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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, everyone, and welcome to the Sampo Group 2021 Results Conference Call. My name is Sami Taipalus, and I am Head of Investor Relations at Sampo Group. I'm joined on the call by Group CEO and President, Torbjorn Magnusson; Group CFO, Knut-Arne Alsaker; CEO of If, Morten Thorsrud; and CEO of Hastings, Toby van der Meer.The call will feature a short presentation from Torbjorn followed by Q&A. A recording of the call will later be available on sampo.com/results.With that, I hand over to Torbjorn. Please go ahead.
Thank you, Sami. Please move on to Page 3. Good afternoon, then, everyone. I'm very pleased to be able to present yet another set of solid numbers and developments for our Group. Maybe the first page here speaks for itself, but let me give you a brief commentary anyway. Our underwriting culture, together with customer focus have been our trademarks for decades -- 2 decades. Few insurance companies have been able to show the consistency that we have also in our own well-structured region. This, I think, has been particularly true for the past few years where our digital advantages have supported the underwriting culture of the Group. And a combined ratio of 81.4% for non-life group, slightly more than EUR 7 billion in premiums compares quite favorably to peers. And as usual, volatility in our numbers is really low.In addition to our own development, the markets have stayed rational and consolidated. The 1/1 renewals in the Nordics with more than 40% of the commercial and industrial business is renewed. It was one of the most successful in the past decade for If P&C with good growth and adequate rates. Furthermore, renewal rates were very satisfactory and still increasing from already high levels in If P&C. Renewal rates reflect our success in offering customers value for money, basically folks keeping down our [ mid-admin ] costs for us, and they certainly also reflect rational markets.We have come to learn that every year is a new year for investment returns and the uncertainty for the future in those returns is high, and that has been the case for a long time. 2021, anyway, supplied high returns. We don't rely on or calculate with higher nominal interests when we price the insurance business going forward, but nor do we cry wolf about claims inflation in the present, still very moderate, situation.Then further down on this page on strategic actions and their capital consequences. Reducing on Nordea stake has been a rapid process and produced good proceeds in tandem with Nordea's own strategic strong progress. And secondly, achieving full ownership of Hastings happened already this year, clearly ahead of expectations.The Board then has today proposed a dividend of EUR 4.10, including the extraordinary EUR 2 management had already indicated in the autumn as well as the EUR 1.70 insurance dividend.Next slide, please, Sami. So starting from the right-hand side of this slide, 81.4%, already mentioned, Group combined ratio. Together with the positive trend for If P&C, 1% and a bit better attritional combined ratio than last year. That is the combined ratio adjusted for all volatile items like large losses, COVID, weather, prior year results; in other words, slightly more than 1% after rates. Combining this with growth, we had 19% higher underwriting profits than a year before adjusting for Hastings ownership and COVID.Next slide, please. I'll leave the detailed volume comments to Morten later on in the call probably, but just say that given the geographical mix we have, we will probably see marginally increased market shares when the statistics come out. We are a bit dependent on car sales and in the last 2 quarters, only Norwegians have had the money or the chance to buy cars apparently. But all in all, a very satisfactory development on number of customers and market shares. It is worth mentioning also that we have achieved adequate rate levels also in our commercial book some time ago. And consequently, volume development also there is now good with an increasing number of customers.And next slide. And this we'll save for the call, I think.So next slide. Turning to Hastings. We are, of course, in the U.K. in the middle of a period of change in the market with Hastings really well prepared for and less affected by the GIPP reform than many others. The market reaction to this is something we monitor day by day. So talking about 2021 feels somewhat late now. However, summarizing then 2021, Hastings did really well, continuing to build on their technological advantages, increasing the customer count, but being cautious to avoid competing with price in the COVID overstimulated market. Excellent operating ratio and continued rapid growth in home insurance completes the picture.Next slide. In terms of the synergy process, let me now say then and point out that we have started reducing the proportion of ceded business, keeping more of the book on our own account just as planned.Next slide. Finally then, let me just show a slide depicting the total capital distribution broken down between buybacks, extra dividend from Nordea proceeds, insurance dividend and the rest. I am really pleased to be able to report on the rapid progress for the Group simplification program launched a year ago, together with the usual Sampo excellence in underwriting and all of this wrapped up together in the handsome capital distribution.And with that, over to you, Sami.
Thank you, Torbjorn. That concludes the presentation. Operator, we're now ready for Q&A.
[Operator Instructions] Our first question comes from Jakob Brink with Nordea.
