Sampo Group's results for January - June 2016

SAMPO PLC       HALF-YEAR FINANCIAL REPORT        10 August 2016 at  9:30 am

SAMPO GROUP'S RESULTS FOR JANUARY - JUNE 2016

Sampo Group's profit before taxes for January - June 2016 amounted to EUR 893 million (1,015). The total comprehensive income for the period, taking changes in the market value of assets into account, decreased to EUR 607 million (1,147).

-Earnings per share were EUR 1.40 (1.60). Mark-to-market earnings per share were EUR 1.08 (2.05). The return on equity for the Group was 10.9 per cent (20.9) for January - June 2016. Net asset value per share on 30 June 2016 amounted to EUR 18.83 (23.79). A dividend of EUR 2.15 per share was paid in early May.

-Profit before taxes for the P&C insurance segment amounted to EUR 436 million (511). Combined ratio for January-June 2016 was 83.7 per cent (85.0). The record low combined ratio was impacted by a EUR 72 million release from the Swedish MTPL reserves in the first quarter of 2016. The comparison figure is also impacted by non-recurring items. Excluding these combined ratio for January-June 2016 was 87.1 per cent and 87.2 for the corresponding period a year earlier. Return on equity (RoE) was 16.2 per cent (31.2). The contribution of Topdanmark's net profit for the first half of 2016 amounted to EUR 19 million (24).

-Sampo's share of Nordea's net profit for the first half of 2016 amounted to EUR 364 million (418). Nordea's RoE amounted to 10.8 per cent (13.7). Core Tier 1 ratio (excluding transition rules) strengthened to 16.8 per cent (16.5). In segment reporting the share of Nordea's profit is included in the segment 'Holding'.

-Profit before taxes in life insurance operations rose to EUR 103 million (81). Return on equity (RoE) decreased to 6.5 per cent (21.8).

*) comparison figure from 31.12.2015

The figures in this report are not audited. Income statement items are compared on a year-on-year basis and comparison figures for balance sheet items are from 31 December 2015 unless otherwise stated.

Sampo follows the disclosure procedure enabled by the Finnish Financial Supervisory Authority and hereby publishes its Interim Statement attached as a PDF file to this stock exchange release. The Interim Statement is also available at www.sampo.com/result

SECOND QUARTER 2016 IN BRIEF

Sampo Group's profit before taxes for the second quarter 2016 amounted to EUR 477 million (528). Earnings per share amounted to EUR 0.75 (0.82). Marked-to-market earnings per share were EUR 0.72 (0.80).

Net asset value per share decreased EUR 3.26 during the second quarter of 2016 and was EUR 18.83. A dividend of EUR 2.15 per share paid on 3 May 2016 and the change in the valuation difference of Nordea and Topdanmark holdings largely explain the decrease.

The second quarter combined ratio in P&C insurance amounted to 84.5 per cent (80.9). Profit before taxes decreased to EUR 220 million (310). Share of the profits of the associated company Topdanmark amounted to EUR 14 million (12).

Sampo's share of Nordea's second quarter 2016 net profit amounted to EUR 205 million (195).

Profit before taxes for the life insurance operations increased to EUR 51 million (42). Technical reserves were further supplemented by EUR 24 million due to low level of interest rates. Premiums written decreased 17 per cent to EUR 248 million from EUR 299 million at the corresponding period a year ago.

BUSINESS AREAS

P&C insurance

P&C insurance had an exceptionally strong first half year in terms of technical result. The decrease in profits is entirely attributable to lower investment income. Low interest rate environment is not only reflected in investment results but also burdens the profits by change in discount rates used for annuities. Solvency position continues to be strong.

Profit before taxes for January-June 2016 for the P&C insurance segment amounted to EUR 436 million (511). Combined ratio improved to 83.7 per cent (85.0) and risk ratio to 61.6 per cent (69.7). In the first quarter of 2016 EUR 72 million was released from the Swedish MTPL reserves, following a review of mortality tables by the Swedish insurance federation. This improved the combined ratio for the first half of 2016 by 3.4 percentage points.  The comparison figure contains two non-recurring items - the reform of the pension system in If Norway and the lowering of the interest rate used in discounting annuities in Finland from 2.0 per cent to 1.5 per cent. Their combined effect on combined ratio was 2.2 percentage points positive.

EUR 95 million was released from technical reserves relating to prior year claims in January - June 2016. In the same period in 2015 the interest rate used in discounting annuities in Finland was lowered resulting in a reserve strengthening of EUR 110 million. Return on equity (RoE) decreased to 16.2 per cent (31.2) and the fair value reserve at the end of June 2016 was EUR 355 million (391). The contribution of Topdanmark's net profit in the first half of 2016 amounted to EUR 19 million (24).

Technical result rose to EUR 352 million (342). Insurance margin (technical result in relation to net premiums earned) continued to improve and amounted to 16.6 per cent (15.7).

