Mandatum Q3'24 preview: Sales performance again in the spotlight

Translation: Original published in Finnish on 11/8/2024 at 7:42 am EET.

Mandatum will report its Q3 results on Tuesday at around 8.30 am EET. We expect the sales of investment products to continue at a good level and positive value changes to have increased AUM. However, we expect earnings to have decreased from the comparison period, when investment income was exceptionally high. In our forecasts, the investment performance of the with-profit portfolio again accounts for the majority of the Group's earnings. On earnings day, we will again focus on the development and prospects for new sales of investment products.

Slight decline in investment income forecasts

We have made some small revisions to our forecasts ahead of the Q3 report. The changes relate to investment activities, where we have slightly lowered our forecasts based on capital market developments in the last quarter. As a result of these revisions, our pre-tax income forecast for the full year was reduced by approximately 3%.

Client AUM expected to continue to grow

Mandatum's fee result consists of the underwriting result of unit-linked pension insurance and the result of wealth management and other investment contracts. Our forecast for Mandatum’s Q3 fee result is 14.9 MEUR. We expect the fee income from assets under management to have increased to around 40 MEUR (Q3’23: 37 MEUR). Fee income growth will be supported by rising AUM, which we expect to increase by around 3% from the previous quarter to 13.4 BNEUR. In particular, fixed income products should still look attractive in today’s market.

In addition to the results, our attention will be focused on the development of new sales of wealth management solutions and management's comments on the outlook for demand for investment products, which, as in the first half of the year, should be positive. AUM development plays a key role in the value of Mandatum, as the fee income from AUM is the main source of growth for the Group.

Slight impact of lower interest rates on investment performance

The result of term life insurance mainly consists of the contractual service margin (CSM). The CSM amount to be earned is affected by actual claims experience, which varies somewhat from quarter to quarter. We expect the result in term life insurance to be higher than usual in Q3 at 7.9 MEUR. However, 4 MEUR of this will come from the one-off income that Mandatum will recognize from the sale of the insurance portfolio to If P&C.

We expect a pre-tax result of around 35.6 MEUR from investment activities. The sharp decline in interest rates pushes investment income on the with-profit portfolio to lower-than-normal levels, as the decline in the discount rate increases the amount of insurance liabilities on the balance sheet. However, the impact should not be very large as Mandatum's interest rate risk is largely hedged. The increase in Enento's share price had a significant positive impact on the investment result in Q3.

There is still excess capital in the balance sheet

Mandatum's current forecast is for fee income to increase from 2023. At this point in the year, the informative value of the guidance starts to become quite limited, as we do not believe there is any material uncertainty in achieving it. We expect client AUM, which form the basis for fee income, to have continued to grow in Q3.

We also do not expect any significant change in solvency, with the Solvency 2 ratio remaining well above the company's target level. The company currently has excess capital on its balance sheet, which will be further enhanced in the future by the reduction of the with-profits portfolio and the expected exits from PE investments.

Personnel changes add spice to earnings day

Recent personnel changes add an interesting spice to the results day, as several key financial management personnel left the company in October. The list included, in addition to the director of wealth management, sales and client managers, as well as the head of debt and real estate investments. On earnings day, we are interested in the management’s comments on this issue, as we believe that a key risk in wealth management is related to employee retention. For example, it would be very negative for Mandatum, known for its fixed income products, to lose its fixed income investment team to its competitors. There are no indications of this so far, so in the light of current data, we estimate the impact of staff turnover to be moderate.