33 Group 3434 Governance 5252 Board of Directors' Report 8383 Risk Management 155155 Financial Statements 267267 Calendar and Contacts
4 Group CEO's Review 6 2014 in Figures 8 Strategy 9 If P&C Insurance 10 Mandatum Life 11 Group Structure 12 Organization 13 Businesses 14 If P&C Insurance 15 Nordea 16 Mandatum Life 17 Personnel 18 If P&C Insurance 23 Mandatum Life 26 Corporate Responsibility 26 If P&C Insurance 31 Mandatum Life
As a result of this we are currently seeing a combination of very low economic growth and most likely a buildup of bubbles in several asset classes. As an example of this let us take the fast growth of sovereign debt in the eurozone: the total amount of debt is approximately EUR 4,700 billion, of which over 25 per cent trades at negative interest rates and yet the regulatory framework continues to stipulate this asset class as risk free and it is not consuming any capital on the balance sheets of financial institutions. That is truly remarkable and unsustainable.
Sampo intends to continue to perform in these unusual times and in an environment that is a caricature of a well-run economy. Accordingly, Sampo performed very well in 2014 despite the slow economic growth, low interest rates and ever increasing regulation.
In February 2015 the Sampo share price reached a new all-time high. I interpret this as a flight to safety: a prudent approach to invest in a bond-like equity when interest rates in general are ultra-low. Sampo is a share with stable and predictable earnings, a good dividend yield, high return on equity and all of this is based on a strong market position.
In spite of the challenging general environment our P&C insurance operations delivered an all-time high profit before taxes of EUR 931 million as well as a best ever combined ratio of 87.7 per cent. Over the years If P&C has mastered its pan-Nordic operational model and developed its internet offering and telephone service to become the benchmark for the industry.
If P&C’s stake in Topdanmark currently stands at over 30 per cent. Furthermore, our initial investment of EUR 320 million was valued at EUR 830 million as at the 2014 year end.
By the end of 2014 Mandatum Life had also completed the EUR 1.3 billion group pension portfolio transfer from Suomi Mutual. This contributed to the significant increase in the total technical reserves of Mandatum Life in 2014.
Sampo’s Board has proposed to distribute a dividend of EUR 1.95 per share to its shareholders. The dividend payment is over EUR 1 billion and this is the sixth consecutive spring that Sampo has increased its dividend – we are unquestionably a dividend stock.
In 2015 we intend to follow the same path – specifically, to deliver on shareholder value.
The parent company Sampo plc’s A shares are listed on the Nasdaq Helsinki. The parent company sets financial targets for the subsidiaries. For both P&C and life insurance operations the return on equity target is to exceed 17.5 per cent. In addition a separate target has been set for the combined ratio in the P&C insurance operation, i.e. the annual combined ratio to be below 95 per cent each and every year.
Dividend Policy Sampo plc, the listed parent company of Sampo Group, is a good dividend payer. Sampo aims to pay at least 50 per cent of Group’s net profit as dividend. Share buy-backs can be used to complement the dividend. The Board proposes to the AGM a dividend of EUR 1.95 per share for the year 2014. The proposed dividend corresponds to a pay-out ratio of 71 per cent.
If is the leading property and casualty insurer in the Nordic region, with over 3.6 million customers in the Nordic and Baltic countries. If offers a full range of P&C insurance solutions and services to a broad customer base, from private individuals to large corporate customers.
If’s operations are divided into Nordic business areas by customer segments. In addition, the Baltic countries constitute a separate business area and operate on one business platform across all three Baltic countries.
• The CCommerommercialcial business area is the largest commercial insurer in the Nordic countries and accounts for nearly one third of If’s insurance premiums. This business area insures companies with up to 500 employees and has more than 350,000 companies as customers.
• The IndusIndustrialtrial business area is the leading insurer for large corporate customers in the Nordic region with approximately 1,300 customers. Customers are companies with a turnover of more than EUR 50 million and more than 500 employees.
In order to fulfil the vision of being the preferred insurance partner, If has adopted a strategy based on three strategic goals: • MosMost sat satisfied custisfied custtomers thromers through sough strtrong fong focus onocus on cuscusttomer vomer valuealue To achieve this If must have the best in-depth understanding of the customers’ insurance needs and, correspondingly, the best underwriting skills. If strives to be the most service-oriented company in the industry and continues to develop its digital communication.
Mandatum Life – an Expert in Money and Life Mandatum Life is the leading provider of cover against life and health risks, and a well-respected manager of customer wealth in Finland and the Baltics. Mandatum Life offers its customers a comprehensive range of services that includes tailored unit-linked insurance and wealth management, personal risk insurance for private customers, pension and reward services for companies and the related consultation services.
The focal point of Mandatum Life’s new business is unit-linked savings products, group pension insurance and risk insurance covering personal risks. For these, Mandatum Life has three sales channels in Finland: sales groups specialised in corporate sales, wealth managers focused on high-net-worth individuals and Danske Bank’s distribution network. The fourth sales channel is customer services, which is responsible especially for the additional services offered to existing clientele.
BusinesBusinessesses Sampo Group is active in insurance and banking. Sampo plc, the parent company, has two fully owned insurance subsidiaries, If P&C Insurance Holding Ltd (publ) and Mandatum Life Insurance Company Ltd, and is the biggest shareholder in Nordea Bank AB, the largest bank in the Nordic region.
Sampo plc Sampo plc, the parent company, is listed in the Nasdaq Helsinki since January 1988. It has no business activities of its own but administers the subsidiaries and is responsible for certain centralized functions in Sampo Group.
2014 was a good year for If P&C with a solid insurance result and a positive growth. The combined ratio for 2014 was 87.7 per cent which is the best ever for the company. Profit before taxes increased to EUR 931 million.
The low interest rate environment has become the new normal for the property and casualty insurance industry, producing lower rates of return on insurers’ investment portfolios. As a result, the industry’s focus on underwriting profitability has in general increased during the past years at the same time as competition remains intense in all markets.
Solvency II regulation is expected to come into effect as of the beginning of 2016. If P&C is well prepared and already compliant with the principles of Solvency II. The Financial Supervisory Authorities have granted If P&C a pre-approval to use the internal capital model to calculate solvency capital requirements. Standard & Poor’s has affirmed the company’s A-rating with a stable outlook and the Strong assessment of Enterprise Risk Management.
Nordea was once again confirmed as one of the safest banks globally, when issuing two Additional Tier 1 instruments, of in total USD 1.5billion with the lowest coupons among corresponding instruments issued in the USD market. This strengthened the Tier 1 ratio by 75 basis points and the total capital ratio is above 20 per cent. Common equity tier 1 (CET1) capital ratio improved 1.8 percentage points to 15.7 per cent.
The rapid change in customers’ preferences towards using online and mobile solutions, as well as the increasing operational regulation, is transforming banking industry.
By a number of indicators, Mandatum Life’s year 2014 was a success. The expense result rose to an all-time high and the company’s total result was also good. Unit-linked premium income and technical provisions, likewise, broke new records, just as in 2013.
Mandatum Life’s investment returns exceeded the level of guaranteed interest rate promised to policyholders, especially due to the excellent return on alternative investments. Low-risk, long-term interest rates sank to an extremely low level, and maturing fixed income investments continue to present a considerable reinvestment risk, as in previous years. In response to the low interest rate levels, the company continued to supplement the reserve for decreased discount rates, and has consequently lowered the return requirement on technical provisions for 2015 and 2016.
The business result improved also in the Baltics. The company was able to increase premium income, unitlinked savings and capital at risk and simultaneously decrease operating expenses.
PPersonnelersonnel Finance is a fiercely competitive industry and, consequently, value creation rests on operational excellence and on continuous and rapid renewal. This can only be achieved with competent, creative and engaged staff. Sampo Group’s ability to succeed and stay ahead of competition is thus heavily dependent on the know-how, commitment and dedication of the employees. Simply put, Sampo’s personnel strategy is to recruit and develop the best people in the industry.
Personnel at If P&C During 2014, several large personnel actions were taken to increase efficiencies and develop the business to better respond to the toughening competition. If P&C reorganized the Nordic commercial underwriting organization and the Finnish claims services, marketing and IT departments. The changes were made due to implementation of Nordic-wide IT systems, a decrease in claims volumes and remaining overlaps from the Tryg integration process.
In autumn 2014, the Private Sales and Services unit in Finland started a process to enhance the customer experience by centralizing customer center operations in Espoo and Turku. Some branch offices were closed in Finland due to a decrease in customer activity and geographical overlap in the service network. In Estonia, several branch offices have been closed as a result of more customers using e-channels. Increased sales efficiency focus and performance improvement activities have led to structural and personnel changes in the Estonian sales unit.
Examples of major efforts in 2014 are “The Modern Underwriter” and “The Modern Product Expert” training modules, aimed at improving the product and underwriting skills of If P&C’s 400 core professionals within these fields. In Norway, new national requirements for certification of employees servicing private customers have been introduced and If P&C has set up an internal training process for this purpose.
In 2014, If P&C worked on several projects to strengthen the recruitment processes. Firstly, the company is increasingly focusing on evaluating the relevant characteristics when recruiting staff for different roles. Cultural suitability and motivation are also emphasized in recruitments. Secondly, the company has continued to develop processes to give new employees a seamless introduction to the company.
The gender structure of all employees in If P&C is even. Women make up 44.0 per cent of leaders and this figure has been increasing steadily.
*The 2013 turnover has been revised based on updated reporting standards.
Personnel turnover remains at a relatively low level, mirroring the high employee satisfaction. 9 out of 10 employees gave a positive response when asked whether they enjoy working at If P&C.
Personnel at Mandatum Life The key themes for 2014 in Mandatum Life were improving operational efficiency and enhancing expertise to meet the needs of the market. The company succeeded in achieving its efficiency targets by, among other things, centralizing operations. A new unit was established providing power for effective promotion of all sales channels and ensuring the unity and quality of sales projects and campaigns.
Mandatum Life established two new subsidiaries in Finland: Mandatum Life Services Ltd. and Mandatum Life Investment Services Ltd. The new companies were established as of 1 May 2014 and 300 employees working in support functions and investment management were transferred into the new companies. Despite the change in corporate structure, Mandatum Life’s objective remains the same: to promote a harmonized work culture and working “as one team”, which is one of company values. This has been promoted by joint management training programs during the year.
In 2014 the personnel turnover in Finland decreased to 6 per cent from 10 per cent the year before*).
*) The 2013 turnover has been revised based on updated reporting standards.
CCorpororporaatte Re Responsibilityesponsibility The focus of Sampo Group’s corporate responsibility work is on the subsidiary level. This is where the customers are met and where 99 per cent of the personnel work.
Corporate Responsibility in If P&C If is committed to promoting a society in which everyone is able to live safely and securely. Along with the police, rescue services, judiciary and other public authorities, the property and casualty insurance companies play a key role in creating a safe and secure society.
If endeavors to take its social responsibility beyond its business operations. Its principal objective is to constantly act in a manner that satisfies or exceeds the ethical, legal and commercial requirements placed upon the business. If P&C is a significant tax payer in the Nordic countries as the company paid corporate taxes for slightly more than EUR 200 million for the year 2013.
Corporate Taxes for the Year 2013 If P&C Insurance, more than 200 EURm in total
Online filing of claims is becoming more common and represents a more environmentally responsible choice than traditional filing methods. The number of claims filed online increased by 5 per cent in 2014 and more than 35 per cent of claims are filed online today.
ClimaClimatte impact:e impact: If’s carbon dioxide emissions have continued to decrease in 2014. In 2013, If launched a carbon offsetting scheme whereby it compensates for its emissions of carbon dioxide in the Nordic region by distributing energy-efficient wood-burning stoves to villages in India. The scheme is a so-called "Gold Standard project", which is an internationally recognized certification standard developed in collaboration with the World Wide Fund for Nature and other organizations. Not only do the woodburning stoves reduce carbon dioxide emissions, they also save lives. A report published by the World Bank shows that about four million people die each year from the pollutants emitted by inefficient woodburning stoves. If will continue with the similar offsetting program in 2015 as well.
Share of E-invoices in Vehicle Claims on a Nordic Level If P&C, 2010–2014
• If published an annual review called “The Heat is On”, which is based on IPCC’s the 5th assessment report.
Yearly Development of Flight Travel and Video Meetings If P&C, 2007–2014
If must take substantial measures to improve the environment on a daily basis.
• We always provide information about environmental risks and participate actively in the public debate concerning climate change.
• Local Environmental Groups formulate local action plans and arrange activities for increasing awareness of environmental issues. These groups exist at all larger offices.
Corporate Responsibility in Mandatum Life Mandatum Life’s impacts on society are significant: improving financial security and ensuring successful business operations contribute to a sustainable society. During 2014, Mandatum Life initiated strategic corporate responsibility work with the goal of assessing and measuring the company’s societal impacts from a financial and social aspect. Corporate responsibility work supports Mandatum Life’s business strategy, according to which Mandatum Life creates financial security for its customers through an innovative combination of wealth management and insurance.
The wealth management provided by Mandatum Life is based on taking into account the individual needs and risk tolerance of customers, careful selection of investments and versatile diversification. Mandatum Life’s Wealth Management signed the UN’s Principles for Responsible Investment (UN PRI) in 2011 and investment operations linked to the management of customers’ wealth are implemented according to these principles. Committing to the principles means incorporating issues concerning the environment, society and good corporate governance in the investment process and their promotion and inclusion in the reporting of investment operations. The company sees that, in the long run, successful companies are the ones that operate responsibly.
