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Sampo Oyj
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Good afternoon, everyone, and welcome to the Sampo Group 9-Month 2021 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; and CEO of If, Morten Thorsrud.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/result.With that, I hand over to Torbjorn. Please go ahead.
Thanks, Sami. I am pleased to be able to present another quarter of solid results for Sampo as well as continued good tempo in our strategic activities. The basis for operations is, of course, the excellent underwriting margins in P&C that have further strengthened this quarter. There have been no important changes to market structure or customer behavior, so our outlook continues to be a very positive one.When it comes to reducing -- when it comes to the process of reducing our stake in Nordea, we have managed to bring it down to just over 6% the other week, supported by very strong developments at the company itself. As is well known, our M&A appetite is very limited, so it made sense to start a buyback program immediately after the previous sell down and to indicate management's wish for an extra dividend in excess of EUR 2 per share after the last one. We want to achieve a balance between buybacks and dividends as a result of our discussions with our owners.On the next page, the key number, I think, is the 19% increase in underwriting profits, which far exceeds our targets. It reflects both growth and improved margins, even after adjusting for COVID effects and the Hastings acquisition.The next page is, I think, a very complicated but transparent way to say 2 things. Again, as in the previous quarter, there is no longer any significant segment in If P&C in the Nordics with inadequate rates, no such significant segment. Secondly, and as a consequence of this, the frequency claims are down as a percentage of premiums. In other words, rates or underlying combined ratio is 1% better than a year ago.Maybe one word on the next page on If P&C's premium development. If has continued to grow its number of customers at roughly the same pace as in the past couple of years, but as you have seen in the past and quite pronounced this year, there is some volatility tied to the number of car sales in the Nordics. If P&C has by far the biggest market share of premiums for new cars, and when this number fluctuates, for instance, due to tax changes in 1 or 2 countries, then there is a little volatility to our overall growth. It's normally better to look at a year-to-date number or numbers for more than one quarter if one would want to try to predict the future growth numbers.So continued growth in the number of private customers and now this quarter also in the number of commercial clients, and no important changes to last quarter in this respect.On this page, and otherwise, the fundamental development in the Nordic insurance market as in many other markets continues to be digitalization of sales, service, claims and internal administration. And this is an area where If P&C excels, constantly wins prices and gains customers from traditional channels.These graphs just show that the development has by now come quite far and in no way stopped. 1/4 of all sales are done on the web for us, a little bit subdued actually because of the lower interest this year for travel insurances. And the channel is similar in size now to -- call centers and the car dealers are other 2 largest sales channels.Moving on to Hastings. We have kept a disciplined attitude to the market, trying to find growth opportunities less dependent on price, but also accepting somewhat less growth. We are very well prepared for the GIPP reform and trust that we will be able to meet this without any turbulence from our side to our customers. I'm also happy to see that our home insurance book continues to grow, even though it's still quite small.I have already commented on our simplification agenda, and the group is already now clearly dominated by the remaining insurance assets. We published a balance sheet framework in February, and we see no reason to change this for the time being. And the basic dividend policy also remains in place with the insurance part of that dividend as the long-term stable part.Finally, just a slide to remind us about our financial targets in an environment where the Nordic market has consolidated one step further since they were published and where COVID now has faded to lower levels.Sami, back to you.
Thank you, Torbjorn. That concludes the presentation. Operator, we're now ready for the Q&A.
[Operator Instructions] Our first question comes from the line of Youdish Chicooree from Autonomous Research.
I have 3 questions, if I may, please. The first one is on pricing in commercial and industrial. There was a slowdown in growth in the third quarter. I understand that was due to a large lot contracts and few renewals during the quarter. So I was wondering whether you could share your outlook on pricing for 2022, whether you would expect a repeat of strong renewals over the past couple of years. That's my first question.My second question is on the new car sales. I think for the year I think you say the sales are up 12% for the 9 months. So could you tell how the current levels compare to 2019 and whether there's still some room for recovery as we move into 2022?And finally, my last question is on claims inflation. I was just wondering whether there has been any change in your inflation expectations in the past quarter, and if possible, can you just remind us the line of business where you've seen the highest levels of increase year-to-date, please?
