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A very good afternoon, and welcome to Mandatum's Q3 audio cast. My name is Lotta Borgström, I head Investor Relations here at Mandatum, and I am pleased to be joined our Chair of Board, Patrick Lapvetelainen; CEO, Petri Niemisvirta as well as CFO, Jukka Kurki.
During this audiocast, Petri Niemisvirta will initially walk you through the highlights and key developments of today's report, after which we'll take the Q&A where you have the possibility to dial in for any questions. You can also send us your questions through the chat functionality. Also, please don't hesitate to contact us at Investor Relations, should you have any further questions.
With these remarks, I would like to hand over to Petri, please go ahead.
Thank you, Lotta, and hello, everybody, on my behalf and welcome to this first-ever Mandatum Q3 result info and of course, the first 9 months.
So let me start with these highlights, and I will go deeper after these highlights to each area on coming slides. So first 9 months, strong assets under management growth, and it was mainly because of a strong net flows, but also, we get some help from the market, EUR 544 million net inflow and positive market movements as well. Stable fee result, we are -- I will go deeper to this, and very good net finance results supported by increase discount rate and related to that also, very strong organic capital generation of EUR 233 million.
In addition to that, pro forma Solvency II ratio improved further from June to 237% from 225%, so very good improvement also on Solvency side. And of course, successful partial demerger from Sampo. Mandatum Oyj listed to Nasqad Helsinki since the 2nd of October, as you all know.
So now I go deeper to highlights of each area. As we all know, the market conditions during the Q3 were not that great. But still, we managed to achieve EUR 100 million net flow. The sales was about EUR 50 million down compared to Q3 2022. But at the same time, outflow was EUR 100 million smaller than last year. So we are -- I'm pleased to that. We are very pleased with that, that even the market conditions were not that great, our customers were happy with our services and our NPS remain in a very high level, and that's one of the key reasons that our outflow was very small during the Q3.
And one thing which is important to understand is that Q3 is traditionally very weak in sales due to the holiday season. So basically July and August are holiday season months in Finland and as well as in Sweden and Denmark. So on those months, it's more difficult to collect money than other part of the year.
So if we look at 9 months numbers, Mandatum net flows, as I already said, was EUR 544 million, which is 5.3% of client assets under management calculated by the number from the beginning of the year and 7% annualized. So I would not say that we are well above our yearly target to see 5% net inflow target, but it's -- we are in the right side of the number.
The main contributor for net flow was, once again, Institutional and Wealth Management. Corporate segment was flat and -- which is also positive that retail segment, small minus and smaller minus than previous 2022 Q3.
On the product side, especially fixed income and credit solutions were the main contributors. And as you might have already seen, we told to the market at the end of September that we have reached EUR 1 billion assets under management in credit products area. So fixed income and credit products, those were the areas which we really succeed during the Q3.
And also, I'd like to highlight that cooperation between Corporate and Wealth Management segment, which is one of our key and core competencies and the key issues for us continue to be very strong. So the cooperation is still going very well and deepening, to be clear.
Year-to-date, assets under management are up EUR 935 million, but only EUR 40 million in Q3, even though we had a positive net flow of EUR 96 million. And of course, everybody understands negative market movements were, of course, the reason for that. So we didn't get the help from the market that much. But I would say that net flow process was, during Q3, was good. Having in mind the summertime holidays, not that great market conditions, and so many things were against us, but we managed to get more than 100% growth in net flow compared to 2022 Q3.
Then result, strong growth on comparable result. And so strong growth in profit before taxes, which was driven mainly by increasing net finance result. I will go a little bit deeper to that. Q3 stand-alone was EUR 84 million and EUR 105 million increase compared to Q3 '22.
And fee result is well in line. If we look at the average assets under management in 2022 compared to 2023, we can see that there is a positive effect of -- in 2022 Q3, performance fee, EUR 8.5 million, which is mainly offset by accounting effects in the same period time or first 9 months in 2022. So if we look at the underneath growth in our fee result, it's really in line with what we have announced, and if we compare that to our assets under management growth. So the fee margins remains to be stable, and we haven't seen any big changes on that side as well.
So if we look at net finance result, so investment return for original portfolio was 3.6%, and it fell of cost of liabilities. And during the Q3, increase discount rate of up liabilities with big profit liabilities was the one-off the element to the good net finance result.
