At Sampo we have had to get used to the fact that the markets, media and equity analysts from time to time seem taken by surprise by our strategic moves. In 2005, we apparently amazed many again – but this time by focusing on our core businesses and recording superb results.
Sampo Group took on its current form in the spring of 2004, when Sampo acquired If Holding AB as its subsidiary. If P&C Insurance Holding Ltd, established in 1999, had previously been jointly owned by Skandia and its subsidiary Skandia Liv, both from Sweden, Storebrand from Norway and Varma Mutual Pension Insurance Company from Finland.
Asset and Liability Committee, Credit Committee and Investment Committee The Asset and Liability Committee is responsible for preparing the Group’s balance risk policy for approval by the Board, for preparing the banking book and trading limits and authorisations for the Boards of Group companies, and for monitoring the use of limits and authorisations and the Group’s consolidated sampo´s governance structure
Extensive scope The scope of corporate responsibility extends beyond shareholders and customers, however. Sampo seeks ways of doing business that take the interests of all stakeholders into account without compromising those of the owners. Sampo Bank’s Finnish branches continued to develop the “Green Light” project initiated in 2004. This project has the dual aims of protecting the environment by reducing electricity consumption and paper usage, while at the same time cutting costs. At the local level Sampo provided, for the third year running, financial support for projects at comprehensive and upper secondary schools in Finland – in 2005 to promote the advancement of manual skills. If P&C, on the other hand, focused its support on the promotion of traffic safety. To improve the safety of pedestrians, If donated reflective vests to Finnish day-care centres and Sweden’s Sundsvalls IBF, the largest girls’ floorball club in the world. Due to the multi-car pile-ups on Finnish highways in March 2005 – the worst in the history of the country’s road traffic – driving-related risks were communicated more intensively. Sampo Group supported relief operations in the areas affected by the Asian tsunami on December 26, 2004 by donating EUR 100,000 to the Finnish, Swedish, Norwegian and Danish Red Cross organisations.
Although the aim is to report on corporate responsibility matters comprehensively for the whole Group, the diversity of the businesses necessitates reporting through separate channels. The key values of corporate responsibility (ethicality, loyalty, transparency and enterprise) and the policy of sustainability relate to the entire Sampo Group, but their application may vary depending on the business and regional circumstances.
Changes in share capital During the year under review, warrants from Sampo’s 1998 option programme were exercised to subscribe for 5,755,650 A shares, the combined counter book value of which was EUR 968,030.86. Likewise, options from Sampo’s 2000 option programme were exercised to subscribe for 1,800,250 A shares, the combined counter book value of which was EUR 302,780.32. In total, these subscriptions increased the number of shares by 7,555,900 shares. The new shares were admitted for trading on the Helsinki Stock Exchange following the entry of each lot in the Trade Register.
On 22 June, 2005, the Board of Directors decided to buy back up to 7 million Sampo A shares through public trading on the Helsinki Stock Exchange. The share buy-backs started on 29 June 2005 and continued until the maximum number was reached on 13 July 2005. EUR 87.7 million was used for acquisition of the shares. The A shares held by Sampo plc on 31 December, 2005 correspond to approximately 1.2 per cent of the total number of shares and votes. The shares bought back corresponded to EUR 1.2 million of share capital on 31 December, 2005.
- According to a disclosure received on 16 November 2005, the holding of Sampo A shares by Barclays plc and funds managed by it decreased to 4.95 (4.90) per cent of all Sampo shares.
in the shareholder register maintained by Finnish Central Securities Depository Ltd (Suomen Arvopaperikeskus Oy) by 24 March, 2006. Asset managers must register nominee-registered shareholders in the Sampo shareholder register created for the AGM by Finnish Central Securities Depository Ltd.
To be entitled to participate in the AGM, shareholders and nominee-registered shareholders must register by 4 p.m. on 31 March, 2006 at Sampo Share Issues.
