In addition, the Sampo Group is one of the Nordic countries’ largest investors. At the beginning of February 2007, the Sampo Group’s investment assets totalled over EUR 20 billion.
A New Sampo, yet again The year 2007 saw Sampo change face, once again. After the November announcement of the second largest M&A deal in Finnish history and the largest all-cash deal ever, and its closing in early February, Sampo returned to its nominal roots as an insurance group. What is different this time around is that Sampo is not just a Finnish P&C insurer, but the market leader in the whole Nordic and Baltic region.
The Board of Directors of Sampo plc convened 14 times in 2006. The average attendance of Board members at meetings was 99.10 per cent.
Other Committees Asset and Liability Committee, Credit Committee and Investment Committee
Line Hestvik, born 1969 Group Executive Vice President, Head of BA Private, If P&C
In 2006, If co-operated with a number of organisations fighting against discrimination and social exclusion. If ’s co-operation partners included Fryshuset, the youth centre in Sweden undertaking anti-drug and anti-crime youth work, and Norsk Narkotikapolis Förening, the Norwegian narcotics police association. In Finland, If collaborates with the Finnish National Rescue Association (SPEK) in providing rescue and loss prevention training for young people.
Increases and decreases in share capital 2002–2006 Number of new shares
EUR million Mode of increase/decrease Subscription period/Registration Terms of subscription or subscriber or reason for decrease Bond with Warrants, 1998, A shares Five conversions in 2002 Warrant conversion 664,750 93.56 Decrease in share capital 11 April, 2003 Cancellation of shares bought back (2,434,400 A shares) –2,434,400 93.15 Bond with Warrants, 1998, A shares Three conversions in 2003 Warrant conversion 66,100 93.16 Bond with Warrants, 1998, A shares One conversion in 2004 *) Warrant conversion 281,250 93.21 Bond with Warrants, 1998 and Options 2000, A shares Seven conversions in 2004 Warrant and Option conversion 9,561,200 94.82 Bond with Warrants, 1998, A shares One conversion in 2005 *) Warrant conversion 2,018,850 95.16 Bond with Warrants, 1998 and Options 2000, A shares Six conversions in 2005 Warrant and Option conversion 7,555,900 96.09 Bond with Warrants, 2000, A shares One conversion in 2006 *) Option conversion 382,200 96.15 Decrease in share capital 15 April, 2006 Cancellation of shares bought back (7,000,000 A shares) –7,000,000 94.98 Bond with Warrants, 2000, A shares Five conversions in 2006 Option conversion 2,917,630 95.47 *) Subscriptions during the previous year
Varma Mutual Pension Insurance Company 49,403,785 8.7 8.63 Wahlroos Björn 11,739,890 2.07 2.05 Ilmarinen Mutual Pension Insurance Company 6,273,911 1.11 1.1 Kaleva Mutual Insurance Company*) 6,127,855 1.08 1.91
Press and stock exchange releases, the monthly updated list of shareholders and other investor information published by Sampo is available on the Internet at www.sampo.com.
On 10 August 2006 Sampo’s Board of Directors decided that derivatives can be used in the share repurchases as permitted by laws and regulations. In 2006, however, derivatives were not used in repurchasing Sampo A shares.
A total of 3,299,830 subscriptions of shares with the warrants of 2000 option programme were submitted to the Board and approved in 2006. The subscriptions increased the share capital by EUR 0.6 million. Furthermore, subscriptions with the warrants of the 2000 option programme for 14,682,640 A shares were entered into the trade register on 3 January and 12 January 2007. As the subscriptions were already submitted in 2006, the new shares are entitled to dividends for the year 2006.
Internal dividends Sampo plc received in 2006 a total of EUR 1,406 million in dividends from its subsidiary companies.
Staff The number of full-time equivalent staff increased in 2006 by 136 employees to 11,763 employees at 31 December. Of the staff, 39 per cent worked in banking and investment services, 54 per cent in P&C insurance, 3 per cent in life insurance, 1 per cent in the holding company and 3 per cent in Primasoft. Geographically, 51 per cent worked in Finland, 15 per cent in Sweden, 14 per cent in Norway, 16 per cent in the Baltic countries, 3 per cent in Denmark and 1 per cent in other countries. The staff decreased in P&C insurance and Primasoft, but increased in banking mostly due to growth in the Baltic subsidiaries. The average number of employees during 2006 was 11,657, compared with 11,730 during 2005.
In May 2006 If announced its aim to upgrade its presence in Russia by establishing a P&C insurance company in St. Petersburg where If has had a representative office. The licence was approved in December 2006. By upgrading its presence, If aims to give even better service to corporate customers in the growing Russian market.