So to put it more detailed way, what happened during Q3 was that the longer-term swap rates and also discount rate increased much faster than short-term rates, meaning about 10 basis point increase in short-term rates around, and around 40 basis point increase long-term rates, which, of course, means that because while asset duration is around 3 to 4 years and liability duration is about 9 to 10 years, all this caused positive impact to our net finance result. So that's the part of the reasons why the net finance result was so strong during Q3.
And then we go to organic capital generation and solvency. Organic capital generation was strong, both in year-to-date numbers and Q3 as well. And of course, the most important thing behind this was net financial result in our own fund generations. And of course, a declining with profit liabilities was the main reason for SCR reduction and also another big reason for our organic capital generation.
So -- and of course, that led that solvency, it's all-time high level and pro forma solvency ratio up from 225% to 237%, like I already mentioned before. So very high solvency rate at this moment, and we are really happy with that as well.
So all in all, many good things happened during the Q3 as well as the whole year has been quite positive. And that was my slide. So now it's time to questions.
Thank you, Petri. And let's move on to the Q&A. So tel operator, please go ahead.
[Operator Instructions] The next question comes from Jakob Brink from Nordea.
If I can start, please, with the -- where you started as well, on the net flow. You said that it was typically soft during summer or Q3 due to summer. I remember in a previous presentation, you mentioned that typically net flow was back-end loaded in the year. So should we -- everything else equal, expect a fairly large pickup in Q4?
I would say so that if you look at the -- a little bit further back, I guess, we can -- at least what is certain is that it has been very long period of time in history that Q3 is always weaker than other periods because of the summer months.
So not commenting our sales on Q4, I would say that Q3 is because of July and August normally very weak. It was even weaker last year than this year. So it's a seasonality, a lot of in our business.
Okay. Clear. Then going on to the discount rate in the with-profit segment. I did look at your slide, but could you give us what would be sort of the duration weighted discount rate, please, at the end of the quarter?
Jakob, this is Jukka, and duration weighted discount rate, let's think about that a bit. That is -- I need to find that discount rate first. We want [indiscernible] that point.
Okay. I can continue then with a few other questions, then, if that's okay.
Yes. So looking at the with-profit liability reduction in the quarter, I realize it's only one quarter I'm looking at now, but annualizing the reduction, I think it was 14%. Have you done anything extraordinary to sort of speed up the client transitions from the with-profit segment to capital-light?
No, we haven't done anything that kind of management actions that we have presented you earlier, but majority of that decrease comes from the decreased interest rates, so around 40 basis points -- sorry, increase interest rates, so around 40 basis points increase in 10 years swap rates, that meant around EUR 50 million decrease in the liabilities. So that's...
EUR 50 million...
Normal volatility related to interest rates, nothing special behind the portfolio.
Okay. Clear. Then going on to the own funds generation. I remember another slide you showed once, but not in this slide, I think. But if I take IFRS income in the quarter of EUR 68 million and then look at the own funds increase, I think that's only around half of the IFRS income. You're right in the report about 2 technical changes, nonrecurring technical changes. Are these the reason why own funds go up quite a lot less than IFRS income this quarter? Or did something else happen that you expect the Solvency II result go up or something else?
One element is this if portfolio transfer, that explains around EUR 20 million of that because own funds created by IF portfolio was at the end of June, around EUR 40 million. And now after we have accretive portfolio transfer, that decreased around EUR 17.5 million. So that explains at least EUR 20 million of that difference.
And the remaining was that then the technical changes?
I don't see any other technical changes in that sense. But of course, changes in the discount rate and given there is different curves used in the solvency calculations and in the IFRS calculation, this always have some kind of impact also on those. So it's never the same changes in the IFRS result and solvency on funds creation.
Okay. Okay. Fair enough. Next question is on the -- what you mentioned in your introductory remarks, basically around the EUR 8.5 million. Could you repeat that? So you said last year, there was a positive EUR 8.5 million in Q3, but did you say that was offset in the other 3 quarters of the year?
Yes, that EUR 8.5 million last year, that was performance fee related to one real estate portfolio. So -- and that was recognized in Q3 last year.
And yes, there was in a full year fee results last year, there was some offsetting elements like -- and also related to IFRS 17, like actual expenses were higher-than-expected expenses. And also there was EUR 4 million loss component that we recognized last year, and that was related to all unit-linked pension policy with CSM at the beginning of [indiscernible].