First question on Hastings, please. So an 80% combined ratio for 2021 as a whole and 84% in the second half of the year, relatively limited premium growth of revenue growth for the full year. Could you maybe give us some more clarity on how should we look at margins compared to growth going forward? Also, taking into consideration what you have already seen with the new pricing reform in the U.K., if anything to add maybe, anything would be helpful.
Toby van der Meer here. So to give you a bit of color on the dynamics. Firstly, just to remind you that across the U.K. market, we've seen a range of premium declines across the second half of 2020 and in particular, the first half of 2021, but also continuing in the second half of 2021. And a lot of that, of course, driven by -- particularly in the early period, COVID benefits and claims frequencies being reflected in lower prices by us and the number of other insurers around the country. And the effect that's had is, in some ways, a tale of 2 halves for the 2021 financial year.In the earlier part of the year, the customers we booked with those COVID discounts embedded in them and in the pricing would have been driven a lot less than normal because of the lockdown. And then, of course, returned to more normal driving behavior in the second half of the year. And so the tale of 2 halves is really one where we've had the early [ through ] with lower premiums in the second half of the year with driving behavior returning to normal, whereas we saw both the frequency benefits and the lower premiums in the first half of the year.Now those COVID discounts have then been unwound by us. So we've been applying rate increases throughout the second half of 2021 and into 2022. And so that's to cover the unwinding of the COVID frequency benefits as well as general claims inflation. And I suppose what that means overall is that our competitiveness has been stable. We've been pricing ahead of the market. Normally, that would take your policy count backwards but because of a range of good initiatives, we've managed to grow the policy count a little bit. And premiums are now going back up. And our pricing throughout all of that, whether we're talking about the policies we wrote at the back end of 2020 or the early part of 2021 or the policies we're writing now, we're confident they are in line with our target loss ratio or better.And to complete the picture, what we've seen across the market in January, post the FCA pricing reforms, is some turnaround in market conditions with premiums starting to go back up. So we've been doing that throughout 2021 and January, but we've seen more of the market do that in January as well, albeit still a mixed picture with a number of players being quite aggressive and a number of other players pricing up quite significantly.
And just to round that up, maybe, so if you also add in the inflation bit, which you write about in the report, that inflation on motor repair costs going up, could you maybe -- so what level of combined ratio should we be looking at, given the growth you're seeing now? Are we above last year? Or are we getting closer to the 88% or are we still materially below?
Yes, I think it's too early in the year to provide too much guidance on that. What I can say is, firstly, policy count growth we regard as an output of our pricing, not a target in its own right. And so we're confident that our pricing is consistent with or better than our target loss ratio, and therefore, consistent with or better than our combined operating ratio as well. We've seen muted policy count growth but some -- the back end of last year, and you can assume that, that sort of momentum will continue until we feel like the pricing environment in the market is such that faster growth is warranted. And obviously, there's a long way to play out for this year to see where all of that normalizes post the initial few noisy weeks of the new year post GIPP.So stable policy count growth until market conditions improve, pricing consistent or better within our target loss ratio, and as we're already into that, we have seen premium growth come back because although our policy count growth is stable, we've been applying rate increases and unwinding COVID discounts throughout the year so that topline growth is something we would expect to see continue.
Great. Then over to a question on -- well, firstly, buying more of Hastings back in December and apparently also the fact that you have bought more shares in Topdanmark during November. I don't know if, Torbjorn, maybe you can give us some clarity on what is the rationale, especially for the Topdanmark 1.5 million more shares? And also how do you look at this buying more Hastings versus buying own shares versus buying Topdanmark, et cetera?
There's not that much to say. There were blocks available in the market on Topdanmark and at the market price that was not difficult for us. And Hastings, that was an opportunity that arose out of the other owner's situation in the rest of their business and, as far as we can tell, a strategic review of their own business situation. So that we didn't drive, but it arose in the autumn, and we had a good dialogue with them since before. So there you are.
If I can just follow up, I guess you can make many adjustments on your own share price for excess capital Topdanmark as well and also acquisition price of the last 30% of Hastings. But I think it's fair to say that the P, if we look at consensus on the 3 companies, so Sampo, Top and Hastings, the P that you acquired the last 30% of Hastings at is not that different from what you could buy the rest of Top at. And also, you could even argue that Sampo adjusted for capital is cheaper on consensus earnings. So again, what...
Jakob, just be very careful with your analysis, but you -- I don't think you expect me to say much more, do you?
