Greetings, InderesTV viewers. Sampo published its second quarter results today, and I have the pleasure to interview Sampo Group CFO Lars Kufall Beck. Lars, congrats for robust results. I think robust is the word today. What's your highlights for the results?

Well, I think it is a robust set of numbers that we are presenting. I think the highlights to me are clearly the continued strong growth momentum in our private business that grew by five percent in the quarter, then with a continued increasing momentum in the second quarter in terms of growth, and then I think a strong bounce back for our commercial business, Nordic, that grew by nine percent in the quarter, which is a significant bounce back from Q1. So I think that's, to me, the highlight, then of course on the results side. We continue to demonstrate a strong discipline in our underwriting, producing best-in-class underwriting result across the portfolio, I would say. And I think based on that point, we have then also increased and improved outlook for the year, so that we have upped the interval a little bit on the top-line part and on the bottom line, we have taken out some uncertainty and increased the low bound of our outlook. So all in all, a pretty solid set of numbers, which we then also reflected in our updated positive outlook.

Exactly. When we think your growth, I think it is faster than nominal GDP growth or inflation in the Nordics. So is this the right conclusion, that you're taking customers from competitors and looking at your combined ratio, you're taking the best customers? Not the first thing in mind.

I agree with that. It's no doubt, when you look at our private business. We have positive development in number of objects, in number of things and persons we insure in all four countries, so super strong. The same in our Nordic Commercial, as SME segment, positive growth in terms of number of customers, and of course.

There are some one-off cases with positive impact, like we made a very large deal in health insurance in commercial in Denmark on a pension fund that now offers health insurance to its members who are retired, so people who are pensioners. That's a first of its kind, this agreement. We made cover a potential up to forty thousand people, but I think if you look at that potential market that we are now opening up. It is more than many million people that is in that market, and I think that is a strong testament to our innovation capabilities and also the way we work with the development of the health insurance market in Denmark and also in other countries.

I have a lot of questions relating to industry trends and competition because personally I've been following Sampo for seventeen years, and we notice that Sampo doesn't do silly things itself, but something might change in the competition in the future. And first question is that we are seeing rising rates, which of course give insurers better investment income. Have you seen any effect on competition on that side, because your competitors could maybe lower prices because they get more income from investments?

No, we haven't. I think it is. It is still very much a very disciplined market, very disciplined competitors we have in the Nordics, and we often get the question about, well, how can it be and how sustainable is it that you have these margin levels that you have? I think with that it is important to take a step back. You are right, in the Nordics. We are five players, a handful of, I would say, that produce some very healthy margins and have been doing so over a long, long period of time. But the vast majority of insurance companies in the Nordics are barely making money on the insurance business, so even in today's environment. They are barely making money, and their combineds are way above ninety and close to one hundred, and a lot of them even above one hundred, so there is not a lot of room, even with increasing rates. There is not a lot of room to do that kind of cash-flow underwriting, as I would call it, so I think it's important to take a step back.

What is important for us is that we want to be best at risk. We want to make sure that we price the risk and understand the risk that we underwrite and that we take on the risk on our balance sheet, and I think that is what has given us the very solid track record that we have had, as you say, for many, many years. And definitely we have no intention of changing that going forwards.

A follow-up question, one exception in the Nordic markets. This is that we never talk about insurance or underwriting cycles. Actually, every time I read about, let's say, American insurers, it's so funny when they talk about the insurance cycle, but in the Nordics we don't even talk about that. Do you think it is normal not to have anyone?

We do have cycles in the industrial segment, so in our large corporate segment. We do have it, which is very much driven by the international reinsurance market. So in that sub-segment there are cycles, but you're right, in the broad private insurance space. We don't have cycles. I believe one of the key reasons is the fact that insurance in the Nordics, to a large extent, is a service product.

It's not something you buy because you have to. It is to a large extent something you buy because you want to, because you want to make sure that if you have a car, if you have a house, if you have an accident, if you have a crack in your windscreen, you want to have a convenient service. So you want to have one number you call through, and then you make sure that the number you call can actually help you make sure that they get the car back on the road as soon as possible. And if it takes a while, then you get a rental car, what have you. So to me it is much more of a service product. I think that also implies that we have a lower price elasticity in the Nordic market than we have in a lot of other markets. That's caused by several things. One, as I said, the service part, but also actually that people are generally very pleased with their insurance carrier in the Nordics. If you check our customer scores and how we measure it, actually more than eighty percent of our customers give us a score in the max range, so they give us a score between eight and ten, so really in the top, top range. So insurance customers are happy in the Nordics, which of course also leads to less tendency to actually churn, surf in aggregate. That creates, I would say, a more stable environment where we are competing more on the service part and less on the individual price of the individual policy. And I think that is what is causing the more stable environment and less of a cyclical environment than we see in many other countries.

Do you think the next is the right analysis, that I think the market is quite consolidated, but the large players like Sampo are all listed and way better than the average insurance company in the world, let's say so, but then you have a lot of, let's say, unlisted competitors, which I would not mention by name, but if you open their annual reports and look at the combined ratios, as you said, they might be even one hundred. So you have a lot of competition. That's very, let's say, average, so that gives you quite healthy room for fat margins.

Talk a bit about our competitors, because a lot of our competitors are also doing a great job, and they also have happy customers.

Big competition. To the competition.

