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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 Fourth Quarter 2022 Conference Call. My name is Sami Taipalus and I'm Head of Investor Relations at Sampo Group. I'm joined on the call by Group CEO, Torbjörn Magnusson, Group CFO, Knut Alsaker and CEO, If, Morten Thorsrud. The call will feature a short presentation from Torbjörn followed by Q&A. A recording of the call will later be available on sampo.com.
With that, I hand over to Torbjörn. Please go ahead.
Thanks, Sami, and welcome everyone.
I am pleased to be able to release yet again very solid figures for the quarter and the full year. Both the backward-looking cost and claims ratios as well as the forward-looking retention and rate change numbers are overall very satisfactory, especially in the Nordics. Furthermore, in this main market of ours, we observed no changes to the market structure in the latter part of the year, no startups either from fintechs or international insurers.
The second leg of any insurance business, investments also look promising, and we saw €230 million an increased run rate profits from higher yields compared to 2021.
The balance sheet looks very strong, of course, and we plan for both the regular dividend based on the insurance operations, as well as an additional dividend and buybacks.
The last quarter has been a bit technical in accounting, with a goodwill write down for Topdanmark Liv and reallocation of non-life provisions. But this does not in any way reflect a deterioration in the underlying development.
So for key developments, in our P&C operations. They look very healthy, at the beginning of 2023. We have actually not seen any meaningful increase in claims inflation in the quarter. And at the same time the necessary rate increases are implemented in the market. There are comments in this slide about increased marketing activity in certain areas. But we were actually very close not to include that comment it has not had any significant effects.
Claims inflation still varies between roughly 3% and 6% across the Nordic geographies and products, so no product standing out with any extreme number. And we have focused more on customer satisfaction and corresponding growth in Q4 than increasing rates furthermore. In the Nordics, we also rearranged provisions a bit increasing the Finnish discount rate more in line with reality but did with the margin but keeping the prudence in the regular reserves. Thus, the positive discount effect of 218 million and corresponding negative reserve increase of 103 million. All-in-all, we have kept our longstanding prudent stance on provisions at roughly the same level.
The U.K. then, the premium numbers are quite extreme for us in the quarter as we did not participate in the aggressive market behavior in Q4 2021. And then, we have of course, increased rates in line with a 12% claims inflation this year. So our total growth in Hastings in Q4 was a very high 31%. This also reflects rapid growth in home insurance and growth in telematics as well as the multicar product.
Even if home insurance still is much smaller than motor for us at more than 400,000 policies, it's no longer a negligible line for Hastings.
The U.K. market has it seems met but not exceeded the increase in reinsurance rates at the year-end now, which means that we still see average rates somewhat inadequate in motor.
As mentioned already, for the first time, in many years, running yields have increased and contributed in a non-negligible way to our results. Underwriting still makes up the majority of our total profits before taxes, but the more normal at least from a historic perspective, interest rates makes the underwriting discipline even more valuable.
The running yield at If P&C was 3.2% and Mandatum 4% year-end, and we have strived to lengthen the maturity yields also in these beneficial surroundings since roughly the half year and average maturities are now just below two years for the same entities for If P&C up from one-year just 12 months ago.
This slide is a dull one but let me comment briefly on two things. First of all, we continue to grow the underwriting profits rapidly. And the underlying combined ratio has improved in the Nordics both from cost reductions and continued underwriting improvements. There's no change to that development.
Secondly, the Hastings figures look a bit odd much due to the same effects as previously in 2022. Due to technical items having to do with our acquisition, as well as the reinsurance structure changes. We missed our target for the year by just below 2% for Hastings, which reflects the unusually tough winter in the U.K., something not at all unique to us, of course.
The more important remark is that the motor rates in general need to come up more than they have for this market to perform adequately in 2023. Needless to say, as part of Sampo Group, Hastings will never chase volumes unless rates are sufficient to meet our targets.
Then, in the capital markets, say in 2021, we introduced a new balance sheet framework. We have also tried to show a lot of discipline in this respect. With the conclusion yesterday of the €1 billion buyback program and with a proposal today of a €2.60 dividend plus an intended 400 million buyback, we continue on this path. The remaining excess capital after this is by and large the capital tied up in the PE portfolios.