It would be nice, but okay, fair enough. Okay, then just a small last question to Knut, I guess, on Nordea and the last bit of Nordea. How is it again that we should expect it to account for that? Let's say, you sold the last bit of Nordea in Q1, will you then reverse the EUR 464 million difference in the valuation?
Jakob, that would -- the profit recognition would obviously depend on which price we sell at. But any price above EUR 890 will be recorded as a profit. Yes, we've done the reversal of impairment, so that is a profit in our P&L if we sell at a price above EUR 890. And at the current shar price, the number of around EUR 460 million is about right. And if I could just add, sorry, Jakob, just a bit of a detail since you asked about accounting on Nordea since many are listening and updating models. In terms of any potential dividend we receive from Nordea, if we still hold share to the ex-dividend date, that will be recorded as profit as well.
Our next question comes from Will Hardcastle with UBS.
It's Will Hardcastle from UBS. First of all, thanks for the color on U.K. pricing. I guess I'd like to ask the question at what level of industry pricing change year-on-year would we expect to see Hastings back to significant growth in excess of the market? And then second, is it fair to say that leverage is the binding constraint from here for further capital distributions if the Nordea -- if there's more Nordea stake state sell-down? And how rigid are you with the view of the 25% to 30%? And perhaps an extension of that is just thinking about that potential for the target range to be lowered from 170% to 190%, any more clarity or so on that since the last update?
Toby, the first one and Knut, the second. And just for the listeners, we're a little bit more -- it's a little bit more difficult to coordinate our answers as we are spread out in several places due to, in my own case, COVID protocol. But Toby?
Yes, on growth outlook for Hastings, I guess there's not a specific number I can give you in terms of at what point -- at what level of market price increases would we start to grow more. The way we build our models is we try and predict and we have a good track record of accurately predicting future claims costs. We then try and make sure that we price at a level where we hit our target loss ratio or better. Those are the prices we put out to the market to the extent that makes us in any period more competitive or write more business, to the extent that others have a different approach, a different view on claims or are prepared to take more risk, then they might write more business and the balance of that equation.And after 2 years of COVID frequency benefits, I guess, we're faced with a number of other players who are potentially using the reserves built up during COVID to fund more aggressive new business pricing. And whilst that dynamic continues, I wouldn't have thought it can continue for very long in the face of those reserves running dry and claims inflation. But to the extent that it does continue, and sometimes it does take longer than you think, then we're quite happy to take our current pricing approach and see less policy count growth. Although, as I've already said, we are seeing topline growth in premiums now because of the pricing actions we've taken coupled with our initiatives.
So just one more follow-up on that, if possible. I guess, different competitors are doing different things right now. It's probably very tough to sort of decipher exactly what the average industry level is doing. I guess in that sense, do you think, in this current environment -- is pricing at least capturing inflation at this level from your perspective? And if you're pricing inflation to maintain the margin, are we picking up any market share at these levels?
Yes, good question. So premiums continue to fall for the market throughout the second half of 2021. As I already said, we put our prices up. The data is only a few weeks, but I directionally say that new business prices in the market are up mid-single-digits since the start of January. So falling prices in 2021, mid-single-digit increase during January and early February. I guess you can make up your own mind about whether that's consistent with claims inflation, but we would say that, that feels tight to us to cover the impact of GIPP and claims inflation and the unwinding of COVID discounts. So we're comfortable we priced for those things. But I'd say it's tough to say with certainty that the market could have done so, given the average dynamics that I just talked about. Having said that, worth recognizing that a few of the players that we would traditionally describe as being more disciplined in their underwriting, have done -- have followed the similar pricing strategy to us, so there's a number of other players in the market who are still very aggressive.
It's Knut here. Reverting to your 2 other questions. Your first was on leverage, whether or not leverage is a constraint to potential payout, additional dividend or capital distribution if we generate excess capital above our capital management framework, and it's not a constraint. We are committed to being below 30% target. There will be need to do further deleveraging if we sell all of Nordea. But as we illustrated, I think it was in the second or third quarter, Sami, we already have liquidity to deal with that leverage, and we would consider that as being dealt with in terms of our target if we generate excess capital from selling further Nordea. In other words, we would be fine with a certain difference in time between an actual reported leverage and when we actually do something with the senior debt we have on our books with the liquidity that we have already put aside. Was that clear?
Yes. Very clear.