Maybe, Morten, if I take the inflation question and you pick up the 2 first ones. When it comes to inflation, basically, it is one of the most important parameters, of course, for non-life insurance and we monitor that at every meeting.However, there was an increased inflation, increased pricing in property materials in the summer. That has basically gone away. At the moment, we do not see any increased inflation at any part of our book. We have long-term agreements. So we have the time to increase prices were that to happen. Of course, everyone is talking about it. But as I said, we have long-term agreements as a big part of these things. So we would have the time to increase rates if need be.
All right. But across the portfolio on average, is it tracking around, what, 3%?
Probably a little bit less than that at the moment. Morten?
Yes. Then I'll comment to your 2 first questions. When it comes to pricing, we've had pretty high price increases in the commercial segment now for more than 2 years. We expect that to continue somewhat also into 2022. Obviously, the inflation element that was just now discussed, of course, influences part of the commercial business. So we do expect still significant price increases in commercial, perhaps not fully on the levels that we saw in the 2 previous years, but still fairly high price increases in commercial still.And that is very much also the same in industrial. It's been a really hardening market, not only in the Nordics but also globally for large corporates, and we expect that also to continue somewhat into 2022.When it comes to your questions on new car sales, I perhaps could point out that we are, in particular, sort of dependent on the new car sales in Sweden, where we have this car damage warranty concept. And in Sweden, the new car sales is still not back on the same level. So you asked about sort of the potential compared to 2019 in Sweden, again, which is the country that drives most of this growth for us actually. There is still quite some potential in returning back to 2019 levels.
Our next question comes from the line of Jakob Brink from Nordea.
I have a few questions. I'll take them one at a time, if that's okay. The first one, I think, is to maybe you, Knut. Just to understand. So when you rebook Nordea in the fourth quarter, should we then expect you to take it up to market value in the fourth quarter? Or how exactly is that accounting going to happen?
Yes. Like we talked about when we announced the sell down below 10% the other week, we expect to transit from booking Nordea as an associate to booking it according to IFRS 5, discontinued operation.We will by doing so basically stop consolidating Nordea's profit in our accounts. So that is one of the accounting changes, meaning that from about the day we sold, i.e., end of October -- there will be 2 months in Q4 and also going forward where that 6.1% that we still own will not represent a profit line in terms of what that represents of Nordea's profit in our P&L.And we will also reverse the impairment on the 6.1% which we did last year. And I think, Jakob, you referred to the right number of 8.9. So that will create also a P&L impact in Q4.On your last question whether or not will be a point in time where we also will mark it up to market value, depends on a few technical considerations, like accounting taken into consideration in the IFRS framework. It will not be where we start, but it could come a point in time where we need to do so. But that we then, of course, will revert to later.And it's not necessarily so that, that will happen before we sell it. If we were to account it at fair value, there will be an additional positive impact of between the 8.90 and whatever share price Nordea had at that particular day.
Okay. So in the fourth quarter, only the reversal of the impairment?
And the -- if nothing else happens in terms of -- or considerations around the governance, we still are a part of Nordea, for example. And also, just to remind you, in terms of your estimates for Q4, there will be the 2 months in Q4 where we will not consolidate our share of Nordea's profit.
Yes. Okay. Very clear. Next question on the most recent sell down here in October. As far as I recall, you said that you will increase and extend the buybacks, but it also said that you will have to wait for approval at the AGM for approval of those payouts, i.e., both the dividend and the extended buyback. So my question is why would you need to wait with extending the buyback until the AGM? I guess you have a running approval from last AGM?
No, true we do. But we also have a buyback program ongoing and working hard and successfully on that one in terms of the buyback we started there in the beginning of October. Our plan is, of course, to -- what we try to say is to add to the buyback program that we currently have ongoing. And I would expect the buyback program that we have ongoing to run up until the AGM we have in May.
Okay. Because, I guess, you do have a Board meeting before end of May.
We do have Board meetings at a regular basis. Then this is not sort of for the Board to buy more than we currently are doing. That has to do more with the volumes that -- the turnover volumes on the various exchanges that we use to buy back Sampo shares. So volumes we have...
