Mandatum Q1 on Tuesday: Investment income again the main earnings driver

Translation: Original comment published in Finnish on 5/2/2024 at 7:15 am EEST.

Mandatum will report its Q1 results on Wednesday at 10.30-11.00 am EEST. We expect the sales of investment products to continue at a good level and positive value changes to have increased AUM. Investment income, however, has an impact on the quarter’s result and again constitutes a significant forecasting risk. We expect a good result for the first quarter, and we forecast that the investment performance of the with-profit portfolio will again contribute the majority of the group's result. No data for the comparison period is available.

Small forecast changes in investment income

We have made some small revisions to our forecasts ahead of the Q1 report. The changes concerned the with-profit portfolio, for which we have slightly increased our investment income forecasts in light of capital market developments in the last quarter. A small rise in interest rates in Q1 will also affect the performance of the with-profit portfolio, but the impact should be very moderate due to the company's hedging measures.

We expect client AUM to continue to grow

Mandatum’s fee result consists of the insurance service result for unit-linked pension insurance and the fee result for asset management and other investment solutions (e.g. unit-linked investment contracts). Our forecast for Mandatum’s Q1 fee result is 13.3 MEUR. We expect fee and commission income to rise to just over 35 MEUR. Fee income growth will be supported by rising AUM, which we expect to increase by around 2% from the previous quarter to 12.1 BNEUR. In particular, fixed income products should look attractive in the current market.

In addition to the result figures, our attention is focused on the development of new sales in asset management as well as management comments on the demand outlook for investment products, the tone of which should be generally positive. AUM development plays a key role in the value of Mandatum, as the income from these assets is the main source of growth for the group's operational business.

The result from investment activities will again impact EBIT

The result of term life insurance mainly consists of the contractual service margin (CSM). The CSM amount to be earned is affected by actual claims experience, which varies somewhat from quarter to quarter. We expect the result of term life insurance to be around 4 MEUR in Q1.

We expect a result of approximately 50 MEUR (return on investment portfolio at fair value ~1.8 %) from investment activities (with-profit portfolio). The impact of the change in the discount rate is expected to be rather moderate due to the company's own hedging measures, but we expect a small positive impact. As a result, our pre-tax profit forecast for the with-profit portfolio is approximately 51 MEUR.

Solvency and profit distribution

We do not expect a significant change in solvency. The increase in market risk is expected to have a moderate negative impact on solvency, but we still expect the Solvency 2 ratio to be well above the company's target level. As a result, the company currently has excess capital on its balance sheet, which will increase in the future as the with-profits portfolio is reduced. The company has not specified its plans for capital deployment in its short independent history, but in principle we believe that excess capital will be returned to shareholders in one form or another. The company has stressed restraint in its use of excess capital, and we think it unlikely that we will hear any more concrete plans (e.g. for share buybacks) in the Q1 results. In addition to share buybacks and dividends, a third option for decapitalization is M&A, which the company has openly discussed in connection with the IPO.