Finally, a couple of words on the ongoing Mandatum evaluation that the board initiated in December. This, I think came as no surprise after the last few years of strategic process. We are considering a broad range of alternatives including a sale, demerger or just continue as is. Remember Mandatum provide some dividends support for the Group, and also is gradually but at a high pace growing a business which is more less with profits and more present-day business.
And this sub-sentence of possibility for support for the dividend for the Group is in no way intended as an indication of the end result of this process just to be clear. We carry out this evaluation as usual at high-speed and expect to be able to provide a concrete update before the end of the first quarter.
And with that, Sami, we open up for questions.
Yes, thank you, Torbjörn. Operator, we're now ready to start the question-and-answer session.
Sure, noted. [Operator Instructions]. We will take the first question from line of Faizan Lakhani from HSBC.
I have three questions. The first one was on your potential excess capital on your balance sheet of [Technical Difficulty].
Faizan, we can hear you very badly, you'd sort of dropped off the line there.
Okay, one second. Sorry about that. Can you hear me now?
Now, we can hear you again.
Sorry, I will just start again. I have three questions. The first one was on the excess capital that you have, one hand you suggested €2 per share and based on the PE days, but on the other hand, you mentioned slowing down and [Technical Difficulty].
Sorry, Faizan. You keep cutting out all the time. Operator, can we move on to the next question and we'll come back to you Faizan, if you rejoin.
Sure, noted. We will take the next question from line Jakob Brink from Nordea.
Sorry, if I take your question then. But my first one that was actually also on the excess capital and the last year, I think, Mandatum, we talked about the leverage rate, which seems to be your most binding requirements now being at 30%, roughly after the payout. But back then, we also talked about you being willing to let it drift above 30 for a while because you basically had the cash or the liquid assets as well. Now it seems like you've changed that strategy and when Torbjörn talk about the last two years being tied up in the piece they exactly, if look at from a solvency perspective, you do have those €2 already present. So what is it that has changed in euro sort of way of looking at the leverage rates are being sort of across that instead of a net debt approach?
Good afternoon, Jakob. I don't think I would agree with you, that we have changed everything, anything. The reference last year was more in the order of things that if we have a leverage that goes slightly above 30, for a while and a plan to take it below our target, we would be fine with that. What we now have done is decided to return 1.7 billion in capital, including the planned buyback that brings the solvency as you alluded to comfortably above the 170 to 190 range. And I would also say that the leverage, we are comfortable with landing slightly below 30 with the older accounting regime, and 1% to 2% lower as we speak, since that's the benefit of own equity of the new accounting regime. So the decision on the buyback plan buyback and the dividend we have done is not relate to turning the fact that we have a constraint as such, which is here. And now, it's in line with our communication to do gradual capital return. And we just concluded the sizable buyback and we have today announced further sizable capital distributions.
Fair enough. But just to make clear, for my side is, would you agree that if we take from a solvency perspective to 210 versus 170, if you take the bottom-end, that's around €1.5 billion, and the same if you would include your sort of net liquid position in your, so they could take a net debt instead of gross debt leverage ratio, that would be roughly the same. So even without selling the piece, they actually would have at least €2 per share today, which you have then chosen to save for later, is that correct?
Not sure I followed all of it. But maybe one thing, I would necessarily say that we define excess capital above 170. We have a capital management framework with a target range between 170 and 190. So excess capital would more be above 190 than 170.
But that's still a billion euros, roughly.
I think we still have a comfortable capital position and would say that we do have excess capital which of course, some of that needs to be monetized in terms of the private equity stakes. We are after all, distributing €1.7 billion. So to distribute more in terms of liquidity, we need to monetize some of the or the private equity stake or do other things to get liquidity offered to the group.
Jakob on Slide 17 of the investor presentation, you've got the position on the solvency without selling the PE assets. We have 0.8 billion of headroom on the solvency.
So that's down 190%.
Correct.