Fair enough. I get it. Then last question from my side on the underlying combined ratio. Given your new disclosure here, I mean, if we adjust for prior year gains, weather, large claims and COVID, it's around 86%, I think, for the first 9 months of this year. Going then into next year, do you see any reason why you would not continue to improve around 1% on that 86%?
Let me just state that we always try to improve and we have certainly promised to improve the cost ratio every year from now to eternity. I say that we all benefit. Morten? But with adequate rates, there is less need, of course, to improve the combined ratio then with inadequate ones and especially the ones we had in commercial and industrial going back some years.
Yes. And then to add on to that, of course, our target, as you know, is to be well below 85% combined ratio in this sort of strategic period. That, of course, is including runoff gains. With that said, sort of we have a very excellent situation with strong profitability in all business areas, all countries. And right now, we're pricing somewhat ahead of inflation. That's what we've been saying.So -- then, of course, not promising a specific underlying improvement, but we have a strong profitability. So...
Our next question comes from the line of Michael Huttner from Berenberg.
And yes, stunning results. And I had actually 4 questions, but they're really short. The first one is on the cash remittances from If. I understand it's going to be around EUR 650 million this year, 2021. And it was -- it used to be higher, I think, about EUR 700 million. So I'm just wondering if there's a strong growth you're seeing, how is that impacting cash flow. And then...
Very short of cash at the holding level, may I put it that way.
So it's a pull thing. It's not a push thing. Okay. Okay. So completely irrelevant. Okay. Cool. Then on the growth outlook, I think you've kind of answered it. But you referred to look at the longer trends, 9 months, et cetera, so 9 months with 4%, I think, or -- I was just wondering if there's any reason to think it should change from this kind of level?
No, I think, again, you're right, Michael. We had 4% -- 4.1% growth for the first 9 months, which I think is a strong and good performance. Then we are one of the few companies that report gross written premium. Most of the companies report some form of gross earned or net earned premium. I think it's better to report on gross written premium because it gives you sort of more insight on what you can expect for the future. But that's also why you can kind of see some movements in individual quarters.So I think the 4.1% growth that we have year-to-date is more representative of the growth that we actually see in the business.
Let me also add that we have a target for underwriting growth. There will always be a trade-off for us between pricing, rate increases and growth. So we're not going to give targets for both at the same time. We will optimize the value that we see in the market.
Absolutely. Yes, that's your skill. And then on the -- you have a chart, a lovely chart, which shows the discount rate used in Sweden, Norway and Finland for your reserves. And Sweden, minus 0.6% at the moment. Can you give us a feel for the sensitivity? How much reserve release we could see if, say, the discount rates change by 1% or something?
Yes, I would -- without going into -- on the call here with all the details in the various countries, if you have a look at the disclosures that we do in our risk management report as of year-end 2020, Michael, you will find sensitivity numbers for changes in discount rate in that report. And if it's not clear, it's available on our website. And if it's not clear there, we can have sort of a more follow-up later after the call. But there's good sensitivity tables which I would refer you to in that annual report. And that sensitivities has not significantly changed.
But I think this is the first time that we've got the question what would happen if rates go up -- up and down.
And my last question is a very cheeky one. So I always thought you would buy Top, and you haven't. And you've kind of signaled with the dividend and the buyback and the extension of the buybacks, that it's kind of low interest. Can you explain -- I know you've talked about it in the past, but it seems such a compelling thing to do. Why not?
That's also a different way of asking a question, I think. But yes, we would like Top -- all of Top to be part of the group. And there would be some synergies in different areas. And on the other hand, we're also shareholders. It has to be a good deal. So we haven't done it.
And just a follow-up. Is there -- looking back, is there a period -- how can I put it? Just to get a feel for when you would think it might be interesting. Is there a period when I can look back and say, "Oh, at this stage, it might"? I don't know.
I don't think that anyone here will volunteer an answer to that, I'm afraid.
Our next question comes from the line of Per Grønborg from SEB.
