III advanced. EU made proposals as well concerning the directive on deposit-guarantee schemes, collective guarantee system and genderneutral pricing. Furthermore, a financial transaction tax was publicly debated. Banks were stress tested, and also country-specific capital requirement initiatives were published.
Nordea has shown that through a combination of its expertise and strong position, it can also successfully operate in the eye of the storm. This in spite of the fact that the operational environment for banks has, in many respects, developed negatively: low interest rates reduce the deposit margins, regulation increases capital requirements and a debate about a financial transaction tax is underway. The clearest proof of Nordea's stability is that Nordea is one of the few AArated banks in Europe.
Nordic countries is a great benefit in the current economic situation: the economies of Sweden and Norway in particular are developing far better than the European economy in general. On the other hand, the development of the economies of Finland and Denmark is closer to the
Sampo Group / Annual Report 2011 Sampo Group / Group Structure
Nordea Despite one of Europe’s most dramatic and problematic times in the history of the euro, Nordea’s development during 2011 was once again robust and the solid business momentum was maintained. A
Nordea’s adaptation to this “new normal” environment progresses according to plan. The capitalisation has been increased, funding been prolonged and liquidity been increased to sustainable levels. The capital efficiency is increased and a largely flat cost development will be ensured. The processes to reduce the number of employees progresses according to plan. In parallel, Nordea continues to develop the relationship and advice concept for both household and corporate customers.
Investment products offered to customers performed well in the difficult market situation compared to those of competitors. The strong increase in uncertainty and market volatility slightly dampened the willingness of the potential clientele to make decisions. Existing wealth management customers, on the other hand, were not shaken by the market situation, which was evident especially in the increase of net subscriptions also in the second half of 2011.
• Mattila holds 3,123 Sampo plc shares directly or through a controlled company.
Executive Committee, and also the guidelines and authorizations given to other bodies appointed by the Board.
Sampo Group / Annual Report 2011 Corporate Governance / Group Executive Committee
Salary and Remuneration Report Sampo has published a Salary and Remuneration Report on its website in accordance with section 7 (Remuneration) of the Corporate
Company-specific audit observations are reported to the respective companies' governing bodies and management.
Private business area increased to EUR 256 million (236). For business area Commercial technical result amounted to EUR 124 million (127),
Nordea, the largest bank in the Nordic region, has around 11 million customers and is among the ten largest universal banks in Europe in terms of total market capitalization. In Sampo Group’s reporting Nordea is treated as an associated company and is included in the segment Holding. On 31 December 2011 Sampo plc held 860,440,497 Nordea shares corresponding to a holding of 21.3 per cent. The average price paid per share amounted to EUR 6.46 and the book value in the Group accounts was EUR 7.27 per share. The closing price as at 31 December 2011 was EUR 5.98.
The Group’s core tier 1 capital ratio, excluding transition rules, was 11.2 per cent at the end of the fourth quarter and was strengthened by 0.2 percentage points from the previous quarter. Improved capital ratios have been achieved by strong profit generation and a modest increase in risk-weighted assets (RWA). With the adoption of the CRD III
RWA were EUR 185.2 billion excluding transition rules, up EUR 2.2 billion or 1.2 per cent compared to the previous quarter and were at the same level as at the end of 2010.
The following members were re-elected to the Board of Directors: Anne Brunila, Veli-Matti Mattila, Eira Palin-Lehtinen, Jukka Pekkarinen, Christoffer Taxell, Matti Vuoria and Björn Wahlroos.
(“Remuneration”) of the Corporate Governance Code. The report will be available at www.sampo.com/compensation.
insurance, 8 per cent in life insurance and 1 per cent in the Group’s parent company Sampo plc. Geographically, 32 per cent worked in
shares. Neither did the other Group companies hold any shares in the parent company.
Nordea and the calling of If’s hybrid loan in March 2011. The minimum capital requirement rose due to the increase in Nordea’s capital requirement. The part of Nordea’s capital requirement corresponding to Sampo’s holding in Nordea is taken into account in the Group’s capital requirement.
Supervision on Financial and Insurance Conglomerates (2004/699). In 2009–2010, the group solvency was calculated according to Chapter 3. In 2007 and 2008 the group solvency was based on adjusted solvency calculations for insurance groups according to the Decree of the Ministry of Social Affairs and Health (1106/2000). The adjusted solvency wass determined on the basis of the Group financial statements as permitted by the Financial Supervisory Authority (former Insurance Supervisory Authority). In 2006, the solvency was calculated according to the consolidation method defined in Chapter 3 of the Act on the Supervision of Financial and Insurance Conglomerates.
Life insurance underwriting risk: Biometric risks refer to the risk that the company has to pay more mortality, disability or morbidity benefits than expected or the company has to keep paying pension payments to the pension policyholder for a longer time (longevity risk) than expected when pricing the policies. The specific case in which a single event of major magnitude leads to a significant deviation in actual benefits and payments from the total expected payments is called catastrophe risk. In life insurance, catastrophe events include single events or series of events. These events can occur within short time period or be, by nature, long-lasting events.