Supplementing pension cover is also a key part of improving financial well-being and preparing for the future. In the end of 2013, the portion of pensioners of the over 16-year-old population was already 25 per cent. The proportion of working-aged people will decrease over the following decades and the number of pensioners will increase. The change in the population structure is also forcing Finland’s pension system to reform. The objective of the 2017 pension reforms will be, among other things, the lengthening of careers, as a result of which the retirement age will be raised. Voluntary preparation for retirement will become even more important in future. Mandatum Life wishes to offer Finns a possibility to impact the sufficiency of their income during retirement by offering them sensible and cost-effective ways to save and invest for the future. By saving for one’s retirement, a person can elevate their standard of living or, if they wish, retire before the statutory pension age. For companies, Mandatum Life offers group pension insurance.
Mandatum Life’s services for entrepreneurs secure the continuity of their businesses and supplement the statutory cover of the entrepreneurs and their families. When faced with a serious illness or short period of disability, the entrepreneur can focus on rehabilitation, while in cases of death or permanent disability, the entrepreneur, his or her family, or possible other owner will receive financial assistance during a difficult time.
Securing personnel risks can mean, for example, offering employees personal risk insurance, through which the employer can provide a considerable improvement to the employee’s financial security in case of illness, disability or death, for example. The insurance thus also secures the livelihood of the employee’s family if worst comes to worst.
• The benefits of group pension insurance for employees are concrete: supplementing pension insurance guarantees a better income level during retirement.
• The entire personnel are insured in case of accidents, disability or death.
Successful Corporate Culture Based on Openness, Supervisory Work and Diverse Communication
At Mandatum Life focusing on the corporate culture is a strategic decision and an investment. The systematic management of well-being at work rests on personnel benefits, efficient internal communication and a committed management. Mandatum Life’s employees take an active role in developing their work environment and common working methods, and improving operating models. This results in new innovations and the construction of a pleasant and low-hierarchy workplace that values its employees. The low hierarchy in the organization is also obvious from the results of the Great Place to Work survey: up to 85 per cent of Mandatum Life employees feel that the management is easy to approach.
In recent years, Mandatum Life has made significant investments in benefits linked to occupational wellbeing and the well-being of its personnel. These efforts have produced results: the absence percentage is low at 2.7 per cent in 2014.
Additionally, Mandatum Life supports different forms of working and practices that facilitate daily work by offering, for example, possibilities for telecommuting and assistance in caring for a sick child.
CCorpororporaatte Goe Govvernancernance Se Statattementement Sampo complies in full with the Finnish Corporate Governance Code issued by the Securities Market Association, effective from 1 October 2010.
• Wahlroos holds 11,863,986 Sampo plc shares directly or through a controlled company.
VVicice Chairman of the Boare Chairman of the Boardd Born 1951
• Vuoria holds 36,477 Sampo plc shares directly or through a controlled company.
PrProfofesessor of Prsor of Practicacticee, Hank, Hanken School of Een School of Ecconomicsonomics Born 1957
Teleste Corporation, Board Member; Kelonia (Private Equity holding company), Board Member; Veritas Pension Company, Member of the Supervisory Board; Hanken School of Economics, Board Member and Chairman of the Investment Committee; Swedish Society of Literature in Finland, Member of the Investment Committee
• Fagerholm holds 1,254 Sampo plc shares directly or through a controlled company.
CEO of ACEO of Adine Grdine Graatte ABe AB Born 1961
PrPresident and CEO of Elisa Cesident and CEO of Elisa Corpororporaationtion Born 1961
Elisa Corporation, Board Member; Sigrid Jusélius Foundation, Deputy Board Member and Member of the Finance Committee; Nordea Funds (Nordea Alternative Investment, Nordea Funds of Funds, Nordea I Sicav), Board Member; The Finnish Foundation for Share Promotion, Chairman of the Board; Föreningen Konstsamfundet, Member of the Investment Committee; Sibelius Academy Foundation, Board Member
• Palin-Lehtinen holds 3,975 Sampo plc shares directly or through a controlled company.
PrPresident & CEOesident & CEO, Borr, Borregaaregaard Ad ASSAA Born 1957
Umkomaas Lignin (Pty) Ltd, Chairman of the Board; Inspiria Science Center, Board Member
Information as of 31 December 2014, unless stated otherwise. The CVs of members of the Board of Directors can be viewed at www.sampo.com/board.
Board of Directors' Duties The operating procedures and main duties of the Board of Directors have been defined in the Board's Charter.
The Board elects the Group CEO and President, the members of the Group Executive Committee and the Group Chief Audit Executive, and releases them from their duties. The Board also decides on the terms and conditions of their employment and on other compensation. In addition, the Board confirms the Group's staff planning targets and monitors their fulfillment, determines the grounds for the Group's compensation system and decides on other farreaching matters concerning the staff.
Election and Terms of Office of Board Members According to Sampo's Articles of Association, the company's Board of Directors comprises no fewer than three and no more than ten members elected by shareholders at the Annual General Meeting ("AGM").
The AGM of 2014 decided that the Board would consist of eight members until the close of the AGM to be held in 2015. The term of office of the Board members ends at the close of the AGM that first follows their election. The members of the Board elect a Chairman and Vice Chairman from among their members at their first meeting following the AGM.
BoarBoard-Appointd-Appointed Ced Committommitteesees The Board may appoint committees, executive committees and other permanent or fixed-term bodies for duties assigned by the Board. The Board confirms the Charter of Sampo's committees and Group Executive Committee, and also the guidelines and authorizations given to other bodies appointed by the Board.
According to its Charter, the Committee comprises at least three members elected from among those Board members who do not hold executive positions in Sampo and are independent of the company and of which at least one is independent of Sampo’s major shareholders. Also participating in the meetings of the
In 2014, the Chairman of the Audit Committee was Anne BrunilaAnne Brunila, and the other members were JannicaJannica FFagerholmagerholm, AAdine Grdine Graatte Axe Axénén and PPer Arthur Sørlieer Arthur Sørlie.
The Audit Committee convened four times in 2014 and the attendance of members at the meetings was 100 per cent.
Nomination and Compensation Committee The Nomination and Compensation Committee is entrusted to prepare and present proposals for Sampo's Annual General Meeting on the composition of the Board, the remuneration of Board members and the principles on which this remuneration is determined. The Committee consults the largest shareholders in these matters.
Furthermore, the Committee prepares a proposal for the Board on the appointment, employment conditions and other compensation of Sampo Group's Chief Audit Executive, 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 the development of corporate governance and confirming the criteria and processes used for the Board's selfevaluation.
GrGroup Exoup Executivecutive Ce Committommitteeee The Board of Directors has appointed the Sampo Group Executive Committee and a Group MD Committee to the Group Executive Committee, which supports the Group CEO in preparing matters to be handled by the Group Executive Committee.
The following persons served on the Group Executive Committee in 2014: GrGroup CEO and Proup CEO and President,esident, MD of Sampo plcMD of Sampo plc Born 1955
• Stadigh holds 285,693 Sampo plc shares directly or through controlled companies or persons closely associated with him.
CJSC If Insurance, Board Member; If Livförsäkring AB, Board Member; If P&C Insurance AS, Board Member
If P&C Insurance Holding Ltd, Board Member; Mandatum Life Insurance Company Limited, Vice Chairman of the Board
• Johansson holds 57,013 Sampo plc shares directly or through controlled companies or persons closely associated with him.
If P&C Insurance Holding Ltd, Board Member; Mandatum Life Insurance Company Limited, Board Member
If P&C Insurance Ltd, Chairman of the Board; If P&C Insurance Company Ltd, Chairman of the Board; Topdanmark A/S, Board Member; Swedish Insurance Federation, Board Member; Swedish Insurance Employer Association, Board Member; AcadeMedia Aktiebolag, Board Member; Insurance Europe, Vice President
• Magnusson holds 22,037 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Head of BusinesHead of Business Ars Area Cea Commerommercial, If Pcial, If P&C Insur&C Insurancancee Born 1961
• Martinsen holds 30,800 Sampo plc shares directly or through controlled companies or persons closely associated with him.
• Niemisvirta holds 58,404 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Head of BusinesHead of Business Ars Area Privea Privaattee, If P, If P&C Insur&C Insurancancee Born 1971
Head of BHead of BA Baltic;A Baltic; Head of PrivHead of Privaatte (Finland);e (Finland); MD of If PMD of If P&C Insur&C Insurancance Ce Companompany (Finland)y (Finland) Born 1964
If P&C Insurance AS, Chairman of the Board; Kaleva Mutual Insurance Company, Board Member; Federation of Finnish Financial Services, Non-life Executive Committee, Member
• Vuorinen holds 21,662 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Deputy MDDeputy MD, If P, If P&C Insur&C Insurancance Holding Le Holding Lttdd Born 1969
If P&C Insurance Company Ltd, Board Member; If P&C Insurance AS, Board Member; CJSC If Insurance, Board Member; Nobia AB, Board Member
GrGroup CEO and Proup CEO and Presidentesident The company has a Managing Director who is simultaneously Group CEO and President of Sampo Group.
The Board of Directors elects and releases the Group CEO, and decides on the terms of employment and other compensation. The Managing Director of the
company and the Group CEO and President of Sampo Group is Mr. KKari Sari Stadightadigh, M.Sc. (Eng.), BBA (Econ.).
According to his current agreement the Group CEO is entitled to retire in December 2015 when he turns 60.
RRemuneremuneraationtion Fair and rewarding remuneration to all employees is an important factor in Sampo Group’s ability to enhance shareholder value in a competitive business environment. Remuneration is an equally important determinant of success in the competition for talent. Sampo's remuneration strategy is responsible both towards the employees and the shareholders and, consequently, long-term financial stability and value creation of the Group guides the design of compensation schemes.
Sampo plc's Board of Directors has approved common Remuneration Principles applicable to all companies within Sampo Group.
In accordance with the decision of the Annual General Meeting in 2014, the following annual fees will be paid to the members of the Board of Directors for their Board and committee work up to the close of the Annual General Meeting in 2015: EUR 160,000 to the Chairman, EUR 100,000 to the Vice Chairman, and EUR 80,000 to the other members of the Board, with approximately 50 per cent of each Board member's fee being paid, after taxes and corresponding charges, in Sampo A shares and the rest in cash. In addition, potential statutory social and pension costs incurring to non-Finnish members according to applicable national legislation will be borne by Sampo plc.
Principles of the Remuneration System In addition to receiving monthly salaries, executives who are members of the Group Executive Committee are participants in the Group's short-term incentive programs, which are decided upon separately each year. Short-term incentives are determined on the basis of the Group result, business area result and individual performance. The maximum amount that can be paid for 2014 to members of the Executive Committee is an amount corresponding to nine months' fixed salary.
Based on his employment contract, the Group CEO will be paid a fixed monthly salary and a yearly shortterm incentive, which may be no more than an amount corresponding to nine months' fixed salary. The Group CEO is also participating in the long-term incentive programs 2011 I and 2014 I for Sampo's management.
IntInternal Aernal Auditudit Sampo's Internal Audit is a function independent of business operations, which evaluates the sufficiency and effectiveness of the internal control system and the quality with which tasks are performed in Sampo Group. The Internal Audit reports to the Group CEO.
The Internal Audit has been organized to correspond with the business organization.
The Audit Committee of Sampo's Board of Directors annually approves the Internal Audit's operating plan. The Internal Audit reports on the audits performed to the Group CEO and the Audit Committee. Company-
specific audit observations are reported to the respective companies' governing bodies and management.
Sampo's Board of Directors, the international professional standards approved by the IIA (the Institute of Internal Auditors).
Insider AInsider Adminisdministrtraationtion Given the nature of Sampo's business areas, especially bearing in mind their extensive investment activities, Sampo's Board of Directors has approved a separate Group Guideline for Insiders. These comply, as required by the Corporate Governance Code, with Nasdaq Helsinki Ltd's Guidelines for Insiders and the Standards of the Financial Supervisory Authority.
Board of Directors' Report 54 Sampo Group 56 Business Areas 56 P&C Insurance 59 Associated Company Nordea Bank AB
72 Group Solvency 73 Debt Financing 74 Outlook 75 Dividend Proposal 76 Key Figures 78 Calculation of the Key Figures 78 Group Key Figures 79 P&C Insurance Key Figures 81 Life Insurance Key Figures 81 Per Share Key Figures
Sampo GrSampo Groupoup Sampo Group’s results for 2014 were good. P&C insurance achieved a best-ever combined ratio 87.7 per cent for the full year 2014. Nordea continued to deliver on the efficiency programs and reported its best ever profit before taxes. Life insurance also improved further its operational efficiency. Sampo Group’s profit before taxes for 2014 amounted to EUR 1,759 million (1,668). Total comprehensive income for the period, taking changes in the market value of assets into account, decreased to EUR 1,179 million (1,425) largely as a result of weakened Swedish and Norwegian kronas.
Earnings per share were EUR 2.75 (2.59). Mark-tomarket earnings per share were EUR 2.11 (2.54). The return on equity for the Group decreased to 10.9 per cent for 2014 (13.8) mainly due to the negative currency rate development. Net asset value per share at the end of 2014 increased to EUR 22.63 (22.15).
Sampo Group’s total investment assets on 31 December 2014 amounted to EUR 19.2 billion (17.9), of which 78 per cent was invested in fixed income instruments (80), 16 per cent in equities (15) and 6 per cent in other assets (5). The growth was mainly due to the transfer of Suomi Mutual’s group pension insurance portfolio to Mandatum Life on 30 December 2014.