The Board proposes that a dividend of EUR 0.60 per share be distributed to 564,700,515 shares, corresponding to total dividends of EUR 338.8 million. This figure includes 382,200 shares subscribed for with options during the year and whose subscriptions were approved by the Board on 20 January, 2006. The Board of Directors will propose to the Annual General Meeting that authorisation to repurchase Sampo shares be granted.
Varma Mutual Pension Insurance Company 60,438,785 10.58 10.49 Björn Wahlroos 11,739,890 2.05 2.04 Stora-Enso Oyj 8,746,620 1.53 1.52
The Annual General Meeting approved the financial accounts for 2004 and discharged the Board of Directors and the Chief Executive Officer from liability. The Annual General Meeting also decided, in accordance with the proposal of the Board of Directors, to pay a dividend of EUR 0.20 per share for 2004. The dividend was paid on 21 April 2005.
To facilitate the payment of year 2004 dividends, a new share category called Sampo Uudet (Sampo New) was taken on the main list of the Helsinki Stock Exchange as of 1 January 2005.
ratings Standard & Poor’s Ratings Services raised its long-term counterparty credit and insurer financial strength ratings on Sweden -based If P&C Insurance Ltd (publ) and Finland-based If P&C Insurance Company Ltd to ‘A’ from ‘A-’ on 11 October 2005. At the same time, Standard & Poor’s raised its counterparty credit ratings on Sampo Bank plc to ‘A/A-1’ from ‘A-/A-2’. The outlook is stable in both cases. According to Standard & Poor’s, the upgrades reflect continued outperformance of earnings expectations and the Group’s significantly reduced financial leverage.
The segment’s loss before taxes amounted to EUR 49 million (106). The comparison figure contains EUR 95 million in sales gains from the sale of Skandia shares held by Sampo plc and Sampo plc’s share of If ’s profits (EUR 40 million) in the first quarter of 2004, when If was treated as an associated company.
Share trading volume during accounting period 1,000 663,491 648,086 188,014 179,173 231,389
In calculating the key figures the tax corresponding to the result for the accounting period has been taken into account. The valuation differences of investment property and held-to-maturity debt securities have been taken into account in return on assets, return on equity, equity/assets ratio and net asset value per share. Additionally, the change in fair value reserve has been taken into account in return on assets and return on equity. A deferred tax liabilities has been deducted from valuation differences.
earnings per share market capitalisation number of shares at 31 Dec. x closing share price at 31 Dec.
Assets Cash and cash equivalents 3 204 Financial assets at fair value through p/l – 27 Loans and receivables 46 –
Sampo began to prepare the consolidated financial statements in compliance with the International Financial Reporting Standards (IFRS) from 1 January 2005 and applied IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’. The transition date was 1 January 2004. The comparative figures for 2004 have been restated to comply with IFRS. The major impact of adopting IFRS is presented more detailed in Note 1 Transition to IFRS.
The consolidated financial statements are presented in euro (EUR), rounded to the nearest million.
consolidation subsidiaries The consolidated financial statements combine the financial statements of Sampo plc and all its subsidiaries. Entities qualify as subsidiaries if the Group has the controlling power. The Group exercises control if its shareholding is more than 50 per cent of the voting rights or it otherwise has the power to exercise control over the financial and operating policies of the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group, and cease to be consolidated from the date that control ceases.
Trading assets comprise debt securities and equities acquired principally for the purpose of selling or repurchasing them in the near term. Trading liabilities consist of obligations to deliver trading securities which the Group has sold to third parties but does not own (short selling). Derivative instruments that are not designated as hedges and are not effective as such are classified as derivatives for trading purposes.
Financial assets designated as at fair value through profit or loss are assets which, at inception, are irrevocably designated as such. They are initially recognised at cost which is the fair value of the consideration given, and subsequently remeasured at fair value. Gains and losses arising from changes in fair value, or realised on disposal, together with the related interest income and dividends, are recognised in the income statement.
are recorded as loans to credit institutions or customers and included in ‘Loans and receivables’ in the balance sheet. The difference between the sales and repurchase prices is treated as interest and accrued over the life of the agreements using the effective interest rate method.
include DPF. In those unit-linked contracts which are not insurance contracts, the policyholder has the possibility to transfer the return on savings from unitlinked schemes to guaranteed interest with DPF. Thus these contracts are also measured as contracts with DPF.