But I guess you do have the liquidity though. If you look at the Plc balance sheet, you have 2.5 billion, which would also be 800 million more than you pay out.
We do have liquidity left. Absolutely. But now we have decided on this dividend to be planned buyback. It's a gradual return. Could we have sort of paid out a little bit more probably could argue that we could doesn't mean that this is sort of the last time we announced a capital return and unlike has also said many times before a buyback takes the time a buyback takes. You can't speed up the buyback just because you announced a larger buyback than the planned buyback, we announced today.
I think, I get it. Thanks. And then on the underwriting, there's been some talk, I think in the market where what the underlying claims rate or combined rate is actually doing in this quarter but stripping out for all the extra stuff that we can't see but you can see. What would you say as sort of the development of the underlying combined ratio claims rates of year-on-year, please?
I will start and then leave the details, the insights to Morten but there's been no dramatic or significant change on previous years, we've had good development for several years with growth due to our longstanding investments in IT and the web. We have also been able to improve the underwriting also this year, stripping out the volatile items, as you can see from one of the pages in the package, say 0.5% for the year, and also been able to improve the cost ratio 0.3. So virtually the same development as we have seen for the past few years, underlying.
Yes. And then, more detailed figures underlying improvement, 80 basis points, 30 basis points from cost reductions, which of course is important to bear in mind. It's part of our sort of long-term strategy of always reducing that. And then, the 50 basis points on the risk ratio. And I think sort of full year underlying improvement of 80 basis points is sort of what is really representative, doing underlying combined ratio on a quarterly basis, it's always a lot of sort of smaller volatility that they influence. So I think the 80 basis points that you see on the full year is really what's representing the underlying improvement.
Thanks. And given the price initiatives you have done and the claims inflation, which guess seems to be leveling off a bit, would you then expect something similar in 2023, or is that too optimistic?
No, I don't want to speculate too much about sort of the future development. But of course, we are implementing price increases now between 5% and 6% into 2023. We have seen inflation so far, 4% to 5%. And it is correct that it's cooling off somewhat. Motors seems to have reached sort of the level that we expected and property clearly leveling off, and even seeing some reductions as we see some of the raw materials even being reduced in price.
So again, we don't want to speculate too much about sort of future development on online. But I think we are clearly pricing in order to really take care of the inflation that we have seen and sort of anticipate in the market. So I think we feel very comfortable about that situation.
And then, Morton, you're not going to get off next year without having improved the cost ratio, once again, of course.
As I said, the long-term strategy, always improving that to 20 basis points, which of course, it's important part of that underlying improvement.
Last question from my side, reinsurance. How was your program retention levels and pricing change what will be the potential negative impact to combined ratio in '23 from reinsurance prices having gone up?
The reinsurance market was finally hardening. We expected it to harden already a year ago. But now it was finally hardening. Thinking it's important to bear in mind that's a positive for us. It's helping us driving up rates in the large corporate market. And being the largest insurer in the Nordics. Of course, we benefit from a hardening reinsurance market. We have slightly increased our net retention from SEK 250 million to SEK 300 million. But that's a more flippant comment. You can say that over the last 10 years in euros, it's been more or less unchanged. So we have €27.5 million as net retention today, which was exactly the same we had 10 years ago actually.
Price increases, the brokers report 20% to 50% price increases on the reinsurance renewals. We are in the very, very low end of that range. And this was fully anticipated for us so we have already included this in the pricing for 2023.
And I usually quote, the number, our total reinsurance spend for the core programs are to the tune of €70 million, something like that, you can compare that to the overall if premiums and figure out whether that has an importance or not.
And you said 20%, or the lower end of the range starting with 20.
So that range in the market in terms of increases 20 to 50 towards the lower end of that range.
Okay. Thanks a lot for your answers.
Thank you. We will take the next question from line Youdish Chicooree from Autonomous Research.