Swedish discount rate used to discount the annuity reserves decreased to -0.16 per cent by the end of June 2016 and had a negative effect of EUR 38 million in the first half results. The discount rate was 0.41 per cent at the end of 2015. In Finland the discount rate for annuities was unchanged at 1.5 per cent. The comparison figures for the Finnish business are burdened by the change in the Finnish discount rate in the second quarter of 2015. Combined ratio for the Norwegian business developed well in the second quarter, largely due to improved large claims development.

Gross written premiums amounted to EUR 2,683 million (2,760) in January-June 2016. Adjusted for currency, premium growth was -0.3 per cent. Cost ratio amounted to 22.2 per cent (15.4) while expense ratio was 16.8 per cent (9.6). The comparison figures are positively impacted, 7.2 percentage points, by the non-recurring reform of the pension system in If Norway.

At the end of June 2016, the total investment assets of If P&C amounted to EUR 11.5 billion (11.4), of which fixed income investments constituted 81 per cent (74), money market 7 per cent (12) and equity 12 per cent (13). Net income from investments decreased to EUR 80 million (173). Investment return marked-to-market for January-June 2016 amounted to 0.5 per cent (2.1). Duration for interest bearing assets was 1.5 years (1.2) and average maturity 3.0 years (2.6). Fixed income running yield as at 30 June 2016 was 1.7 per cent (2.0).

Associated company Nordea Bank AB

On 30 June 2016 Sampo plc held 860,440,497 Nordea shares corresponding to a 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 8.24 per share. The closing price as at end of June 2016 was EUR 7.52.

Despite low growth and turbulent financial markets Nordea's revenues held up well. Margin pressure in net interest income is levelling off and the trend is expected to improve from the second half of 2016. Costs are in line with the plans and credit quality remains solid.

Total income was down 9 per cent in local currencies (-10 per cent in euros) in January-June 2016 compared to last year and operating profit was down 20 per cent in local currencies (-21 per cent in euros) from last year excluding non-recurring items.

Net interest income was down 4 per cent in local currencies (-7 per cent in euros) from last year. Average lending volumes in local currencies in business areas were up 2 per cent from the first half year 2015. Average deposit volumes in local currencies in business areas were up 5 per cent from the first half year 2015. Both lending margins and deposit margins are down (EUR -5 million and -89 million respectively) compared to one year ago.

Net fee and commission income decreased 3 per cent in local currencies (-4 per cent in euros) and the net result from items at fair value decreased by 28 per cent in local currencies (-27 per cent in euros) from last year.

Total expenses were up 2 per cent in local currencies (unchanged in euros) from the previous year excluding non-recurring items and amounted to EUR 2,384 million, in line with the cost target communicated in connection with the 2016 plan. Staff costs were down 2 per cent in local currencies.

Net loan loss provisions increased to EUR 238 million, corresponding to a loan loss ratio of 14 basis points (13bps for the first half year 2015).

Net profit decreased 11 per cent in local currencies (-13 per cent in euros) to EUR 1,778 million. Cost/income ratio was up at 51 per cent from 45 per cent a year earlier.

Nordea Group's Basel III Common equity tier 1 (CET1) capital ratio increased 10 bps in the quarter to 16.8 per cent at the end of the second quarter 2016. The increase to the CET1 capital ratio was due to an increase in common equity tier 1 capital due to FX movements as well as a decrease in REA of EUR 0.1 billion.

Life insurance

Life insurance profits increased despite the challenges in capital markets. In addition the technical reserves were further supplemented in preparation for continuing low interest rate level. Mandatum Life's solvency continues to be strong after the transitional measures.

Profit before taxes for life insurance operations increased to EUR 103 million (81) in the first half of 2016. The total comprehensive income for the period after tax reflecting the changes in market values of assets decreased to EUR 44 million (144). Return on equity (RoE) amounted to 6.5 per cent (21.8). In the first half of 2016 fair value reserve decreased to EUR 492 million (532).

At the end of June 2016 Mandatum Life Group's total technical reserves amounted to EUR 10.7 billion (10.9). In the first half of 2016 with profit reserves decreased to EUR 4.9 billion (5.0). Reserves related to the higher guarantees of 4.5 and 3.5 per cent decreased by EUR 108 million to EUR 3 billion during January - June 2016. The unit-linked reserves were almost flat at EUR 5.9 billion, which corresponds to 55 per cent (54) of total technical reserves.

Mandatum Life has supplemented its technical reserves with a total of EUR 232 million (244) due to low level of interest rates. The figure does not take into account the reserves relating to the segregated fund. The discount rates used for 2016, 2017 and 2018 are 0.5 per cent, 1.0 per cent, and 1.75 per cent, respectively. Discount rate applied for the segregated fund is 0.75 per cent.

Mandatum Life Group's investment assets, excluding the assets of EUR 5.8 billion (5.9) covering unit-linked liabilities, amounted to EUR 6.5 billion (6.7) at market values at the end of June 2016.