The Group’s equity as at 31 December 2014 amounted to EUR 10,924 million (10,643). Equity was strengthened mainly by the comprehensive income for the year of EUR 1,179 million and reduced by the EUR 924 million of dividends paid. Other changes were small.
The strong focus on underwriting and cost efficiency continued in the P&C insurance segment also in 2014 and the profit before taxes for the segment rose to EUR 931 million (929). Combined ratio for the full year 2014 was the best ever in If P&C’s history and amounted to 87.7 per cent (88.1). EUR 2 million (79) was released from technical reserves relating to prior year claims.
margin (technical result in relation to net premiums earned) remained stable at 13.2 per cent (13.3).
Return on equity (RoE) decreased to 18.1 per cent (24.4). Fair value reserve for If P&C rose to EUR 507 million (472) at the end of December 2014.
In Sweden, the risk ratio deteriorated by 1.7 percentage points as the decline in discount rates used to discount the annuity reserves together with negative large claims outcome affected the Swedish result. The Swedish discount rate used to discount the annuity reserves decreased to 0.58 per cent by the end of the year. At the end of 2013 the discount rate was 1.19 per cent. In Finland, the discount rate for annuities was lowered from 2.5 per cent to 2.0 per cent in the fourth quarter of 2014.
Gross written premiums decreased to EUR 4,634 million (4,768) as a result of the weakened Norwegian and Swedish kronas. Adjusted for currency premiums increased 1.7 per cent. Premiums grew in all business areas except Industrial. In Private gross written premiums adjusted for currency increased 3.2 per cent, in Commercial 0.2 per cent and in the Baltic operations by 4.9 per cent. Gross written premiums in Industrial decreased by 2.6 per cent.
At the end of December 2014 the total investment assets of If P&C amounted to EUR 11.5 billion (11.7).
Net income from investments decreased to EUR 353 million (368). Investment return mark-to-market for 2014 was 4.1 per cent (5.0).
If P&C’s solvency ratio as at 31 December 2014 (solvency capital in relation to net written premiums) amounted to 82 per cent (81). Solvency capital amounted to EUR 3,544 million (3,601), although a dividend of SEK 5.5 billion (EUR 597 million) was paid to Sampo plc in the fourth quarter. Reserve ratios were 161 per cent (160) of net written premiums and 237 per cent (227) of claims paid.
Torbjörn Magnusson, Sampo Group’s Head of P&C insurance, was nominated to Topdanmark’s Board at the AGM on 10 April 2014.
Associated Company Nordea Bank AB 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 2014 Sampo plc held 860,440,497 Nordea shares corresponding to a holding of 21.2 per cent. The average price paid per share amounted to EUR 6.46 and the book value in the Group accounts was EUR 8.21 per share. The closing price as at 30 December 2014 was EUR 9.68.
Nordea’s Board of Directors proposes to the AGM 2015 a dividend of EUR 0.62 per share (0.43). The Board’s ambition is to continue increasing the pay-out ratio for 2015, while maintaining a strong capital base. If the AGM approves the Board’s dividend proposal, Sampo plc will receive a dividend of EUR 533 million from Nordea on 30 March 2015.
Diluted EPS (cont.oper.), EUR 0.83 0.77 - *) Excluding non-recurring income and cost items in Q2 and Q3 2014 – capital gain of EUR 378 million and charge for impairment of intangible assets of EUR 344 million in Q3 2014 and restructuring costs of EUR 190 million in Q2 2014.
Net interest income was up 2 per cent in local currencies (down 1 per cent in EUR) compared to last year. Lending volumes were up 4 per cent in local currencies excluding reversed repurchase agreements. Corporate and household lending margins were higher, while deposit margins overall were down from one year ago.
Net fee and commission income increased 10 per cent in local currencies (+8 per cent in EUR) and the net result from items at fair value decreased by 6 per cent in local currencies (-7 per cent in EUR) compared to last year.
items and variable pay, costs were down by 2.2 per cent. Total expenses in the full year 2014 excluding the restructuring costs and the charge for impairment of intangible assets were EUR 4,832 million.
Net profit including non-recurring items increased 9 per cent in local currencies (+7 per cent in EUR) to EUR 3,332 million and net profit as basis for dividend distribution increased 17 per cent in local currencies (+15 per cent in EUR) to EUR 3,593 million.
The impact from currency fluctuations was a reducing effect of 3 percentage points on income and expenses and approx. -3 percentage points on loan and deposit volumes compared to a year ago.
REA was EUR 145.5 billion, a decrease of EUR 7.1 billion compared to the previous quarter. A reduction in REA of EUR 4.4 billion has been realized in the quarter following the continued focus on capital management.
The expense result for life insurance segment continued to develop favorably and increased to EUR 19 million (14). Risk result remained almost unchanged at EUR 23 million (24).
Mandatum Life Group’s premium income on own account increased 4 per cent to EUR 1,105 million
Allocation of Investment Assets (excl. the Segregated Portfolio) Mandatum Life, 31 December 2014, total EUR 5.3 billion
(1,063). Main sales channels, Danske Bank and Mandatum’s own Wealth Management unit, performed well and premiums from unit linked policies reached an all-time high EUR 961 million (909). Premium income from the Baltic countries amounted to EUR 40 million (32). Mandatum Life’s market share in Finland was 17.9 per cent both overall and in unit-linked. A year earlier the market shares were 19.3 and 19.2 per cent, respectively. Market share in the Baltic countries was 11 per cent (10).
Sampo plc’s holding in Nordea Bank was booked in the consolidated balance sheet at EUR 7.1 billion. The market value of the holding was EUR 8.3 billion, i.e. EUR 9.68 per share, at 31 December 2014. In addition the assets on Sampo plc’s balance sheet included holdings in subsidiaries for EUR 2.4 billion (2.4).
GoGovvernancernancee Sampo Group complies in full with the Finnish Corporate Governance Code issued by the Securities Market Association, effective from 1 October 2010.
Acting in compliance with Recommendation 54 of the Corporate Governance Code, Sampo has annually published a separate Corporate Governance Statement on its website in fulfillment of the requirement referred to in the Finnish Securities
Administration On 7 May 2014 Sampo Group’s Board of Directors nominated Knut Arne Alsaker as a member of Group Executive Committee starting from 1 July 2014.
Alsaker is Chief Financial Officer and Executive Vice President of If P&C.
The life operations were reorganized into a life insurance group. Mandatum Life Insurance Co. Ltd. is the parent company of the group with five subsidiaries. The change has no impact on the company’s strategy, management or way of operating. The life insurance company will consist of sales functions and all the functions required by the Insurance Companies Act. The new subsidiaries are Mandatum Life Services Ltd, Mandatum Life Investment Services Ltd. and Mandatum Life Fund Management S.A. The operations of Innova Services Ltd. and Mandatum Life Insurance Baltic SE will continue as before.
Annual General Meeting The Annual General Meeting of Sampo plc, held on 24 April 2014, decided to distribute a dividend of EUR 1.65 per share for 2013. The Annual General Meeting adopted the financial accounts for 2013 and discharged the Board of Directors and the Group CEO and President from liability for the financial year.
The Annual General Meeting decided to pay the following fees to the members of the Board of Directors until the close of the 2015 Annual General Meeting: the Chairman of the Board will be paid EUR
Mandatum Life’s aim is to improve financial security and ensure successful business operations of its clients. Corporate responsibility work supports Mandatum Life’s business strategy, according to which Mandatum Life creates financial security for its customers through an innovative combination of wealth management and insurance. At the heart of financial responsibility lies the sustainable and responsible management of customers’ insurancerelated liabilities and customer investments.
Personnel Finance is a fiercely competitive industry and, consequently, value creation rests on operational excellence and on continuous and rapid renewal. During 2014, several large personnel actions were taken in P&C insurance operations to increase efficiency and develop the business to better respond to the toughening competition. Also life insurance operations focused on improving operational efficiency and enhancing expertise to meet the needs of the market.
During 2014, If P&C reorganized the Nordic commercial underwriting organization and the Finnish claims services, marketing and IT departments. The changes were made due to implementation of Nordicwide IT systems, a decrease in claims volumes and remaining overlaps from the Tryg integration process. Some structural and personnel changes took place in the Estonian sales unit as well. As a consequence, the number of staff in P&C insurance decreased slightly in Finland. The total number of staff in P&C insurance declined one per cent during the year 2014, and as of 31 December 2014, P&C insurance employed 6,158 persons.
Remuneration Remuneration in Sampo Group is based on the Remuneration Principles that apply to all companies within Sampo Group. Sampo plc’s Board of Directors approved the updated Sampo Group Remuneration Principles on 17 September 2014.
The starting point of any compensation mechanism shall be to encourage and stimulate employees at all levels to do their best and surpass their targets. Remuneration packages shall be designed to reward employees on all levels, compensating them fairly for prudent and successful performance. At the same time, however, in order to safeguard the interest of other stakeholders, compen-sation mechanisms shall neither entice nor encourage employees to excessive or unwanted risk taking.
To ensure the achievement of the wanted steering effects and to make them risk sensitive, each compensation component, as more specifically defined in company-specific Remuneration Policies, shall be designed in parallel both with the Group’s general and each company’s own, more specific risk management framework. Thus, the leading idea of Sampo’s Remuneration Principles is that all compensation shall be linked to different risks and responsibilities inherent with various business processes.
The payment of a certain portion of the variable compensation payable to senior executive management and to certain key persons shall be deferred for a defined period of time as required in the regulatory framework applicable to each Group company. After the deferral period, a retrospective risk adjustment review shall be carried out and the Board shall decide whether the deferred variable compensation shall be paid out in full, partly or cancelled in whole. For the year 2014, parts of both short-term and long-term incentives have been deferred. For the operative year 2014, altogether EUR 9.3 million has been deferred.
a period of approximately three years starting from the issue of the respective program. The programs are subject to thresholds on share price development and company profitability, as well as ceilings for maximum payout. Furthermore, the programs are subject to rules requiring part of the paid incentive reward to be used to acquire Sampo shares, which must in turn be held for a specified period of time. The result impact of the long-term incentive schemes in force in 2014 was EUR 34 million (42).
Sampo plc's Board of Directors decided on 17 September 2014 to adopt a new long-term incentive scheme 2014:1 for the management of Sampo Group (including the Managing Director of Sampo plc) and other separately named key employees of Sampo
The terms of the long-term incentive schemes are available at www.sampo.com/incentiveterms.
Sampo Group will also publish a Remuneration Report in March 2015. The report is drawn up in accordance with section 7 (Remuneration) of the Corporate Governance Code. The report will be available at www.sampo.com/remuneration.
Risk Management In Sampo Group the risks associated with business activities fall by definition into three main categories: strategic risks associated with external drivers affecting the business environment, reputational risk associated with the company’s business practices or associations and risks inherent in business operations.
Sampo Group companies operate in business areas where a specific feature of value creation is pricing of risks and active management of risk portfolios in addition to sound customer services. Thus successful management of underwriting risks and investment portfolio market risks is the main source of earnings for Sampo Group companies.
Meanwhile, B shares must number at least zero and no more than 4,800,000. As at 31 December 2014 Sampo plc's share capital amounted to EUR 98 million (98) and the equity capital in total to EUR 10,924 million (10,643).
Sampo plc’s Articles of association contain a redemption obligation (16§) according to which a shareholder whose holding of all shares or of all votes
relating to the reaches or exceeds 33 1/3 per cent or 50 per cent, is obliged to redeem, at the presentation of claims by other shareholders, their shares and the documents giving entitlement to the shares, as stipulated in the Finnish Companies Act, in the manner prescribed in the Article. The Article contains further provisions on calculating the shareholder’s holding and redemption price.
Authorizations Granted to the Board The Annual General Meeting of 2014 authorized the Board to acquire in one or several lots a maximum of 50,000,000 Sampo A shares. Shares can be repurchased in other proportion than the shareholders’ proportional shareholdings (private repurchase). The share price will be no higher than the highest price paid for Sampo shares in public trading at the time of purchase. The authorization is valid until the close of the next Annual General Meeting, nevertheless not more than 18 months after AGM’s decision.
Sampo plc made no repurchases during 2014 and has not purchased its own shares after the end of the reporting period.
(11,920,709) Sampo A shares. Their combined holdings constituted 2.1 per cent (2.1) of the share capital and related votes.
BoarBoard of Dird of Directectorsors 31 Dec 201431 Dec 2014 31 Dec 201331 Dec 2013
Shares Owned by the Board of Directors and by the Group Executive Committee Sampo plc, 31 December 2014 and 31 December 2013
On 28 January 2015 Nordea Bank AB’s Board of Directors proposed to the Annual General meeting to be held on 19 March 2015, a dividend of EUR 0.62 per share. With its current holding Sampo plc’s share amounts to EUR 533 million. The dividend is proposed to be paid on 30 March 2015.
Ratings All the ratings for Sampo Group companies remained unchanged in 2014.
Group Solvency Nordea Bank AB (publ) has been Sampo plc’s associated company since 31 December 2009. Under the Act on the Supervision of Financial and Insurance Conglomerates (2004/699), Sampo Group is therefore treated as a financial and insurance conglomerate.
EURmEURm 31 Dec 201431 Dec 2014 31 Dec 201331 Dec 2013
Debt Financing Sampo plc’s debt financing on 31 December 2014 amounted to EUR 2,192 million (2,027) and interest bearing assets to EUR 1,233 million (980). Interest bearing assets include bank accounts, money market instruments and EUR 465 million of hybrid instruments issued by the subsidiaries and associates. During 2014 the net debt decreased EUR 88 million to EUR 960 million (1,048). Gross debt to Sampo plc’s equity was 31 per cent (29).