No, they also have happy customers. I think what's key is when you talk about a lot of the non-listed players, a key advantage for us is our efficiency. If you check our largest non-listed competitor in Finland, the local market here, on a cost-ratio level. We have an advantage over them of more than ten percent, and that means that we can apply, you could say, equally attractive prices. We can deliver the digital services and capabilities that we have, which we know the customers, in particular in Finland, really, really enjoy, and at the same time. we can make a margin that is higher than our competitors. And I think that is, to me, the secret sauce, and that is what is going to be the secret sauce for this sustainable positive development that we have and that we have seen in the Nordics.

Is that ten percent difference to some of your competitors, is that the result of, let's say, you have maybe around two thousand people working on IT and artificial intelligence etc., so there you can see the visible results of all that work?

There is no doubt that in If, our local, sorry, our Nordic brand, we have for many years been investing heavily in IT, and we've been doing that because many, many years ago the back then leadership was very clear that the world is going to become digital. So that means that we are and have been investing significantly in IT development and in digital solutions to our customers, be it sales, be it self-service etc. etc., where we are by far, I would say, the leader in the market today. I think we've done that in a way that we have kept our financial flexibility. So we are actually expensing all of those development costs every year, which means that we have full flexibility in it, and I think that is part of our DNA. It is part of our culture, and that is what has again given us the foundation for the sustainable success that we have demonstrated and also will become in the years to come.

Do you say that if or when AI does, let's say, software development more flexible and maybe faster in the long term, I think it might benefit the largest players even more, like you, but on the other hand it could also benefit those what I could average guys, that they could actually become more efficient and maybe compete more against you. How do you view that?

There is no doubt that AI, I think, would be to the benefit of all, but I do believe, and I am a firm believer, that AI will benefit those which scale the most for several reasons to me. It is always an opportunity, but it is also very important to be aware that applying and embedding AI also comes with a number of risks, so the whole part about data governance, about security, etc. etc. that does not disappear with AI. On the contrary, I would say the need for that and having that in order just increases, and that, I think, speaks into the benefit of the larger ones like ourselves, because whether you have one agent or you have ten agents running, the security levels need to be the same. And in that sense, I do believe that AI will benefit those which scale the most.

Doesn't change the basic dynamics then.

I believe so, no. And I think it is also important that there's been a lot of talk about AI having, in the Nordics in the private space and also to a larger extent in the commercial and SME space, the vast majority of sales today happening direct, so we also get these questions: will direct be affected on the distribution side? Well, today. It is direct today, you have the transparency you want. As a customer, so you can actually today both in Denmark and Norway and in other countries. You can actually online see the price differences between the companies. You don't need an agent to do that, that actually exists already today. So from that point of view, I think AI as such is not going to be a big shift. It's going to be an opportunity for us to help provide even better sales tools and experiences to the customers, but a threat now I don't believe so.

How about autonomous vehicles? They are first gradually and then suddenly entering also Europe and maybe also changing the industry dynamics. For example, in the US Lemonade always, when they expand to another state, they have this commercial that for Teslas that are autonomously driving, they have fifty percent off the insurance. How do you see that? That will change your motor insurance in the long term.

In the long term, just a small anecdote first of all. Whenever you see those commercials from Lemonade, watch in small letters, because where you get the fifty percent discount is on highway driving using fully autonomous mode. When you do highway driving, your accident frequency is zero. That means you give fifty percent discount on zero. So really, read the fine print in small letters as well. But generally speaking, I do think AVs, and this maybe sounds a little bit crazy, are actually an opportunity for the insurance industry as such for a number of reasons, I think. But first of all, the fact that security improves and we will have fewer collisions going forward is not a new thing. It's been like that for the last fifteen, twenty years in motor insurance, that the number of collisions has gone down, and that's a positive thing. We have fewer fatalities, that's a positive thing. But first of all, it's important to be aware that collisions are only a small part of the insurance premiums or the insurance claims that we pay out. They're really back to the service product part too, servicing, windscreens etc. etc. are actually the majority of the claims cost. we have, so it is only a small part of the total claims cost that has been impacted, as we said, by autonomous driving. You know, cracks in windscreens will not disappear because of autonomous driving.

With more of those LiDARs, as you said, you actually get more. Cracks get more expensive.

Exactly, exactly. Then secondly, what we believe is that with autonomous vehicles, in order to keep that going, you need to make sure that the sensors, the cameras, whatever it is that enables the autonomous driving, those need to work. And that means if you have an accident or you have a crack in your bumper that does something to the camera, you need to have it fixed. And that implies that we actually believe that the insurance lifetime of a car, when it comes to comprehensive cover, the full cover, will actually expand. Because today what we see is that if you go and buy a new car, you buy the full comprehensive cover. When the car is six, seven years old. you maybe say, I still want comprehensive cover in case my car gets stolen, but I take out a very high deductible because all the scratches there, I don't want to have them fixed. And then when the car is, as you say, old, you say now I go to a pure third-party liability cover because the comprehensive cover is not worth anything any longer. That will have to change because if you have an accident or you have a crack in your bumper and, as I said, the camera doesn't work, then autonomous won't work, then the car can't drive autonomously. So actually, we believe that the lifetime, average insurance lifetime of a car will increase. And all in all, that will have a larger positive benefit. We believe, than the decrease in collision damage and so on, we actually see this as an opportunity.

Very interesting thoughts on the next two years. Thanks, Lars, for the interesting discussion as usual.

Thank you so much.