I could ask you about just the competitive environment, I get the point that there has been no dramatic change, when you've mentioned it several times. But I think in your slides you talked about some market activity in some areas. So maybe you could elaborate on that to start with. And then, secondly, on the U.K., on Hastings. I mean you changed the quarter share reinsurance last year. So it's a bit hard for us to work out the earned premium dynamics versus the rating actions you've taken and claims inflation. So I was wondering, could you tell us like, here's the first half probably like a difficult half, when you can get back to the operating ratio? Or do you think that's achievable? Thank you.
I can comment, the first one. I think it's quite exaggerating, saying that we see any changed behavior in the Nordic market, it's sort of quite often we see a bit of marketing campaigns and different types of activities towards the end of the year. So I think this is no change in the market at all.
All right, okay. Got it. Thank you.
Then, as I said, on Hastings is part of Sampo Group, so we price according to what we need to meet the targets, and we have done so in 2022. And we would expect hope that the market will follow. Otherwise, we will find it increasingly difficult to increase our market share, of course, by the usual dynamics. Having said that, I'm impressed that Hastings has been able to keep up their top position in the price comparison websites, even with higher prices. So there's obviously something to the brand and the way that they do business that is very skillful.
Great. Can I ask a follow-up just in the UK, please. Because there are at least some suggestions in the market that there's been quite material improvement in pricing for both your business and renewals in general? Are you able to comment on that, please?
I think there's lots of public statistics in the U.K., rates have improved in the second half of '22. You could say that that's good. We don't see that as quite enough. So but general position is better now, better not adequate now compared to six months ago. And then, an early indication of the rate increases at the beginning of the year is that they reflect the increases in the reinsurance prices that we just discussed here but not more.
All right. It's interesting. Okay. Thank you very much.
Thank you. We will take the next line from Tryfonas Spyrou from Berenberg.
I have one question on Mandatum and strategic view, you mentioned in the slide that enlisting to give shareholders control over the valuation. But I'm just wondering, with this growth to create a risk, for example, for a potential overhang on the shares given that you could perceive this potentially looking to sell the stake at some point. Would a potential sale be a better option here. Presumably the latter will result in a more immediate cash infusion and more value creation. Thank you.
I think I could follow roughly half of your question, unfortunately. But anyway, on Mandatum, I don't think that we wish to comment more than that. At the moment, we have all options open and it's reasonable after just a little bit more than a month exercise here. We'll return to this during Q1.
Okay. Thank you.
Thank you. We will take the next question from line Alex Evans from Citi.
First, I just wanted to circle back on Jakob's point about the adjusted risk ratio outlook. I think before you were saying pricing increase was five plus percent in the Nordics and claims inflation was 4 to 5. It now looks like you're saying pricing is 5 to 6 and claims inflation is the same. So are you implicitly saying that margins are going to improve going forward there?
And then, secondly, just around the sort of geographies that you're seeing in the combined ratio improvement, is that sort of 20 bps underlying improvement consistent across all the geographies that you're seeing there? And then, just finally, just if there's any update on discussions on PE timelines, and anything that you could give on that? Thank you.
Yes. I'll start within the line improvement. Just to repeat that, again, I think the fair view there is to look at the full year 50 basis points, risk ratio improvement and 30 basis points, cost ratio improvement, so 80 basis points in total. Obviously, that's sort of the representative number for 2022. And most of the improvements is in large corporate and commercial, and then a smaller of it in private but clearly improvement in all areas.
When it comes to inflation, and pricing, the 5% to 6% is what we are implementing now. Obviously, then looking forward into 2023, then the 4% to 5% inflation is what we've seen historically in a way sort of during 2022. And then, we are not expecting a really inflation to increase further from this level. We are seeing that inflation in motor is now stabilizing. It's been increasing throughout the year exactly as we forecasted, it's being now stabilizing somewhat. And the same we have seen for a while now even on property.
Then, of course, the big uncertainty when it comes to inflation in 2023 is the wage development in the Nordic Region. But that is a fairly controlled sort of development, since it's mainly done through the big union negotiations. So yes, I think that's what we can say about pricing and inflation.
Thank you. We will take the next question from line, Blair Stewart from Bank of America.