First, a small question related to the Nordea, taking up what Jakob asked at the beginning of the call. You said that you will keep it at the current book value in the way you will report. If the Nordea share is up EUR 1 in the first quarter of '22, will that have any visible P&L impact on your numbers or impact on your equity? Or will the value simply be frozen?
That would depend on how we account for Nordea at that point in time. Obviously, we are in a trajectory on reducing our stake. And what I described is how we will account for it now, when we have fallen below 10%. IFRS 5 is basically an umbrella of different ways of accounting for the value of an asset that you plan to sell within 12 months, which is one of the criteria for IFRS 5. So if we account for it like it does now, it will not. But if we obviously have it at fair value, it will.
Okay. This will also imply that if Nordea is paying a dividend. Under the current accounting, that will not become visible in your P&L either?
Thank you, Per. That's a good reminder. I should have added that on the -- my initial response. If we are owners of Nordea shares at a point in time where they pay dividend, that dividend will actually be recorded as a part of our profit.
Okay. The dividend go into profits, but value adjustments will not. Okay. Perfect. Then that is clear. Just a small clarification. The impairment you did back in '20, that's approximately EUR 1 per share that will come back in the fourth quarter. So approximately EUR 250 million.
Yes, roughly that. We'll come back to you. But roughly that, Per. We had the book value of Nordea of 8.21 in end of Q3. Then Nordea paid us a EUR 0.72 dividend, which should deduct from that. And then we have 1 month of profit from Nordea to add to that number.
Of course, of course, of course. But just in the big picture, the one-off adjustment will be approximately EUR 1 per share in the fourth quarter.My final question. Your solvency capital -- now just a clarification -- the EUR 13.4 billion. There has been no deductions of pro rata dividend in that one. And that's a clean number and that will go down with the dividend you propose at the AGM with the full year numbers. Is that correct?
That's correct. We have an illustration of the solvency ratio with accumulated dividend based on last year. But formally, in the calculation of own funds, dividend is not deducted before it's actually proposed by the Board to the AGM. So that's correct, Per.
And I assume that at the same time the EUR 750 million in buyback, they are not deducted now, but whatever is remaining will be deducted at the end, the EUR 750 million in buyback?
That is actually deducted because the Board has made a decision on initiating this buyback and we have no other intention than to buy back EUR 750 million. If that very hypothetically were to be stopped, then we would need to add back some own funds with the residual.
Yes. But the EUR 750 million is deducted already full at the end of Q3?
Yes.
Perfect. Then I -- hopefully, I get my numbers right.
Our next question comes from the line of Blair Stewart from Bank of America.
I've got 3 questions. Firstly, on the solvency capital requirement, Knut-Arne. It hasn't gone down, which is a little bit surprising to me given that you've sold Nordea stock over the period. So I just wonder what offsets sort of have occurred so as your solvency capital requirement has not gone down? And should we expect it to go down given that you've sold more Nordea since the quarter? That's my first question.My second question is just on the road map, really. You obviously need to balance leverage, solvency, liquidity, et cetera, with excess capital. And you've got a EUR 750 million buyback. As with all buybacks, it goes at snail's pace. You've indicated you want to do more. But as you sell down, as and when you sell down more Nordea, a significant amount of money, how do you propose to put that money to work without having to wait for an age to deploy it via buyback? Would you consider some sort of special return like kind of bulk dividend and perhaps some share consolidation or such like which emulates a buyback?And my final question is just back to the business. How do you categorize wage inflation risk on long tail risks where you can't adjust pricing very easily? I get from your comments you're not seeing wage inflation, but is that something that you're more worried about? And if you do see wage inflation, how would you combat that? I guess a higher discount rate, which you talked about earlier, would be one offsetting factor. But I just wonder how you think about wage inflation for the business.
On your first question on the SCR, what we also enjoyed in the third quarter was a 20% value increase of Nordea. So the fact that we sold 73 million shares in beginning of September was actually fully compensated in the SCR by additional market risk from the value increase on Nordea. And then there are some small other details, which -- but this is the main driver.On the leverage and solvency, liquidity balance, maybe I didn't fully understand your question. But of course, what we, as management, announced last week was an intention to pay at least EUR 2, an extra dividend, and proposed that to the Board to take to the AGM. So that's obviously an indication of doing more than what you said -- called just snail speed buybacks. And also use dividend as an extra dividend on top of the ordinary dividend as a tool of returning capital.
