CONTENTS Board of Directors’ Report for 2018 . . . . . . . . . . . . . 3
Changes in the Group Structure . . . . . . . . . . . . . . . . . . .13 Mandatum Life’s Portfolio Transfer to Danske Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Shares, Share Capital and Shareholders. . . . . . . . . . . . . . .21
Holdings of the Board and Executive Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Calculation of the Key Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Notes to the Income Statement 1–41 . . . . . . . . . . . . . .68
Notes to Sampo Plc’s Financial Statements . . . . . . 169
Approval of the Financial Statements and the Board of Directors’ Report . . . . . . . . . .176
The Major Risks and Uncertainties to the Group in the Near-Term .......................... 31
P&C insurance operations, If and Topdanmark, both reported very low combined ratios with robust premium growth. In the life insurance operation, Mandatum Life, unit-linked premiums grew to an all-time high. Group’s profit before taxes for 2018 amounted to EUR 2,094 million (2,482). The profit for the comparison year contains a positive non-recurring item of EUR 706 million because of the change in Topdanmark’s accounting treatment. The total comprehensive income for the period, taking changes in the market value of assets into account, declined to EUR 1,034 million (2,146).
Earnings per share was EUR 3.04 (3.96) and marked-tomarket earnings per share was EUR 1.70 (3.79).
Marked-to-market earnings were burdened by the weak capital market development. Return on equity for the
(818). Insurance technical result amounted to EUR 643 million (640) and combined ratio for full-year 2018 was 85.2 per cent (85.3). Return on equity was burdened by the decrease in the market value of investment assets and amounted to 11.2 per cent (21.3). Premiums grew by 2.9 per cent with fixed currencies.
‘Holding’. Nordea’s Board of Directors is going to propose to the AGM 2019 a dividend of EUR 0.69 per share (0.68). If the AGM approves the Board’s dividend proposal, Sampo plc will receive a dividend of EUR 594 million (585).
(13), Mandatum Life’s 26 per cent (28) and Sampo plc’s 11 per cent (7).
EUR 1,444 million reduced the equity and the comprehensive income for the year of EUR 1,034 million increased it.
Sampo Group’s solvency capital calculated according to the Act on the Supervision of Financial and Insurance
of the European Parliament and of the Council exceeded the minimum solvency requirements at the end of 2018 by
Income statement items are compared on a year-on-year basis and comparison figures for balance sheet items are from 31
Average number of staff (FTE) 9,509 9,364 145 *) 2017 figures contain a positive non-recurring item of EUR 706 million related to the start of consolidation of Topdanmark as a subsidiary, without which profit before taxes for Topdanmark segment would have been EUR 142 million. **) of which non-controlling interests are EUR 91 million (23) for 2018 and EUR 14 million (23) for the fourth quarter of 2018.
Balance sheet (at end of period) 1.0308 1.0890 1.0990 1.0628 1.0004
Balance sheet (at end of period) 7.4673 7.4564 7.4525 7.4530 7.4449
The global economy continued to grow at a steady pace of more than 3 per cent in 2018. The start for the year was good and the growth outlook was favourable, but soon darker clouds started to gather. Trade frictions between the US and China, the political turmoil in Europe and
The tightening monetary policy in the US also had its weakening effect on global growth. Uncertainty and worries about slowing growth were also reflected in stock markets which experienced a rough sell-off in the second half of the year. All in all, the year 2018 will be remembered for its good start but also for the quick reversal towards growing uncertainty and concerns over global growth.
Since the Nordic countries are exposed to global trends, they were also negatively affected by the global slowdown.
Finland’s economic growth was mainly boosted by private consumption that replaced exports as a key driver for growth. In Sweden, investments had the biggest contribution to the economy, whereas in Norway and
Denmark enjoyed a solid year and its economy is in good shape. However, the country fell short of the growth rate achieved in 2017, partly because of some technical upside revisions made in the previous year. Private consumption was still the key growth engine, partly boosted by the increased household saving and sustained wage growth.
Business investments are increasing, but export growth has slowed down. The Danish labour market is becoming even tighter as employment rate is rising. Thus, wage growth is slowly accelerating and companies were already facing some recruitment problems.
(publ), is located in Sweden, and the If subsidiaries and branches provide insurance solutions and services in
(85.3) and risk ratio was unchanged at 63.3 per cent (63.3).
