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| S&P Rates Sampo Nonlife Entities 'A-'; On Watch Positive |
LONDON, Nov. 28 /PRNewswire/ -- Standard & Poor's today assigned its
single-'A'-minus long-term counterparty credit and insurer financial strength
ratings to Finland-based Sampo Insurance Co. Ltd. (Sampo Insurance) and Sampo
Industrial Insurance Co. Ltd. (Sampo Industrial), the nonlife subsidiaries of
Sampo PLC (Sampo). At the same time, the ratings have been placed on
CreditWatch with positive implications.
The ratings are based on the strong capitalization of both Sampo Insurance
and Sampo Industrial, their leading market positions in Finland, and their
improving earnings outlooks. These factors are offset by the companies'
concentrated dependence on the small, mature Finnish nonlife market and their
relatively aggressive, equity-orientated, long-term investment strategies. The
two companies are considered core to each other based on the high degree of
functional integration. The legal separation reflects a customer-orientated
differentiation between retail (Sampo Insurance) and industrial (Sampo
Industrial) lines.
The CreditWatch placements reflect the recent announcement that Sampo
Insurance and Sampo Industrial will be transferred as wholly owned
subsidiaries of Sweden-based insurer If Property & Casualty Insurance Ltd.
(publ) (If; A/Watch Neg/--), with Sampo, in exchange, acquiring a 38% stake in
the enlarged If group. Standard & Poor's expects that the ratings on Sampo
Insurance and Sampo Industrial will be equalized with those on If upon
completion of the transaction. This is based on Standard & Poor's
understanding of If's strategic and financial plans, including If's
undertaking to maintain capitalization in the 'A' category according to
Standard & Poor's risk-based capital model. If the transaction fails to
complete as planned, Standard & Poor's will discuss with the Sampo management
team its strategic plans for the nonlife companies, and the extent of any
implicit support.
Sampo is the market leader in Finland, with a 34% share of nonlife premium
income. Its nonlife business is well diversified by line, but is concentrated
on the small, mature Finnish market. Consequently, growth prospects are
considered limited. Sampo does have some diversity through exposures in other
Nordic markets, but these operations are currently modest in size. Sampo
Insurance is focused on personal lines and small commercial risks in Finland
and the Baltic states. Sampo Industrial underwrites larger commercial and
corporate risks in Finland and Sweden, and underwrites risks internationally
for companies domiciled in these countries.
Capital adequacy is considered strong, with a published solvency ratio for
the consolidated Sampo nonlife entities of 99% at the end of September 2001.
The aggressive investment leverage of 120%, however, exposes the capital base
to volatility in asset values. The group has reduced its heavy concentration
in shares in Finland-based mobile phone manufacturer Nokia Corp. (A/Stable/A-
1), and benefits from access to European investments without exchange risk.
Nevertheless, the high fluctuations in the local stock market are likely to
result in volatile solvency ratios. In addition, Standard & Poor's considers
asset liability management practices for both companies to be aggressive,
particularly given the significant long-term annuity type reserves for
workers' compensation and motor third-party liability claims.
Historic nonlife earnings for Sampo have been disappointing, as
demonstrated by a combined ratio of 113.6% in 2000, reflecting poor results in
industrial lines. Sampo Industrial Insurance N.V. (BBB/Watch Neg/--), Sampo's
former Netherlands-based subsidiary, was a key contributor to the underwriting
losses over the past few years. In the first nine months of 2001, Sampo posted
a combined ratio of 111.6%, reflecting poor results in property lines,
partially attributable to Sampo Industrial Insurance N.V. Sampo has now sold
this business to U.K.-based Lloyd's members agent Hampden PLC, to focus on
risks that it can underwrite more profitably. Consequently, earnings are
expected to improve to levels more supportive of the current ratings.
Standard & Poor's will resolve the CreditWatch placements upon completion,
or otherwise, of the If transaction.
SOURCE Standard & Poor's
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+44-20-7847-7041, both of Standard & Poor's
