Sampo Life specialises in life and pension insurance, with operations in Finland, Estonia, Latvia and Lithuania. Sampo also has life insurance and pension fund management operations in Poland. Sampo employs approximately 400 people in its life and pension insurance businesses.
In 2004 we achieved most of the longterm targets I set for Sampo Group when I became Chief Executive Officer in 200. These were to raise the efficiency of the banking and longterm savings businesses, to reorganise the P&C insurance business, to use capital more efficiently and to lower the overall risk level.
When I became Sampo’s Chief Executive four years ago, I agreed to take the job for five years. This period will come to an end by the close of this year. I am not yet ready, however, to engage in the full-time pursuit of my hobbies, nor does farming seem to me a growth area.
Cost efficiency Sampo aims to produce services for its customers more cost-efficiently than its competitors. Thus, the drive for greater efficiency is not just an aspect of a one-off campaign, but established practice.
The holding company’s main function is to own and control subsidiaries engaged in banking, insurance and investment services.
Baltic countries Sampo operates in Estonia under the name AS Sampo Pank and in Lithuania under the name AB Sampo bankas. Sampo started banking operations in Estonia after it acquired the Optiva bank from the Bank of Estonia in 2000. In Lithuania, Sampo’s banking operations started in the same year as it purchased Lietuvos Vystymo
The Committee is also responsible for preparing proposals for Sampo’s Board on the composition and chairmen of the Board’s committees, on the appointment of a CEO and the members of Sampo Group’s Executive Committee, on the principles by which the members of the Executive Committee are to be compensated and their compensation, and on the principles by which Sampo Group’s staff are to be compensated. In addition, the Committee is responsible for preparing proposals for the Board on issues relating to corporate governance and for confirming the criteria and processes to be used in the Board’s self-evaluation. The Nomination and Compensation Committee comprises Olli-Pekka Kallasvuo, Jyrki Juusela and Georg Ehrnrooth, and met four times in 2004.
Risk Control Committee The Board of Directors has appointed a Risk Control Committee to control Sampo Group’s risks at the Group level. The Risk Control Committee is responsible for supervising the preparation of and compliance with Sampo Group’s risk management principles and other related guidelines, supervising Sampo Group’s risks and risk accumulations and the quality and scope of risk management, and monitoring the fulfilment of risk policies, the use of limits and the development of risks and profit in the various business areas. The Risk Control Committee comprises the Chairman of the Board and two or three members elected from among the independent members of the Board. The Chairman of the Board acts as the Chairman of the Risk Control Committee. Also participating in the meetings of the Committee are the CEO, the respective chairmen of the Group’s Asset and Liability Committee, Investment Committee and Credit Committee, the member of the Group’s Executive Committee responsible for risk control, the Head of Risk Control and any other people elected at the discretion of the Board. The Risk Control Committee comprises Olli-Pekka Kallasvuo (Chairman), Tom Berglund, Anne Brunila and Matti Vuoria. Also participating in the meetings are Björn Wahlroos, Kari Stadigh, Ilkka Hallavo, Mika Ihamuotila, Peter
The Group’s Chief Executive Officer will be paid long-term compensation based on his employment contract,
The Audit Committee of Sampo’s Board annually approves the Internal Audit’s operating plan. The Internal Audit reports on the audits performed to the CEO, the Audit Committee and the Group Executive Committee. Company-specific audit observations are reported to the respective companies’ executive bodies and management.
He transferred to the Board of Directors of Sampo plc from the Supervisory Board on 25 May, 2000
He holds ,839,890 Sampo plc shares directly or through a controlled company
Björn Wahlroos, born 952 Group CEO, Managing Director of Sampo plc
Member of the Boards of the Federation of Finnish Insurance Companies and The Finnish Insurance Ombudsman Bureau
He holds 0,000 Sampo plc shares directly or through controlled company
Member of the Board of Norwegian Financial Services Association and member of DNV Council
Decrease in share capital 3 July, 2000 Technical decrease – 49.85
Warrant conversion 2,018,850 95.16 *) Rounded out **) Subscriptions in 2003 ***) Subscriptions in 2004 the main list of the Helsinki Stock Exchange. The year 2000 B options have been traded on the Helsinki Stock Exchange since 2 January, 2004, at which time they were combined with the A options to form the 2000 A/B options.
Board of Directors was able, during the year, to approve 9,556,200 shares with a counter book value totalling EUR ,607,237.46. The Board of Directors approved the final subscriptions on 4 January, 2005. During the year, options from the 2000 option programme were exercised to subscribe for 5,000 A shares with a counter book value totalling EUR 840.94. The new shares were admitted for trading on the Helsinki Stock Exchange following the entry of each lot in the Trade Register.