In October 2006 If entered a partnership with Handelsbanken Liv to expand its product range in Norway’s compulsory company pensions system (OTP pension system). If will strengthen its focus by offering additional insurance covering both disability and child pension. As part of this process, Sampo Life Insurance Company Limited sold its Norwegian OTP pension portfolio to Handelsbanken Liv.
Sampo plc – Board of Director’s report 2006 companies for EUR 2.4 billion (2.4). Liabilities include two debt instruments – a subordinated note and a senior note with face values of EUR 600 million and EUR 300 million respectively. The latter which after repurchases amounts to EUR 191 million will be repaid in April 2007.
Credit quality remained firm and net impairment losses on loans and receivables was EUR -2 million (3).
Rapid growth continued in mutual fund assets, which rose 25 per cent from year-end 2005 to EUR 11,118 million. Net subscriptions in Sampo’s mutual funds in year 2006 year amounted to EUR 1,487 million. Mutual fund assets include EUR 1,020 million of Sampo Group investments (1,226), representing 9 per cent of total assets (14).
Return on equity (at fair values) % 22.6 28.4 26.5 14.0 1.5
Average adjusted number of shares 7) 1,000 561,892 563,664 556,877 552,659 554,530
Profit for the financial year 717 275 –1 991 723 245 –4 963
In addition to adopting the effective standards and interpretations, Sampo has adopted, for the financial year beginning on 1 January 2005, two standards whose application on the balance sheet date is not yet mandatory, but permitted under transitional provisions. Thus, financial assets and liabilities are disclosed in accordance with IFRS 7 ’Financial Instruments: Disclosures’. Similarly, capital disclosures are disclosed in the notes together with risk management disclosures, in accordance with the amendment to IAS 1 ’Presentation of Financial Statements – Capital Disclosures’.
Average exchange rate during the financial year Latvian lats (LVL) 0.6972 0.6962 Lithuanian litas (LTL) 3.4528 3.4528 Norwegian kroner (NOK) 8.2380 8.0451 Swedish krona (SEK) 9.0404 9.2523 Russian rouble (RUB) 34.6800 34.1145 Estonian kroon (EEK) 15.6466 15.6466
Finance leases Leases in which assets are leased out and substantially all the risks and rewards of ownership are transferred to the lessee are classified as finance leases. Finance leases are recognised as receivables in the balance sheet at an amount equal to the net investment in the lease. The lease payment is allocated between the repayment of principal and interest income. The interest income is amortised over the lease period so as to achieve a constant periodic rate of return on the remaining net investment for the lease term.
Operating leases Leases in which assets are leased out and the Group retains substantially all the risks and rewards of ownership are classified as operating leases. They are included in ‘Property, plant and equipment’ in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment, and the impairment losses are recognised on the same basis as for these items. Rental income on assets held as operating leases is recognised on a straight-line basis over the lease term in profit or loss.
Insurance liabilities Insurance liabilities are the net contractual obligations which the insurer has on the basis of insurance contracts. Insurance liabilities, consisting of the provisions for unearned premiums and unexpired risks and for claims outstanding, correspond to the obligations under insurance contracts.
The interest rate used in discounting liabilities is, at most, the maximum rate accepted by the authorities in each country. The interest rate used in discounting liabilities is the same or lower than that used in premium calculation. Most of the liabilities of the accrued benefits of pension business with DPF is discounted by an interest rate of 3.5 per cent, and most of the life business with DPF by 2.5 per cent. The highest discount rate used for accrued benefits is 3.5 per cent. The guaranteed interest rate used in the direct insurance premium basis varies on the basis of the starting date of the insurance from 0 to 4.5 per cent.
Dividends are recognised in equity in the period when they are approved by the Annual General Meeting.
The Board of Directors of Sampo plc is responsible for ensuring that the Group’s risks are properly managed and controlled. The Board sets the principles of risk management and provides guidance on the organisation of risk management and internal control in the business areas. The Board monitors the risk management process and has established a Risk Control Committee to control the Group’s risks. The major risk-related decisions during 2006 were made within the framework of the given authorities in the Investment Committee, the Credit Committee and the Asset and Liability Committee (ALCO). For more details see also paragraph 6. The Group’s overall risk exposures were reported to the Board on a monthly basis. The risk management organisation of year 2006 is presented in Figure 1.
The capital adequacy and solvency margin figures are presented in the Sampo Group’s Key Figures. Since the beginning of 2005, the Sampo Group has reported the Group’s capital adequacy in accordance with the Financial Conglomerates Directive (2002/87/ EC). See Table 1.