Perfect. Solvency, we're also committed to our solvency ratio of between 170% and 190%. We haven't changed our targets. Rest assured that we will be working on making our capital stack and balance sheet efficient also going forward and we'll revert to you when we are taking decisions to continue the path to increase our return on the capital we consume to run our business.
Our next question comes from Faizan Lakhani with HSBC.
It's Faizan Lakhani from HSBC. The first is on January renewals. It's good to hear that they're going very well. Could you just provide a bit of color in terms of net of claims inflation? What sort of rates are you achieving at the renewals?Second question is coming back to the Topdanmark stake. Given that you've passed 1.5 million Topdanmark shares, and in past, you've said that -- have to make financial sense, can we assume from this that the stake of your Topdanmark is undervalued? And my final question is on Hastings. Toby, can you help us disaggregate how much of the 2021 performance was down to COVID-related frequency benefits? And given that the pricing in the market is quite mixed on motor, but could you give some color on households as to what price increases you're seeing there?
Morten, do you want to give some color on the January renewals first?
Yes, I can do that. Yes, it's been a very, very good January renewal for us in all business segments. Of course, not giving out an exact number on sort of the net effect, but I think I could put it in terms of order of magnitude and say that in the Industrial segment, the net effect is, I would say, well above expected inflation. In the Commercial segment, I would say that the net effect is above inflation. And in Private, I would say, somewhat above. So it's clearly a favorable renewal in all business segments. And for If, as a total, we are pricing somewhat above the expected inflation. So I think a favorable start of the new year.
And Knut, do you want to have a go at whether Topdanmark is undervalued or not?
The -- first of all, the price that we bought Top back in November is a little bit different than today. At least we made money on that investment, if you like. And I think we have an exact number on what the right value of Top is, but I wouldn't say that we consider it to be undervalued.
Okay. I guess that's a standalone view though rather than a -- with synergies, for example, though. So standalone, it feels fair, but with synergies you could possibly justify higher valuation. Is that about a fair way of thinking about it?
It's absolutely fair to think that in a hypothetical merger between Topdanmark and the remaining part of our Nordic insurance operation, there would be synergies.
And the fact that Topdanmark is not -- doesn't have unusual multiples compared to other Nordic insurers is also obvious to everyone. And then back to Toby on Hastings.
Yes. I would say, in short, no material COVID frequency benefits remaining in the 2021 financials. And the color on that is, of course, there was a biggish benefit in 2020. But as the COVID dynamics got reflected in market pricing and in their own pricing, then actual behavior was only slightly better than reflected in our models. We got our pricing models right and a small benefit on top of that. But COVID has also had a negative impact on some of our retail income streams just from customers not undertaking as much insurance activity as they would normally do, changing their cars, changing their vehicles, changing address that sort of thing. And so that dampening has largely offset any underwriting benefits. And so I think the numbers you can largely read as normalized now.
Okay. So if we strip out the acquisition accounts [indiscernible]?
Yes.
Okay. Home insurance pricing, if that's okay, if you could cover that as well?
Home insurance pricing, let's say, not much happened in materiality during 2021. But post GIPP, we have seen a more significant increase than the mid-single-digit. So I talked about for car insurance, increases in prices. And so we regard that, given that we don't need to apply those sorts of increases in home, we regard home as a continued good growth opportunity for us.
Our next question comes from Blair Stewart with Bank of America.
It's Blair here from BofA. Just on the Hastings aspect on the motor -- sorry, on the home side, I just wonder, Toby, how the brand name is translating into the home market. You seem to have some nice early success obviously from a low base, but I just wonder what the strategy was from here in terms of plugging away at that market just using the same distribution channels, et cetera, and particularly just how the brand is resonating, that would be interesting. Second question, Torbjorn, you made an interesting comment about pricing in the Nordics and not crying wolf for inflation, which I thought was quite amusing. So I guess I wonder what difference you're seeing in inflation that perhaps others are seeing or not? And I guess an extension of that, as interest rates go up, what impact do you see that having on pricing, if any?And then maybe just a couple of comebacks really. I think Knut, I don't know, I think you said the 170% to 190% reflecting the balance sheet with Nordea, clearly a very different balance sheet without Nordea. So I'm hoping that you will revisit that 170% to 190%. And Toby, I might have this wrong, but I think the transcript of the Q3 says that your shareholders don't see value in Top. I guess the difference between buying Top in the market and doing something else is that if you do something else, you have to pay a premium. So I guess that's the missing link, right, is that as soon you start paying a premium, it doesn't make much sense.
And Toby?