The assets covering Mandatum Life's original with profit liabilities on 30 June 2016 amounted to EUR 5.3 billion (5.5) at market values. 45 per cent (47) of the assets are in fixed income instruments, 10 per cent (7) in money market, 29 per cent (29) in equities and 16 per cent (16) in alternative investments. The investment return marked-to-market for January - June 2016 was 1.5 per cent (5.9). The duration of fixed income assets at the end of June 2016 was 2.2 years (2.1) and average maturity 2.7 years (2.8). Fixed income (incl. money market) running yield was 3.1 per cent (2.9).

The assets covering the segregated fund amounted to EUR 1.2 billion (1.2), of which 75 per cent (71) was in fixed income, 6 per cent (9) in money market, 12 per cent (12) in equities and 7 per cent (8) in alternative investments. Segregated fund's investment return marked-to-market for January - June 2016 was 1.7 per cent (3.0). At the end of June 2016 the duration of fixed income assets was 2.7 years (2.3) and average maturity 4.0 years (3.8). Fixed income (incl. money market) running yield was 1.9 per cent (0.8).

The expense result for life insurance segment amounted to EUR 9 million (13) and the risk result to EUR 10 million (11).

Holding

Holding segment's profit before taxes for January - June 2016 amounted to EUR 353 million (425), of which EUR 364 million (418) relates to Sampo's share of Nordea's first half 2016 profit. Segment's profit before taxes excluding Nordea was EUR -11 million (7). The depreciation of Swedish krone against EUR increased Holding segment's profit by EUR 12 million in April-June 2016 which explains the EUR 1 million positive finance costs for the quarter.

Sampo plc's debt financing on 30 June 2016 amounted to EUR 2,462 million (2,302) and interest bearing assets to EUR 1,058 million (1,343). Interest bearing assets include bank accounts, fixed income instruments and EUR 614 million (579) of hybrid capital and subordinated debt instruments issued by the subsidiaries. At the end of the first half of 2016 the net debt amounted to EUR 1,403 million (959). The net debt calculation only takes into account interest bearing assets and liabilities. Gross debt to Sampo plc's equity was 37 per cent (32) and financial leverage 27 per cent (24).

At the end of June 2016 financial liabilities in Sampo plc's balance sheet consisted of issued senior bonds and notes of EUR 2,157 million (1,997) and EUR 305 million (305) of CPs issued. The average interest, net of interest rate swaps, on Sampo plc's debt as of 30 June 2016 was 1.35 per cent (1.45).

OTHER DEVELOPENTS

Ratings

On 20 April 2016 S&P strengthened If P&C's ratings to A+ with a stable outlook. At the same time S&P initiated Sampo plc's rating with A- and a stable outlook. The table below illustrates all the ratings of Sampo Group companies at the end of June 2016.

Solvency

On 30 June 2016 If P&C Group's Solvency II capital requirement under standard model amounted to EUR 2,099 million (2,073) and own funds to EUR 3,293 million (3,202). Solvency ratio was stable at 157 per cent (158). S&P rating total capital charge for If P&C Group amounted to EUR 2,950 million (3,058) at the end of June 2016 while the capital base stood at EUR 3,457 (3,455) million.

Mandatum Life's solvency ratio after transitional measures remained strong at 154 per cent (158). Own funds of EUR 1,704 million (1,913) exceed Solvency Capital Requirement (SCR) of EUR 1,110 million (1,212) by EUR 594 million. Without transitional measures, own funds would have amounted to EUR 1,237 and the solvency capital requirement EUR 1,268 million leading to a solvency ratio of 98 per cent.

Group's conglomerate solvency ratio (own funds in relation to minimum requirements for own funds) using Solvency II rules for the insurance subsidiaries was 145 per cent (145) as at 30 June 2016.

OUTLOOK

Outlook for 2016

Sampo Group's business areas are expected to report good operating results for 2016.

However, the mark-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.

The P&C insurance operations are expected to reach a combined ratio of 87 - 90 per cent excluding the release from the Swedish MTPL reserves.

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 major business units. Parent Company Sampo plc's contribution to risks is a minor one.

Major risks affecting the Group companies' profitability and its variation are market, credit, insurance and operational risks that are quantified independently by the major business units. 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.

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 have also long-term impact on how business shall be conducted.

SAMPO PLC
Board of Directors

For more information, please contact:
Peter Johansson, Group CFO, tel. +358 10 516 0010
Jarmo Salonen, Head of Investor Relations and Group Communications, tel. +358 10 516 0030
Essi Nikitin, IR Manager, tel. +358 10 516 0066
Maria Silander, Communications Manager, tel. +358 10 516 0031

Press conference & analyst conference call

Sampo will arrange a press conference at Hotel Kämp (Conference room Paavo Nurmi, Pohjoisesplanadi 29, Helsinki) today at 12:30 pm Finnish time. The press conference will be held in Finnish.

An English-language conference call for investors and analysts will be arranged at 4:00 pm Finnish time (2:00 pm UK time). Please call tel. +44 (0)203 194 0552, +46 (0)8 5664 2702, +1 855 7161 597, or +358 (0)9 8171 0465.

The conference call can also be followed live at www.sampo.com/result. A recorded version will later be available at the same address.

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

Sampo will publish the Interim Statement for January-September 2016 on 3 November 2016.

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