In 2018 EUR 173 million (111) was released from technical reserves relating to prior year claims. Return on equity decreased to 11.2 per cent (21.3) and the fair value reserve on 31 December 2018 amounted to EUR 234 million (519).
Swedish discount rate used to discount the annuity reserves was at -0.41 per cent (-0.13) at the end of 2018 and had a negative effect on the full-year results of EUR
(4,526) in 2018. With fixed currency rates premiums grew 2.9 per cent. All business areas and all countries, except
Baltics, 6.5 per cent, and in BA Industrial, 5.0 per cent. In
Gross written premiums grew by 4.0 per cent in Sweden, 4.2 per cent in Norway and 2.3 per cent in Denmark. In BA
Investment return marked-to-market for the full-year 2018 was -0.8 per cent (2.6). Duration for interest bearing assets was 1.4 years (1.4) and average maturity 2.7 years
Topdanmark is the second largest non-life insurance company and the fifth largest life insurance company in
At the end of 2018 Sampo plc held 41,997,070 Topdanmark shares, corresponding to 46.7 per cent of all shares and 48.7 per cent of related voting rights in the company. The market value of the holding was EUR 1,704 million at 31
The Board of Directors recommends to the AGM of 2019 a dividend of DKK 1,350 million (EUR 181 million), i.e.
Sampo plc share of the dividend payment is EUR 84 million.
The following text is based on Topdanmark’s full-year 2018 result release published on 24 January 2019.
profit item of EUR 706 million, i.e. the difference between the carrying value and the fair value of Sampo's holding on 30 September 2017 when Sampo started to consolidate
EUR 1,354 million (1,109) in 2018. Unit-linked contracts represented 94 per cent of new sales in 2018.
Nordea is the largest bank in the Nordic region and among the ten largest financial groups in Europe in terms of total market capitalization with around 11 million customers.
On 31 December 2018 Sampo plc held 860,440,497 Nordea shares corresponding to 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 8.76 per share. The closing price as at 31 December 2018 was EUR
AGM approves the Board’s dividend proposal, Sampo plc will receive dividend of EUR 594 million (585) from
Insurance Company Ltd., a wholly-owned subsidiary of Sampo plc, operating in Finland, Estonia, Latvia and Lithuania, and its subsidiaries. Parent company,
Profit before taxes for Mandatum Life in 2018 amounted to EUR 450 million (236). The profit includes the contribution of EUR 197 million from the Danske Bank co-operation agreement in the second quarter of 2018.
7.0 billion (7.1) at the end of 2018. Unit-linked reserves corresponded to 62 per cent (61) of total technical reserves.
covering unit-linked liabilities, amounted to EUR 5.6 billion (6.3) at market values.
alternative investments. The investment return markedto -market for 2018 was -2.4 per cent (6.5). The duration of fixed income assets at the end of 2018 was 2.5 years
(2.0) and average maturity 2.8 years (2.2). Fixed income running yield without taking into account the FX hedging cost was 2.7 per cent (2.4) on 31 December 2018.
EUR 1.0 billion (1.1), of which 77 per cent (77) was in fixed income, 5 per cent (6) in money market, 11 per cent (11)
Segregated fund’s investment return marked-to-market was -1.9 per cent (1.8). On 31 December 2018 the duration of fixed income assets was 2.5 years (2.6) and average maturity 3.1 years (3.3). Fixed income running yield without taking into account the FX hedging cost was 2.4 per cent (2.1).
Mandatum Life Group’s premium income on own account increased to EUR 1,074 million (960). Premiums through
Sampo plc owns and controls its subsidiaries engaged in P&C and life insurance. In addition, Sampo plc held on 31 December 2018 approximately 21.2 per cent of the share capital of Nordea, the largest bank in the Nordic countries. Nordea is an associated company to Sampo plc. As of March 2018 Sampo plc also has had another associated company, NDX Intressenter AB, of which
618 million (576), of which EUR 621 million (616) relates to Sampo’s share of Nordea’s and NDX Intressenter’s 2018 profit. Nordea’s share was EUR 625 million (616) and NDX
(Asiakastieto, Intrum, Nets, Nordax and Saxo) amounting totally to approx. EUR 1 billion. Of these holdings Nordax
(NDX Intressenter) is treated as an associated company, and other investments as financial assets.