So the Hastings brand is working well in home insurance. So because of the distribution channel, we favor price comparison websites. It's mainly about price, product features, those sorts of things. And -- but the brand is helpful. And so what we're focused on is all the boring but ultimately fascinating for us at work to build pricing sophistication, build claim sophistication, build our data assets, build our internal teams and in doing so, build a larger and very profitable home book over the next, say, 3 to 5 years. And so we're very pleased with progress. The capability build's going well, so good momentum. Market conditions look like they might be favorable as a result of GIPP. So we're feeling good about the long-term opportunity to build that sort of business.
And then do you feel that you're able to leverage any of the expertise from your colleagues at Sampo?
Yes, we've got great capabilities in our U.K. car insurance business that we can, of course, leverage, but we haven't done much home in the past and the If team, in particular, of course, have been doing home insurance at very large scale, lots of experience with flooding homes with freezing homes, with pipes, claims management and pricing. And so we are working, as part of our collaboration efforts, to understand which bits of that are transferable in both directions, but I suppose for home Insurance mainly, If expertise that we might be able to take advantage of.
And then on the claims inflation in the Nordics, just to put things in perspective, it is, for instance, much lower now than in 2018, 2019. Average claims inflation now is 3 point low figure. And motor is a bit higher than property because property -- the spike in property claims inflation in the summer faded quite quickly. So as pointed out many times, claims inflation is a very different animal than consumer price inflation. Having said that, it is one of the most important parameters to follow. So we do just that.
And Blair, on your final -- I don't know if it was a question actually or just a wish. But I think it's important to return frequently to important questions or comments. And regarding our solvency framework, we're sure that we are working and we'll continue to work to make our capital consumption as efficient as possible. Now when we talk about ratios and ratios in the range, capital management framework, that's one thing. The other thing that is possible to work on is, of course, the nominal SCR requirement as such. And an example of being able to work on that could be that we, over time, could take benefit of some of the internal models, which we already have in the Group, which is not a part of our capital management framework currently on a consolidated basis.Then we will also, I am sure, revisit the stresses or uses on a lower SCR consumption and see if the ratio, as such, given those stresses, and that makes sense at any point in time. Right now, they make sense. And the day after we have sold the rest of our Nordea shares, it will always also make sense, but we will continue to work on the capital efficiency to increase the return on capital very hard as an own life group going forward.
Our next question comes from Jan Erik Gjerland with ABG.
The first one is on solvency. Could you just remind us about how Nordea is now treated into your 185% solvency ratio? Is it -- sort of what level is included and what is not included as of today?
If I understand your question, it's more the technical treatment, or is it how much we own in terms of some risk exposure? It's a technical treatment. It's an equity investment in our solvency framework. And we are on 6.24% on Nordea or so. It's increasing a bit because of their share buyback, shy of 250 million shares. So you basically take whatever market price you have from Nordea from time to time, you multiply by our number of shares, you get to an equity exposure. You multiply that by 39% adjusted for the symmetric adjustments and then you post it into our standard model and take correlations on that.
Okay. When it comes to Top, when would you need to sort of bid for the whole company if then the threshold is about 50% for capital or voting rights or what kind of mandatory offer, when do you really need to do a mandatory offer? And at what price would that be recognized?
Should I take that Torbjorn or?
Go ahead.
We have -- I mean, it's a long time, I know, but we actually have made a bid for Topdanmark, a mandatory bid sort of in 2017. So that's done, meaning that there are no requirements in terms of us placing a bid at any level of ownership in Top going forward.
So it means that you can go on actually buying pockets in the market every month and then end up owning 100% without buying it at a premium, so to speak?
That's a hypothetical question, but the answer is yes.
Then on the Hastings level, could you give any insight to the quota share, which you have started the year with in Hastings?
In what way? There was a quota share of 50% before and...
We understood it was around 75% in the past. We understand that [ it's starting to ] come off, the quota share agreement with the reinsurance companies?
It's down from 50% to 35%, and it's no big changes to the panel, no drama, a gradual change.
Finally, then, is the IT system in Topdanmark equal to what you have today in If P&C or is it totally different? And what is the renewal -- the IT system in Top is now being renewed, is it totally different than what you have in If today?
Yes. I guess any IT system in any insurance company is different as such. Of course, when it comes to the things that you have to build for the future, in particular digital solutions, of course, there you could have similarities but the systems as such, of course, they are different.
So there will be certain synergies then putting that Top IT system way down really and apply your If P&C model.
There could be synergies between -- in various IT systems between If P&C and Top, certainly.