Finally, on the wage inflation risk. The best way to meet that will always be to keep a strong balance sheet. And we do, fair and prudent, with the emphasis on prudent maybe. And then, of course, specifically, it is usually so that the wage inflation would go up in tandem with discount rates. And we have, of course, chosen where we can choose to use very low discount rates for liabilities.
Have you disclosed what your wage inflation assumptions are in the past? Any chance?
Never.
Okay. Okay, just on the second question, Knut-Arne. The point -- it was more of an observation of having to balance various constraints. But the kind of main point was to say that once -- if and when you sell the remaining Nordea stake, it just lumps on even more excess capital. And I just wonder at that point what your thinking is in terms of returning that swiftly.
Yes. Let's -- now we just announced an at least EUR 2 extra dividend last week. And of course, we as a management team are committed to staying behind that announcement. And then let's return to additional consideration from us as a management when there's a question about what we're going to use proceeds of 6.1% on Nordea's share for.
Our next question comes from the line of Jan Erik Gjerland from ABG.
I have some couple of questions as well. On the first one, on IFRS 17, when the margin on your sort of long-term requirements and liabilities is going to go away, would that change your view on your sort of your strong balance sheet thinking as you refer to just on your typically long tail business like the wage inflation, et cetera?
I look forward to the day I will give you all a presentation on IFRS 17. The -- but to answer your question, joking aside, there's nothing in IFRS 17 and balance sheet impacts in terms of the financial impact studies we now internally have done for years that makes me worried in terms of a changed view on balance sheet strength.
Is it sort of that you may release more on your long-term releases from being forced to do so because you don't need the same kind of margin as you have today maybe?
Let's come back to the exact numbers. But there is a couple of different things, as you know, on IFRS 17. I mean, one is the sort of introduction of sort of best estimate liability in the reserves, and you could argue whether or not that is already there. And then you have a specific risk adjustment. And to actually -- to talk about the combination of those 2 and relating it to our IFRS 4 reserves and at that point in time Solvency II reserves, let's revert to that when we present our numbers later next year.I repeat what I said. There's nothing in neither the transitional effects nor the longer-term balance sheet impacts of IFRS 17 that makes me worried that we would have a different view of the strength of our balance sheet nor our reserves for that sake.
Okay. Then a couple of questions on If P&C. How would the repricing timing be when it comes to your contractors and the deals you have done with them? Will that actually affect your pricing and your wish to take on more customers and be maybe more price aggressive in the marketplace until then you reprice? Or how should we think about that during 2022 and -- as you have long-term contracts with your contractors?
Morten?
No, I think that, Jan Erik, is something that is happening each and every day, right? Sort of this is a very mixed picture in a way. A lot of contracts in a lot of different areas, some of them being longer in its nature. But of course, I mean, these are -- some of these are negotiated, some -- a few every month, right? So it's a gradual sort of movement. And there is nothing that is now changing on an overall picture in such a large extent that it makes us act any differently than we've done in the past.So having a close eye on inflation, making sure that you price for future inflation, that's kind of core of our business. It's something that we always been doing. And of course, negotiating with contractors is just a part of that.
I've been in the insurance industry for quite a few years now and the one time where there were more rapid changes to inflation assumptions has been -- is court awards on liabilities. And we haven't seen any such changes in the Nordics. I struggle to remember even one in the past 10 years.
Okay. Finally then, could you shed some light to the weather effects, how it have hit the industrials as well as the private? And was there any particular happening in Norway, where the risk ratio went from roughly 55 to 60 this time around just on Q-on-Q?