In February 2018, Nordic Capital Fund VIII and Sampo plc, through NDX Intressenter AB, made a recommended mandatory public cash offer to acquire Nordax Group AB.
Mandatum Life disclosed on 27 October 2016 that it would use its right to sell the insurance portfolio distributed by
Danske Bank’s Finnish branch network to Danske Bank or a third party appointed by Danske Bank. As a result of the valuation process, conducted by external valuators, the value of the insurance portfolio on 31 December 2016 was determined to be EUR 334 million. After the correction for the theoretical result since 2017, Mandatum Life was to receive EUR 297 million at the end of 2018.
On 24 April 2018 Mandatum Life and Danske Bank, however, agreed to continue their co-operation and that the transfer of the insurance portfolio agreed earlier would not take place. The agreed transaction was subject to confirmation of the tax treatment. Mandatum Life received a transaction price of EUR 197 million from
Danske Bank for the above arrangement. The amount was subject to corporate tax.
The companies received a negative pre-ruling on the tax treatment of the transaction on 29 May 2018. Despite the ruling Mandatum Life and Danske Bank agreed on 19 June 2018 to continue their co-operation as agreed in
position as of 1 January 2019. He was Group CFO and a member of the Sampo Group Executive Board since 2001.
Knut Arne has an extensive background in Sampo Group and has previously worked as Chief Risk Officer and Head of Reinsurance.
Corporate Governance Code issued 1 October 2015 by the Securities Market Association and effective from 1
Board of Directors. The following members were re-elected to the Board: Christian Clausen, Jannica Fagerholm,
Lehtinen and Björn Wahlroos (Chairman) were elected to the Nomination and Compensation Committee and
All the Board members have been determined to be independent of the company under the rules of the
Finnish Corporate Governance Code 2015. Furthermore, all Board members but Antti Mäkinen have been determined to be independent of the major shareholders.
The curriculum vitaes of the Board Members are available at www.sampo.com/year2018.
Audit Committee will be paid EUR 115,000, the members of the Audit Committee will be paid EUR 96,000 and the other members of the Board of Directors will be paid EUR
Sampo plc's A shares at the price paid in public trading for 50 per cent of his/her annual fee excluding taxes and similar payments.
There were 3,371 shareholders represented at the beginning of the meeting holding altogether 362,200,385 shares and 367,000,385 votes in the company.
Sampo plc and the whole Sampo Group is aware of its corporate responsibility and all Group companies are dedicated to being responsible corporate citizens. Sampo is committed to developing corporate responsibility of the
Group in general as well as the corporate responsibility related reporting. This is in the interests of and expected by the Group’s various internal and external stakeholders.
In 2018, Sampo Group decided to strengthen its focus on corporate responsibility further. As a result, Sampo restructured its corporate responsibility organization.
Responsibility to be responsible for the development and coordination of corporate responsibility on a group-level.
Responsibility Program for Sampo. Corporate responsibility covers a wide range of topics relevant for key business operations, therefore a steering group and program would help guide the work on a group-level. Further developments regarding the steering group and the program can be expected during 2019. During the year, Sampo also supplemented the investment policies of the Group companies to include instructions on how to take ESG issues into account in investment analysis and decision-making.
Board of Directors’ Report and published in May 2019 at www.sampo.com/year2018.
In addition to the group-level report, further information on If and Topdanmark’s corporate responsibility activities can be found in their respective reports. The reports of
In geographical terms Denmark had 31 per cent of the personnel, Finland 24 per cent, Sweden 22 per cent and
The total number of staff in Mandatum Life increased 2 per cent. As of 31 December 2018 Mandatum Life employed 533 persons.
shall be to encourage and stimulate employees to do their best and surpass their targets. Remuneration packages shall be designed to reward fairly for prudent and successful performance. At the same time, however, in order to safeguard the interest of other stakeholders, compensation mechanisms shall not generate conflicts of interest and shall not entice or encourage employees to excessive or unwanted risk taking. Thus, compensation mechanisms cannot be separated from risk management objectives and practices.
Management and to certain key persons shall be deferred for a defined period of time as required in the regulatory framework applicable to each Sampo Group company.
In the 2014:1 schemes, 1 453 725 allocated incentive units remain and will vest in 2019. In the 2017:1 schemes, 4 063 000 allocated incentive units remain and will vest during 2020–2023.