[Operator Instructions] Our next question comes from Per Gronborg with SEB.
A couple of questions from my side. First, on Hastings, can you give us a number of what your net cost was for reinsurance in '21? And how big a share of this reinsurance program is in-sourced in '22?
I mean, Toby, you can think about what you want to say, but it was a quota share, Per. So 50% of premiums, 50% of claims for a 50% quota share and then there's a commission that we wouldn't reveal.
But we could basically get it in -- when Hastings was independent listed from their numbers. This could give us a pretty good impression of what the upside is from -- because full owner and they potentially could. I guess there's no reason for Sampo to buy any reinsurance at all for growing a diversified motor book.
You're an optimist, as always, Per. The commission varies year-on-year. So -- but we'll be as helpful as we can, as always.
Okay. My second question...
If I may just add here -- sorry Per to interrupt you. But in one of the slides in the investor deck and also one of the slides that Torbjorn had initially, we talked about the benefit of reducing that quota share from 50% to 35%. This step we now have taken, which is a minimum EUR 6 and the reason why we say a minimum, it depends a bit, of course, it can be more depending on the profitability of the book, which otherwise would have been ceded than growth in the business going forward. But the step we took in our 1st of January already gives us a minimum of EUR 6 in benefits.
And that was something I had missed. On Mandatum, you now provision for T+5. Previously, you have only provisioned up for T+3. What should we expect you to do going forward? Or will this still be ad hoc, that you provision when you basically have the money for it? I'm now talking about the low interest rate.
Knut, do you have a good answer for this?
Yes. No, we -- you're correct. We sort of extended the time period, if you like. Not sure I thought about it like that. It's more that I wanted even more discount rate reserves. And the reason for that, to be blunt, is that we have now positioned Mandatum well in terms of neutralizing equity effects translating into IFRS 17. So with the strong increase of EUR 130 million in discount rate reserves during 2021, Mandatum is well prepared for the new accounting regime next year, obviously, depending on interest rate development during this year, but based on how the world looks at the end of '21.
Finally, I will address Topdanmark and now let's see whether you want to question or to answer my implicit question. If I look at your positioning in Topdanmark 5, 6 years ago, Kai was talking about constantly that Topdanmark here was too expensive. When we looked at it from the outside, the market basically paid materially more for your P&C earnings than they did for the P&C earnings of Topdanmark. Now it's the other way around, and you have started to buy Topdanmark here. What am I missing in this picture, if anything? It's always more fun to buy someone [ that is cheaper than myself ] than buying someone that is more expensive than myself.
First of all, the difference isn't that much. And you have to be really careful when you calculate things. And secondly, that was some time ago, there were other deliberations at that stage. I don't think that's going to be helpful to try to go back with those. Yes, I don't have any further comments to it. It's -- we think that Topdanmark is priced in parallel with the rest of the Nordic P&C markets. We were able to increase our owning a little bit -- a tiny bit at market prices. So that made sense to us and really say more or less -- I mean, it's actually -- it's roughly the same.
And also just to add, Torbjorn, if I may, of course, these blocks we bought, they were supply based. They were offered to us at what we consider was a fair price. We didn't run around looking for them.
Our next question comes from Tryfonas Spyrou with Berenberg. We move on to Marcus Rivaldi with Jefferies.
I've got a very debt specific question for you, please. So just going back to Slide 12 of your deck. You've updated us on the progress you've made with capital synergy benefits so far to reinsurance, there's a EUR 9 million gap to go. And very neatly, the cost of the Hastings debt outstanding would fill that EUR 9 million gap. Just trying to understand why you're not looking to harvest that synergy benefit immediately. Unfortunately, the maturity of the bond lies beyond the sort of period that you set yourself to harvest all of those synergies. When I look at the Group, you've got no major debt maturities in '22, that would be a diversion for liquidity. It would appear, yes, there's an upfront cost for taking that debt out, but then immediately, you could start generating synergies through lower interest costs going forward. So you could just help me understand exactly your thinking around that and your timing about when you might look to, I'd say, harvest those synergies.
Knut?
Marcus, we're well aware of some of the numbers you initially mentioned. And it is, of course, meaningful to think about the Hastings debt as a part of our capital management synergies from Hastings, absolutely. We monitor the cost of debt management activities across the different balance sheets and outstanding bonds we have all the time. And if opportunities should arise where we find it attractive to exercise such opportunities, we will do in line with also the question I answered earlier, where we have set aside the liquidity to do so to make sure we are below 30% leverage when we sort of have no Nordea on our balance sheet. And the Hastings debt as a senior debt is in scope of the bonds we are continuously monitoring and looking at.