Yes. First of all, we don't really sort of report on weather. We kind of more report on sort of what we consider to be events. So that's sort of -- what we try to account for is more the sizable events in the market. And in this quarter, there were 2 events, one in Germany, of course, the flooding there that impacted us somewhat on the industrial business, and then also a flooding in Huelva that was impacting us somewhat, hitting, of course, mostly the private business area.We have said that sort of all in all, this is about 2.2% above what we saw last year. And then, of course, one has to think about, "Okay, what happened last year?" And last year, not much happened, actually. We had the small storm in Finland, giving us 2 million, EUR 3 million sort of loss. So 2.2% sort of more on the Q3 stand-alone sort of weather claims, or events then really, as we like to call it.
And these are then into the different kind of customers from this kind of countries. So that's why probably Norway and Sweden is then a little bit upwards on the risk ratio then?
Yes.
Okay. Perfect. Just a very...
In particular, of course, the German one sort of hitting industrial sort of will hit different customers in different countries.
Exactly. Just very, very -- at the end then. The weaker return in the quarter, is that something we should be worried about? Or if you still have a good room -- a good sort of cushion on your booked return. Could you just shed some light into what happened? And are you positioned for higher rates as you have been in the past? Or are you equal weight? Or how should we read you now?
Yes. Let me just clarify. When you refer to weaker returns, is it AFS investment returns that you refer to?
Yes. Yes, you booked some minus 0.3 percentage points in the non-life business investment return in the quarter.
Mark-to-market basis.
So I just wanted to have [ you ] shed some light into that. And you then also have some low booked return in the quarter.
The investment returns on a mark-to-market basis in Q3 was, of course, quite muted compared to the previous quarter. So it's right it didn't add much to the total comprehensive income, just developments, particularly in August, September of equity markets. And then we know that some of that is, of course, again, back in October.When it comes to the AFS investment return, there was nothing really special. We have a fairly low running yield of percent and a bit on fixed income. We have around SEK 90 billion or so fixed income. So that's maybe EUR 100 million or so per year. And if you divide that in 4 and if you -- you basically get to the Q3 AFS result, which meant that we didn't have a lot of contribution from other parts of our portfolio because we didn't really sell any equities, which generated a sales gain and a profit. Nor did we receive any dividends.And in the last few quarters, we have both reduced our equity exposure and taken some exposure with profit on some names. And we also had, of course, a couple of quarters where we received dividends from the companies we own. So that AFS return across the board, also in Mandatum, is a bit volatile from quarter-to-quarter.In terms of your question on duration and whether or not we are positioned for increased rate, yes, the duration in the group and in our businesses has gone down during the year. So it is a notch or 2 lower than it was in the beginning of the year, obviously, meaning that we are very much sort of positioned for increasing rates if that were to happen, and also, of course, with significant cash elements in that -- in our investment portfolios, in our subsidiaries.
Our next question comes from the line of Thomas von Boguslawski from Svenska Yle.
I have a couple of questions for Torbjorn Magnusson probably mainly about your strategic agenda concerning Nordea. You have substantially reduced your stake in Nordea during the past year. But I'm wondering, do you have a target date or, let's say, approximate target date when you're counting on selling or having sold the rest -- or the remaining stake in Nordea. When do you -- at one point -- at what point do you think that Sampo will no longer be a shareholder in Nordea?
What we -- the target is to have materially reduced our holding until September 2022. This has obviously gone faster than that. And we would have a specific reason to keep shares in Nordea. So that's the background to it.
Okay. As you have proceeded faster than originally planned, are you still satisfied with the price that you have obtained per share over the past when you've reduced your stake in Nordea?
The reason we gave ourselves until September next year is, of course, that we wanted to optimize value creation in this exiting process. And I think that we've done that in a good way.
Our next question comes from the line of Michael Huttner from Berenberg.
Then 2 and maybe 1/2. The EUR 200 million debt hybrid from If reduction at the group level in December, is that part of the EUR 800 million, which I think you have on Slide 19.
No, Michael, that's not the part of the EUR 800 million that we have on that slide. It's a part of the EUR 1.2 billion a little bit further to the left, if I remember correctly.
That's very clear. And then the -- on the private equity, can you say when you'll get the cash from [ Nexinet ], something like that, and also Bank Norwegian?
No, I can't say exactly when we will get the cash. We still are an owner.
It's quite a protracted process, it seems.
