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Rating Action:

Moody’s rates Sampo’s €1 billion dated subordinated debt Baa1(hyb)

25 August 2020


Frankfurt am Main , August 25, 2020 – Moody's Investors Service, ("Moody's") today has assigned a Baa1(hyb) rating to the €1 billion subordinated debt to be issued by Sampo Plc (Sampo).

RATINGS RATIONALE

The Baa1(hyb) rating is consistent with Moody's standard notching practices for debt issued by insurance holding companies and reflects (i) the subordination of the bond (ii) the optional and mandatory (based on breach of regulatory capital requirements or regulatory intervention) coupon skip mechanisms and (iii) the cumulative nature of deferred coupons, in case of deferral.

The bond is a dated subordinated debt and it allows Sampo to defer interest payments on any interest payment date if no dividend on any class of share was declared or paid during the previous 6-month period. The debt also contains a mandatory interest deferral trigger based upon breach of regulatory capital requirements on an unconsolidated and/or on a consolidated basis. However, any deferred interest payment, optional or mandatory, will constitute arrears of interest and remain due by Sampo at a future date (cumulative coupon skip mechanism).

The notes are intended to qualify as Tier 2 capital under Solvency II, and their hybrid features will result in some equity credit under Moody's debt equity continuum based on the notes' maturity, interest deferral features and subordination.

Sampo has recently announced that it intends to acquire a 70% majority stake in United Kingdom based Hastings Group Holdings Plc, which is listed on the London Stock Exchange, via a tender offer in the open market for a total consideration of approximately €1.3 billion. The issuance of €1 billion subordinated debt to partially fund the acquisition is in line with the funding plan as set out by Sampo previously.

Financial leverage on a pro-forma basis will increase by approximately 3-4 percentage points to close to 30% as a result of the issuance, which is still in line with the current rating level. Going forward, we expected leverage to gradually reduce over 2021 and 2022, thanks to the growth in the capital base. We anticipate only a moderate negative effect of the additional debt issuance on the group's earnings coverage.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

As the debt rating of Baa1(hyb) is notched down from Sampo's A3 senior unsecured debt ratings, any change in Sampo's senior unsecured debt rating would be reflected in the debt rating. Furthermore, any changes in the group's notional Insurance Financial Strength Rating (IFSR) of A1 would result in a change of the debt rating, given Sampo's ratings are anchored on the notional group IFSR.

Positive pressure on the ratings of Sampo could arise from a combination of: (1) a materially enhanced market position of the insurance operations, and (2) stronger capital adequacy, as reflected by consolidated Group Solvency consistently above 200%, or (3) materially enhanced and sustained dividend contribution by Nordea Bank Abp.

Negative pressure on the ratings of Sampo could arise from: (1) a significant weakening in the market position of its insurance subsidiaries, reflected in sustained loss of market share in the markets they are operating in, or (2) meaningfully reduced capital adequacy, as reflected by Sampo's consolidated Group Solvency II coverage consistently below 150%, or (3) meaningful deterioration in profitability, either for Sampo on a consolidated basis, reflected in a return on capital (Moody's definition) of sustainably below 8%, or, for If P&C Insurance Ltd (Publ), reflected in a combined ratio in excess of 95%, or (4) Sampo's consolidated adjusted financial leverage consistently above 35%.

Regarding Sampo's senior unsecured debt rating, negative rating pressure could also arise from a significant reduction in available liquidity at Sampo.

The following rating has been assigned:

Issuer: Sampo Plc

€1 billion fixed to floating rate subordinated bond due 2052 -- rating at Baa1(hyb)

PRINCIPAL METHODOLOGIES

The methodologies used in this rating were Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 , and Property and Casualty Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187352 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569 .

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.

Christian Badorff
VP-Senior Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main
Germany
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Simon James Robin Ainsworth
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main, 60322
Germany
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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