Finally, I would like to say a well deserved thank you to all of our shareholders. Our ownership base has grown steadily and at the end of 2010, the number of shareholders had risen to more than 86,000. In my opinion this demonstrates that our owners have placed considerable trust in us to make the correct decisions. I also believe that the owners will welcome the Board's proposal for a dividend of EUR 1.15 per share.
If's long-term priorities to ensure a strong and stable profitability development are based on a sound operating platform, leading cost position, most satisfied customers, leading edge insurance expertise and an investment strategy based on balanced risk. The following four areas constitute the key elements in If's strategic direction: Sampo Group Strategy
Sampo Bank's network is Mandatum Life's main channel in the private segment. Sampo Bank's clientele has also got a lot of potential in the corporate customer segment, which is expected to lead to an increase in the sales of life insurance products to corporations. Due to the changes in legislation related to pension insurance Mandatum Life decided a year ago not to continue sales of its pension insurances for private individuals.
Mandatum Life Mandatum Life, with operations in Finland and the Baltic countries, is responsible for Sampo Group's life insurance operations and offers asset management services under an insurance wrapper.
In addition to wealth management, corporate sales is another focal area in the development of Mandatum Life's in-house distribution channels. The employer's need to win the commitment of employees and provide incentives for them, combined with the employees' need to prepare for retirement will help to sustain the conditions for growth expectations in the company. There is also an equal need for risk insurance, both for enterprises and for employees, and as a result the company developed its offer of risk insurance products during the year under review.
Sampo plc's holding in Nordea exceeded 20 per cent in late 2009. The year 2010 was the first year when Nordea was accounted as an associated company in Sampo Group's accounts. Nordea's net profit is shown on the face of Sampo Group's profit and loss account on a separate line. Nordea holding's impact on the growth of Group's profit in 2010 was significant.
Several major initiatives have also been launched to support ‘Skills and Initiatives': 1. Launching the ‘Business Initiatives' process widely across If
Additionally, If puts great effort into helping customers prevent accidents on their own. This is done on a smaller scale by offering safetyincreasing products to consumers, and on a larger scale by supporting commercial customers through systematic risk analyses.
Positions of Trust: The European Shadow Financial Regulatory Committee, Member; Federal Reserve Bank of Atlanta's Center for Financial Innovation and Financial Stability, Advisory Committee, Member; The Nordic Corporate Governance Network, Chairman
Positions of Trust: Central Chamber of Commerce, Member of the Board; The Finnish Fair Association, Member of the Supervisory Board; Confederation of Finnish Industries EK, Member of Representative Assembly
Positions of Trust: FNH (the organisation for the Financial Sector in Norway), Executive Committee of P&C Insurance, Chairman
In its auditing work, the Internal Audit complies with, in addition to the Internal Audit Charter approved by Sampo's Board of Directors, the international professional standards approved by the IIA (the Institute of Internal Auditors).
Mandatum Life Group's premium income on own account exceeded for the first time billion euro and amounted to EUR 1,111 million (803). Premiums in the main focus area of unit-linked insurance increased to EUR 843 million (551) and the share of unit-linked premiums was 76 per cent (68) of total premiums. The good sales performance was due to all sales channels working well. Particularly the successful cooperation between the wealth management unit and the proprietary corporate sales force produced excellent results.
Net loan losses decreased 41 per cent to EUR 879 million, compared to last year, corresponding to a loan loss ratio of 31 basis points (56 basis points). Net profit increased 15 per cent to EUR 2,663 million, due to lower net loan losses.
Changes in Group Structure During 2010 no changes took place in the Group structure.
Authorizations Granted to the Board The Annual General Meeting of 2010 authorised the Board to acquire in one or several lots a maximum of 50,000,000 Sampo A shares.
Shareholders by sector, Sampo plc, 31 December 2010 (A and B shares)
During 2010, Sampo Group's insurance risk profile remained relatively stable. In Mandatum Life longevity risk is still the most material biometric risk and most of it arises from the group pension portfolio. In If P&C the most material insurance risk is reserve risk, which to a large extent is driven by long-tailed business such as workers' compensation and motor third party liability.
Return on equity (at fair values) % 39,8 53,2 -0,8 19,2 22.0
Premiums written before reinsurers' share EURm 1,117 809 536 622 662
5) The Board of Director's proposal to the Annual General Meeting for the accounting period 2010.
Liquidity risk is the risk that insurance undertakings are unable to conduct their regular business activities in accordance with the strategy, or in extreme cases, are unable to settle their financial obligations when they fall due. Liquidity risk deals with potential illiquidity of investments and non-renewal of insurance policies. Also the availability and price of refinance and financial derivatives affect the company´s ability to carry out regular business.
The insurance portfolio of Mandatum Life is well-diversi ed and does not include major concentration risks. To further mitigate the e ects of possible risk concentrations, Mandatum Life has the catastrophe reinsurance in place.
Table "Expected maturity of insurance and investment contracts before reinsurance, Mandatum Life, 31 Dec 2010" shows the expected maturity and duration of insurance and investment contracts of Mandatum Life. The sensitivity of technical provisions to changes in discount rates can be assessed on the basis of the durations shown in the table.