In 2018 EUR 23 million (19), including social cost, was paid on the basis of the long-term incentive schemes. EUR 36 million (37), including social costs, was paid as short-term incentives during the same period. The result impact of the long-term incentive schemes in force in 2018 was EUR
sampo.com/remunerationstatement. The statement has been prepared in accordance with the Corporate
As dividends are Sampo plc’s major source of income, its primary target for every sub-group is to maintain a healthy balance between profits, risks and capital to facilitate a steady stream of dividend payments in the long run.
Thirdly, Sampo prefers to have low leverage and adequate liquidity buffers to be able to generate liquidity as needed.
As at 31 December 2018, Sampo plc had 555,351,850 shares, which were divided into 554,151,850 A shares and 1,200,000 B shares. Total number of votes attached to the shares is 560,151,850. Each A share entitles the holder to one vote and each B share entitles the holder to five votes at the General Meeting of Shareholders. According to the company’s Articles of Association, A shares must number at least 179,000,000 and no more than 711,200,000. Meanwhile, B shares must number at least zero and no more than 4,800,000. As at 31 December 2018 Sampo plc's share capital amounted to EUR 98 million (98) and the equity capital in total to EUR 12,386 million (12,848).
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 shares 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
Sampo A shares have been quoted on the main list of the
At the end of the financial year, neither Sampo plc nor its
Shareholders by the Number of Shares Held Sampo plc, 31 December 2018
shares. Shares are repurchased in other proportion than the shareholders' proportional shareholdings (directed repurchase). The maximum price to be paid is highest market price quoted during the authorization period.
Annual General Meeting, nevertheless not more than 18 months after AGM's decision.
Sampo plc made no repurchases during 2018 and has not purchased its own shares after the end of the reporting period
The number of Sampo plc’s shareholders increased during 2018 by 7,448 holders to 116,115 as at 31 December 2018.
Shareholders by Sector Sampo plc, (A and B shares), 31 December 2018
Pension Insurance Co. The notified changes are illustrated in the table below.
Date of change Company Shares, total Voting rights, total 5 Jan 2018 Capital Income Builder (CIB) 5.07% 5.02%
A shares. Their combined holdings constituted 1.2 per cent (1.9) of the share capital and related votes.
Shares Owned by the Board of Directors and the Group Executive Committee Sampo plc, 31 December 2018 and 31 December 2017
• If; SEK 7.0 billion (EUR 675 million) in December 2018.
General meeting to be held on 28 March 2019, a dividend of EUR 0.69 per share. With its current holding Sampo plc’s share amounts to EUR 594 million if approved by the
General Meeting of 3 April 2019 a dividend of DKK 15 per share. If the AGM approves the proposal, Sampo’s share of the Topdanmark’s total dividend amounts to EUR 84 million.
Mandatum Life during the first quarter of 2019. If normally pays its dividend towards the end of the calendar year.
Sampo Group’s capital requirement is dependent on the capital requirements of the business areas and the parent company. Sampo Group’s capital requirement and the amount of group’s own funds are calculated by both the conglomerate rules (FICO) and the Solvency II directive.
Until the end of 2018 the total minimum capital requirement under FICO rules was calculated based on the subsidiaries ’ standard formula capital requirements. At the year-end 2018 Sampo started using Partial Internal Model
If P&C Insurance Ltd (publ) (Sweden) – Insurance Financial Strength Rating A1 Stable A+ Stable
Amount (REA) increased EUR 35 billion to EUR 156 billion stemming mainly from migration of existing items from
As a consequence of these two effects, the nominal capital requirement for Sampo was EUR 3,779 million on
II directive amounted to 140 per cent (156) on 31 December
If, Topdanmark and Mandatum Life have since 1 January 2016 applied Solvency II rules in their regulatory solvency calculations. If Group companies use either partial internal models or standard model for calculation of their solo solvency position. Mandatum Life reports in accordance with standard formula for Solvency II.
If Group has an A+ rating from S&P which will continue to require significantly more capital than the standard formula and therefore the use of standard formula has no practical implications on If Group’s capital position. On 31 December 2018 If Group’s pro forma Solvency II capital requirement under standard formula amounted to EUR
2,949 million (3,098) at the end of 2018 and the capital base was EUR 3,149 million (3,408). On 31 December 2018
If Group’s Solvency II capital requirement under partial internal model was EUR 1,305 million (1,510) and own funds EUR 3,599 million (3,875). Solvency ratio amounted to 276 per cent (257).
