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Rating Action:

Moody's affirms If P&C's A2 IFSR and Sampo's Baa2 senior debt and changes outlook to positive

03 Sep 2015

London, 03 September 2015 -- Moody's Investors Service has affirmed the A2 insurance financial strength ratings (IFSR) of If P&C Insurance Ltd. (Publ) and If P&C Insurance Company Ltd. ('If P&C'). In the same rating action, Moody's has affirmed the Baa2 senior debt rating of Sampo Plc which is the parent company of If P&C. The outlook on all of the ratings has been revised to positive from stable.

A list of all affected ratings is available at the end of this press release.

RATINGS RATIONALE

-- IF P&C

The change in outlook to positive from stable reflects If P&C's track record in reporting consistently strong profitability, both from a return on capital and underwriting perspective, which Moody's believes is likely to be sustained. It also reflects Moody's expectation of If P&C's capitalisation remaining robust and financial leverage remaining relatively low. These very good financial fundamentals more than off-set a business profile which is concentrated in the Nordic/Baltic region, resulting in lower brand reach and geographic diversification than a number of other European P&C insurers.

With regard to profitability, If P&C's performance in recent years has been strong with a five year average (2014-2010) return on capital (Moody's definition) of 19% and a consistently strong combined ratio which has averaged around 89% from H1 15-2010. Although If P&C's results have been achieved during an operating environment for Nordic P&C players which has been largely favourable over the last few years, we expect its relative profitability to remain strong going forward with the combined ratio remaining well below 95%. This is notwithstanding headwinds in the form of the low interest rate environment and some localised competitive pressures, particularly within the Industrial segment and Norway.

With regard to other financial fundamentals, Moody's expects If P&C's financial leverage (17.8% at YE14) to remain relatively low, and its capitalisation to remain robust. At H1 15, If P&C reported a strong economic solvency ratio of 196% and Moody's expects the company to be well-positioned for Solvency II. Furthermore, its gross underwriting leverage, although still relatively high compared to a number of peers, reduced at YE14 to below 4.5x which is the lowest level for some years. This is notwithstanding Moody's expectation that If P&C's retained earnings will continue to be constrained by the up-streaming of a large proportion of its earnings to Sampo.

From a business profile perspective, If P&C benefits from its market position as the largest Nordic Property & Casualty insurer, being the number 2 player by market share in Norway and Sweden, and number 3 in Finland. Going forward we expect If P&C to remain strong in its key markets, where barriers to entry generally remain high, notwithstanding a falling market share in Norway. However, If P&C's concentration in the Nordic/Baltic region, which is a reflection of its top tier market positions, means it lacks the franchise strength, brand reach and geographic diversification which characterises a number of other European P&C insurers.

-- Sampo Plc

With regard to Sampo Plc, the rating affirmation and change in outlook to positive primarily reflects the rating action taken on If P&C. Sampo's Baa2 senior debt rating is three notches below the A2 IFSR of If P&C, which is its main operating company, and this notching spread is consistent with Moody's standard approach for European insurance company notching of holding company debt. If P&C remains the largest insurance operation of Sampo contributing around 51% of the Group's H1 15 consolidated earnings (excluding the holding company result). This profit contribution is significantly larger than that of Sampo's other operating insurance company, Mandatum Life, which is a Finnish life insurer and which contributed around 8% of consolidated earnings.

Sampo also owns around 21% of leading pan-Nordic bank Nordea Bank AB (Nordea, Aa3 senior, a3 BCA) which provides Sampo with a significant dividend income stream. Nordea's contribution to dividends received by the Sampo parent company averaged 32% from 2010-2014, with 35% in 2014 (YE13: 33%). Whist also recognising that the Sampo parent company's liquid assets significantly exceed its debt amount, the vast majority of this liquidity is via the equity stake in Nordea and therefore vulnerable to market volatility. Furthermore, there is some financial market correlation, especially in the Nordic region, between the results of If P&C, Nordea and Mandatum.

RATING DRIVERS

In terms of rating drivers for If P&C going forward, Moody's said that positive rating pressure could arise from: 1) enhanced capital adequacy with gross underwriting leverage of below 4x whilst reporting Solvency II coverage above 180% and/or 2) maintenance of the reported combined ratio well below 95% and/or 3) maintenance of adjusted financial leverage below 20%.

Conversely, whilst unlikely in the short-term in light of the positive outlook, negative rating pressure could arise from: 1) Meaningfully reduced capital adequacy with gross underwriting leverage of above 6x on a sustained basis and Solvency II coverage below 130% and/or 2) meaningful deterioration in profitability with combined ratio consistently above 95% and/or; 3) adjusted financial leverage consistently above 30%.

In terms of rating drivers for Sampo going forward, Moody's said that positive rating pressure could arise from: 1) An upgrade of If P&C's A2 IFSR and/or 2) meaningfully enhanced and sustained diversification of dividend sources for the parent company. Conversely negative rating pressure could arise from: 1) a downgrade of If P&C's A2 IFSR.

The following ratings were affirmed with a positive outlook from stable:

If P&C Insurance Ltd. (Publ): A2 IFSR

If P&C Insurance Company Ltd.: A2 IFSR

Sampo Plc issuer rating: Baa2

Sampo Plc senior unsecured: Baa2

Sampo Plc EMTN long term senior unsecured: (P) Baa2

The following rating was affirmed:

Sampo Plc EMTN short term senior unsecured: (P) P-2

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Property and Casualty Insurers published in August 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Based in Stockholm, Sweden, If P&C (owned by Sampo plc) wrote gross written premiums of SEK 42,178m and net income of SEK 6,741m at year end 2014. Based in Helsinki, Finland, the Sampo Group reported net income of EUR 1,540m at YE14.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person that paid Moody's to determine this credit rating.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Dominic Simpson
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms If P&C's A2 IFSR and Sampo's Baa2 senior debt and changes outlook to positive
No Related Data.
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