Couple of questions left for me. Firstly, has the higher interest rate effect fully earned through now in '22? Or would you expect more of that to come through in 2023? Second question is, I wonder if I can give any color on the reserve edition that you made, I think to see the eight points what was going on there? Is that just reflecting inflation of something else?
And finally, on Mandatum, I know you're not going to say much, but to what extent is the lost dividend of consideration with respect to the coverage of your insurance dividend should you decide to spend Mandatum without any proceeds coming to Sampo Thank you.
Good afternoon, Blair, Knut-Arne here. In terms of effect from higher rates, there is a little bit more to come. In terms of the running yield, I would expect that to continue to take upwards a bit during the next couple of quarters not north to the same tune as, as we've seen during the second half or so of '22. But to continue slightly upwards given the investments we are doing.
And also, before addressing your second questions on the effect of the higher rates the reserve adjustment or the discount rate adjustment, we know under the old accounting regime wasn't up to the level where we will start '22. So there will be -- you can say an additional positive effect in equity from implementing IFRS 17 at an even higher discount rate.
Yes. And then, I could add on the prudency. We always have had as a philosophy of having prudent reserves. And this quarter, we're moving some of that prudence from Finland to other countries. Obviously, driven by the fact that we have rapidly increasing discount rates in Finland, that gives us 218 million in positive effect. We are taking 115 of that and moving prudency to other countries. And then, in addition, it comes 8 million in claims adjustment reserve, which on the waterfall in the presentation is classified as current year reserves strengthening.
So again, we are, as always having prudent reserve and moving some of that prudency in the fourth quarter, which obviously makes the figures a little bit difficult for you to fully interpret, unfortunately.
And if I should add Blair, just on the beauty of doing what we have done in Q4 and going into IFRS 17 and nine for that sake, of course, we will be marked-to-market in terms of interest rates, where interest rate prudency is a blast from the past. Now, we go into IFRS 17, actually having reshuffled some of our prudency into the best estimate, which will continue to be prudency and also under IFRS 17.
Thank you. And on Mandatum, lots of dividend.
Well, Blair it's very helpful that Mandatum has been able to grow his underwriting profits so much lately so that profit dividends can come from different sources can't they.
Okay. When you say end of Q1, do you mean end of calendar year Q1, so in the next six weeks?
Thanks for asking a question I hadn't thought about.
I mean, not just the Q1 results, you talk about end of Q1 right.
We are of course, as always working as quickly as we can, Blair.
Thank you. We will take the next question from Jan Gjerland from ABG.
I have a couple of follow up questions on the wage inflation levels. Your reinsurance quota share in Hastings. And also the frequency we have seen in the Nordics, any differences between the countries have normally been worse from Sweden, within Sweden better than Denmark, et cetera, when it comes to frequency, especially on the motor side. And how much impact of this in England on the Hasting side. Then finally on discounting may be witness to this totally wrong, but the discounting on the IFRS 17 side, shouldn't that improve your combined ratio when you move into the next leg year or should they? How much have you not discounted in your book so far versus what you have done? Finally, on the buybacks, would it be fair to say that you can have more buybacks coming into your AGM this year? Or should we not think that could be an option at all?
Frequencies in the Nordics that's obviously Morten's question, but there will be frequency variations for all gradual slow frequency evaluations for all products in all countries. So sort of summarizing that by country is an illusion. But Morten, do you want to say something?
I can try, of course. I mean, first of all frequencies have returned off the COVID. That's, of course, that's for sure. That you see also we have indicated and that's roughly exactly as expected. And then in terms of development, we've seen a little bit sort of harsh winter in Norway and Finland. What typically cause problems on the insurance side is if the temperature goes a lot up and down and in Norway in particular, it's been sort of quite a varying temperature throughout December. So that obviously has sort of had certainly impact on frequencies in Q4. But there's nothing in the frequency of development that is different than what we have expected. So it's very much sort of developing as planned in, in all BAs.