I appreciate that. But as I say, it's just -- I thought you'd have an alternative route to you finding EUR 9 million of capital management synergies from Hastings, as you sort of described on that Slide 12. And I just wonder what will change to make you decide now is the time to maybe take that debt out.
Yes. I mean it's always interesting to see how debt trades and how higher interest rates -- how interest rate moves. Obviously, when rates goes higher, the ability to do liability management exercises could be even more attractive, right? So it's an assessment of how we see certain factors -- relevant factors developing going forward.
Understood. I guess, it's just something like a bit of a victim of your success here because I think investors look at you as a very, very safe haven place to be part -- investing with. And -- but obviously, you never say never. Let's see, I guess, how markets develop from here.
Next, we have a follow-up question from Jan Erik Gjerland with ABG.
Hello, can you hear me?
We can hear you now, Jan Erik.
Sorry, I was probably muted. On the dividend side, last autumn, you sort of said you should be patient to see dividends from selling Nordea coming through to -- as an ordinary dividend and the special one. Would you consider adding special dividend prior to the AGM in 2023 then? Or should we wait another sort of year before we see special dividend coming through as your buyback mandate are not allowing you to sort of distribute capital fast enough, I would say, versus the amount Nordea would create. How should we think about this special dividend opportunities once more?
Greedy, Jan Erik, asking, I guess. We've just announced that we will prolong the buyback program. We want to have a balance between buybacks for our owners who have indicated that they want to balance between buybacks and dividends, and we normally have a dividend -- an annual dividend. And that's all normally, and that's all around arguments, and then we'll see how the world plays out. All the time, we have first sold down Nordea, received the money and then talked about what to do with it.
Next, we have a follow-up question from Jakob Brink with Nordea.
Just a question on If's underlying combined ratio, if we can go back to that. So, Morten, you mentioned before that you were pricing above inflation in all the segments, I believe. But still, the Q4 underlying combined ratio and by underlying, I mean, with what we can adjust for, I don't know, what you give us on large claims, run-off gains, COVID and weather, it was still an extremely low level compared to the prior 2 years Q4. How would you say, having all the numbers, is this a normalized run rate at where we are currently? Or is it even more to go down next year, given the above-inflation pricing? Or is this too good to extrapolate?
Morten, of course.
Yes. Now of course, you're right, it's a very strong sort of underlying performance in the business, and it's a strong performance in all the segments and all countries. Of course, you need to sort of -- as you pointed out yourself, you need to factor in all of the elements that are changing, obviously, with COVID sort of being one element that is now -- I guess, we all would say hopefully disappearing. And then, of course, it's quite a bit certainty about what's the new normal that we return to then, sort of our comparison figures now are already quite old. But indeed, there is a strong underlying profitability in the business. I think that's the only thing to conclude from that.
And of course, Jakob, this is the core of our business, a very big chunk of our business. And we're back to the situation, we are in the situation that we have benefited from the full year where there's no segment where we're not able to increase rates in tandem with claims inflation, and we're actually growing on the back of digitalization in general and rational markets. So yes, this is -- this question is the core of what we're doing at the moment.
Would you say maybe even that all this M&A we have seen in the Nordics have made it even easier to improve profitability? I mean, I guess it's easier to take clients away from the ones [ fit ] with integrating big M&A or hasn't that happened yet?
That remains to be seen, how our competitors, peers behave. But in theory, you're absolutely right. And in theory, it is, of course, a market now dominated by relatively few rational actuaries rather than a large number of small players trying to find new distribution channels.
Our next question comes from Tryfonas Spyrou with Berenberg.
Can you hear me?
We can hear you, Try.
I just want to ask how -- what is the process and how long would it take to get approval for a group partial internal model? Presumably, given that If already has one in place, the process won't be so time consuming. And I was just wondering if the process is already underway.
We -- to be clear, we have not applied for our group internal model. In terms of us considering how to use the internal models also on a groupwide basis, that is, of course, something we naturally are thinking about as a part of our considerations around capital management, but no formal process have been initiated. And if we apply for an internal model or go into any preapproval process on a groupwide basis, I would need to revert to a timetable that is difficult to sort of pick from the shelf and say, it takes exactly this long. But it's -- you shouldn't expect it to be a very short process despite the fact that we have internal models within the Group.But of course, given the fact that it is very different to apply for an internal model that has been used for 5 years compared to what it was in 2016 when no internal models had ever been used, there could potentially also the possibilities to not make this a very long process. But we're a big Group. Our internal models consists of enormous amount of documentation, which needs to be reviewed, et cetera. So we have to be respectful for the fact that, that is good and hypothetically can take some time.