In September 2014 Sampo plc issued a 7-year senior bond of EUR 500 million with a coupon of 1.50 per cent under the Euro Medium Term Note Programme. The proceeds were partly used to refinance a EUR 300 million senior bond that matured in early October 2014.
IsIssued Debt Inssued Debt Instrumentstruments CCouponoupon SSwwapap EffEffectivective Rae Rattee MaMaturity Daturity Dattee
Senior Bond 500 EURm (EMTN) 4.2500% Euribor3M + 2.7910% 2.8720% 27.2.2017
Senior Bond 2,000 SEKm (EMTN) Stibor3M + 1.45% - 1.7210% 29.5.2018
To balance the risks on the Group level Sampo plc’s debt is mainly tied to short-term interest rates and issued in euro or Swedish krona. Interest rate swaps are used to obtain the desired characteristics for the debt portfolio. These derivatives are valued at fair value in the profit and loss account although economically they are related to the underlying bonds. As a result Sampo plc maintains the flexibility to adjust derivative position if needed but this comes at the cost of increased volatility in the Holding segment’s net finance costs.
More information on Sampo Group’s outstanding debt issues is available at www.sampo.com/debtfinancing.
Other sources of uncertainty are unforeseen structural changes in the business environment and already identified trends and potential wide-impact events. They both may have also long-term impact on how business shall be conducted.
The dividend will be paid to shareholders registered in the Register of Shareholders held by Euroclear Finland Ltd as at the record date of 20 April 2015. The Board proposes that the dividend be paid on 28 April 2015.
KKeey Figury Figureses GrGroup koup keey figury figureses 20142014 20132013 20122012 20112011 20102010
Return on equity (at fair values) % 10.910.9 13.8 19.9 7.7 21.8
Combined ratio excl. unwinding of discount % 87.787.7 88.1 88.9 92.0 92.8 *) Based on the financial statements of If Group.
Premiums written before reinsurers' share EURm 1,1101,110 1,068 983 854 1,117
Capital and reserves per share EUR 19.5119.51 19.01 17.89 15.93 15.83
Net asset value per share EUR 22.6322.63 22.15 17.38 14.05 17.79
Average adjusted number of shares 1,000 560,000560,000 560,000 560,000 560,863 561,321
Share trading volume during the financial year 1,000 194,492194,492 188,402 252,821 399,759 381,863
Adjusted number of shares at 31 Dec. 1,000 1,2001,200 1,200 1,200 1,200 1,200
Average adjusted number of shares 1,000 1,2001,200 1,200 1,200 1,200 1,200
³) The Board of Director's proposal to the Annual General Meeting for the accounting period 2014.
CalculaCalculation of the Ktion of the Keey Figury Figureses The key figures have been calculated in accordance with the decree issued by the Ministry of Finance and the specifying regulations and instructions of the Financial Supervisory Authority. The Group solvency has been calculated according to the consolidation method defined in Chapter 3 of the Act on the Supervision of Financial and Insurance Conglomerates.
Group solvency ratio, % own funds minimum requirements for own funds x 100%
+ subordinated loans - deferred tax liability probably realised in near future
Solvency ratio (IFRS), % solvency capital premiums earned from 12 months x 100%
Profit before taxes Formula shown above in connection with the Group key figures.
- reinsurers’ share of insurance liabilities - 75% x technical provisions relating to unit-linked insurance
85 Sampo Group’s Operations and Risks 85 Risks 88 Business Model and Risk Management 89 Sampo Group Steering Principles and Risk Management Process 90 Parent Company's Guidance 90 Subsidiaries’ Activities and Risk Management 93 Parent Company’s Oversight and Activities 94 Risk Governance 98 Underwriting Risks 99 Non-life Insurance Underwriting Risks 105 Life Insurance Underwriting Risks 112 Investment Portfolio Market Risks 114 Asset Allocations and Investment Returns 119 Interest Rate and Currency Risks 121 Equity and Spread Risks 131 Counterparty Default Risks 134 ALM Risks 136 Economic Value Risks 137 Liquidity Risks 140 Operational Risks
Sampo GrSampo Group’oup’s Opers Operaations and Risktions and Riskss Sampo Group is engaged in three business areas. Nonlife insurance and life insurance are conducted by subsidiaries If P&C Insurance Holding Ltd and Mandatum Life Insurance Company Ltd that are wholly owned by parent company Sampo plc. In addition to the insurance subsidiaries, Group’s parent company Sampo plc held, as at 31 December 2014, an equity stake of 21.25 percent in Nordea Bank AB (publ) through which Sampo Group is engaged in banking business and exposed to respective risks. Nordea is Sampo plc’s associated company and thus has a material effect on the Group’s profits and risks. However, Nordea operates independently and the company’s risk management is therefore not covered in Sampo Group’s Annual Report.
There are virtually no overlaps between the subsidiaries’ insurance businesses’ risks and therefore the subsidiaries’ underwriting activities can be managed and developed as separate units supported only by limited group wide coordination. Investment activities, on the other hand, are centralized to manage risks at group level as well. The persons responsible for managing the subsidiaries’ investments report directly to Sampo Group’s Chief Investment Officer. Also the IT systems used in investment activities are the same throughout the Group facilitating consistent analysis and reporting of investment risks as well as assessment of risks at group level. Furthermore, the same basic principles are primarily followed in the investment activities of both subsidiaries, although the risk level of If P&C’s investment portfolio is held significantly lower than the risk level of Mandatum Life’s investment portfolio due to different features of their insurance liabilities.
Risks In Sampo Group the risks associated with business activities fall by definition into three main categories: strategic risks associated with external drivers affecting the business environment, reputational risk associated with the company’s business practices or associations and risks inherent in business operations. The first two risk classes are only briefly described in this Risk management report and focus is on the third risk class.
innovations. As a result of these external drivers, business models of the industry can change, new competitors may appear and customer demand and behavior can change.
Hence, corporate culture, which is based on core values ethicality, loyalty, openness and entrepreneurship, is seen as an essential tool in preventing reputational risk in Sampo Group. These core values are reflected in Sampo Group’s Corporate Governance system and in how Sampo deals with core stakeholders (i.e. customers, personnel, investors, other co-operation partners, tax authorities and supervisory authorities) and other parties, who may have interest in Sampo’s business.
Some risks, such as counterparty default risks and operational risks are indirect consequences of Sampo’s business activities. They are one-sided risks, with no earnings potential related to them. Accordingly, the risk management objective is to mitigate these risks efficiently. Management of consequential risks is the responsibility of the business areas and the investment unit and the capital need for these risks is measured by independent risk management functions. It has to be noted that the categorization of risks between earnings and consequential risks varies depending on the industry. For Sampo Group’s clients, for instance, the events that are subject to insurance policies are consequential risks and for Sampo Group these same risks are earnings risks.
Some risks such as interest rate, currency and liquidity risks are by their nature linked to various activities simultaneously. In order to manage these risks efficiently Sampo Group companies have to have a detailed understanding of expected cash flows and their variance within company’s all activities. In addition, a thorough understanding of how the market consistent values of assets and liabilities may fluctuate at the total balance sheet level under different scenarios is needed. These balance sheet level risks are commonly defined as Asset and Liability Management (ALM) risks. In addition to interest rate, currency and liquidity risk, inflation risk and risks relating to GDP growth rates are central ALM risks in Sampo Group. The ALM risks are one of the focus areas of the senior management because of their complexity and relevance to risks and earnings in the long run.
Concentrations can evolve within separate activities – large single name or industry specific insurance or investment exposures – or across the activities when a single name or an industry is contributing widely on profitability and risks of the company through both insurance and investment activities.
To create value for stakeholders, Sampo Group companies must, in addition to financial flexibility (adequate capital and liquidity), have intellectual capital (comprehensive proprietary actuarial data and analytical tools in place to convert this data to information), human capital (skillful and motivated employees) and social and relationship capital (good relationships with society and clients to understand their changing needs).
At company level, management is using these capitals when implementing the following core activities related to risk pricing, risk taking and active management of risk portfolios.
Sampo GrSampo Group Soup Stteering Principles andeering Principles and Risk Management PrRisk Management Prococesesss Sampo Group’s legal structure is straightforward and simple. The simplicity and transparency of the legal structure together with a limited amount of intercompany exposures within Sampo Group (i.e. direct or indirect claims between different companies excluding normal business transactions with Nordea) and diligently managed capitalization of subsidiaries effectively prevent any risks related to complex structures as well as protect the Group companies from contagion risks. Further information on Sampo Group’s structure is available at www.sampo.com/ structure.
The subsidiaries do not normally invest in Sampo plc’s debt instruments, but Sampo plc as a parent company invests in capital instruments issued by subsidiaries and associated companies. However, it has not been deemed necessary to prohibit investments in intragroup assets and, thus, subsidiaries are also allowed to invest in the parent company’s debt instruments and sell assets to each other at market prices, especially when this is justified by business opportunities. Thus, during possible market stresses these options are available to a certain extent as well. Moreover, in Mandatum Life there may be investments in Sampo plc’s debt instruments related to unit-linked policies.
CapitalizaCapitalization:tion: The basis for capitalization is the internally estimated amount of economic capital which reflects the capital employed in the company’s measurable risks. In addition, the perceived riskiness of the company’s business environment is taken into account in assessing capitalization. Capitalization is also affected by rating targets of which If P&C’s single A rating by Standard & Poor’s (S&P) is the most important one.
These aspects, together with the regulatory capital requirement, are the main aspects when parent company is assessing the adequate level of capitalization for each subsidiary and the amount of dividends distributed by the subsidiaries to the parent company. In Sampo Group the excess capital from an operational point of view is held by the parent company Sampo plc which capitalizes the subsidiaries if needed.
The Board of Directors of the parent company decides on the main guidelines governing the subsidiaries’ business activities and risk management. Of these guidelines the most significant are Code of Conduct, Risk Management Principles, Remuneration Principles and Compliance Principles. In addition to these guidelines, for example Disclosure Policy is followed in order to prevent reputational and compliance risks.
Subsidiaries’ Activities and Risk Management Subsidiaries can organize their activities independently taking into account the specific characteristics of their operations and the guidance from parent company relating to targets, capitalization and the group wide principles. The stakeholders’ expectations and external regulations affect the subsidiaries’ activities directly as well.
Sampo Group’s subsidiaries decide independently on the governance structure of their operations. The executive management of the subsidiaries have extensive experience in the insurance industry as well as in financial and risk management. The members of different committees and governing bodies represent expertise related to business and other functions. The subsidiaries’ operations are monitored by the different governing bodies and ultimately by the Boards of Directors whose members are mainly in senior management positions in Sampo plc.
At operative level, the subsidiaries are focusing on effective execution of insurance operations and financial and risk management activities. Investments are managed according to the Investment Policies which are approved by the Board of Directors of the respective subsidiaries. Parent company led, day-today management of investments facilitates simultaneously effective execution of subsidiaries’ investment policies and group wide oversight of investment portfolios.
personnel involved in business activities and partly a responsibility of independent risk management specialists. Although the responsibilities of business lines and independent risk management are clearly segregated, these functions are in a continuous dialogue.
The figure Company Level Risk Management System illustrates the (i) prerequisites, (ii) tasks and (iii) targets of company level risk management.
Financial and risk management functions are explicitly responsible for preparing the above prerequisites of risk management. Operationally they are responsible for independent measurement and control, including monitoring of operations in general as well as profitability, risk and capitalization calculations. The following items are examples of these responsibilities: Company Level Risk Management System
• Detailed reporting on risks to subsidiaries’ and Sampo plc’s Risk Committees and the Boards of Directors
• Internal reporting on regulatory and rating agency capital charges and capital positions on a quarterly basis
Both the business lines and the financial and risk management functions are active in supporting the business with continuous analysis and assessment of opportunities. This can be seen as a separate phase in the risk management process as the insurance and investment business units on a daily basis assess different business opportunities and especially their risk return ratios. In financial and risk management functions, on the other hand, considerable amount of time is spent on risk assessment and capital planning. This assessment of opportunities generates for example the following outputs: • Identification of business opportunities (e.g. product and service development and investment opportunities) and analysis of respective earnings potential and capital consumption
• Intra-group and external dividend plans • Hybrid and senior debt issuance initiatives
• Dividend payments, share buy-backs, hybrid issuances and senior debt issuances
• Corporate structure, knowledge and processes in companies facilitate effective implementation of changes.
At group level the central focus areas are potential concentrations arising from the Group companies’ operations as well as the Group’s capitalization and liquidity position. The parent company is also projecting and analyzing the Group companies’ profitability, risks and capitalization with uniform scenarios to have company specific forecasts that are additive at group level.
Policies are in place for each risk area specifying restrictions and limits chosen to reflect and secure that the risk level at all times complies with the overall risk appetite and capital adequacy constraints of If P&C. The committees shall also monitor the
effectiveness of policies and give input to changes and updates if needed.
In addition to the risk specific committees, there are two other committees included in the Risk Governance structure. Their responsibilities are described as follows: • The Ethics Committee (EC) discusses and coordinates ethics issues in If P&C. The committee gives recommendations on ethical issues and proposes changes to the Ethics Policy. The Chairman is responsible for the reporting on ethics risk and other issues dealt with by the committee.
• The Internal Model Committee is an advisory and preparatory body to the Boards of Directors and the CEOs. In accordance with the committee instruction its tasks are to identify sources for potential model changes and to give its opinion to the Chairman on the assessment and classification of potential changes and on further validation activities or internal model development. In addition to the tasks above, the committee discusses and analyzes information related to the internal model from other committees as well as monitors the status of internal model use and development activities.