The banking result mainly depends on loan and deposit margins, business volumes, the size and structure of the balance sheet, the general level of interest rates, impairment losses and cost efficiency. The margin between loans and deposits in banking, with a moderate interest rate and liquidity risk profile, changes slowly. Possible sources of result fluctuations are shocks in the credit and operational risk areas. In banking and investment services, the fees gathered from customer business are also an important source of earnings. Because fees are exposed to changes in business volume, profitability is mostly exposed to changes in general economic activity and customer behaviour.
credit risks Credit risks refer to variations in results caused by customers or counterparties failing to meet their commitments. Credit risks include counterparty, country and settlement risks.
reinsurance receivables and reinsurers’ portion of outstanding claims per rating category total in rating eUrm %
property risks Sampo Group’s real estate investment risks are the responsibility of the real estate management unit. The most noteworthy risks are changes in property values and changes in rental income. These risks are limited by diversifying holdings both geographically and by type of property. In rental activities, the benefits of diversification are pursued by selections related to the length of the tenancy relationship and the industry of the lessee.
The daily management of market risks is done by the responsible units using various sensitivity analyses for positions against changes in market variables. In addition, there is independent monitoring by risk control.
The roles and responsibilities with respect to the balance sheet, and more specifically with respect to technical provisions or reserves, are outlined in the Technical Guidelines. If ’s Chief Actuary is responsible for developing and presenting guidelines on how the technical reserves are to be calculated and for assessing whether the overall level of reserves is sufficient in relation to the policy established. The Chief Actuary produces a quarterly consolidated report on the adequacy of technical reserves, which is submitted to the Board of Directors, If ’s Risk Control Committee and If ’s CEO.
The Group’s companies and units use the self-assessment method to map their major risks and their probabilities and significance. In this connection, internal controls and instructions are also evaluated. The business units of Sampo Bank
Reports on operational risks are submitted to the management and Board of Directors quarterly. The reports contain information on the current risk position, the actual incident data and the Group wide risk indicators.
Consolidated Income Statement by Business Segment for Year Ended 31 December 2004
In accordance with the above, all derivative financial instruments are measured at fair value through p/l. This causes a change in the valuation of hedging derivative financial instruments, as, under the previous accounting practice, they were measured according to the same principles as the hedged balance sheet item.
In the financial statements of the life insurance business, the products are classified according to the insurance risk either as insurance contracts or as investment contracts.
The pensions paid on the basis of Finland’s statutory P&C insurance policies (Workers’ Compensation, Motor Third Liability and Medical Mal Practice) are raised annually by the employee pension insurance index in order to preserve the real value of the pensions. These index increments are not the responsibility of the insurance companies, but are financed by the socalled pay as you go principle; i.e. the amount of index increments collected as part of the insurance premiums each year equals the amount of index increments paid in that same year. According to the Finnish accounting practice, the collected index increment payments are recognised as insurance premiums written and the paid index increments as claims paid. In the IFRS financial statements the index increments are not recognised in premiums written nor in claims paid. As the index increments have no impact on income, they are netted.
Transfer of preferred capital notes to liabilities 1) –225 –225 –225 Transfer of adjustments related to the result for the year to retained earnings 32 32 32 Recognition of equalisation provision into p/l account 2) 4 4 4 Valuation of shares
13) Other changes include e.g. refunds of corporate tax credits. In Finnish accounting practice, corporate tax credits have been recognised as dividend-related income and, on the other hand, as a corporate tax asset. In calculating taxable income, corporate tax credits have been calculated as taxable income and as a deduction, which, like income tax deductions, reduces the taxes payable for the year. Under IFRSs, income and income taxes areadjusted by corporate tax credits.