Our next question comes from Michele Ballatore with KBW.
2 questions for me. So first, on the Baltics, obviously, I mean, we are observing strong growth there. So if you can give us an update of what is going on. I mean, what is the outlook? What is driving this growth? And the second question is, if it's possible to have an update on that portfolio of small investments you have like Nordax Bank, Saxo Bank, et cetera?
Morten, Baltic realm and digitalization.
Yes, I'll start with the Baltics. It's a very strong performance for us indeed in the Baltics, both when it comes to profitability, but of course, as you point out, indeed, when it also comes to growth. It's both price-driven and increase in number of customers, I think reflecting an extremely strong operating model that we have, a very modern operating model and modern distribution platform that we have in the Baltics, which means that we have been gaining market shares throughout the Baltics in 2021. So absolutely good development and really in all 3 markets for us in the Baltics.
And then on the TE portfolio, we don't normally -- we don't run it ourselves, the individual companies. So we don't normally comment that much. But, Knut, this time, we have both dividends and accounting effects, maybe you would like to touch on those.
Sure. I can do that. In terms of Nordax, I'm sure many of you are aware that Nordax closed the acquisition of Bank Norwegian in Q4. That gave us an accounting profit of EUR 84 million, which is included in our Holding segment in the fourth quarter. Then there's also what we call an extraordinary item but it's still, of course, is a positive in terms of the valuation of Nordax. We didn't participate in Nordax funding, we didn't put in additional capital in Nordax to fund the Bank Norwegian acquisition, but we got new co-investors -- additional co-investors in Nordax, and they came in to Nordax at higher valuation than our book value. And we were diluted, but that gave us a positive dilution effect because of this valuation difference also on EUR 84 million, but it's not the same number. So in total, we have made in the fourth quarter, EUR 168 million, which actually is a part of our fourth quarter reported profit.Saxo -- you wanted me to talk about dividends. We -- Saxo is returning cash to its investors as dividend. It's a smaller part, of course, compared to the book value of Saxo. But it contributed in 2021 to a part of the Holding segment profitability, and we received dividend of somewhat about EUR 20 million.
So good progress for all the -- all these assets. And yes, that's it.
Next, we have a follow-up question from Blair Stewart with Bank of America.
2 quick ones. I think we didn't quite get to Torbjorn answering one of my questions last time, just on the potential impacts of higher interest rates on underwriting. Do you expect that to weaken underwriting resolve in any way? I know we're still at very low levels, but if it continue to pick up.And secondly, Torbjorn, I mean, you talked earlier about when Jan Erik was being greedy, you talked about extending the buyback. Could you just -- sorry, basic question, can you just remind us where we are with the buyback? I think you've done about EUR 530 million. And without thinking about possible future proceeds, et cetera, is that buyback going to run to about EUR 750 million. Is that -- am I right in thinking that or have I got those numbers wrong?
The answer to the second question is yes. And forgive me for missing your first question, you're right, we didn't -- I didn't get to answering that. Potential impact of increasing interest rates, yes, it's a very hypothetical question. We're all expecting interest rates to go up one day or another. And if that was significant, I think that most of the large companies in the Nordics have ROE targets or something similar underpinning their behavior. Otherwise, I would be saying that, for instance, we would soon be aiming for an ROE of in excess of 40%. And I'm not saying that. We're not -- we will not price for that. So significantly increased interest rates may well affect the combined ratios, but that's not where we are at all. And I said -- and that's why I said in my introduction that we are not counting on increased interest rates in our rate settling at all at the moment. That doesn't enter into it. Let's see what happens in the world, and we've been waiting for this for a long time and speculated about it before.
And just to add on to that, of course, an increased interest rate would, of course, give us an accounting -- positive accounting effect on the underwriting side than the discount on reserves, just as the reduction in interest rate has given us negative effects over the last few years. So of course, that comes automatically.
And maybe finally, on the investment side, we're probably -- we have a shorter duration than most of our peers, which in relative terms would benefit us.
At this time, we have no further questions. I will now hand back to our speakers for a final remark.
Thank you, operator. This concludes our call for today. Thank you all for participating, and we look forward to speaking more with you in the near future.