The reporting lines of the main governing bodies in Mandatum Life are described in the figure Risk Governance in Mandatum Life. The duties of Asset & Liability, Insurance Risk and Operational Risk Committees are described later in the context of each relevant risk.
• The Baltic subsidiary has its own risk management procedures. All major incidents are also reported to Mandatum Life’s Risk Management Committee. The Chairman of the Baltic Subsidiary is a member of the Risk Management Committee.
The Group Chief Risk Officer (CRO) is responsible for the appropriateness of risk management on Sampo Group level. The CRO’s responsibility is to monitor Sampo Group’s aggregated risk exposure as a whole and coordinate and monitor company specific and group level risk management.
The Boards of Directors of If P&C and Mandatum Life are the ultimate decision making bodies of the respective companies and have the overall responsibility for the risk management process in If P&C and Mandatum Life respectively. The Boards of Directors appoint the If P&C ORSA Committee and the Mandatum Life Risk Management Committee and are responsible for identifying needs to change the policies, principles and instructions related to risk management.
Hence, there are no material underwriting risk concentrations under normal course of business and, consequently, business lines as such are contributing diversification benefits rather than concentration of risks. This is why Underwriting risks can be described only at Company level.
Non-life Insurance Underwriting Risks Underwriting risk is the risk of loss, or of adverse changes in the value of insurance liabilities, due to inadequate pricing and provisioning assumptions. Non-life insurance underwriting risks are often divided into premium and catastrophe risks and reserve risk in order to separate the risks related to future claims of current insurance contracts and already incurred claims.
The Underwriting Committee (UWC) shall give its opinion on and propose actions in respect of various issues related to underwriting risk. The committee shall also consider and propose changes to the Underwriting Policy (UW Policy) that is the principal document for underwriting, and sets general principles, restrictions and directions for the underwriting activities. The Board of Directors of If P&C approves the UW Policy at least once a year. The Chairman of UWC is responsible for the reporting of policy deviations and other issues dealt with by the committee.
Despite the diversified portfolio, risk concentrations and thereby severe claims may arise through, for example, exposures to natural catastrophes such as storms and floods. The geographical areas most exposed to such events are Denmark, Norway and
Sweden. In addition, single large claims could have an impact on the insurance operations’ result. The economic impact of natural disasters and single large claims is managed using reinsurance and through diversification.
Breakdown of Gross Written Premiums by Country If P&C, 2014, total EURm 4,634
Breakdown of Gross Written Premiums by Line of Business If P&C, 2014, total EURm 4,634
If P&C’s Reinsurance Policy stipulates guidelines for the purchase of reinsurance. The need and optimal choice of reinsurance is analyzed based on statistical models for single large claims, while If P&C cooperates with external advisors for the evaluation of the exposure to natural catastrophes and the probability of occurrence of catastrophe losses. The analysis relies on If P&C’s Internal Model, including catastrophe models in which catastrophes are simulated based on historical meteorological data, supplemented by statistical models as well as internal and external expert opinions. Different reinsurance structures are evaluated by looking at the expected costs versus the benefits of reinsurance, their impact on result volatility and decreased capital requirement.
A group wide reinsurance program has been in place in If P&C since 2003. In 2014, retention levels were between SEK 100 million (approximately EUR 10.6 million) and SEK 250 million (approximately EUR 26.6 million) per risk and SEK 250 million (approximately EUR 26.6 million) per event.
Combined ratio, business area Private 87.4% +/- 1 percentage point +/- 26 +/- 26
Combined ratio, business area Commercial 88.6% +/- 1 percentage point +/- 13 +/- 13
Combined ratio, business area Baltics 86.8% +/- 1 percentage point +/- 1 +/- 1
Net premiums earned 4,457 +/- 1 per cent +/- 45 +/- 45
Ceded written premiums 170 +/- 10 per cent +/- 17 +/- 21
Technical provisions and economic value of insurance liabilities always include a degree of uncertainty as they are based on estimates of the size, timing and the frequency of future claim payments. The uncertainty 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. Workers’ Compensation (WC), Motor Third Party Liability (MTPL), Personal Accident and Liability insurance, are products with the latter characteristics.
technical provisions are to be calculated and for assessing whether the level of the total provisions is sufficient. At group level the Chief Actuary issues a quarterly report on the adequacy of technical provisions, which is submitted to the Boards of Directors, CEO, CFO and the ORSAC of If P&C.
The Actuarial Committee (AC) is a preparatory and advisory body for If P&C’s Chief Actuary. The committee shall secure a comprehensive view over reserve risk, discuss and give recommendations on policies and guidelines for calculation of technical provisions, as well as consider and propose changes to the Risk Data Policy.
The actuaries continuously monitor the level of provisions to ensure that they comply with established guidelines. The actuaries also develop methods and systems to support these processes.
The anticipated inflation trend is taken into account when calculating all provisions and is of the utmost importance for claims settled over a long period of time, such as Motor Third Party Liability (MTPL) and Workers’ Compensation (WC). The anticipated inflation is based on external assessments of the inflation trend in various areas, such as the consumer price index and payroll index, combined with If P&C’s own estimation of costs for various types of claims. For lines of business such as MTPL and WC, legislation differs significantly between countries. Some of the Finnish, Swedish and Danish technical provisions for these lines include annuities that are sensitive to changes in mortality assumptions and discount rates. The proportion of technical provisions that are related to MTPL and WC was 68 per cent.
TTotalotal EURmEURm DurDuraationtion EURmEURm DurDuraationtion EURmEURm DurDuraationtion EURmEURm DurDuraationtion EURmEURm DurDuraationtion
The sensitivity of If P&C’s technical provisions to an increase in inflation, an increase in life expectancy and a decrease in the discount rate is presented in the table Sensitivities of Technical Provisions, If P&C, 2014.
TTechnical prechnical proovision itvision itemem Risk fRisk factactoror Change in risk parChange in risk parametameterer CCountryountry EffEffectect EURmEURm
Life Insurance Underwriting Risks Life insurance risks encompass underwriting risk and discount rate risk in technical provisions. Underwriting risk includes biometric, policyholder behavior and expense risks.
On the 30th of December, 2014 Mandatum Life received from Suomi Mutual its with-profit group pension portfolio. Portfolio comprises approximately 2,300 policies and 34,000 members. Amount of transferred assets and liabilities were EUR 1,337 million. Technical provisions include longevity reserve (EUR 87 million) and expense reserve (EUR 22 million). Due to the special features of the received portfolio, the remaining technical provisions (EUR 1,228 million) and related assets have been segregated (segregated group pension portfolio or segregated assets) from the rest of Mandatum Life’s balance sheet. Unless otherwise stated the technical provision information and insurance risk descriptions at the end of 2014 include the segregated group pension portfolio. The segregated group pension portfolio did not have an effect on the 2014 risk result.
In life insurance catastrophe events include – as in non-life insurance – rare single events or series of
The table Claim Ratios After Reinsurance, Mandatum Life, 2014 and 2013 shows the insurance risk result in Mandatum Life’s Finnish life insurance policies. The ratio of the actual claims costs to the assumed was 79 per cent in 2014 (79 per cent in 2013). Sensitivity of the insurance risk result can also be assessed on the basis of the information in the table. For instance the increase of mortality by 100 per cent would increase the amount of benefit payments from EUR 16.5 million to EUR 33 million.
EURmEURm Risk incRisk incomeome Claim eClaim expensexpense Claim rClaim raatiotio Risk incRisk incomeome Claim eClaim expensexpense Claim rClaim raatiotio
Longevity risk is the most critical biometric risk in Mandatum Life. Most of the longevity risk arises from the with profit group pension portfolio. With profit group pension policies have mostly been closed for new members for years and due to this the average age of members is relatively high, i.e. for the segregated group pension portfolio around 67 years and for the other group pension portfolios around 69 years. In the unit-linked group pension and individual pension portfolio the longevity risk is less significant because most of these policies are fixed term annuities including death cover compensating the longevity risk.
Policyholder behaviour risks arise from the uncertainty related to behaviour of the policyholders. The policyholders have the right to cease paying premiums (lapse risk) and may have a possibility to interrupt their policies (surrender risk).
Behaviour of Policyholders is a major risk as well and ability to keep lapse and surrender rates in a low level is a crucial success factor especially for the expense result of unit-linked business.
From ALM point of view surrender and lapse risks are less significant because in Mandatum Life, around 90 per cent of with profit technical provisions consist of pension policies in which surrender is possible only in exceptional cases. For ALM risk, surrender risk is therefore only relevant in individual life and capital redemption policies of which the related technical provisions amounts to only 4 per cent (EUR 222 million) of the total with profit technical provisions. Furthermore, the supplements to technical provisions are not paid out at surrender which also reduces the surrender risk related to the with profit policies. Surrender and lapse risks are taken into account when the company is analyzing its ALM risk.
The provisions related to each product type and guaranteed interest rates are shown in the table Analysis of the Change in Provisions before Reinsurance, Mandatum Life, 2014. The table also shows the change in each category during 2014.
FuturFuture bonus re bonus reserveserveses 00 00 00 00 00 00 00 00 00
Subsidiary MandaSubsidiary Mandatum Liftum Lifee InsurInsurancance Baltic SEe Baltic SE 159159 4141 -28-28 -3-3 11 00 11 170170 22
MandaMandatum Liftum Life gre group toup totalotal 8,5448,544 1,1101,110 -882-882 -95-95 131131 00 1,5681,568 10,37710,377 100100
Unit linked business has been Mandatum Life’s main focus area since year 2001. Since that the trend of unit linked technical provisions have been upward and annual average change in technical provisions has been an increase of 25 per cent per annum. Due to the nature of unit linked business, volatility between years is relatively high.
In contrast, the trend of with profit technical provisions has been downward since 2005 if the impact of the the segregated group pension portfolio
Analysis of the Change in Provisions before Reinsurance Mandatum Life, 2014
on the technical provisions in 2014 is excluded. Especially the parts of technical provisions with the highest 4.5 per cent and 3.5 per cent guarantees have decreased. Technical provisions with highest guarantees fell by EUR 203 million. Taking into account all transferred group pension liabilities (EUR 1,337 million) from Suomi mutual, with profit technical provisions increased to EUR 5,065 million (EUR 3,927 million in 2013). The development of the structure and amount of Mandatum Life’s technical provisions is shown in the figure Development of With Profit and Unit-linked Technical Provisions, Mandatum Life, 2005–2014.
Unit-linkUnit-linked ted totalotal 8.88.8 902902 804804 14051405 921921 742742 325325 388388
Individual pension insurIndividual pension insurancancee 7.17.1 274274 245245 385385 201201 103103 4848 6666
Capital rCapital redemption operedemption operaations *)tions *) 8.78.7 00 00 22 11 00 00 00
MandaMandatum Liftum Life gre group toup totalotal 1,9501,950 1,6581,658 3,0253,025 2,0562,056 1,5651,565 883883 1,2431,243 *) Investment contracts
In general Biometric risks are managed by careful risk selection, by setting prices to reflect the risks and costs, by setting upper limits for the protection granted and by use of reinsurance. Mandatum Life’s Underwriting Policy sets principles for risk selection and limits for sums insured and Reinsurance Policy governs the use of Reinsurance. The Board approves the Underwriting policy, pricing guidelines and the central principles for the calculation of technical provisions.
Expected Maturity of Insurance and Investment Contracts before Reinsurance Mandatum Life, 31 December 2014
The risk result is followed actively and analyzed thoroughly annually. Mandatum Life measures the efficiency of risk selection and adequacy of tariffs by collecting information about the actual claims expenditure for each product line and each type of risk and comparing it to the claims expenditure assumed in insurance premiums of every risk cover.
In addition to investment portfolio market risks, also the companies’ balance sheets are exposed to market and liquidity risks. These balance sheet level risks are defined as ALM risks and they are covered later in the section ALM risks. The ALM risks at balance sheet level are taken carefully into account when investment portfolio allocations are designed and related limits and restrictions are defined.
Sampo Group’s Chief Investment Officer is responsible for managing investments within the limitations of the Investment Policies prepared by the Group companies and approved by the Group companies’ Boards of Directors. The insurance subsidiaries and the parent company have a common group wide infrastructure for investment management as well as for performance and risk reporting which facilitates simultaneous company level and group level reporting.
When investing in non-Nordic securities, funds or other assets, third party managed investments are mainly used. These investments are primarily used as a tool in tactical asset allocation when seeking return and secondarily in order to increase diversification.
Market risk control is separated from portfolio management activities in two ways. Firstly, the persons independent from Investment Unit prepare Investment Policies for the Board approval. Secondly, Middle Office units that are independent from Investment Unit as well, measure risks and performance and control limits set in Investment Policies on a daily basis.
Market risks and limits are also controlled by the Investment Control Committee (ICC) in If P&C and Asset and Liability Committees (ALCOs) in Mandatum Life on a monthly basis at a minimum. These committees are responsible for the control of investment activities within the respective legal entity.
Mandatum Life has two ALCOs, of which the other controls the segregated assets and liabilities and the other controls the rest of Mandatum Life’s with profit assets and liabilities. The ALCOs control that the investment activities are conducted within the limits defined in the Investment Policy approved by the Board and monitors the adequacy of liquidity, profitability and solvency capital in relation to the risks in the balance sheet. The ALCOs prepare proposals of Investment Policy to the Board of Directors and report to the Board.