I understand. And then last question from my side. The -- if I look at the development in the CSM, could you maybe, in the quarter, could you put a few words on that, please?
Yes. Majority of that CSM growth year-to-date growth comes from the increased AUM -- unit-linked AUM. And the investment return or asset return related to unit-linked assets that has been higher than expected in those cash flow projects and then that increased also expected due to fee income and that is recognized in CSM.
But when it comes to quarterly, it's again, if portfolio that is decreasing the CSM. It was -- at the end of June, it was EUR 40 million roughly and only EUR 10 million at the end of September.
The next question comes from Hans Rettedal Christiansen from Danske Bank.
Yes. I was -- just wondering on the insurance service results, can you say anything about the experience adjustment this quarter that affects the EUR 7 million figure that you reported?
And then also, how should we think about the sort of runoff in the CSM? I think in the investor presentation you had during September, you said it was around 9% per annum going forward. Is this still the case now?
Yes, it's -- the 9%, that is the case, still no change in that area. And when it comes to this EUR 7 million insurance service results and the fee result, there is recovery of that [indiscernible] . This is one part of that. But all in all, there is nothing so special in that area. Of course, there is always some deviation between actual expenses and expected expenses. But the best estimate forecast for the future is still the 9% from the opening season.
Got it. And then also, I guess, back to an earlier question on the net investment result and how we should sort of think about that going forward because it's quite difficult to estimate on a quarterly basis, given that there's so many moving parts. And then in your presentation, you say the unwinding cost is around EUR 17 million per quarter. Is the correct way to think about this then to sort of annualize that times 4 to get the unwinding going forward?
And then also, how should we think about I guess, September end was almost sort of all-time high on the interest rate side. Now you've come a little bit down since that time, how will those 2 factors influence the P&L?
Yes. First, when it comes to unwinding, yes, it is EUR 17 million per quarter. For this year, you can use that as a multiply that by 4 because when it comes to next year, that unwinding will be -- that is related depending on the opening with profit liabilities at year-end and also about the discount rate. So if 1 year rate is totally different than for this year and if liabilities are lower than opening liabilities this year, then, of course, this unwinding will be also different.
And when it comes to discounting, yes, we have -- when it comes to this presentation, this full presentation that we have disclosed today, that we have shown liability sensitivities related to 100 basis points per [indiscernible]. And it's for -- at this point, the best way is to estimate the changes in short-term discount rate changes is still, say 8 to 10 years swap rate and see the changes in that swap rate and then estimate based on that, the changes in the liability side -- short-term changes in the liability side. But when it comes to long-term expectations, mark-to-market yield is pretty close to that level where at the end of June, so 6.2%, and that would be the basis which I would use when forecasting expected future results.
[Operator Instructions] The next question comes from Jan Erik Gjerland from ABGSC.
It's Jan Gjerland from ABG. I have a couple of questions, and the first one is around initiative of new -- of net inflow to get to your sort of your target, 5%. How is normally the programs or sales force sort of incentivized? Or is it sort of that Q4 is easier to sell asset under management products because of their tax [indiscernible]? Or is it sort of that there are issues where you can definitely sell more than normal because of the sort of the cost inflation on inflation, everyone has done more on different things. Is it that was easy to sell all your asset management and net inflow thinking this time around than previously? That's my first question.
Yes. So let me answer that. So it's -- our sales force is -- if I understood correctly, your question is that our sales forces are all incentivized with variable compensation. And it's very regulated how you incentivize your people. We -- all our salespeople, they have scorecards, which is built by, so that they are incentivized for various things, they are not just the sales, and it can be what you are selling because it must be that what is really fitting to customers so in order to avoid misselling. And it's also the customers NPS and its inflow, outflow in customer portfolios and so on.
So there are various components in the incentivization. Of course, the sales is the big thing. But it's -- what we want our people to do is that they are selling things that are fitting to our customers in different environments. So I'm not sure if this is a correct answer to your question, but if there's something else you want to know, please just repeat your question.
No, it was more also about if there are any programs or special products you are about to sell this fall, so to speak, that was sort of help you to pick up the speed on the net inflow versus your 5% target?
Yes. I think we are nothing special, really, but it's -- we are really happy with our offering and our products, and I guess it's -- I think it's -- there's a lot of things also in the market that one thing is even though we have really good product fit in this market in senior loans, Nordic high-yield, fixed income and credit parks largely.
