have a very comfortable strong capital buffer.

In terms of optimizing, there's no activity going on with the strong capital buffer we had to try to further optimize it right now. We have a possibility to issue some more hybrid capital, which we have talked about before, we most likely will do in the years to come. Particularly out of If has room for a little bit more hybrid; Mandatum is pretty much fully optimized; on a group basis, we could, over time, consider to apply also for a group internal model.

That wouldn't significantly, on a group basis, change the solvency ratio from today's level, but it would make it a little bit higher with the assumptions we currently have in our own consideration around an internal model. But with the solvency ratio 178%, that's not an active ongoing project for the time being.

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Sami Taipalus, Goldman Sachs Group Inc., Research Division - Research Analyst [44]

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Okay, good. Then just finally, finishing off on If and, I guess, the growth there. If, the profitability and the returns are quite considerably above the -- your sort of market cost of capital. You've already accelerated the growth a little bit.

But at the same time, I get the sense that you've made quite a lot of progress on the IT side and particularly, on the digital distribution. Is there room there to accelerate the growth further from the current level? Or are you sort of pretty much hitting up against what you can do or what you're comfortable on doing?

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Morten Thorsrud, If P&C Insurance AS - CEO [45]

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Well, let's see what the future brings. Of course, 5% growth year-to-date and 6.9% in Q3 is a very high growth rate in P&C. So I think just being at that level, it should be highly satisfactory.

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Operator [46]

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And the next question comes from the line of Blair Stewart from Bank of America.

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Blair Thomson Stewart, BofA Merrill Lynch, Research Division - Head of the UK and European Insurance [47]

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I've got 2 questions. Firstly, just on dividends expected from subsidiaries, are we done for this year? Or should we expect a late dividend -- extra dividend coming in from Mandatum?

And on that point, just a second part to that question. You mentioned about potentially raising hybrids at the P&C level. Why would you do that? Would that allow you to perhaps free up some equity within that business in the form of higher dividends back to group? That's the first question.

Secondly, just on the dividend or the dividend statement that you have made for 2019. I'm assuming, and correct me if I'm wrong here, but I'm assuming that, that would be a level which would be consistent with your new dividend policy, and you wouldn't be making further changes from here. So in other words, is a dividend of EUR 2.1 to EUR 2.3, I'm assuming that that's going to fit within your new dividend strategy.

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [48]

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Should I start with the first 2? You should not expect us to take up any extra dividend from Mandatum. Mandatum's solvency ratio today is good and solid. I expect there, everything else equal, let's see where the year ends up to be room for an ordinary dividend, but not for an extraordinary dividend. So let's say that we're done for this year. I think it's clear, yes.

Hybrid, we're not talking big amounts from If. We have this capitalization strategy to have the balance sheets of our subsidiaries to be capitalized on their own merits. So we utilize now in Q3 the possibility to raise some hybrids in Mandatum, which improved their solvency and we have a done and plan to continue to do small amounts also in If.

Obviously, that will -- with a total solvency strain over time contribute to If continuing to pay a very good dividend for -- to Sampo plc, but mainly because of the profit generation that If is having, that's where the dividend over time will come from.

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Blair Thomson Stewart, BofA Merrill Lynch, Research Division - Head of the UK and European Insurance [49]

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But I think you have commented that If is overcapitalized. So I'm just wondering why you would add more capital.

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [50]

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We don't need more capital from If from that perspective. So it is to make the balance sheet of If more efficient. I haven't changed my view on the strong capital position of If.

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Torbjörn Magnusson, Sampo Oyj - Member of Group Executive Committee [51]

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And then on the dividend going forward, you now have clear guidance for this year. And I said the profit expectation and the dividend now go hand-in-hand. Let's see what the Board makes of that when they look at the policy early next year.

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Blair Thomson Stewart, BofA Merrill Lynch, Research Division - Head of the UK and European Insurance [52]

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Okay. All right, fine. I'd be disappointed if there was a second downwards revision to the dividend, but I'll leave that for later.

But maybe just finish with a word on Kari. Kari, all the best and I've always enjoyed our encounters. You've got a great sense of humor. Even if that doesn't always come out on these calls, you're a very entertaining guy, so all the best. And all the best to you as well, Torbjörn, you've served a very long apprenticeship, and I wish you every success.

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Kari Henrik Stadigh, Sampo Oyj - CEO, President & Member of Group Executive Committee [53]

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And likewise, Blair. You are a very entertaining guy as well, so let's both keep it up.

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Operator [54]

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Our next question comes from the line of Johan Ström from Carnegie.

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Johan Ström, Carnegie Investment Bank AB, Research Division - Analyst of Financials [55]

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Apologies, but I'd like to come back to the hybrid capital questions. And so my question is on the holding company's senior bond portfolio, where you have around EUR 300 million of maturities, I think, in May next year. And this may be a little bit early to comment, but wouldn't it make sense to refinance some of these maturities with cheap hybrid capital now?