The aggregated market risks and concentrations at Sampo Group level are controlled by the Group’s Audit Committee quarterly at a minimum. If deemed necessary, the concentration risks are further managed by deploying group level exposure restrictions, for instance by industries or by individual issuers.
Asset Allocations and Investment Returns The total amount of Sampo Group’s investment assets as at 31 December 2014 was EUR 19,215 million (EUR 17,878 million in 2013). Mandatum Life’s investment assets do not include assets, which are covering unitlinked contracts. The compositions of the investment portfolios by asset classes in If P&C, Mandatum Life and Sampo plc at year end 2014 and at year end 2013 are shown in the figure Development of Investment Portfolios, If P&C, Mandatum Life and Sampo plc, 31 December 2014 and 31 December 2013.
The composition of the Mandatum Life’s segregated group pension portfolio by asset classes at year end 2014 is shown in the figure Composition of Investment
The segregated assets have not affected the profit figures of 2014.
The insurance liabilities as well as the risk appetite of Mandatum Life and If P&C differ and as a result, the structures and risks of investment portfolios of the two companies are often different. This is reflected also in the companies’ investment returns. Mandatum
The weighted average investment return of the Group’s investment portfolios (including Sampo plc) in 2014 was 4.3 per cent (5.6 per cent in 2013).
If PIf P&C&C MandaMandatum Liftum Lifee Sampo plcSampo plc Sampo GrSampo Groupoup
Additionally, If P&C and Mandatum Life have real estate, private equity, biometric and other alternative investments. The Investment Policies set limits for maximum allocations into these asset classes and products. On 31 December 2014, the combined share of the above mentioned investments was 5.4 per cent of the total investment portfolio of Sampo Group. In If P&C the proportion was 0.4 per cent and in Mandatum Life it was 14.3 per cent. These asset classes are managed in most cases by external asset managers with the exception of the Group’s real estate portfolio that is managed by Sampo Group’s real estate management unit. The real estate portfolio includes both direct investments in properties and indirect investments in real estate funds as well as in shares and debt instruments in real estate companies.
In Mandatum Life, transaction risk arises mainly from investments in other currencies than euro as the company’s technical provisions are almost completely
denominated in euro. Mandatum Life’s currency risk strategy is based on active management of the currency position. The objective is to achieve a positive return relative to a situation where the currency risk exposure is fully hedged.
The transaction risk positions of If P&C and Mandatum Life against their base currencies are shown in the table Transaction Risk Position, If P&C and Mandatum Life, 31 December 2014. The table shows the net transaction risk exposures and the changes in the value of positions given a 10 per cent decrease in the value of the base currency.
TTotal trotal transaction risk, net position, If Pansaction risk, net position, If P&C&C -48-48 2828 11 -7-7 -20-20 -54-54 -29-29 -75-75 -1-1 -1-1 -208-208
Sampo plc’s transaction risk position is related to SEK denominated dividends paid by If P&C and to debt instruments in other currencies than euro.
Equity and Spread Risks Sampo Group is exposed to price risk dependent on changes in equity prices and spreads arising from its fixed income and equity investments. Equity price and spread movements are affected by general market trends and by risk factors that are related specifically to a certain issuer or a specific issue.
In Sampo Group, the selection of direct fixed income and equity investments is based primarily on stock and bond-picking and secondarily on top-down allocation. This investment style ensures that the portfolio includes thoroughly analyzed investments
with adequate risk return ratios, although the portfolio might not be necessarily as diversified as the finance or portfolio theory suggests.
Decision Making, Limit System and Monitoring 1. Potential investments are analyzed thoroughly. The creditworthiness and future prospects of the issuer are assessed together with collaterals and structural details of the instruments. Although external credit ratings by rating agencies and opinions of analysts are used to support the internal assessment, Sampo Group’s own internal assessment is always the most important factor in decision making.
2. Investment transactions shall be executable on a short notice when an opportunity appears. This puts pressure on authorisations and credit limit structures and procedures that must be at the same time (i) flexible enough to facilitate fast decision making regardless of instrument type, (ii) wellstructured to ensure that investment opportunities are assessed prudently, taking into account the specific features and risks of all investment types and (iii) able to restrict the maximum exposure of a single name risk to the level that is in balance with the company’s risk appetite.
3. Accumulated credit exposures over single names and products are monitored regularly at the subsidiary level and at group level to identify unwanted concentrations. Credit exposures are reported, for instance, by sectors and asset classes and within fixed income by ratings.
Exposures by Sectors, Asset Classes and Rating If P&C, 31 December 2014
Exposures by Sectors, Asset Classes and Rating Mandatum Life, 31 December 2014
% of t% of total dirotal direct fixect fixeded incincome inome invvesestmentstments
Breakdown of the listed equity exposures of Sampo Group by geographical regions is shown in the figure Breakdown of Listed Equity Investments by Geographical Regions, Sampo Group, If P&C and Mandatum Life, 31 December 2014.
Ten Largest Direct High Yield and Non-rated Fixed Income Investments Sampo Group, 31 December 2014
Breakdown of Listed Equity Investments by Geographical Regions Sampo Group, 31 December 2014, total EURm 3,105
The geographical emphasis of Sampo Group’s equity investments is in Nordic companies. The proportion of Nordic companies’ equities corresponds to 53 per cent of the total equity portfolio. This is in line with Sampo Group’s investment strategy to focus on Nordic companies. Moreover, the Group’s insurance liabilities are mostly denominated in the euro and in the Nordic currencies. In the long run the proportion of investments outside of the Nordic countries has gradually increased, because the amount of companies issuing securities in the Nordic countries is limited and from a tactical point of view other geographical areas have recently provided interesting investment opportunities.
The sector allocation of direct listed equity investments in Sampo Group is presented in tables Exposures by sectors, asset classes and rating, If P&C, Mandatum Life and Sampo Group, 31 December 2014. The largest allocations are to capital goods, consumer products and basic industry sectors. Listed equity investments made through mutual funds and ETF investments accounted for 46 per cent of the entire equity portfolio.
Furthermore, the largest direct listed equity exposures are presented in the table Ten Largest Direct Listed Equity Investments, Sampo Group, 31 December 2014.
The largest exposures by individual issuers and counterparties are presented in the table Largest
CCountounterparty Deferparty Default Riskault Riskss Counterparty Default Risk (Counterparty Risk) is one type of consequential risks Sampo Group is exposed to through its activities.
Credit risk by definition comprises default, spread and settlement risks. Default risk refers to losses arising from occurred defaults of debtors (issuer risk) or other counterparties (counterparty risk). In the case of issuer risk the final loss depends on the investor’s holding of the security or deposit at the time of default, mitigated by the recovery rate. In the case of counterparty risk, the final loss depends on the positive mark-to-market value of derivatives or reinsurance recoverables at the time of default and on the recovery rate that is affected by collaterals.
Spread risk refers to losses resulting from changes in credit spreads of debt instruments and credit derivatives. Credit spreads are affected when the market’s perception of probabilities of defaults is changing. In essence credit spread is the market price of default risk that is priced into market value of debt instrument. Hence the debt instrument’s value should lower before the event of default occurs. Because of these features spread risk, including also default risk of debt instruments, is categorized in Sampo Group under investment portfolio market risks.
When financial derivatives are considered the situation is opposite. Mandatum Life and parent company Sampo plc are frequent users of long-term interest rate derivatives and are therefore inherently more exposed to default risk of derivative counterparties than If P&C, which is mainly using short-term foreign exchange derivatives.
In addition, counterparty default risk arises from receivables from policyholders and other receivables related to commercial transactions. Risk exposure towards policyholders is very limited, because nonpayment of premiums generally results in cancellation of the insurance policies. Also the risk exposures arising from other receivables related to commercial transactions are minor in Sampo Group.
Distribution of reinsurance receivables and reinsurers’ portion of outstanding claims in If P&C on 31 December 2014 per rating category is presented in the table Reinsurance Recoverables, If P&C, 31 December 2014 and 31 December 2013. In the table, EUR 130 million (EUR 140 million in 2013) are excluded, which mainly relates to captives and statutory pool solutions.
In Sampo Group, default risk of derivative counterparties is a by-product of managing market risks. The risk is mitigated by careful selection of counterparties, by diversification of counterparties to prevent risk concentrations and by using collateral techniques, e.g. ISDA Master Agreements backed by Credit Support Annexes. This is the case especially in Sampo plc and Mandatum Life which are frequent users of long-term derivatives.
At the inception of the reinsurance, the default risk of the reinsurer is considered. The default risks of reinsurance assets are monitored continuously.
Reinsurance Recoverables If P&C, 31 December 2014 and 31 December 2013
On balance sheet level, ALM risks contribute considerably to economic values, risks and capital need. Sampo Group companies analyse ALM risks and monitor ALM exposures actively and the risks are taken into account when managing investments and developing insurance products. In addition to the risks relating to fluctuations in market values and economic values, ALM risks include liquidity risk. Additionally, single name concentration risks over assets, liabilities and other agreements are to be monitored at the balance sheet level. A balance sheet level concentration may arise for example when a company is insured by Sampo Group companies, Sampo Group has holdings in debt and equity instruments issued by the company and the company is a tenant in a property owned by Sampo Group.
The ALM risk in If P&C is managed in accordance with Sampo Group‘s principles. ALM is taken into account through the risk appetite framework and is governed by If P&C’s Investment Policies.
The Board of Directors of Mandatum Life approves annually the Investment Policies for both segregated assets and other assets regarding the company’s investment risks. These policies set principles and limits for investment portfolio activities.
The Investment Policy for segregated assets defines the risk bearing capacity and the corresponding control levels. Since the future bonus reserves of the segregated group pension portfolio is the first buffer against possible investment losses, also the risk bearing capacity is based on the amount of future bonus reserve. Different control levels are based on fixed stress scenarios of assets.
The Investment Policy for other investment assets defines the control levels for maximum acceptable risk and respective measures to manage the risk, which are based on the company level solvency and on both Solvency I and Solvency II type of approaches.
In the Solvency I type of approach, control levels are set above the Solvency I using a VaR-analysis of the investment assets. In the Solvency II type of approach, control levels are set also based on other confidence levels in addition to the 99.5 per cent level used in Sampo Group. The general objective of these control levels and respective guidelines is to maintain the required solvency and to ensure that investments are sufficient and eligible for covering technical provisions.
The cash flows of Mandatum Life’s with profit technical provisions are relatively well predictable, because in most of the company’s with profit products, surrenders and premiums are restricted. The company’s claims costs do not contain significant inflation risk element and thus the inflation risk in Mandatum Life is mainly related to administrative expenses.
The long-term target for investments is to provide sufficient return to cover the guaranteed interest rate plus bonuses based on principle of fairness as well as the shareholder’s return requirement with acceptable level of risk. In the long run the most significant risk is that fixed income investments will not generate adequate return compared to the guaranteed rate. In addition to investment and capitalization decisions, Mandatum Life has implemented active measures in the liability side to manage the balance sheet level interest rate risk. The company has reduced the minimum guaranteed interest rate in new contracts, supplemented the technical provisions with discount rate reserves and adjusted policy terms and conditions as well as policy administration processes to enable more efficient interest rate risk management.
The difference between technical provisions and the economic value of insurance liabilities is a major component of the liability side adjustment that is part of the reported adjusted solvency capital.
EURmEURm 1% par1% parallel shift doallel shift downwn 1% par1% parallel shift upallel shift up 20% f20% fall in pricall in priceses 20% f20% fall in pricall in priceses
EffEffect on adjusect on adjustted solved solvencency capitaly capital -1,176-1,176 907907 -600-600 -174-174
The effects represent the instantaneous effects of a one-off change in the underlying market variable on the fair values as of 31 December, 2014. The sensitivity analysis includes the effects of derivative positions. All sensitivities are calculated before taxes. The debt issued by Sampo Group companies is not included.
Group's equity. However, the effect on adjusted solvency capital would be positive due to the fact that the economic value of insurance liabilities would decrease as a result of applying higher market rates in discounting.
Sources of liquidity risk includes potential illiquidity of investments, large claims, unexpected non-renewal of insurance policies and refinancing risk of debt. Moreover, the availability and price of refinancing, financial derivatives and reinsurance affect the Group companies’ ability to carry out normal business activities.
In If P&C, liquidity risk is limited, since premiums are collected in advance and large claims payments are usually known a long time before they fall due. Liquidity risks are managed by cash management functions that are responsible for liquidity planning. Liquidity risk is reduced by having investments that are readily tradable in liquid markets. The available liquid financial assets, which are the part of the assets that can be converted into cash at a specific point in time, is analyzed and reported to the ORSA Committee.
Sampo plcSampo plc of which interest rate swaps of which interest rate swaps
Sampo Group has a relatively low amount of financial liabilities and thus the Group’s respective refinancing risk is relatively small. During 2014, Sampo plc issued one public bond amounting to EUR 500 million and several private placements targeted to Mandatum Life’s retail clients. Sampo Group companies have business relationships with several creditworthy counterparties which mitigate the risk that Sampo
Group is not able to enter into reinsurance or derivative transactions when needed.
Since there is no unambiguous technique to quantify the capital need for liquidity risk, it is not directly taken into account in capital need estimates. Thus only the interest rate risk part of ALM risks is accounted for in the economic capital framework.
