Sampo Group entities' outlook revised

Mandatum and If are 100%-owned by Sampo. At the same time, the agency also affirmed all the group's ratings.

The affirmation of the ratings and change in outlook reflect Sampo Group's strong financial performance in 2010, with full-year profits for 2010 of £1.1bn, an increase of 72%, and another strong set of results in the period to March this year. Both If and Mandatum contributed to this performance, with profits for FY10 up by 10% and 17% to €707m and €142m, respectively.

The stable outlook also takes into account Fitch's updated view that Sampo could now withstand an increase of its stake in Swedish bank Nordea AB of up to 25% and still maintain sufficient available capital to support its insurance subsidiaries. Since Sampo's management has repeatedly stated that a 25% holding in Nordea is a reasonable target, the agency views this a key rating driver.

If's ratings continue to be underpinned by the company's leading position in the Nordic non-life market, its sound underwriting performance and prudent investment mix. In particular, Fitch notes that If's combined ratio proved resilient compared to peers in 2010 when the Nordic non-life market experienced weather-related claims inflation. If's combined ratio rose to 92.8% from 92.1% whereas Fitch estimates that the combined ratio for 12 largest Nordic P&C insurers increased to 96% from 93.3%.

Mandatum's ratings echo its recent strong financial performance and improved solvency, its ongoing shift towards unit-linked products and strong position in the Finnish life insurance market. However, Fitch also notes that Mandatum's balance sheet remains highly sensitive to a fall in equity values.

Fitch considers both subsidiaries important to the Sampo Group and continues to factor group support into both ratings

Factors that could lead to a downgrade include a significant fall in investment values and subsequent weakening of capital for Mandatum. For If, a substantial deterioration in underwriting profitability would be a negative rating driver. In addition, the agency would view as negative any increase by Sampo of its Nordea holding to more than 25%, given the adverse impact this could have on group capitalisation.

Fitch considers an upgrade of Sampo as unlikely in the near to medium term, given the level of capitalisation. However, a substantial strengthening of Sampo's capital position, which would be most likely to result from a sustained growth in retained earnings, would be viewed as positive for the ratings.