Okay. And then my final question. I did look at the risk thing -- the risk report, so not risk thing, risk report, and it shows the numbers and it shows the durations. And the number is huge. And I just wanted to -- maybe that's why 1/2 because you did say kind offline, but I'm pressing my luck here. If I multiply it out, Finland and -- Sweden motor and workers' comp Finland, I get a total of EUR 35 billion kind of duration times value of liabilities. If I put 1% on that, I get EUR 350 million. Is that the order of magnitude, roughly?
Yes. If you just want the total number, it's not far from it. And then EUR 350 million to EUR 400 million would be a good total, yes.
And in history -- and we had on the other direction. And we have never liked to go -- to do that, but it's -- and it's been big numbers. If you go through our -- the events, if you call it that, when we reduced the discount rate in Finland specifically.
I understand. It's kind of money kind of -- which hits us when we had to do our estimates before and now could be kind of bonus.
Just as a reminder in terms of the current sort of accounting framework, since I don't -- I'm not going to talk about IFRS 17 right now. But there's a little bit different regulations in the 4 Nordic countries -- Norway hardly have any discounted reserves, so in the other 3, and we're small in Denmark -- in terms of how that discount rate is changed.So for a majority of the amount that you correctly calculated, don't expect it with the current regulation to be mark-to-market.
Our next question comes from the line of Marcus Rivaldi from Jefferies.
So one question I had again about this -- I guess, the road map, but particularly in relation to debt. So as of the end of the quarter, debt leverage is materially below your below 30% target. But obviously, reading between the lines is that's maybe a temporary level. Given that you've got to do further deleveraging, that leverage ratio would naturally creep up unless you continue to take further debt out of the capital stack. So I'm just wondering about how you think about the trajectory of that debt leverage metric. Would you be willing to see that move substantially lower before sort of rebounding further as proceeds return to shareholders over time?And secondly, in terms about the endpoint of the road map of restructuring the whole capital stack between equity and debt, given that the debt leverage target is a 2021 to 2023 target, should I also assume that all debt action should have been completed -- no, I suppose equity action should have be completed by the end of 2023?And then the final question I have is, just really just thinking when we go beyond the end of all your capital reorganization, what the debt stack of Sampo would look like? And could you maybe sort of talk about a sense of mix between subordinated senior and whether debt would sit mainly at Sampo Plc level or at the subsidiaries?And then also, finally, associated with that, whether the debt at the Topdanmark level, which you do include, I think, on Slide 38, whether that is really part of your thinking here given -- obviously, you're not a full owner of that business, and therefore, perhaps the focus should really be more on parts of the group where you have full control?
Marcus, that was all on the debt leverage. I'll try to see if I can address them all. On the first, 25% leverage, according to our definition, end of Q3, that's obviously a level we are -- in terms of just a percent we are very comfortable with, have no sort of plans to go below that. We have a target of below 30%, and we're not changing that.The reason why it's 25% is sort of -- I shouldn't say by accident, but we did have a maturity of shy of EUR 400 million in September. And with the strategy we have, which other questions was alluded to as well, we paid that back and didn't refinance it. So that's the main driver. And of course, we also did a little bit of buying back debt in July of shy of EUR 200 million.You should expect to see us do similar things. When we have maturities, which we do have over the next couple of years, those loans will mature. And if -- as the world looks now, not be refinanced. And that will obviously be reducing our leverage and keeping the leverage within our target range when the equity goes down when we do the capital returns, which we now have talked about earlier on the call.We do have the liquidity for that. We don't need to sell anything to take care of those maturity in the next upcoming 2 years. Of course, if the market became turbulent, then we had an opportunity to buy back our own debt at good prices, we would also use such opportunities given the framework we have set.Then you had in terms of the debt mix. Obviously, what we are doing, the main bulk of what is maturing and what we are buying back, all of what we're buying back is our senior debt. So the weighting of hybrid capital in our debt stack would clearly increase. So that's also what we have -- the situation we will have sort of end of 2023, which you asked about.Sort of exactly that mix. And if -- how we sort of think about hybrid capital, we will come back to. We currently have utilized what we should utilize of Tier 2 capacity, but have only used a very small part of our Tier 1 capacity, both on the current sort of own funds basis and also on a pro forma own funds basis, sort of taking out all of Nordea and all of our excess capital. I hope that answered your questions.