Topdanmark’s solvency ratio under the partial internal model was 196 per cent (204) at the end of 2018.
On 31 December 2018 Topdanmark’s Solvency II capital requirement under standard formula amounted to EUR
On 31 December 2018 financial liabilities in Sampo plc’s balance sheet consisted of issued senior bonds and notes of EUR 3,943 million (2,884) and EUR 124 million (293) of
CPs issued. The average interest, net of interest rate swaps, on Sampo plc’s debt as of 31 December 2018 was 0.81 per cent (0.93).
Instrument & Nominal Coupon Swap Effective Rate Maturity CP’s issued 125 EURm Euribor + Margin 0.2500% Average 3M
Senior Bond 2,000 SEKm Stibor3M + 0.77% Euribor3M + 0.586125% 0.2671% 28 May 2020
Senior Bond 1,300 SEKm Stibor3M + 0.55% Euribor6M + 0.3881% 0.1181% 23 May 2022
Senior Bond 500 EURm 1.250% EUR6M + 0.735% 0.4660% 20 May 2025
Senior Bond 500 EURm 2.250% Euribor6M + 1.079% 0.8120% 27 Sep 2030
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.
Sampo Group’s business areas are expected to report good operating results for 2019.
If P&C is expected to reach a combined ratio of 86–90 per cent in 2019.
The Major Risks and Uncertainties to the Group in the Near-Term
Major risks affecting the Group companies’ profitability and its variation are market, credit, insurance and operational risks that are quantified independently by the business areas. At the group level sources of risks are same, but they are not directly additive because of diversification effects.
Identification of unforeseen events is easier than estimation of their probabilities, timing and potential outcomes.
Currently there are a number of widely identified macroeconomic, political and other sources of uncertainty which can in various ways affect financial services industry negatively. Especially the political risks are at an elevated level at the moment.
The parent company’s distributable capital and reserves totalled EUR 7,792,358,111.04 of which profit for the financial year was EUR 1,668,757,866.27.
Return on equity (at fair values) % 7.5 17.1 15.0 14.0 10.9
Return on equity (at fair values) % 8.7 13.3 15.9 12.7 11.4
Earnings per share, incl. Items in other comprehensive income EUR 1.70 3.79 3.14 2.79 2.11
Capital and reserves per share EUR 22.30 23.14 21.31 20.38 19.51
Average adjusted number of shares 1,000 555,352 559,873 560,000 560,000 560,000
Adjusted number of shares at 31 Dec. 1,000 1,200 1,200 1,200 1,200 1,200
Conglomerates (2004/699). The group solvency is calculated according to Chapter 3. The adjusted solvency is determined on the basis of the Group financial statements as permitted by the Financial Supervisory Authority.
In calculating the key figures the tax corresponding to the result for the accounting period has been taken into account. The valuation differences, adjusted with the deferred tax liability, on the investment property have been taken into account in return on assets, return on equity, equity/assets ratio and net asset value per share. Additionally, the items in the other comprehensive income have been taken into account in return on assets and return on equity. In the net asset value per share, the Group valuation difference on associate Nordea and listed subisidiary Topdanmark have also been taken into account.
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.
Profit before taxes + property & casualty insurance profit before taxes + life insurance profit before taxes + holding business profit before taxes ± Group elimination items with result impact
Earnings per share, incl. change in fair value reserve total comprehensive income for the financial period attributable to the parent adjusted average number of shares
Price/earnings ratio adjusted closing share price at balance sheet date earnings per share
Group’s IFRS Financial Statements Statement of Profit and Other Comprehensive Income, IFRS
Total items reclassifiable to profit or loss, net of tax -739 -97
Change in liabilities for insurance and investment contracts 4 -85 -603
Share of associates' profit/loss 13 647 712 - Gain from fair valuation of former associated company - 706
Other comprehensive income for the period -31 -124 -590 -744 -744 1) IAS 19 Pension benefits had a net effect of EURm -34 (-15) on retained earnings. 2) The total comprehensive income includes also the share of the associate Nordea's other comprehensive income, in accordance with the Group's share holding. The retained earnings thus include EURm -26 (-19)
of Nordea's actuarial gains/losses The exchange differences include the share of Nordea's exchange differences EURm -26 (-43). Respectively, available-for-sale financial assets include EURm -10 (15) of Nordea's valuation differences on assets at fair value through p/l. Nordea adopted the new IFRS 9 Financial instruments standard from 1 January 2018 on.