1998 bond with warrants On 22 May, 998, Sampo issued a bond with warrants valued at approximately EUR . million. The bond, which did not pay interest, was repaid on 22 May, 200. All the staff permanently employed by Sampo Group and the
A total of 5,200,000 options were issued, of which 2,600,000 are designated as A options and 2,600,000 as B options. Each option entitles its holder to subscribe for five Sampo A shares. The year 2000 B options were admitted for trading on the main list of the Helsinki Stock Exchange after the stipulated subscription requirements had been met and were combined with the A options to form A/B options. The share subscription period for all the options ends on 3 January, 2007.
Pension Fund of Fortum 1,786,240 0.32 0.31 Etera Mutual Pension Insurance Company 1,211,150 0.21 0.21 Nordea Life Assurance Finland Ltd 1,142,032 0.20 0.20
Administration The Annual General Meeting held on 7 April 2004 elected eight members to the company’s Board of Directors. Tom Berglund, Anne Brunila, Georg Ehrnrooth, Jyrki Juusela, Olli-Pekka Kallasvuo, Christoffer Taxell and Björn Wahlroos were re-elected and Matti Vuoria was elected as a new member.
Changes in share capital The Annual General Meeting of 7 April 2004 authorized The Board of Directors to decide on the repurchase and conveyance of Sampo’s own shares. The authorisation is valid until 7 April 2005. The maximum amount of A shares that can be repurchased is 5 per cent of the company’s share capital or of the number of votes attached to all shares. Shares can be bought back either through an offer made to all holders of A shares in proportion to their holdings and on equal terms determined by the Board, or through public trading on the Helsinki Stock Exchange, in which case the shares will not be bought in proportion to the holdings of the shareholders.
Fees and commissions receivable increased to EUR 256 million (24) and more than compensated for the fall in the net income from financial operations. The biggest increase was recorded in asset management, mainly originating from fast growth and a shift into equity products in mutual funds. But fees and commissions receivable from traditional banking operations were also higher than in 2003. The growth reflects increased activity in the financial markets filtering through Sampo’s strong position in financial services. Fees and commissions payable grew to EUR 62 million (50).
Distribution policy The Board of Sampo plc adopted a new distribution policy on 3 November 2004, according to which the company aims to distribute 50 per cent of Group net profits to shareholders through share buy-backs and/or dividends. The changes adopted in Finnish dividend taxation are likely to shift the focus to buy-backs.
Investments in group and associated undertakings 48 Shares and participations in associated undertakings 3
Land and buildings 280 325 Loans to associated undertakings 0 0
Debt securities issued by other than public bodies 60, 61, 97, 98 99 121
Fees and commissions receivable 0 0 Fees and commissions payable –1 –1 Net income from transactions in securities and foreign exchange dealing from transactions in securities 23 102 4 from foreign exchange dealing –1 –1
Economic capital reflects not only the amount of the different kinds of risks, but also slightly their mutual diversification effect. It is very improbable that all risks in the Group’s business areas will materialise at the same time. For example, legislative changes in the
Banking risks Management of 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.
The profitability and target-setting of the operations of customer-responsible units and the pricing of the credit risk of the customer relationship is estimated using the return on riskadjusted capital (RORAC) calculation.
US, CA, JP, AU, NZ, Other Western Europe 1,350 4 778 3
Domestic corporate and institutional 9 17 Foreign corporate and institutional 5 12 Total corporate and institutional 14 29
Reinsurance in limiting risks In order to secure the payment of compensation for large claims and major losses, the P&C insurance business purchases reinsurance. A large claim could be, for example, a claim on a large company that leads to major financial losses. It could also arise when a natural disaster such as a powerful storm causes losses to the property, vehicles and other assets of many policyholders.
nies’ technical risks. The biggest risks threatening investment performance are decreases in the value of investments, and returns that are lower than that required by technical provisions. The intention is to limit these risks by diversifying the investment portfolio as far as possible by instrument, sector and country. Currency risks are managed by keeping assets and liabilities sufficiently balanced across currencies or by using derivatives. If necessary, derivatives are also used to hedge the investment portfolio against value decreases. The adjacent graphs show the allocations of investment portfolios.
1 Money market 10% 2 Euro govt/credits 37% 3 Sweden govt/credits 33% 4 Swedish index linked bonds 6% 5 Denmark and Norway govt/credits 3% 6 US govt/credits 7% 7 USA High Yield 2% 8 Other fixed income 2%
Exchange rate differences from receivables and liabilities of the P&C insurance business are included in the profit and loss account as a net figure. Exchange rate differences relating to other investments are included in unrealised valuation gains and losses on those investments. Exchange rate differences are included in the profit and loss account in “Investment income” or “Investment charges”.