You did. I'll just -- may I just follow-up. And the reason I asked about the debt leverage -- of course, it is low and no one has got any concerns, frankly, about the level of leverage where it is at the moment. It's just a question when you've got so much liquidity on hand, why leave the debt outstanding if you don't need it, why not take action and go after the debt sooner? Why wait? That's the question really.
No, no, no, we are not waiting. We have already done 2 liability management exercises, the one a bit larger, the other one a bit smaller because there are also holders of our debt which are not willing to sell. So that is stopping some of the exercises. And then, of course, we do have some consideration in terms of pricing and timing, but that's not, of course, an absolute truth.So like I alluded to, if we found our debt to be available and not at prices which we felt would send too much of a loss to our P&L, we, of course, could do more.
Our next question comes from the line of Derald Goh from Citigroup.
I have 3 questions, please. The first one is on If P&C, the cost ratio. So at a 9-month stage, it's about 30 basis points higher year-on-year, which is tracking behind the target. Were there any specific drivers there? And what -- does this change the outlook of the 20 basis point annual improvement going forward at all?And the second question is on Hastings. Could you maybe comment a bit on the underlying performance in the third quarter itself, because looking at the loss ratio, it's still really strong, which is pretty much flat at the first half level of 63%? Did you see any more frequency benefits or anything that might explain the really strong performance?And thirdly is also related to Hastings. Could you comment on the level of price reductions that you've seen in the market? Has this moderated compared to H1, for example? And maybe anything more on the pricing actions that Hastings has done as well.
Yes, I can comment on the cost ratio first. As we always said, on the cost, you should look at the full year figure. And last year, we ended up 21.5%. So that's, of course, our starting point for 2021. And again, our ambition is to reduce cost ratio each and every year by some 10 to 20 basis points.Then there are some volatility from quarter-to-quarter. We do, of course, absolutely no work in sort of splitting costs between quarters. So I think if you look at the 21.5% full year last year, that's the starting point. And again, we're committed at continuing delivering the 10 to 20 basis points reduction as compared to that.
On Hastings, of course, the performance is very satisfactory and the underlying performance is also very satisfactory. But we haven't given -- it's not possible to give a separate number on the COVID effects there. We have also been able to continue to grow the number of customers by expanding the footprint a bit in the market and by doing -- taking initiatives that are not on price.Then when it comes to the level of price reductions in the market, you saw quite a bit of it early in the year and then it's been more mixed since the late spring and there are no big price reductions as we speak. But I think that what -- that the bigger event in the U.K. market will be the GIPP implementation on 1/1 and, let's say, the first 6 to 9 months of next year, because at the moment everybody is preparing for that. It is quite a big change for many competitors, less so for Hastings with a much smaller back book, with much lesser price walking than the average in the market it seems. So even -- there are price changes, small ones, in the market at the moment, but everyone is preparing for the first half of next year.
Great. Can I quickly clarify, Morten, just on the cost ratio again? I mean, at 9 months, you're sitting a bit higher. Are you saying that the improvement -- is there a catch-up in Q4? Or are you saying that over the next 3 years there will be a bit of catch-up in '22 and '23 from the [ 2020, '21 ]?
It's just that some cost items vary sort of when they're kind of booked from one year to another. I mean, we might have large marketing campaigns in the second quarter one year and then the third quarter the next year. So movement year-over-year on a quarterly basis doesn't really make sense.So we had 20.7% after 9 months last year, but ended up at 21.5%. And again, that's the reference that you should use sort of when thinking about the full year that we should come in 10 to 20 basis points below 21.5%. And then we're at 21.0% so far this year. So -- and again, the outlook as we have sort of stated is that we will continue to deliver this 10 to 20 basis points reduction in cost ratio going forward.
Thank you. We have no further questions registered. I'll hand back to the speakers for any final remarks.
Thank you, operator. This concludes our call for the day. Thanks all for participating, and we look forward to speaking more with you in the near future.