Then on U.K. frequencies, frequencies, for us is of course very much something that we follow closely monitor always and price -- to price for now, and then something more sudden happens and we had more severe winter in the U.K. than the usual. And then there has been various interpretations of frequencies, trains have not been running, people have driven more to the office, and therefore we've had higher frequencies. I think that's partly speculation, but it will be interesting, I expect frequencies to come back to normal in the U.K. in Q1. But it'll be interesting to see when we have the numbers. Apart from that COVID is long gone, and numbers are normal and have stable developments. IFRS 17, Knut?
IFRS 17, you're right, there's a little bit more discounting under IFRS 17. And what we've had previously since all reserves will be discounted. I think we said when we had the IFRS 17 brief a couple of months or so ago, the impact on the combined ratio will be around 1%. And that's a positive number with the current rates. Then, of course, just since we're talking about technicalities, the effect of changes in discount rate will no longer be a part of the combined ratio, but what will be a part of the net finance result.
So it means that the changes you've done now is sort of improving the combined ratio this time around and it stays there while the change to the one percentage points referring to the last change the combined ratio lower into the IFRS 17, is that understood correct;y?
Not sure, I got your question right. But what we now have done will not change the effects we talked about on first December. We still will have a positive effect from discounting on our combined. The second part of my answer was more related to future changes in discount rates under IFRS 17. In other words, the mark-to-market valuation or liability changes in the interest rate levels the curves will not be recorded in the combined ratio the change in itself that will be a part of the net finance result, but there's nothing we have done now, which in any way materially changes, what we talked about on 1st of December, I think that presentation was.
So but let me just reiterate what we have down here. Since under IFRS 17, there is no prudency with relation to discount rate you can't choose another curve than the market curve for rates. So that prudency possibility if I should call it, the silly thing like that will be removed. But of course to have a prudency in your best estimate since that is not only one number. But a range that is still possible. And we have taken some of the prudency out of the interest rate discussion and moved it into our best estimate where it will remain also now under IFRS 17.
On the buyback should I -- its customer customary for the board to in Sampo to go to the AGM and ask for an approval of doing buybacks and without front running any AGM proposal. I would personally guess that that will happen also this year, which means that it would be possible to do more buybacks for Sampo in the future. One buyback at a time like we always do.
The Hastings reinsurance quota. Have you changed that 1st of January?
Yes. It's gone down to 30%. So not a big change. We did a big change last year. This year for strategic reasons, we didn't as strategic meaning buying reinsurance in the best way. Now strategic for example, of course, we don't really need that reinsurance program, for Sampo solvency or anything.
And finally, then on the wages, would you put some 4-ish percentage points into the inflation for Nordic workers.
Let's see. But I guess what people sort of anticipate is somewhere around that figure but let's see. And then of course, for us on the insurance side, we have also a number of sort of contracts that are negotiated. So I mean, to a fairly large extent, we also have a fairly good view on what we are going to pay our suppliers. So that means that we can sort of manage inflation in a good manner and make sure that we price and continue to price and stay ahead of the curve.
What is so Implicit about this. I mean, he has renewed many of -- you have renewed many of your supplier contract already for the year and then it's if claims if wage inflation would be higher, that's actually their problem for 2023. I don't expect that to be the case. But Morten is –
This is as always, it's just business as usual.
Thank you. We will take the next question from line Faizan Lakhani from HSBC.
Sorry about that earlier. Most of my questions have been answered. But I just wanted to follow up. Firstly, on the reserve adjustment that you've done. I appreciate the rationale behind it. But I'm just trying to think about it as a starting point. Because if you've increased your calendar year lost stakes, and would it be fair to say that the risk ratio that we start off with for 2023 will be 64.5 rather than 64.3? That's first question.
The second is, I know you can't say too much on data at this stage. But how much does my doctor contribute to the diversification benefit and solvency ratio? And my third and final question is on Hastings, there are a lot of moving parts and pricing has also changed a great deal over the course of the year. What is the starting point or the exit loss ratio that we should be using sort of forecast 2023?
I'm a little bit uncertain if I understood your question on the risk ratio. But given the numbers that you mentioned, I interpreted like you're pointing at the current year effect of the reserve changes, which is what we call claims adjustment reserve. So when we increase priors reserves with 150 million, we also need to set aside claims adjustment reserve. And that claims adjustment reserve is always booked on current year. So that's kind of a technicality more than anything else.