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [56]

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I think you said it yourself; it's a little bit early to comment. We have that date to look at, and we'll make our plans and see how the market looks when we're approaching that date. So I don't have any plans to outline on that point now.

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Johan Ström, Carnegie Investment Bank AB, Research Division - Analyst of Financials [57]

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Okay. And then a quick one to Morten on If. Another quarter with good run-off gains. I just wanted to double check if there are any trends or other dynamics that suggest that near-term run-off gains should go down from the current levels?

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Morten Thorsrud, If P&C Insurance AS - CEO [58]

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Well, we typically don't want to speculate about sort of future run-off gains. I mean, it's still something we assess from a quarter-to-quarter. And so far, the trend that we've seen on reduced bodily injuries in motor TPL in Sweden has continued. But of course, it's no guarantee that this will continue in the future. So try to avoid to speculate on that.

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Operator [59]

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And the next question comes from the line of Jan Gjerland from ABG.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [60]

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It's Jan Gjerland from ABG. I just want to check your strategy here going forward. Is this -- when you're now being an insurance group, would you like to start to consolidate more into the life insurance industry in the Nordics and maybe move into Sweden, Denmark or Norway with potentially unit-linked products rather than these old guarantees. So how should we look at your insurance interest going forward when you think about you're already consolidated in non-life insurance side?

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Torbjörn Magnusson, Sampo Oyj - Member of Group Executive Committee [61]

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Well, I think it's reasonable that I get to answer questions about the strategy of the group next year rather than this year. But on life insurance between -- synergies between even Nordic countries are nonexistent. So that's not a brilliant starting point.

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Kari Henrik Stadigh, Sampo Oyj - CEO, President & Member of Group Executive Committee [62]

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And you must always read into Torbjörn's answers the fact that Nordea already is a big life insurer in the Nordics.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [63]

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Okay. That's a good feeling. Secondly, on the Mandatum side, if -- you're saying that you have a guaranteed interest rate from the back book there around 3% by '23. Should we expect no dividends going forward, if we would look for a sort of at a 0 rate interest rates you have today? And then that you will cover your guarantee by the admin result and risk result as such? Is that a fair comment?

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [64]

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No. That's not what I meant. It was in a scenario where investment results were over 0 in a year. We, obviously, do believe that we will make an investment result, a positive investment result over time in Mandatum, like we've done for many years and the expense and admin result come on top of that.

So in our thinking around Mandatum, it is not a 0 dividend. I would more call it in line with what you have seen our ordinary dividends recently, which last year was EUR 150 million. And obviously, 2023, it is a little bit away in time. Mandatum's unit-linked book still is growing gradually, not big steps, but gradually, good premium income in this quarter and this year has been good.

And that should, everything else equal over time, also increase the expense result element in this profit mix I was relating to. So it was absolutely no link to having expected a dividend from Mandatum of 0 for the years to come.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [65]

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How is the take out of the balance sheet? As you said it's going faster, so how helpful will that be? Is that really translated into your 3%? Or is it a separate issue?

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [66]

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It's quite helpful because with the run rate we've had in recent years, in addition to the profit, which we have been talking about a couple of times on the call, we free up capital.

So there will be a freed up capital requirement when this book is running down and around EUR 250 million or lower with-profit reserves, releases around EUR 50 million of capital with very little additional capital requirements from new unit-linked business. They're basically known. So that will help in maintaining a good dividend when the investment return from the with-profit book is being reduced.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [67]

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That's right. Just finally on the If side then. You had a very strong cost ratio this time around. Is it seasonally stronger because of the summer quietness? Or is it driven higher by the premiums in this quarter, as I said, it was extremely short and high?

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Morten Thorsrud, If P&C Insurance AS - CEO [68]

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Yes, I wouldn't read too much into sort of quarterly changes. The cost ratio year-to-date is EUR 21.5 million, down from EUR 21.6 million. So there could be sort of some variations sort of on when different costs are booked. So I wouldn't read too much into the 0.3 reduction that you have in the third quarter stand-alone. More than 9 months is more in line with expectations.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [69]

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Okay. Then finally on the price increases. You said that Norway was maybe running a little bit higher than claims at the moment. What should be our expectations there into Q4 and maybe also next year? Is this also something you see continuing at this hard base?

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Morten Thorsrud, If P&C Insurance AS - CEO [70]

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Well, let's see. It's -- as we have commented earlier, there are quite some differences between business segments, where we do see higher price increases on commercial than in other business areas.