Liquidity risk: 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 Boards of Directors of If P&C and Mandatum Life appoint the individual risk management committees within each legal entity and are also responsible for identifying needs for changing policies, guidelines and instructions related to risk management.
Sampo Group / Annual Report 2011 Risk Management / Risk Governance Framework
Risk Governance in If P&C The Board of Directors of If P&C bears overall responsibility for the risk management process and constitutes the ultimate decision making body. The Board ensures that the management and follow-up of risks are satisfactory, monitors risk reports and approves risk management plans.
as a whole based on the risks identified in the Operational Risk
• The Compliance Committee is an advisory forum for the If P&C
Capital adequacy is assessed internally by comparing the amount of available capital (adjusted solvency capital) to the amount of capital needed. The capital adequacy assessment has three phases. First, economic capital methodology is used to define the capital needed for current activities. Second, the less quantifiable, low probability and high impact risks as well as uncertainties related to the business environment are considered and this may affect Sampo Group's understanding of the capital needed. Third, when defining the capital available, expected profitability is taken into account, in addition to other capital components, because earnings are seen as the first buffer against potential losses.
Risk and Capital Management Actions A prudent assessment of capital adequacy and a careful risk and capital planning are important phases when creating an understanding of the actions that maintain a proper balance between capital and risks. In Sampo Group, the proactive management of risks and capitalization is seen as the most important phase in the risk and capital management process. Risk limits and decision making authorizations are set up in a way that they, together with profitability targets, facilitate business and investment units to take wellconsidered risks. The limits reflect the capital adequacy targets and risk appetite in general.
P&C Insurance Underwriting Risks Underwriting risk is the risk that the cost of future claims payments will be higher than anticipated. Underwriting risk is the elementary risk in If P&C and the management of it forms the foundation for insurance operations. The reasons for higher than expected costs are threefold: claims sizes are bigger than expected, claims frequency is higher than expected and timing of claims payments differs from expected timing.
The uncertainty of technical provisions is normally greater for new portfolios for which complete run-off statistics are not yet available, and for portfolios including claims that take a long time to settle.
Analysis of the change in provisions before reinsurance, Mandatum Life, 2011
reinsurance, Mandatum Life, 31 December 2011' shows the expected maturity and duration of insurance and investment contracts of
Mandatum Life is prepared for low interest rates on the liability side by e.g. reducing the minimum guaranteed interest rate in new contracts and by supplementing the technical provisions by applying a lower discount rate. In addition, existing contracts have been changed to accommodate improved management of reinvestment risk.
Investment allocation, If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2011
Fixed Income Investments Table 'Investment allocation, If P&C, Mandatum Life, Sampo plc and
Credit exposures by sectors, asset classes and rating, If P&C, 31 December 2011
P&C are assessed. In this process the most severe external operational risks are being identified.
Mandatum Life, such as policies and recommendations concerning operational risk management. The committee ensures that risks are identified and business units have organized internal control and risk management in a proper way. The committee also analyses deviations from operational risk management policies and monitors operational risks identified in the self-assessments as well as the occurred incidents. The committee meets at least three times a year.
If P&C and Mandatum Life. The historical correlation between If P&C´s and Nordea’s, as well as Mandatum Life’s and Nordea’s, quarterly reported profits since 2005 is very low.
Risk Management Outlook Sampo Group continuously develops its risk management framework and systems. This work is based on internal needs and future Solvency
Furthermore, the fair value option is applied in some minor P&C
The decision on whether the impairment is significant or prolonged requires an assessment of the management. The assessment is done case by case and with consideration paid not only to qualitative criteria but also historical changes in the value of an equity as well as time period during which the fair value of an equity security has been lower than the acquisition cost. In Sampo Group, the impairment is normally assessed to be significant, if the fair value of a listed equity or participation decreases below the average acquisition cost by 20 per cent and prolonged, when the fair value has been lower than the acquisition cost for over 12 months.
The benefits payable upon termination at Sampo are the monetary and pension packages related to redundancy.
The amendment to IFRS 7 Financial instruments: Disclosures (effective for annual periods beginning on 1 July 2011 or after) enhances the transparency of the transfer transactions of financial assets and helps users to understand the possible effects of risks remaining with the company and the effect on the financial statements. The Group estimates that the amendment will have no influence on the Group-s financial statements reporting.
Income tax relating to components of other comprehensive income 63 84 -1 -5 141
Group, total -3,723 -3,533 4 CHANGE IN LIABILITIES FOR INSURANCE AND INVESTMENT CONTRACTS
Weighted average number of shares outstanding during the period 561 561
Due to the decrease in the Nordea's market value during the financial year 2011, Sampo performed an impairment test in accordance with IAS 36 Impairment of Assets where the recoverable amount for Nordea was compared with its carrying amount in the Group.The recoverable amount was defined using a discounted cash flow model, where the cash flows were based on the public information on Nordea and Sampo's estimates of Nordea's future based on this information. No impairment losses were recognised based on the test, as the recovarable amount exceeded Nordea's carrying amount.
Lease and sublease payments recognised as an expense in the period - minimum lease payments -36 -34
Directors that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the