OperOperaational Risktional Riskss Operational risk refers to the risk of loss resulting from inadequate or failed processes or systems, from personnel or from external events. This definition includes compliance risk but excludes risks resulting from strategic decisions. The risks may realize for instance as a consequence of: • internal misconduct • external misconduct • insufficient human resources management • insufficiencies in operating policies as far as customers, products or business activities are concerned
• damage to physical property • interruption of activities and system failures and • defects in the operating process
In Sampo Group, the parent company Sampo plc sets the following goals of operational risk management to subsidiaries: • To ensure simultaneously the efficiency and the quality of operations
• To ensure that operations are compliant with laws and regulations and
• To ensure the continuity of business operations in exceptional circumstances
Each company is responsible for arranging its operational risk management in line with the above mentioned goals, taking also into account the specific features of its business activities.
If P&C The continuity of operational risk management in If P&C is secured through the Operational Risk Committee (ORC), which coordinates the operational risk process. The committee’s task is to give opinions, advice and recommendations to the ORSA Committee as well as to report the current operational risk status. The ORC is responsible for preparing a comprehensive overview of the operational risk status in If P&C. The status assessment is based on the self-assessments performed by the organization, reported incidents and other additional risk information. Trend analyses are performed on a yearly basis, during which the most important trends affecting the insurance industry are identified and the effects on If P&C are assessed. The committee shall consider and propose changes to policies and instructions regarding operational risks. The Chairman is responsible for the reporting of issues dealt with by the committee.
If P&C also has a Compliance Committee (CC), which is an advisory body for the Chief Compliance Officer regarding compliance issues. The task of the committee is to secure a comprehensive view of compliance risk and activities in If P&C.
Incident reporting and analysis are managed differently depending on type of incident. All employees are required to report incidents via intranet, and others are identified through controls and investigations.
In order to manage operational risks, If P&C has issued a number of different steering documents: Operational Risk Policy, Continuity Plans, Business Continuity Policy, Security Policy, Outsourcing Policy, Complaints Handling Policy, Claims Handling Policy, and other steering documents related to different parts of the organization. These documents are being reviewed and updated at least annually.
Mandatum Life The objective of operational risk management in Mandatum Life is to enhance the efficiency of internal processes and decrease negative impact on Mandatum Life. The aim is to minimize operational risks subject to cost-benefit considerations.
In order to limit operational risks, Mandatum Life has approved a number of policies including e.g. Internal
CapitalizaCapitalizationtion In Sampo Group profitability, risks and the respective capital needs are assessed both at company level and at group level. The targets for the amount of capital and the capital structure of individual companies are set based on these assessments. The correlation of Sampo Group companies’ profits and the transferability of capital are taken into account when considering capitalization at group level.
• The additional buffer to be maintained over the defined capital need: The buffer is affected by the level of expected profits and its volatility. Also the uncertainties of the business environment and the need to maintain strategic flexibility may affect the size of additional buffers.
The latter component of targeted amount of capital is more subjective than the former although the former also includes subjectivity in regards to nonmeasurable risks.
Regulatory solvency capital of Mandatum Life Group was EUR 1,446 million (EUR 1,403 million in 2013) while the regulatory capital requirement was EUR 274 million (EUR 226 million in 2013). In Mandatum Life regulatory solvency capital was 5.3 times regulatory capital requirement at the end of year 2014.
Both companies did assess their solvencies at yearend 2014 using Solvency II methods that will be in force 1st of January 2016. If P&C used partial internal model approach and Mandatum Life used standard model with transition measures. Both companies were compliant with the Solvency II capital requirements.
The current regulatory capital requirements for the insurance industry prior to Solvency II implementation are fairly insensitive to risks. Hence, reported regulatory solvencies are often artificially high and thus may not give a realistic view on solvency, even though some loss absorbing items like equalization provision has been excluded from eligible solvency capital. After the implementation of Solvency II regulation the reported solvencies will be more in line with market based capitalization assessments.
• When assessing the EC need arising from Nordea, Sampo plc uses the EC calculated and publicly reported by Nordea multiplied by the proportion of Sampo plc’s share in Nordea and converted into a confidence level of 99.5%.
EC is considered to be a good estimate of the capital required to cover risks that can be measured in a reliable way and within a normal business environment.
The breakdown of EC by risk type and a comparison to ASC both in If P&C and Mandatum Life is depicted in the figure Breakdown of Capitalization, If P&C and Mandatum Life, 31 December 2014. Regulatory capital requirement is presented in the same figure. From the internal perspective the amount of ASC compared to EC is high especially in If P&C. This is mainly due to the fact that the reported EC figures are calculated with the confidence level of 99.5% used in Solvency II and not with a higher confidence levels more in line with If P&C’s rating target. The other factor is that the add-ons over EC are not presented in the figure. From regulatory perspective solvencies of both companies seem strong, because of the fairly risk insensitive regulatory capital requirement of Solvency I.
If P&C’s share of Topdanmark’s regulatory solvency requirement of EUR 119 million is included in EC. For If P&C the figure for credit risk includes also non-
Topdanmark’s contribution to the total economic capital of If P&C is based on the latest regulatory solvency capital figures reported by
and to EUR 1,446 million in Mandatum Life at the end of year 2014.
During the year, the amount of ASC in If P&C decreased to EUR 3,210 million (EUR 3,706 million at the end of 2013), and in Mandatum Life, ASC decreased to EUR 1,134 million (EUR 1,492 million at the end of 2013). In both companies positive results strengthened the capitalization whereas paid dividends to the parent company and decreasing interest rates had an opposite effect on the capitalization.
As discussed, the EC is a standardized internal measure used to enable comparison between the Group companies and their risk based capital needs. However, individual companies have to take into consideration external stakeholders opinions when they are considering their target capitals.
Currently If P&C is rated by both Moody’s and S&P. The data for S&P rating model is updated quarterly by If P&C. If P&C has good understanding of the required amount of Total Available Capital (TAC) to have a single A rating.
As a result of the continuous work with risk management issues, If P&C’s ERM (Enterprise Risk Management) has been graded ‘strong’ by S&P. These qualitative issues are part of the Rating agencies rating-criteria and Sampo Group companies are sensitive to Rating Agencies’ expectations.
The figure Breakdown of Capitalization, Sampo Group, 31 December 2014 presents the contributions of the different business areas including Nordea to Sampo Group’s total economic capital as well as the diversification effect included in the calculation of Group’s EC.
Sampo Group’s EC increased during the year and amounted to EUR 5,510 million at the end of 2014 (EUR 5,361 million in 2013). The amount of ASC at group level decreased during the year to EUR 9,100 million (EUR 9,417 million in 2013). ASC exceeded EC by EUR 3,590 million (EUR 4,056 million in 2013) and capitalization by internal measures is strong.
Development of Capitalization Sampo Group, 31 December 2013 – 31 December 2014
Regulatory solvency capital amounted to EUR 9,183 million in Sampo Group at the end of year 2014.
Nordea is included in the calculation of Sampo Group’s EC by adding Sampo Group’s share of EC reported by Nordea, converted into the 99.5% confidence level used in Sampo Group. At year end, the risks arising from Nordea constitute the largest single component in Sampo Group’s EC. The correlations between risk types and business areas, and thereby indirectly the amount of diversification, are defined by Sampo plc at Sampo Group level.
Sampo Group assesses that the difference between Group ASC and the sum of Group companies’ capital needs is adequate because of the following reasons: If P&C and Nordea have strong capitalization and sound profitability. The amount of available capital in If P&C is maintained above capital level based on single A rating target. Nordea’s amount of capital is based on one of the strictest regulatory expectations on capitalization within European jurisdictions. In addition both If P&C and Nordea have shown high profitability and low volatility of profits. Sampo considers that If P&C and Nordea have themselves relatively high buffers included in their capital and parent company Sampo needs only minor additional reserves for them.
quarterly profits between If P&C, Mandatum Life and Nordea are depicted in the figure Correlations of
Group. Sampo’s share of Nordea’s own funds and capital requirements are consolidated into Group solvency.
The calculation of Group solvency according to the Act on the Supervision of Financial and Insurance Conglomerates (1193/2004) is broken down in the table Group Solvency, 31 December 2014 and 31 December 2013.
Correlations of Quarterly Reported Profits If P&C, Mandatum Life and Nordea, 1 January 2005 - 31 December 2014
Share of Nordea's capital not included in Group capital 1,237 816
GrGroup solvoup solvencency ry raatio (tio (solvsolvencency capital % of minimum ry capital % of minimum requirequirement)ement) 187%187% 184%184%
ItItems rems reclaseclassifiable tsifiable to pro profit or losofit or losss 23 24
TTotal itotal items not rems not reclaseclassifiable tsifiable to pro profit or losofit or loss, net of taxs, net of tax -76-76 -14-14
EEquity aquity at 1 January 2013t 1 January 2013 9898 00 44 1,5271,527 7,5877,587 167167 760760 -29-29 10,11310,113
Net cash frNet cash from inom invvesesting activitiesting activities 377377 360360
Dividend income received 102 82 *) Investments include investment property, financial assets and investments related to unit-linked insurance contracts.
The acquired assets and liabilities did not have a material effect on the Group's income statement, balance sheet or cash flows.
IFRS 12 Disclosure of Interests in Other Entities (effective for annual periods beginning on 1 Jan 2013 or after, latest application for annual period beginning on 1 Jan 2014) includes requirements for disclosures regarding different involvements in other entities, such as associates and unconsolidated entities. The new standard had an impact on the Group’s disclosures.
The amendment to IAS 32 Financial Instruments: presentation (effective for annual periods beginning on 1 Jan 2014 or after) specifies the presentation of situations when financial assets and liabilities are offset.The adoption of the amendment will have no material impact on the Group’s financial statements reporting.
The Board of Directors of Sampo plc accepted the financial statements for issue on 11 February 2015.
The acquisition method of accounting is used for the purchase of subsidiaries. The cost of an acquisition is allocated to the identifiable assets, liabilities and contingent liabilities, which are measured at the fair value of the date of the acquisition. Possible noncontrolling interest of the acquired entity is measured either at fair value or at proportionate interest in the acquiree’s net assets. The acquisition-specific choice
The following exchange rate was applied in the consolidated financial statements: ANNUANNUAL REPORT 2014AL REPORT 2014 Financial SFinancial Statattementsements
accordance with national valuation principles (except for the equalisation reserve) rather than at fair value. These contracts and investments made to cover shareholders’ equity are managed in their entirety and are classified mainly as available-for-sale financial assets.
Financial assets and financial liabilities at fair value through profit or loss
Available-for-sale financial assets are initially recognised fair value, including direct and incremental transaction costs. They are subsequently remeasured
Whether there is objective evidence of an impairment of available-for-sale financial assets, is evaluated in a separate assessment, which is done if the credit rating of an issuer has declined or the entity is placed on
Hedge accounting applies to hedges that are effective in relation to the hedged risk and meet the hedge accounting requirements of IAS 39. The hedging relationship between the hedging instrument and the
During the financial year, fair value hedges have been used in P&C insurance and life insurance.
In accordance with the Group’s risk management principles, fair value hedging is used to hedge changes in fair values resulting from changes in price, interest rate or exchange rate levels. The hedging instruments used include foreign exchange forwards, interest rate swaps, interest rate and cross currency swaps and options, approved by the managements of the Group companies.
A reinsurance contract is a contract which meets the IFRS 4 requirements for insurance contracts and on the basis of which Sampo Group (the cedant) may
receive compensation from another insurer (the reinsurer), if it becomes liable for paying compensation based on other insurance contracts it has issued. Such compensation received on the basis of reinsurance contracts is included in the balance sheet under 'Reinsurers’ share of insurance liabilities' and 'Other assets'. The former item includes the reinsurers’ share of the provisions for unearned premiums and claims outstanding in the Group’s reinsured insurance contracts, while the latter includes short-term receivables from reinsurers.
All contracts, except unit-linked contracts and the assumed reinsurance, include DPF. In those unit-linked contracts which are not insurance contracts, the policyholder has the possibility to transfer the return on savings from unit-linked schemes to guaranteed interest with DPF. Thus, these contracts are also measured as contracts with DPF.
Mortality assumptions have an essential effect on the amount of liability, particularly in group pension insurance, the liability of which accounts for about 41 per cent of the technical provisions of the Finnish life company. A so-called cohort mortality model is used in calculating the group pension insurance liability since 2002, incorporating the insured person’s birth year in addition to his or her age and sex. The cohort mortality model assumes that life expectancy increases by one year over a ten-year period.
During the financial year, Sampo had three valid sharebased incentive schemes settled in cash (the longterm incentive schemes 2011 I, 2011 II and 2014 I for the management and key employees). The schemes have been measured at fair value at the grant date and at every reporting date thereafter.
Sampo presents cash flows from operating activities using the indirect method in which the profit (loss) before taxation is adjusted for the effects of transactions of a non-cash nature, deferrals and accruals, and income and expense associated with investing or financing cash flows.
The Group will apply the following new or amended standards and interpretations related to the Group’s business in later financial years when they become effective, or if the effective date is other than the beginning of the financial year, during the financial year following the effective date. Unless stated otherwise, the new standards or amendments were not approved by EU at the balance sheet date.
The revised IAS 19 Pension Benefits (effective for annual periods beginning on 1 July 2014 or after) clarifies the accounting method when an employee or a third party is expected to make contributions to the defined benefit plan. The adoption of the revised standard will not have a material impact on the Group’s financial statements reporting.
The amendments to the standards IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures specify instructions when assets are sold or equity invested between an investor and its associate or joint venture. The changes will not have a material impact on the Group’s financial statements reporting.
IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on 1 July 2014 or after). The new standard will supersede IAS 18 and IAS 11 and related interpretations. The central criterion for revenue recognition is the passing of control. The adoption of the new standard will not have a material impact on the Group’s financial statements reporting, other than possibly in the number of the disclosed notes.