Notes to the Income Statement 1–41 1 Insurance premiums written .................................................68 2 Net income from investments ..............................................68 3 Claims incurred ..........................................................................72 4 Change in liabilities for insurance and investment contracts ...............................................................72 5 Staff costs ....................................................................................72 6 Other operating expenses .....................................................73 7 Result analysis of If ..................................................................73 8 Earnings per share ....................................................................73 9 Financial assets and liabilities ..............................................74 10 Property, plant and equipment ...........................................75 11 Investment property ................................................................76 12 Intangible assets .......................................................................77 13 Investments in associates ......................................................78 14 Financial assets ..........................................................................81 15 Fair values ....................................................................................83 16 Change in fair values of financial assets ..........................84 17 Determination and hierarchy of fair values .....................85 18 Movements in level 3 financial instruments measured at fair value .............................................................89 19 Sensitivity analysis of level 3 financial instruments measured at fair value ...................................91 20 Investments related to unit-linked insurance contracts ......................................................................................91 21 Deferred tax assets and liabilities .......................................92 23 Components of other comprehensive income ..............94 24 Tax effects relating to components of other comprehensive income ...........................................................95 25 Other assets ................................................................................95 26 Liabilities from insurance and investment contracts ..96 27 Liabilities from unit-linked insurance and investment contracts ............................................................ 102 32 Contingent liabilities and commitments ....................... 110 33 Equity and reserves .............................................................. 111 34 Related party disclosures ................................................... 111 36 Assets and liabilities related to assets held for sale .............................................................................. 115 39 Investments in subsidiaries ................................................ 116 40 Events after the balance sheet date ............................... 116 41 Risk Management Disclosure ............................................ 117
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 43FINANCIAL STATEMENTS 2018
Sampo Group has prepared the consolidated financial statements for 2018 in compliance with the International
Topdanmark was first consolidated in the Group as a subsidiary on 30 September 2017, and due to this, the company’s p/l for January–September 2017 has been presented in Topdanmark’s own segment in one line as a share of associates’ profit and the p/l for October–
The Board of Directors of Sampo plc accepted the financial statements for issue on 7 February 2019.
Group, and cease to be consolidated from the date that control ceases.
Associates Associates are entities in which the Group has significant influence, but no control over the financial management and operating policy decisions. Unless otherwise demonstrated, this is generally presumed when the Group holds in excess of 20 per cent, but no more than 50 per cent, of the voting rights of an entity. Investments in associates are treated by the equity method of accounting, in which the investment is initially recorded at cost and increased
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 44FINANCIAL STATEMENTS 2018
Exchange differences arising from translation of transactions and monetary balance sheet items denominated in foreign currencies into functional currency are recognised as translation gains and losses in profit or loss. Exchange differences arising from equities classified as availablefor -sale financial assets are included directly in the fair value reserve in equity.
The income statements of Group entities whose functional currency is other than euro are translated into euro at the average rate for the period, and the balance sheets at the rates prevailing at the balance sheet date.
In the inter-segment and inter-company pricing, for both domestic and cross border transactions, market-based prices are applied. The pricing is based on the Code of
Interest and dividends Interest income and expenses are recognised in the income statement using the effective interest rate method. This method recognises income and expenses on the instrument evenly in proportion to the amount outstanding over the period to maturity. Dividends on equity securities are recognised as revenue when the right to receive payment is established.
insurance. In the life insurance business the acquisition costs are treated as fee and commission expense under
In the life insurance business, liabilities arising from insurance and investment contracts count as long-term liabilities. Therefore the insurance premium and related claims are usually not recognised in the same accounting period. Depending on the type of insurance, premiums are primarily recognised in premiums written when the premium has been paid. In group pension insurance, a part of the premiums is recognised already when charged.
Financial assets and liabilities Based on the measurement practice, financial assets and liabilities are classified in the following categories upon the initial recognition: financial assets at fair value through profit or loss, loans and receivables, available -for-sale financial assets, financial liabilities at fair value through profit or loss, and other liabilities.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 46FINANCIAL STATEMENTS 2018
(IPEV) guidelines which give detailed instructions on the valuation of private equity funds.