Currency risk open position Home ccy EUR SEK NOK DKK EEK LVL LTL GBP USD JPY OTHER
Fixed income investments by sector EUR 12,819 million, 31 Dec., 2006
The Sampo Group’s outstanding exposures to customers totalled EUR 43.7 billion and they increased during the year by about EUR 3.7 billion. Corporate exposures decreased by EUR 0.1 billion, of which banking accounted for an increase of EUR 0.5 billion and P&C insurance accounted for a decrease of EUR 0.4 billion. Analysed by industry, the greatest relative increases were the public sector (21 per cent), real estate (13 per cent), financial institutions (9 per cent) and the metal industry (5 per cent). The greatest reductions in exposures were in IT and telecom (27 per cent). About 61 per cent of the banking exposures to corporate customers are secured by category I–IV collateral.
In order to limit the credit risk associated with reinsurance operations, P&C Insurance complies with a reinsurance policy that stipulates the requirements for reinsurers’ credit ratings and the maximum total exposure to individual reinsurers. The distribution of ceded treaty and facultative premiums in 2006 per rating category is presented in Table 12.
Among the most significant of the insurance risks included in life insurance policies is protection covering death, disability and medical expenses. These risks are limited through careful risk selection, by pricing to reflect the risks and costs, by setting upper limits for the protection granted and by reinsurance. The amount of individual risk is limited by reinsurance. The companies’ Board of Directors annually determines the maximum amount of risk to be retained for its own account, which in Sampo Life is EUR 0.5 million. To mitigate the effects of possible catastrophes, Sampo Life participates in the catastrophe pool of Finnish life insurance companies. Possible pandemics are not covered by the reinsurance. At this stage, no reliable predictions of mortality in the case of a pandemic can be made. As an indication for the reader, the effect of doubling the normal mortality of an insurance portfolio would mean around EUR 15 million in additional expenditure for Sampo Life.
Risks relating to the investment portfolios of the insurance companies are also measured with the VaR technique. The confi-
For business connected to the Run-Off portfolios, P&C Insurance uses external actuarial firms with local knowledge to evaluate technical provisions.
Banking and investment services 21,276 – – – 1,918 – – 23,194
The cost of the business combination, EURm 4.8, was in its entirety paid in cash. The costs allocated to the acquisition were EURm 0.4.
In June 2005, Sampo plc sold its subsidiaries in Poland – the pension company Sampo PTE S.A. and the life insurance company Sampo T.U. Zycie S.A. – to Nordea Life Holding A/S. The consideration was EURm 95, of which Sampo recognised a sales gain of EURm 24. Sampo had already written off most of the goodwill associated with the acquisition of the disposed entities. The figures of Sampo PTE S.A were in 2005 reported in the banking and investment services segment and those of Sampo T.U. Zycie S.A. in the life insurance segment in Other operating income.
Interest income includes EURm 2 (1) interest income accrued on impaired financial assets.
Change in liabilities for insurance and investment contracts in total, gross –345 –387
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.
The fair value of loans and deposits with no stated maturity, including non-interest-bearing deposits and other short-term receivables and payables, is the amount repayable on demand.
Direct operating expenses arising from investment property generating rental income during the period –6 –7
Cash and cash equivalents for Banking and Investment services in the statement of cash flows consist of the following: Cash 41
IFRS Financial Statements: Other notes 32 Liabilities from insurance and investment contracts
Provision reported in the balance sheet 464 614 810 1,381 3,269
Sampo Bank Group had in issue on 31 December 2005 three capital securities included in Tier 1 capital, all of them repayable with the consent of the Finnish Financial Supervision Authority and in one of them a step-up clause at the earliest call. The amount included in the own funds of primary loans in Sampo Bank Group at 31 Dec. 2006 was EURm 346 (344).
The counter book value of the shares is EUR 0.17 (not an exact value). Each A share has 1 vote and each B share has 5 votes at General
Meetings. All the B shares are owned by the Kaleva Mutual Insurance Company. B shares can be converted into a A shares at the request of the holder of B shares.
The weighed average subscription price and the market price of the share in the subscription day. Average subscription price 6.14
Directors. The decision to offer these options disapplied the shareholders’ pre-emptive subscription rights.
Notes to the Income statement 1 Interest income and expenses by balance sheet item EURm 2006
34 Pension liabilities The basic and suplementary pension insurance of Sampo plc’s staff is handled through insurances in Varma Mutual Insurance Company and in Sampo Life Insurance Company Limited.