15) The effect of IFRS adjustments on the minority interests of the result for the financial period.
other business Interest income Loans and receivables 3 5 Other interest income 0 1
Banking and investment services, total 69 74 other business other business, total 0 –5
Banking and investment services, total 3 11 other business other business, total –2 0
Pension insurance Contracts with discretionary participation feature (DPF) –220 –194 –121 –54 –341 –248
Claims paid total, gross –448 –433 Claims paid total, net –436 –419
�4 financial assets and liabilities Financial assets and liabilities have been categorised in accordance with IAS 39.9. In the table are also included interest income and expenses, realised and unrealised gains and losses, impairment losses and dividend income arising from those assets and liabilities carrying interest Gains/ impairment divided eUrm amount inc./exp. losses losses income financial assets Financial assets at fair value through p/l Trading assets and derivative financial instruments 1,896 23 –41 – – Financial assets designated as at fair value through p/l 11,491 256 400 – 27
Interest rate options, bought and sold 3,715 36 24 220 0 0
Balance at beginning of year 15 + New allowances 12 - Reversals and write-offs –9 Balance at end of year 18
Opening net carrying amount 56 –122 Additions resulting from subsequent expenditure recognised as an asset 1 1 Disposals –34 –72 Depreciations 0 –1 Impairment losses –7 – Reversal of impairment losses 5 4 Transfers between items - From investment property to owner-occupied property 0 0 Closing net carrying amount 21 54
At beginning of year 57 809 Share of loss/profit 19 15
MB Equity Fund Ky 1 – 32.52 3/– 8 6 MB Equity Fund II Ky 3 – 18.03 20/1 42 40 ohter associates at 3� dec. 2005 Consulting AB Lennemark & Andersson 7/5 9 1 Tapio Technologies Oy 2/1 1 0 Euro-Alarm A/S 2/1 9 0
Accumulated amortisation – –14 –14 Accumulated impairment losses – – – Net carrying amount at 31 Dec. 153 4 157
Impact of consolidation and elimination 116 14 –116 14 Other taxable temporary differences 4 7 4 –1 –4 10 Total deferred tax assets 274 229 –141 13 –13 362
Sampo Bank issued on 13 October 2004 EUR 100 million preferred capital securities. The loan pays fixed interest rate for the first year and floating rate interest after that, however capped to 8.5% p.a. The interest can be paid only from the distributable capital. The loan is perpetual and is repayable only with the consent of the Finnish Financial Supervision Authority at the earliest on 2014 and on every interest payment date after that.
Liabilities for insurance and investment contracts total Provision for unearned premiums 3,270 3,272 Provision for claims outstanding 1,468 1,354 Life insurance total 4,738 4,626
personnel fund Members of the Sampo Group’s personnel fund comprise the staff of Sampo plc and its Finnish subsidiaries located in Finland, except for members of Bord of Directors and Bord of Management employed by the Group companies, Managing Directors of Group companies and other management personnel or executives and experts involved in the Group long-term incentive schemes. An estimated amount of the profit-sharing bonuses to the personnel fund for 2005 is EURm 3.
With respect to certain IT systems that If and Sampo use jointly, If has undertaken to indemnify Sampo for any costs that Sampo may incur in relation to the owner of the systems.
Lease and sublease payments recognised as an expense in the period - minimum lease payments –1 – - sublease payments 0 – Total –1 –
changes in share capital During the year under review, warrants from Sampo’s 1998 option programme were exercised to subscribe for 3,736,800 A shares. Likewise, options from Sampo’s 2000 option programme were exercised to subscribe for 2,182,450 A shares, of which the Board of Directors approved 1,800,250 shares in 2005 and the rest in January 2006. In addition, the Board of Directors approved 2,018,850 shares subscribed in 2004, which raised the share capital by 1,270,811.16 during the year 2005.