I think it's also good to remind that when it's very turbulent market, customers are more cautious to make decisions, and they want -- like to stay with the existing providers, but it's -- we are really happy with our offering now, and we are not planning in the short term to change our offering to our customers. So we believe that with this offering, we can reach the targets we are -- we have announced.
Okay. When it comes to the fee results, you said something about a performance fee in the last year Q3, but is it any special in this year, quarterly Q3 figures or [indiscernible]? Or is it just that is a technical issue here? Or how should you read those to EUR 8.5 million. Is it the same number? Or is it anything special in this year quarter?
No, there was nothing special this year -- this year quarters and it is -- we don't have much that kind of funds or investment baskets, which has performance fee. So that was really one-off item last year.
Okay. And I understand it. And when it comes to your sort of real estate funds, I heard issues about real estate funds [ sort of ] pulling back, you are having more difficulties to see outflow and they have to sell assets to get outflow, et cetera. So how should we read your commercial real estate funds or real estate funds, which [indiscernible] a lot about when it comes to managing the customers' portfolio in a prudent way, so to speak. How should you read those difficulties in other funds into your portfolio? Is it any special with your portfolio, which is different than the market? Or are you very good at managing these real estate funds, if you can help us on that one?
John Erik, it's Patrick here. So I will take that question. So of course, we all know what is going on in the real estate market on the Nordic level, and we are in pretty much the same situation. We think that we have a good product, and it's only -- I think it's EUR 280 million out of our assets under management. So it will not have a significant impact on anything. But of course, we are monitoring the situation.
Okay. Very helpful. And then finally, just a wish. Is it possible to get even more disclosure on certain topics, especially around what [indiscernible] only with profit book to some more details on the unwinding per quarter, et cetera. I mean would you also get more details back to the first quarter of 2022, more accurate restated numbers for IFRS 17? Or will they never come?
That is our plan, to disclose more information in coming quarters.
The next question comes from Jaakko Tyrvainen from SEB.
Jaakko here from SEB. Most of my questions have already been asked, but regarding your fee business margins, you're stating and showing overall stable margin development, but could you talk a bit on the kind of new business or front book margins, what you are seeing in order to understand their trends? Are you seeing tougher competition or is the product or the products that you are selling now, do those have lower margins versus your kind of overall book?
Yes, Petri here. It's during Q3 and we haven't seen any significant change in the margin pressure really. So of course, there's a tough competition, but it's more or less the same as it has been for a while. So in those product areas, we are really getting money and concentrating. We haven't seen special changes in the fee side.
Okay. Good. Then on the with-profit investment income and the mortgage returns in Q3, could you talk a bit how the equity investments returned during the quarter, and what was the kind of a mark-to-market change for the -- on the fixed income portfolio side? I'm not sure whether you disclosed those numbers for Q3, but at least I didn't [indiscernible] them.
Yes, it is Jukka. So listed equity return on Q3 was minus 6.2%. And all in all, as Petri mentioned, investment return for the whole portfolio for this quarter was 0.5% and fixed income asset return was 1.5%.
Then let's move over to the chat where we have some questions. First, Kasper Mellas at Inderes. What was included in with-profits other result in segment reporting?
Mainly the insurance service result related to with-profit portfolio.
Thank you. And Inderes continues, your fee percent, that is fee income/average assets under management, was relatively higher in Q3 than in H1 in corporate and institutional segments. Is there any particular reason for this?
Could you please repeat?
Your fee percent was relatively higher in Q3 than in H1. Fee percent being fee income through average assets under management.
I guess there's no changes. I don't -- to be honest, I don't know where they get that figure. But then it comes to fee margin, that has been very stable for each different segments, so more or less same as what we disclosed at the end of June or in August based on June figures.
So no major changes, really.
Thank you. Inderes still continues, what is the share of the with-profit portfolio of the group's total market risk SCR?
Majority of that with-profit portfolios, capital requirement comes from the market risk. So it is close to EUR 500 million, this total with-profit capital requirement and majority of that comes from the -- from the market risk.
Then there's a question from [ Petra Vito ], then what happens to capital as you shrink your with-profit fund?
Well, plan is to play -- pay, pay. This -- we have this EUR 500 million dividend target, and that is our plan, what to do with the possible excess capital.