Intangible and tangible assets Intangible assets Intangible assets are stated at cost, less amortisation according to plan. Longterm expenditure includes capitalised IT systems and costs of material improvements in flats and rented premises.
The fair values of properties and property companies are estimated following the Group principles, which are presented below under “Insurance business”.
Revaluations and adjustments to them made on assets held as investments and investments covering unit-linked insurance are included in the profit and loss account and shown separately under the items “Revaluations on investments” and “Revaluation adjustments on investments”. In the P&C insurance business, an amount corresponding to unrealised revaluation gains of the shares is transferred from distributable capital and reserves to undistributable capital and reserves.
The zillmerisation of individual life and pension insurance and capital redemption policies, which has been deducted from the premium reserve, has been planned in such a manner that the future expense loading will be sufficient to cover related amortisations and future operating expenses. The amortisation period of zillmerisation is no longer than the insurance period. There is no zillmerisation in a Finnish life insurance company.
The provision for claims outstanding is intended to cover the expected future payments for all claims incurred, including claims not yet reported to the company (the “IBNR” provision).
Income taxes Taxes on ordinary activities and on extraordinary items are shown separately in note 27.
Other aspects of Sampo’s adoption of IFRS: If Group is included in Sampo’s opening balance sheet for  January 2004 as an associated company. The additional acquisitions made during 2004 are treated in accordance with IFRS 3 Business Combinations, with assets and liabilities being valued at fair value from the date of acquisition, and individualised assets and liabilities included in acquisition costs being allocated to the acquired balance sheet items. The change in treatment reduces the amount of goodwill calculated under previous Finnish accounting practice and increases other balance sheet items due to the allocations. As a result of the changes, no regular amortisation of goodwill will be carried out. Since the Swedish financial accounting principles followed by If correspond mainly with the IFRS, the effects of these changes on the opening balance sheet are not significant.
The IFRS section is not a part of the official financial statements.
The key figures relating to banking and investment services and to the holding company have been calculated in accordance with regulation 20/420/98 issued by the Finnish Financial Supervision Authority.
Life insurance + premiums written before reinsurers’ share + investment income and revaluations and revaluation adjustments + other income
Holding company Calculated using the formula shown above for banking and investment services operating profit.
Return on equity (at current values), % + profit before extraordinary items and tax ± revaluation entered into / withdrawn from revaluation reserve ± change in valuation differences on investments *) – tax (incl. change in deferred tax relating to valuation differences on investments) × 00
× 00 + technical provisions - equalisation provision - 75 % x technical provisions relating to unit-linked insurance
Profit before extraordinary items and tax EURm 965 486 541 1,075 1,183
Provisions for bad and doubtful debts Loans and advances to credit institutions – – – – Loans and advances to customers 17 31 22 24
Guarantees and other contingent liabilities and commitments 1 1 0 1
Investment income and charges include Exchange rate differences of insurance business 11 14 Other income and charges Other income
Charges arising from investments in land and buildings –10 –10 Charges arising from other investments –145 –163 Interest and other expenses on liabilities to Group undertakings –6 –5 Interest and other expenses on liabilities to other than Group undertakings –4 –4 Total –165 –182
EURm Income Average staff Income Average staff Income Average staff Income Average staff
On ordinary activities Tax for the financial year 188 126 Tax from previous periods 1 4 Deferred tax –39 –5
Sampo Group 29 Elimination items in consolidated profit and loss account Banking and investment services
Dividend income –8 –21 Fees and commissions receivable –22 –13 Fees and commissions payable 4 2
Remaining acquisition cost 18 20 Book value 18 20 Fair value 19 20
Unit trusts BBL Baltic States Cap Fund 9,952 – 4 12
Certificates of deposit 3,139 2,378 Bonds and notes 2,612 1,888 Other 150 –
Liabilities Liabilities to credit institutions and central banks 204 353 130 251
Contingent liabilities outside balance sheet Rental liabilities 2 Remaining commitments to private equity funds 45 Guarantee for sold investment loans 7 VAT deductions from new construction and real estate refurbishments during 2000–2004
Debt securities in issue 3 2 3 2 Subordinated liabilities 4 – 4 –
**) If the nominal and book value of shares and participations in a company other than a Group undertaking or participating interest is less than EUR 168,000 or a smaller amount corresponding to five per cent of the capital and reserves shown on the credit institution balance sheet or the Group balance sheet, only the number of such companies and the combined sum of the book values of the shares and participations owned is notified.