Then of course, we monitor claims inflation on a daily basis. We do see a little pickup in claims inflation, probably driven a bit by weak currencies in Sweden and Norway. So that's something we look out for but it's kind of marginal sort of developments.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [71]

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In Finland, you have sort of turned around a little bit on the book, but if Finland is sort of flat, if you look year-on-year, it's sort of increasing on a gross written premium a little bit. Is that the gross premium written you should look into when we look at the future growth there, to see that it's actually coming up on speed?

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Morten Thorsrud, If P&C Insurance AS - CEO [72]

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We report 1.4% growth year-to-date in Finland and 3.9% in Q3 isolated. And then you should bear in mind that in the first quarter, we had quite a big development in Finland due to the fact that we lost a bit of workers' comp business. So yes, so that's cut off.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [73]

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Yes, I was just looking at the earned versus the development, but that's just your written premiums of 3.9%, as you say.

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Morten Thorsrud, If P&C Insurance AS - CEO [74]

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Yes.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [75]

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And finally in Denmark, just to touch base, you have sort of on the earned side, a lift in the [current] last quarter. Was this anything in particular, that we didn't know something or -- and we're back on track again? If that's this sort of thing you can expect going forward? Or is the commercial versus private in Denmark?

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Morten Thorsrud, If P&C Insurance AS - CEO [76]

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I think what you see now should represent a fair picture of a part where we perform year-to-date. Then we have a couple of agreements that are booked early in the year that could adjust GDP a little bit sort of more in one quarter than another. But we report 4.5% in Q3 and 4.4% year-to-date. So that's kind of a representation of the growth in Denmark.

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Jan Erik Gjerland, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [77]

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Thanks a lot for your time, Kari, and good luck in your pensioner career and hope we can see each other over an [Allen crayfish parking] as our special guest.

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Kari Henrik Stadigh, Sampo Oyj - CEO, President & Member of Group Executive Committee [78]

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Thanks.

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Torbjörn Magnusson, Sampo Oyj - Member of Group Executive Committee [79]

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That's a splendid idea. Thank you.

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Operator [80]

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And the next question comes from the line of Jon Denham from Morgan Stanley.

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Jonathan Denham, Morgan Stanley, Research Division - Equity Analyst [81]

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Knut, you said that Nordea going bankrupt would have left your Solvency Tier 2 ratio slightly above 120% at 3Q. Presumably, this is the same level as if you paid out all remaining Nordea shares to Sampo shareholders.

Would you be comfortable with your solvency ratio going down to this level? And if not, can you rule out an exit from Nordea in this fashion, were you to later choose to exit?

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [82]

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I think in terms of just relating to your question on the solvency and then the future will see what we do with Nordea, 122% would be below what I would feel comfortable with.

And to speculate in dividend-ing out Nordea shares for -- I haven't checked the Nordea share price right now, but EUR 5.2 billion, EUR 5.3 billion, obviously, is not in line with the dividend communication we just recently made. So to steer the group to a solvency level of 120% is not what we're planning to do.

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Operator [83]

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(Operator Instructions) We have a follow-up question from the line of Sami Taipalus from Goldman Sachs.

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Sami Taipalus, Goldman Sachs Group Inc., Research Division - Research Analyst [84]

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Sorry to drag out the call, just a quick follow-up. Just on Mandatum Life -- coming back to Mandatum Life, you seem to have done quite a lot of work on improving the solvency in that business, I guess, to a level where you're comfortably above [past] levels also on the basis without transitionals, including the debt issuance a bit in the quarter.

Does it make sense to still keep such a large duration gap in that business? Because you're obviously -- potentially, you will have done all this work, but you're still sitting on the possibility of undoing that true movement in interest rates, I guess, particularly given that this duration gap doesn't generate spread that you need to pay the dividend. So it would be great to just have other comment on that.

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Knut Arne Alsaker, Sampo Oyj - CFO & Member of Group Executive Committee [85]

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I think sort of trading with the back of your mirror, it would probably in the past have been good to have a slightly different duration gap than we have. We have -- the duration we have now, we manage with that duration gap now.

We are happy with the equity exposure that we have in the Mandatum now, so we have taken some action on the asset side, but that hasn't been the main driver for the fix in the Mandatum solvency. We've been able to increase the solvency ratio on Mandatum with all other measures in Q3. Then let's see, in the future, what kind of asset mix Mandatum will have going forward. Also, as the with-profit book is, of course, becoming smaller.

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Sami Taipalus, Goldman Sachs Group Inc., Research Division - Research Analyst [86]

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Okay. Okay. Great. And then because I forgot to say it earlier, obviously, also all the best of luck to Kari in his retirement.

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Operator [87]

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As there are no further questions, I'll hand it back to the speakers.

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Torbjörn Magnusson, Sampo Oyj - Member of Group Executive Committee [88]

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Thank you, operator, and thank you all for your attention. Have a very nice evening.