Yes. It's Patrick. If I may add, of course, if we are releasing more capital, then, of course, we have stated already that this is conservative, the EUR 500 million that then we -- of course, we will distribute more. If we see that we have too much capital going forward.
Then we have a question from [indiscernible] . Could you give us the geographic split of net inflow between Finland, Sweden and Denmark?
No, we don't.
Then 2 questions from Sauli Vilen. How much lower average fee levels you have in your fixed income products comparing to equity or alternative products?
I don't have a precise number for that, but we haven't sold that much equity price lately during the Q3 and then this year. So in certain ways, it's the comparison which we are not making. Of course, alternative products are more expensive and fee margins are higher in the whole industry, but also the truth is that our fixed income products like Nordic high-yield senior loans, senior secured loan, they are quite highest fee margin areas. So they are not that far away from, for example, alternative area. We are not that much selling, let's say, very plain vanilla fixed income products.
And if I may continue, we disclosed earlier that Institutional and Wealth Management segments, fee margin is [ 80 ] basis points, and this fixed income funds and these credit funds fee income is pretty close to that one. So that is stable also that fee margin.
Then Sauli Vilen continues, can you shed any light on your performance fee outlook?
Performance fees? It's like Jukka said before when he was questioned about this one-off in 2022, Q3. That was really one-off, type of we don't have that kind of structures in our products that we -- most of our products, they are adjusted annual fees from assets, no performance fees.
Yes, it's Patrick. It's only the private equity funds where we have some performance fees, and that's the assets under management, it's around EUR 300 million.
Then we have a question online. Please tel operator.
The next question comes from Michele Ballatore from KBW.
Yes. I have 3 questions. So the first question is about the sensitivity, they're all about the solvency. So in terms of sensitivity, so the equity market sensitivity, I mean, can we assume that this level of sensitivity is mostly due to the presence of the Saxo and Enento equity stakes. If you can give some more detail about that? So can we assume that if you sell those, this sensitivity will be significantly reduced?
The second question is about the interest rate sensitivity. I think I mean in comparison to other life insurance companies in Europe, I mean, where the interest rate sensitivity has become almost negligible, are you satisfied with this level of sensitivity to interest rate or you plan to do something?
And the third question is, forgive me, I don't remember if you have -- I believe you operate on a standard solvency model. If it's so, do you plan to apply for a partial internal model or some improvements? Anything like that?
Okay. Thank you. It's Jukka. So if I start with the last one. Yes, we are using standard model, and we have no plans to use internal model. Majority of our capital requirement is anyway coming from the market risk, and we don't see any much benefit applying internal model related to that one.
And when it comes to interest rate risk, we have executed our hedging plan, and so -- and we are happy with this position where we are now.
And third one was the equity risk sensitivity related to solvency position. Yes, definitely Saxo and Enento are playing quite a significant role when it comes to that sensitivity. I noticed that when it comes to these sensitivities that we have disclosed, we have always assumed that also so-called symmetrical adjustment will change in line with those equity stresses that we have disclosed.
Sorry. So the adjustment -- the symmetric adjustment is included in this sensitivity?
Yes. So if we...yes. Good.
The next question comes from Jan Erik Gjerland from ABGSC.
Follow-up on the excess capital potential. You mentioned on the presentation that held in September that you were sort of maybe keen to do some bolt-on acquisition, et cetera. But how should we think about your prioritized stakes to the ordinary dividends when it comes to excess of EUR 500 million versus potential bolt-on acquisitions in terms of your asset management operation.
Jan Erik, it's Patrick again. As I -- well we stated that we will look at M&A if we see some really good opportunities, but they really have to be value creative for us. So we will not look at M&A just to get the growth. So we are looking primarily that we are distributing capital back to our shareholders. But of course, we want to be cautious now because this is our first quarterly result presentation, and let's see then when we are presenting the full year figures where we are -- where we stand.
But we will, of course, look if there is something really value creative. And -- but I said also I used the word piggyback back in the Investor Day presentation.
And then there is one more question in the chat. Do you gain any revenue from Mandatum Trader platform?
Sorry?
Yes. The question was, do you gain any revenue from Mandatum Trader platform?
Revenues, yes. Yes, we get revenues. That's the reason why we are doing it.
Okay. I think there are no more questions from the chat. So that is all from today. Thank you for joining us and hope to see you back online on February 13 next year when Mandatum publishes its Q4 financial statement release. Have a good evening. Bye.