Street address: Kalevavägen 3/ TALLINN If, St. Petersburg Representative Office SUNDSVALL Kalevantie 3 If P.O.Box 16
14 HR report 15 Social Responsibility 16 Risks and risk management 17 Five year summary 19 Cash flow statements 20 Income statement 21 Balance sheet 22 Glossary and definitions
If is now established in Russia, with a proprietary operation based in St. Petersburg and a presence in Moscow. Russia is one of the fastest-growing insurance markets in the world. Many of If ’s Nordic corporate customers already have operations there and a number of them are investing in order to grow further. They provide a natural basis for If ’s new operation.
At the same time, the favorable trend continues within occupational injury products, such as accident insurance, group life insurance, travel insurance and health insurance. The demand for these services is growing rapidly and If is focusing on developing new solutions and products. During 2007, this will continue to be a key area.
During 2006, a new strategic framework was established within If, which we call “Best at Risk.” Under this name, we are launching such initiatives as long-term efforts to increase our employees’ competencies. Our employees must be able to understand all aspects of risk so that they can contribute to the creation of even greater value for our customers. Our aim is ambitious – we want our employees to be the most competent in the industry. To achieve this, we have developed distinct and simple tools for supporting activities designed to promote competencies and performance. This project will also help us to create a culture that is much more performance oriented, whereby good performance is acknowledged and rewarded.
Since damage due to natural occurrences will probably take on greater significance for the insurance industry in the Nordic and Baltic countries, it is natural for If to involve itself in problems involving future climate change and questions regarding how society should best adapt to such change.
Provisions for other risks and charges Deferred tax liability 3,603 3,087 Other provisions 1,363 1,452
Claims ratio Claims incurred and premiums earned expressed as a percentage.
Cost ratio Claims handling cost and operating expenses from insurance operations in relation to net premiums earned, expressed as a percentage.
In contrast to net premiums earned, premiums written are not capitalized; i.e. they are unaffected by opening and closing provisions for unearned premiums.
Property and casualty insurance Collective term for property insurance, liability insurance and reinsurance. Property insurance involves the type of insurance that covers the economic value of one or several objects (such as movable property in a home, car, boat, factory building or warehouse). Other types of property and casualty insurance mainly cover various interests (such as, business interruption insurance or liability insurance ), where only a specific economic interest is covered, not the economic value of one or several objects.
Provision for unexpired risks Provision to cover anticipated claims costs and operating expenses for policies in force at the accounting date and up to their next due date.
SE Sampo Life Insurance Baltic Joe tn. 3, EE-10151 TALLINN, ESTONIA
Looking towards the future Sampo Life’s mission – a passionate desire to improve the lives of Finns – was launched in 2005 and put into full practice during the year under review. The purpose of the mission is to create customer benefit in both the short and long haul, which might even be for decades. In all our contacts, we encourage customers to prepare for the future and make decisions related to their financial security now. When giving advice, we always seek to address the customer’s individual needs, and tailor our response to them.
Volumes doubled in the Baltic region In only a few years, Sampo Life has risen virtually from nothing into a powerful player on the Baltic life insurance markets. Both premium income received from the market and customer insurance savings doubled in 2006. Operating in the future under the name SE Sampo Life Insurance Baltic, the company was the fastest growing life company in the Baltic countries for the third consecutive year. Sampo Life is among the three largest life insurers in the Baltic region, and its balance sheet of EUR 80 million is substantial in size, even by Finnish standards.
We have every reason to believe that the successful sales and product development co-operation with Sampo Bank and its subsidiaries will carry on for years to come. This will enable both parties to create substantial added value for existing and potential customers.
Over half of premiums written, EUR 21 million, originated from the Estonian company, with the rest coming evenly from Latvia and Lithuania. The market share increased to 22 per cent in Estonia and 29 per cent in Latvia. The Lithuanian market share is the smallest at six per cent.
A record result – yet again The comprehensive efficiency improvement measures carried out some years ago are now fully reflected in Sampo Bank’s result. With the bank’s volumes on a strong growth path at the same time, profitability has improved substantially. In 2006, Sampo Bank again recorded its best operating result of all time, EUR 355 million. The bank’s return on equity was a remarkable 23.8 per cent. This surpassed that of all other Nordic banks.
Danske Bank becomes new owner In the autumn of 2006, Sampo plc made a decision to divest Sampo Bank to Danske Bank of Denmark, and the ownership transfer was completed early in 2007. I believe that Danske Bank, a long-standing and highly professional operator, will strengthen Sampo Bank in many areas, such as in corporate banking. Furthermore, Danske Bank’s strong international capital market operations will surely benefit many Sampo Bank units and their customers. Correspondingly, I dare to claim that Sampo Bank and Mandatum will have a lot to contribute to Danske Bank, too.