When we are reducing the reserves as a result of the discount rate increase. We are not releasing any claims adjustment reserve because that's purely sort of technical. But as long as you increase sort of the reserves, you also set aside sort of claims adjustment reserves. So it's a purely technical thing, and it's nothing in that you should put into down the line.
As I said, the correct understanding is, it's for the underwriting years 2021 and prior and therefore it's just more how it looks optically rather than what --
I try and do Hastings. Let's put it this way. Hastings, the starting point for this year is that we feel that the market in motor is slightly inadequate in terms of pricing. I'm not going to give you a number, but this means life is not only numbers. So people we have been able to keep our live customer policy count stable despite this during last year. And we have of course, priced at the level we need to for the claims inflation and the developments.
Then, when it comes to home, we didn't have any backup book, which was helpful. So we aim to continue to be able to grow in home insurance. And another backdrop to the development in the U.K. is, of course, that last year we had the [indiscernible] reform that for 12 months reduced the incentive to change insurer. This year, we don't, so I think that we would expect to see churn to increase a little bit in the U.K. market this year. Maybe not back to 2020. But higher than last year and that will be for the benefit of Hastings.
And when it comes to the capital, synergies between Mandatum and the rest of the Group, let's revert to that discussion. If needed when we have concluded on the strategic review. The reason why I'm saying that is that that is of course dependent on how they balance sheet of Mandatum and the rest of the Group looks from time to time, which would impact what I would assume that you are would be using that number for.
Thank you. We will take the next question from line Vinit Malhotra from Mediobanca.
Just three very quick ones, for me, please. One is this slide 17 the excess capital in the future the return? I think you have tied and bound to PE, the private equity portfolio. But I think in the past, there also used to be a hint of something called featured actions. In fact, being taken out or you're just left out and stimulated a topic, I'm just trying to explore. If there's no sale of the [indiscernible] there might be some other things happening. That's the first question.
Second question is the industrial is lessen 30%, we've heard some of the Nordics deal that needs exiting, withdrawing from this business for a while. Isn't a dream well for you 20%, gross profit, do you see this as an opportunity. Who are you competing with just any feedback or comments would be very helpful?
And last question is inflation. I think [indiscernible] pointing out that you were expecting inflation to go up in the fourth quarter, but clearly it hasn't happened. So you would agree to be better than expected? Is it because of property peaking? And it's likely to be that, we can celebrate a bit the peak of inflation behind us. Thank you.
I can start with the first. I think you asked about the link between our excess capital and the PE portfolio. Was that –
No. In the past used to be something called future action that well, so I'm just -- even if I go back to the third quarter slide.
We just haven't included those future actions on the slide. This time. There's no change in the pipeline. It was on the things like the capital model, for example, partial internal model.
Oh, yes. Okay, sorry about that, but there's no change in the ongoing work we are doing and that preparations. So it's not because we have changed our mind or anything like that. It's just like somebody said that it's not on the slide. So that's the only reason we could include the colors or on this slide as well, absolutely.
No, thank you just checking that.
Then the line was a little bit bad. But I think your second question was about the strategic position on the large corporate market. And that's a book of business that has been sort of good and profitable for us historically. Obviously, now we see an even much better situation than I would say, in a long, long time with record highs sort of rate increases due to sort of general hardening market, of course, both in the Nordics and internationally. But also, that we see in some capacity sort of withdrawn from that part of the Nord market, both in terms of Nordic players reducing focus on this, and also some of the international players, reducing their presence in the Nordics. So I think the outlook and situation in the large corporate segment is very good. And clearly improved over the last few years.
Then, the question on inflation, I will say that inflation developed in the fourth quarter, very much as expected. I think we've been talking about a motor inflation that gradually was increasing throughout the year, mainly driven by increased spare part prices. And that was the situation they did increase during the year and they ended up more or less exactly where we expected them to end. Then on the property side, I think we will also on the third quarter was signaling that it was slowing down and more stabilizing. And that's what we have seen also into the fourth quarter, and even with some effects of reduced inflation in property as we see raw material prices coming down.