Available for sale – 132 132 Bonds issued by other than banks – 132 132
Unredeemed dividends 35 Other 14 Total 49 24 accruals and deferred income eUrm 2005
Less than 3 months 141 Liabilities to customers 7 Debt securities in issue 134 3–12 months 21 Liabilities to customers 7 Debt securities in issue 15 1–5 years 342 Liabilities to customers 53 Debt securities in issue 290 over 5 years 630 Liabilities to customers 33 Subordinated liabilities 597 27 assets and liabilities denominated in euro and in other currencies to or from other Group eUrm euro currencies total companies
pension benefits The retirement age of the Managing Director and the Deputy Managing Director is 60 years, when the pension benefit is 60% of the pensionable salary.
Life insurance Sampo Life Insurance Company Ltd, Helsinki Finland 100.00 484
The contact information for Group subsidiaries is available at the Internet address: www.sampo.com/contacts The contact information for subsidiaries providing banking and long-term savings services is also available in the Review’s part for ’Banking and Long-term Savings’.
We at Sampo are committed to act differently. Our mission is not to build a slightly better bank, but a service company, passionate to improve the lives of its customers.
In autumn, Sampo Bank, Sampo Life and If together launched a new service package aimed at small businesses. Called the Sampo Agreement, it incorporates tailored solutions for the entrepreneur’s banking and insurance needs. The Sampo Agreement features products from all Sampo Group companies.
In serving retail customers, Sampo Bank will focus especially on housing loans, the demand for which is expected to grow substantially in the coming years.
Sampo’s voluntary life and pension insurance services are provided in Finland by Sampo Life Insurance Company Limited, in Norway by Sampo Life’s Norwegian branch, in Sweden by the Swedish subsidiary If Livförsäkring Ab, and in the Baltic countries by local subsidiaries.
Mandatum & Co Ltd is responsible for Sampo’s investment banking operations, which comprise M&A advisory, capital market transactions and general financial advisory services.
Attributable to Equity holders of parent company 817 Minority interest 31 22 Sampo | Banking and Long-term Savings 2005
Sampo Life Insurance Company Limited Visiting address: Bulevardi 56, Helsinki, Finland Postal address: FI-00075 SAMPO, FINLAND Telephone: +358 10 515 225 www.henki-sampo.fi
One of If ’s objectives is to achieve stronger growth than our competitors in the Nordic markets. “Best in Risk” is the overriding theme for If ’s future strategy. During the year, a comprehensive training program in this area was introduced, in which all If employees participated. “Best in Risk” is a longterm initiative that will be driven with the same focus and intensity as the former turnaround program. This means, for example, that distinct priorities will be set for work aimed at offering the best insurance solutions in the market combined with the best risk selection, a further adjustment of the rewards structure in the company towards achieving these goals and an increased focus on training.
Selective growth If is the leading casualty and property insurance company in the Nordic region and will strengthen its market position via organic growth and selective acquisitions in strategically significant areas.
Excluding exchange-rate effects, premium income was unchanged during the year. Premium adjustments were only required in certain specific product areas in order to track the claims-payment trend. Personnel products were launched in all Nordic countries during the year, which had a favorable impact on premium volume.
The corresponding percentages among Swedish businessmen were 27% and 17%, respectively. In
Net premiums earned declined by 4% during the year, mainly as a result of a reduction in premiums written in Sweden. The decline was due in part to increased reinsurance costs and in part to consistent focus on risk selection.
About 8% of If employees are entitled to a performance-based bonus, which is related to the particular employee’s fixed salary and amounts to 10 - 75% of basic salary. The distribution between basic salary and variable remuneration must be in proportion to the position holders’ responsibilities and authority and be based on achieved results in relation to established targets and, to the extent possible, linked to value creation for the If Group. In 2005, a new incentive program for senior executives was introduced as a replacement for the program in progress between 2001 and 2004. The program is linked both to Sampo-group’s performance and the Sampo share performance over the term of the program and it will grant participants the possibility to bonus payments in 2007 and 2008.
Nordic market. The reflective vest campaign is a key feature of this work. At the end of the year, If launched a campaign that involved distribution of about 33,000 reflective vests to municipal daycare centers and private child minders in Finland.