When deciding the investment allocation the first step is to derive a replicating portfolio based on the cash flow of technical provisions and their sensitivities, in economic value, to changes in inflation, currencies and yield curves. Thereafter the investment allocation and limits for surplus capital, and thereby the total investment allocation, is derived by taking risk-bearing capacities, regulatory requirements, rating targets and risk tolerance into account.
Cas ows according to contractual maturity, P&C insurance, Life insurance and Holding, 31 Dec 2010
• to ensure the continuity of business operations in exceptional circumstances.
• Environmental and macro analysis is conducted by the Corporate Strategy unit on an annual basis, where the key trends affecting the insurance industry are identified and their implications to If P&C are assessed. On this basis, the main opportunities and threats are identified and prioritized. These assessments outline the most important external operational and business risks.
Top 10 equity investments Total fair value, EURm % of total direct equity investments
Capitalization by Rating Agency Criteria If P&C Insurance Ltd. (publ) (Sweden) and If P&C Insurance Company Ltd. (Finland) are rated by Moody's and Standard & Poor's and Sampo plc by Moody's. The Group's main rating objective is to retain at least a single A rating for If P&C. The S&P rating model in If P&C is updated regularly. Sampo Group has a continuous dialogue with the rating agencies.
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 their 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.
During the financial year, fair value hedges have been used in P&C insurance. Both fair value and cash flow hedging have been applied in life insurance.
Customer relationships based on insurance contracts and identifiable in conjunction with the merger of the P&C insurance business are also recognised as other intangible assets. Customer relationships were measured at fair value at the acquisition. Measurement of the present value of all future cash flows from an asset takes into consideration insurance premium revisions, cross-sales and general economic forecasts. The average validity period of insurance contracts, 6 years, is deemed as the asset's useful life, during which time it is amortised on a straight-line basis. When necessary, customer relationships are tested for impairment.
Sampo has defined benefit plans in Sweden and Norway, and defined contribution plans in other countries. The most significant defined contribution plan is that arranged through the Employees' Pensions Act (TEL) in Finland.
Sampo's main assumptions concerning the future and the key uncertainties related to balance sheet estimates are related, for example, to assumptions used in actuarial calculations, determination of fair values of non-quoted financial assets and liabilities and investment property and determination of the impairment of financial assets and intangible assets. From Sampo's perspective, accounting policies concerning these areas require most significant use of estimates and assumptions.
The revised IAS 24 Related Party Disclosure (effective for annual periods beginning on 1 Jan. 2011 or after) clarifies the concept of related parties. The Group estimates that the revision will have no influence on the Group's financial statements reporting.
Change in provision for claims outstanding (incurred but not reported losses, IBNR) 592 -33 559 513 -31 482
Nordea wa rst conslidated as an associate company from 31 Dec. 2009 with Sampo's holding of 20.05 %. During th nancial year, Sampo's holding rose to 20.54 %. Due to the additional acquisition, the goodwill increased to EURm 905.
Group's nancial assets comprise investments in derivatives, nancial assets designated as at fair value through p/l, loans and receivables, available-for-sale nancial assets and investments in subsidiaries. The Holding segment includes also investments in subsidiaries.
In the table above are presented fair values and carrying amounts o nancial assets and liabilities. The detailed measurement bases o nancial assets and liabilities are disclosed in Group Accounting policies.
Tota nancial liabilities measured at fair value - 127 - 127
The value o nancial assets regarding the debt security instruments has been tested by assuming a rise of 1 per cent unit in interest rate level in all maturities. For othe nancial assets, the prices were assumed to go down by 20 %. The Sampo Group bears no investment risks relat4ed to unit-linked insurance, so a change in assumptions regarding these assets does not a ect pro t or loss. On the basis of the these alternative assumptions, a possible change in interest levels would cause descent of EURm 0 for the debt instruments, and EURm 143 valuation loss for other instruments in the Group's other comprehensive income. The reasonably possible e ect, proportionate to the Group's equity, would thus be 1.6 %.
The historical cost of the equity securities related to unit-linked contracts was EURm 2,096 (1,814) and that of the debt securities EURm 530 (347).
The tables below show the cost trend for the claims for di erent years. The upper part of the tables shows how an estimate of the total claims costs per claims year evolves annually. The lower section shows how large a share of this is presented in the balance sheet.
If P&C Insurance Ltd has according to a shareholders’ agreement between the shareholders in Hemfosa Fastigheter AB committed to up until 30 June 2014 supply the company with a subordinated loan (shareholders’ loan) up to a maximum amount of EURm 11.
The amount of the performance-related bonus is based on the value performance of Sampo's A share and on the insurance margin (IM) and, regarding already terminated schemes, also on Sampo's return on the risk adjusted capital (RORAC). The value of one calculated bonus unit is the tradeweighted average price of Sampo's A-share at the time period speci ed in the terms of the scheme, and reduced by the starting price adjusted with the dividends per share distributed up to the payment date. The pre-dividend starting prices vary between eur 8.88 - 20.17. The maximum value of one bonus unit varies between eur 19 - 30, reduced by the dividend-adjusted starting price. The IM criteria in the schemes has three levels. If the insurance margin reaches 4 per cent or more, the bonus is paid in its entirety. If the insurance margin is between 2 - 3.99 per cent, the payout is 50 per cent. In the case of insurance margin staying below these benchmarks, no bonus will be paid out.
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