So as I would say, that sort of inflation is developing much as expected, but we end up with a total inflation than between 4% and 5% for sort of the Group.
Thank you. We will take the last question from Jakob Brink from Nordea.
Thanks a lot. Just forgot one question. You have increased the duration of If P&C's investment assets by almost a year, over the past half year or so looking at your development in your solvency bridge, market risk have come down around 380 million or so from Q2 to Q4. Is that due to this increase? And also, how much of that sort of changed in your SCRs related to Topdanmark sale of the life business? Which I guess must have had €200 million or so positive impact? If you could just clarify and maybe give some more details here would be appreciated.
Yes. It's true that we have increased duration obviously coming from all three investing in durations with more three, four years duration than what we had before three, four years maturity and what we had before have very, very short-term. So that has gradually increased although not a lot, it takes a while before increase in duration increase. In increase when you have a large portfolio like we have an [indiscernible].
And as we always do, we've had take gradual steps. In other words, it hasn't had a material impact on the market effects on our solvency that duration increase, I would say. But some and of course, we also have done these three investments with slightly higher average credit exposure than what we had before which has a slight positive effect as well.
When it comes to the big market effect moves in lately, it's basically the symmetric adjustment that has moved, the market effects have been down and in the last quarter clearly in the negative direction. I think we combined a lot of different markets effects on one of the slides there to be minus 8% minus 9% is the symmetric adjustment. So the rest is netting off slightly positive.
The positive effect from top the live sale is included in what we call out there and there's a few other technicalities in the roster there will always say it's but in that go along, you will find the effect from the live sale on top, which is slightly different than what it would be in total, because of the way that top zone funds in SCR is consolidated on a Group level.
Okay. Just coming back to the symmetric adjustment, I thought it had gone up from 31 to 36. And what was it 33 or something the quarter before. So I guess that sort of had a negative importance led to an increase in your market risk, but it's come down.
Now the symmetric adjustment, I think when went from minus eight to minus three during the quarter, so it come down. Which means that it's a negative effect since this time it was on the minus side of that depend between minus 10 and plus 10. So it means that the market risk for equities increased, since we could dark day higher symmetric adjustment end of Q3 and then we could then end of Q4.
Okay. Maybe I'll take that afterwards. I'm not quite sure I understand. So if the symmetric adjustment goes up, you have a higher –
Jakob, let's take this one offline. afterwards.
Just one small question, then I see you bought lots of Denmark shares in the quarter. Is that correct? And what should I read into that?
That was a tiny amount. Don't read anything into it.
Thank you. We will take the next question from Jan Gjerland from ABG.
Before Jan Gjerland starts, I think this is the last question we can fit in, in this hour today. Go ahead Jan.
Thank you. Just one final one on Mandatum on the running yield, the average seven, you show that it's 4% versus to guarantee 3.2. How much of this 230 million increase in sort of run rate to be pay tax profit is standing from Mandatum's profit sharing. If you can shed some light to that?
You mean from -- with the profit portfolio? It's most of it since unit linked would be the customers more. So this would all be sort of the assets that that we manage as part of our own equity of course in Mandatum and managing the profit assets. It's not including unit linked assets in that calculation.
Just to be clear Jan. Most of the 230 million comes from If of course, but from Mandatum is what Torbjörn mentioned.
About 75% or so it's coming from If.
Okay. So, inside those 230, there is no profit0sharing element is just the pure elemental earning more on the equity inside Mandatum?
Yes. This is a calculation of the --
He means bonuses.
No, there's no, okay, bonuses. No, there's no bonuses in there. There's nothing you need to deduct.
No, no, but this profit sharing or whatever you guys call it, when you take everything about people 3.2. Is those included in the 230?
You don't need to think about. This is the number that -- it's a number we meant to say we'll come to the bottom-line.
Okay. Thank you all for your attention today. That concludes our conference call. And we look forward to seeing everyone on the road soon. Thank you very much.