The amendments to IFRS 9 Financial Instruments (effective for annual periods beginning on 1 Jan or after) supersede IAS 39 Financial Instruments: Recognition and Measurement. The new standard changes the classification and measurement of financial assets and includes a new impairment model based on expected credit losses. The hedge accounting will continue to have three different hedging relationships. The adoption of the new standard will have an impact on the Group’s financial statements; the effects are under valuation in the Group.
Geographical information has been disclosed about income from external customers and non-current assets. The reported areas are Finland, Sweden, Norway, Denmark, the Baltic countries and other countries.
Segment information has been produced in accordance with the accounting policies adopted for preparing and presenting the consolidated financial statements. The segment revenue, expense, assets and liabilities, either directly attributable or reasonably allocable, have been allocated to the segments. Inter-segment pricing is based on market prices. The transactions, assets and liabilities between the segments are eliminated in the consolidated financial statements on a line-by-line basis.
Consolidated income statement by business segment for year ended 31 December 2013
ItItems not rems not reclaseclassifiable tsifiable to pro profit or losofit or losss -21 - - - -21
According to the plan published during the spring and authorised by the Financial Supervision Authority, Suomi Mutual assigned its guaranteed interest group pension portfolio to Mandatum Life Insurance Company Ltd on the 30 December 2014. The porfolio comprised approximately 2,300 policies and 34,000 insured members.
ANNUANNUAL REPORT 2014AL REPORT 2014 NotNotes tes to the Gro the Group’oup’s Financial Ss Financial Statattementsements
¹) The change in unearned premiums is presented in note 4 "The change in insurance and investment liabilities".
InsurInsurancance and ine and invvesestment ctment controntracts, tacts, totalotal 1,1101,110 1,0681,068
TTotal claims cotal claims cosost at attributable tttributable to curro current-yent-yearear
InsurInsurancance ce controntracts tacts total, grotal, grososss -587-587 -568-568 33 77 -585-585 -560-560
InInvvesestment ctment controntracts, tacts, totalotal -294-294 -173-173 -- -- -294-294 -173-173
Pension costs - defined contribution plans -47 -51 - defined benefit plans (Note 31) -24 -22
TTechnical rechnical result befesult beforore ine invvesestmenttment rreturneturn 1) Activity-based operating costs EURm 260 (269) have been allocated to claims incurred.
Profit or loss attributable to the equity holders of the parent company 1,540 1,452
Earnings per share (EUR per share) 2.75 2.59 10 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 recognised in P/L, impairment losses and dividend income arising from those assets and liabilities. The financial assets in the table include balance sheet items Financial assets and Cash and cash equivalents.
Net carrying amountNet carrying amount 44 22 55 44 22 55
Non-cancNon-cancellable minimum rellable minimum rentalental - not later than one year 10 6 - later than one year and not later than five years 6 14 - later than five years 0 2
FFair vair value of inalue of invvesestment prtment property aoperty at 31 Dec.t 31 Dec. 196196 125125
Forecasts for If, approved by the management, cover years 2015 – 2016. The cash flows beyond that have been extrapolated using a 2 % growth rate. A 2 % growth rate for years beyond 2024 has been used for the for Mandatum Life as well, as it is believed to be close to the anticipated inflation.
In Mandatum Life, the recoverable amount exceeds its carrying amount by some EURm 450. With the calculation method used, e.g. an increase of about 2.7 % in the weighted average cost of capital could lead to a situation where the recoverable amount of the entity would equal its carrying amount.
Associates that have been accounted for by the equity method at 31 Dec. 2014
Associates that have been accounted for by the equity method at 31 Dec. 2013
Watercircles Skandinavia AS (Norway) Norway 4 39.60 *) Published price quatation
At 31 Dec. 2014, the carrying amount of investments in associates included goodwill EURm 1,101 (1,102), including goodwill from the Nordea acquisition EURm 978 (978).
Currency options, bought and sold 294 2 1 42 0 -
TTotal derivotal derivaativtives held fes held for tror tradingading 3,1623,162 4242 1818 3,4393,439 55 2525
Financial asFinancial assets designasets designatted as aed as at ft fair vair valuealue thrthrough p/lough p/l
Financial assets available for sale / debt securities: Debt securities available for sale include EURm 1,963 (2,553) investments in bonds and EURm 932 (354) investments in money market instruments.
Financial assets available for sale /shares and participations: Listed equity securities include EURm 632 (641) listed equities. Unlisted equity securities include EURm 708 (640) investments in capital trusts.
The sensitivity of financial assets and liabilites to changes in exchange rates is assessed on business area level due to differenct base currencies. In P&C insurance, 10 percentage point depreciation of all other currencies against SEK would result in an increase recognised in profit/loss of EURm 30 (12) and in a decrease recognised directly in equity of EURm 13 (11). In Life insurance, 10 percentage point depreciation of all other currencies against EUR would result in an increase recognised in profit/ loss of EURm 35 (14) and in a decrease recognised directly in equity of EURm 94 (68). In Holding, 10 percentage point depreciation of all other currencies against EUR would have no impact in profit/loss, but a decrease recognised in equity of
The value of financial 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 other financial assets, the prices were assumed to go down by 20 %. The Sampo Group bears no investment risks relatted to unit-linked insurance, so a change in assumptions regarding these assets does not affect profit or loss. On the basis of the these alternative assumptions, a possible change in interest levels would cause descend of EURm 4 (2) for the debt instruments, and EURm 166 (161) valuation loss for other instruments in the Group's other comprehensive income. The reasonably possible effect, proportionate to the Group's equity, would thus be 1.6 % (1.5).
InInvvesestment rtment relaelatted ted to unit-linko unit-linked ced controntracts, tacts, totalotal 5,2825,282 4,6234,623
DefDeferrerred tax ased tax assets in the balancsets in the balance sheete sheet 86
TTotal defotal deferrerred tax liabilities in the balanced tax liabilities in the balance sheete sheet 504504
Tax losses for which no deferred tax asset has been recognised -1 -9
Tax from previous years -1 -1 23 Components of other comprehensive income
ItItems not rems not reclaseclassifiable tsifiable to pro profit or losofit or losss
TTotal protal proovision rvision reporteporteded in the BSin the BS 7,1857,185
TTotal protal proovision rvision reporteporteded in the BSin the BS 6,9886,988
Liabilities fLiabilities for insuror insurancance and ine and invvesestment ctment controntracts tacts totalotal
Preferred capital note, 2005 (nominal value EURm 150) perpetual 4.94% 150 150
Preferred capital note, 2013 (nominal value EURm 90) perpetual 4.70% 90 90
The loans 2005 and 2011 are issued with fixed interest rates for the first ten years, after which they become subject to variable interest rates. The subordinated loan issued in 2013 has a fixed interest rate for the first 5.5 years afther which it becomes subject to variable interest rates. At the point of change, there is the possibility of redemption for all the loans. All loans and their terms are approved by supervisory authorities and the loans are utilised for solvency purposes.
DerivDerivaativtive financial inse financial instruments (nottruments (note 15)e 15) 86 11
DerivDerivaativtive financial inse financial instruments (nottruments (note 15)e 15) 11 18
EURm 22 of the provision consist of assets reserved for the development of efficient administrative and claims-adjustment processes and structural changes in distribution channels result in organisational changes that affect all business areas. In addition, the item includes a provision of about EURm 37 for law suits and other uncertain liabilities.
Since January 1, 2008, the main Swedish pension plan has been closed to new employees born in 1972 or later and the corresponding Norwegian pension plan has been closed to new employees since January 1, 2007 regardless of age. The pension benefits referred to are old-age pension and survivors’ pension in Sweden and old-age pension, survivors’ pension and disability pension in Norway. A common feature of all of the pension plans is that the employees and survivors encompassed by the plans are entitled to a guaranteed pension that depends on the employees’ service period and pensionable salary at the time of retirement. The dominating benefit is the old-age pension, which refers in part to temporary pension before the anticipated retirement age and in part to a life-long pension after the anticipated retirement age.
TTotal in incotal in income some statattementement -7-7 -17-17 -24-24 -7-7 -15-15 -22-22
Remeasurement of the net pension liability -34 -71 -105 19 -40 -21
Fair value of plan assets 140 259 399 124 261 385
Net liability rNet liability rececognised in balancognised in balance sheete sheet 5555 211211 265265 3030 165165 195195
Fair value of plan assets 399 - 399 385 - 385
Defined benefit plans aDefined benefit plans at 31 Dec.t 31 Dec. 664664 580580
RRececonciliaonciliation of plan astion of plan assets:sets: At the beginning of the year 385 392
There are other short-term staff incentive programmes in the Group, the terms of which vary according to country, business area or company. Benefits are recognised in the profit or loss for the year they arise from. An estimated amount of these short-term incentives, social security costs included, for 2014 is EURm 66.
AsAssets pledged as security fsets pledged as security for derivor derivaativtive ce controntracts,acts, carrying vcarrying valuealue
Security lendings can be interrupted at any time and they are secured.
The number of Sampo plc’s shares at 31 Dec. 2013 was 560,000,000, of which 558,000,000 were A-shares and 1,200,000 B-shares. There was no change in the company's share capital of EURm 98 during the financial year.
Other components of equity include fair value changes of financial assets available for sale and derivatives used in cash flow hedges, and exchange differences. Changes in the reserves and retained earnings are presented in the Group's statement of changes in equity.
Total cost for the financial period, meur (incl. social costs) 34 *) Grant dates vary **) Trade-weighted average for ten trading days from the approval of terms 37 Auditors' fees
PrProfit fofit for the financial yor the financial yearear 1,0501,050 829829
Net cash frNet cash from inom invvesesting activitiesting activities 391391 293293
ANNUANNUAL REPORT 2014AL REPORT 2014 NotNotes tes to Sampo plco Sampo plc’’s Financial Ss Financial Statattementsements
CCosost at at beginning of yt beginning of yearear 321 225
Carrying amount aCarrying amount at end of yt end of yearear 325325 321321
Receivables are subordinated loans issued by subsidiaries. More information in the consolidated note 29 Financial liabilities.
CCosost at at beginning of yt beginning of yearear 0 4
Difference between current cost and carrying amount 7 Other investment receivables 20142014 FFair vair value changesalue changes 20132013 FFair vair value changesalue changes
Carrying amount aCarrying amount at 1 Jan. 2014t 1 Jan. 2014 98 4 1,527 273 4,976 6,877
In addition to the above, the company has in accordance with the decision of the Annual General Meeting in 2014 compensated transfer tax of in total EUR 4,628.24 related to the acquisition of the company shares (EUR 1,277.27 pertaining to the Chairman, EUR 797.86 pertaining to the Vice Chairman and EUR 2,553.11 pertaining to the other Finnish members of the Board).
20 Pension contributions to the CEO, deputy CEO and the members of the board
Harri Hollmen 1) According to his current agreement the Group CEO is entitled to retire in December 2015 when he turns 60. The pension benefit is 60 per cent of his pensionable salary. The pensionable salary includes fixed salary, fringe benefits, holiday pay and short-term incentives and is calculated as an average of two out of the four last full years, where the best and the worst year are left out. To replace the defined benefit supplementary pension agreement stipulated in the service contract for the Group CEO currently in force, a new defined contribution pension agreement will be signed as of 1 January 2016. The annual cost of the agreement for Sampo will be 400,000 euros.
3) Group pension agreement with a retirement age of 60 and a pension benefit of 60 per cent of the pensionable TyEL-salary. The supplementary cost pertains to a yearly index adjustement.
PPererccentage ofentage of sharshare capitale capital held*)held*) CarryingCarrying amount EURmamount EURm
AAudituditoror’’s rs reporteport To the Annual General Meeting of Sampo plc
We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of Sampo plc for the financial period 1.1. - 31.12.2014. The financial statements comprise the consolidated statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows, and notes to the consolidated financial statements, as well as the parent company’s balance sheet, income statement, cash flow statement and notes to the financial statements.
Our responsibility is to express an opinion on the financial statements, on the consolidated financial statements and on the report of the Board of Directors based on our audit. The Auditing Act requires that we comply with the requirements of professional ethics. We conducted our audit in accordance with good auditing practice in Finland. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the report of the Board of Directors are free from material misstatement, and whether the members of the Board of Directors of the parent company or the Managing Director are guilty of an act or negligence which may result in liability in damages towards the company or have violated the Limited Liability Companies Act or the articles of association of the company.
Calendar and Contacts 268 Financial Information and AGM 2015 269 Contacts
• by fax to +358 10 516 0719 or • by mail to the address Sampo plc, Shareholder services,
Sampo plc’s Annual General Meeting will be held on 16 April, 2015 at 2 pm, at the Helsinki Exhibition and Convention Centre , address Messuaukio 1, Helsinki. The listing of persons who have registered for the meeting will commence at 12.30 pm.
ANNUANNUAL REPORT 2014AL REPORT 2014 Calendar and CCalendar and Contactsontacts mailto:jarmo.salonen@sampo.fi tel:+358105160010 mailto:peter.johansson@sampo.fi tel:+358105160066 mailto:essi.nikitin@sampo.fi tel:+358105160068 mailto:pirkko.rantanen@sampo.fi tel:+358105160030 mailto:jarmo.salonen@sampo.fi tel:+358105160031 mailto:maria.silander@sampo.fi tel:+358105160049 mailto:paivi.wallden@sampo.fi tel:+358105160065 mailto:carolina.oradd@sampo.fi tel:+358105160067 mailto:johanna.tynkkynen@sampo.fi