Sampo Q2'24 preview: Consistently strong results expected

Translation: Original comment published in Finnish on 8/5/2024 at 7:25 am EEST.

Sampo will release its Q2 results on Wednesday morning at 9.30-10.00 am (EEST). We expect Sampo to deliver a good result, although slightly below-average investment returns will weigh on profitability. We expect If P&C’s underwriting result to remain strong, although based on quarterly reports from peers, the claims ratio may be slightly higher than in the comparison period. We do not expect a change in guidance, but Sampo will likely reiterate its guidance of a Group-level combined ratio of less than 85%.

Mixed earnings season for Nordic peers

If P&C’s peers have delivered mixed results this quarter. Tryg's insurance revenue grew slightly less than expected (+3.9% in local currencies), but claims remained below analysts' forecasts. The development was particularly positive in the Swedish operations, while claims costs in Denmark and Norway increased year-on-year.

For Gjensidige, growth was in line with expectations, but claims volumes rose sharply compared to the prior-year period and exceeded the consensus forecast. In Norway, fires in particular led to higher home insurance claims. Based on peer reports, it is Denmark and Norway that appear to have seen an increase in claims. For Sweden and Finland, we estimate that developments have been much more stable.

Small forecast revisions before the Q2 result

We made some minor forecast changes prior to the results. The main forecast change relates to the Group's investment performance, as the company reported a negative return of 40 MEUR in Q2 due to the impairment of Nex shares. We have also revised If P&C’s combined ratio slightly downward based on peer Q2 reports. As a result of these changes, we have reduced our full-year earnings forecast by approximately 3%.

Good quarter expected from If P&C

We expect If's insurance revenue to continue to grow at approximately 6%. Insurance revenue continues to be driven primarily by price increases, as new car sales remain weak in the Nordic countries, among other things. We estimate that the large claims in the quarter will slightly increase claims costs, so we expect the loss ratio to be slightly lower than in the prior year. If P&C's operational efficiency remains stable in our forecasts, we expect a combined ratio of 83.7%. Investment returns are supported by the strong performance of equity markets, while a modest rise in market interest rates is a headwind for fixed income investments. Overall, we expect If P&C's pre-tax profit of 305 MEUR to be slightly lower than in the same period last year.

Topdanmark has already reported Q2 results that were largely in line with expectations. For Hastings, we expect insurance revenue growth to have remained strong (+14%) due to price increases and new business, but to have been more moderate than at the beginning of the year. As the scale of the business increases, we expect profitability to have improved slightly year-on-year.

We forecast Group earnings before taxes of 352 MEUR (consensus 358 MEUR) and EPS of EUR 0.50, in line with the consensus. Mandatum's exit from Sampo's bottom line continues to have a negative impact on the Group's net profit compared to the same period last year.

Topdanmark takeover bid in the spotlight

Towards the end of the quarter, Sampo announced that it had signed a long-awaited merger agreement with Topdanmark (see our comments here). The bidding period is scheduled to begin in August, so any comments on the progress of the process will be of great interest.

Sampo's current guidance expects the Group's combined ratio to be 83-85% for 2024. We do not expect this to change with the Q2 report, although our own forecasts are currently closer to the upper end of the range. We expect Sampo's solvency to have remained at roughly the same level as in the previous quarter.