For alternative funds the valuation is also conducted by the fund managers. Alternative funds often have complicated structures and the valuation is dependent on the nature of the underlying investments. There are many different valuation methods that can be used, for example, the method based on the cashflows of the underlying investments. The operations and valuation of alternative funds are regulated for example by the Alternative
In the life insurance business, IFRS 4 Insurance Contracts provides that insurance contracts with a discretionary participation feature are measured in accordance with national valuation principles rather than at fair value.
Recognition and derecognition Purchases and sales of financial assets at fair value through profit or loss and available-for-sale financial assets are recognised and derecognised on the trade date, which is the date on which the Group commits to purchase or sell the asset. Loans and receivables are recognised when cash is advanced.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 47FINANCIAL STATEMENTS 2018
Loans and receivables Loans and receivables comprise non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately or in the short term. The category also comprises cash and balances with central banks.
Fair value The fair value of financial instruments is determined primarily by using quoted prices in active markets.
Group. Objective evidence is first assessed for financial assets that are individually significant, and individually and collectively for financial assets not individually significant.
Available-for-sale financial assets 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 watch list, or there is a significant or prolonged decline in the fair value of an equity instrument below its original acquisition cost.
The decision on whether the impairment is significant or prolonged requires an assessment of the management.
The significance and prolongation of the impairment in the last-mentioned cases is assessed case by case, taking into consideration special factors and circumstances related to the investment. Sampo invests in private equity and venture capital in order to keep them to the end of their life cycle, so the typical lifetime is 10–12 years. In general, a justifiable assessment of a potential impairment may only be done towards the end of the life cycle.
An impairment on equity funds is recognised in line with the principles above when the starting year of the fund is at least 10 years old and the carrying amount of the fund is maximum EUR 500,000. In these cases both the fair value and the carrying amount are booked to zero. An impairment is only performed to those funds for which the benchmarks are met in all Sampo Group companies’
In the case of debt securities, the amount of the impairment loss is assessed as the difference between the acquisition cost, adjusted with capital amortisations and
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 49FINANCIAL STATEMENTS 2018
accruals, and the fair value at the review time, reduced by previously in profit or loss recognised impairment losses.
Derivative financial instruments and hedge accounting Derivative financial instruments are classified as those held for trading and those held for hedging, including interest rate derivatives, credit risk derivatives, foreign exchange derivatives, equity derivatives and commodity derivatives. Derivative instruments are measured initially at fair value. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. During the financial year, the fair value hedging has been applied in Mandatum.
Derivatives held for trading Derivative instruments that are not designated as hedges and embedded derivatives separated from a host contract are treated as held for trading. They are measured at fair value and the change in fair value, together with realised gains and losses and interest income and expenses, is recognised in profit or loss.
Non-current assets held for sale Non-current assets and the assets and liabilities related to discontinued operations are classified as held for sale, if their carrying amount will be recovered principally through sales transactions rather than from continuing use. For this to be the case, the sale must be highly probable, the asset (or disposal group) must be available
(or disposal groups), the management must be committed to a plan to sell the asset (or disposal group), and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Finance leases Leases of assets in which substantially all the risks and rewards of ownership are transferred to the Group are classified as finance leases. Finance leases are recognised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The corresponding obligation is included in
‘Other liabilities’ in the balance sheet. The assets acquired under finance leases are amortised or depreciated over the shorter of the asset’s useful life and the lease term.
Operating leases Leases in which assets are leased out and the Group retains substantially all the risks and rewards of ownership are classified as operating leases. They are included in ‘Investment property’ in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment, and the impairment losses are recognised on the same basis as for these items. Rental income on assets held as operating leases is recognised on a straight-line basis over the lease term in profit or loss.
Goodwill Goodwill represents the excess of the cost of an acquisition (made after 1 January 2004) over the fair value of the
Other intangible assets IT software and other intangible assets, whether procured externally or internally generated, are recognised in the balance sheet as intangible assets with finite useful lives, if it is probable that the expected future economic benefits that are attributable to the assets will flow to the
Group and the cost of the assets can be measured reliably.
Intangible assets with finite useful lives are measured at historical cost less accumulated amortisation and impairment losses. Intangible assets are amortised on a straightline basis over the estimated useful life of the asset. The estimated useful lives by asset class are as follows: IT software 3–10 years
Impairment of intangible assets and property, plant and equipment At each reporting date the Group assesses whether there is any indication that an intangible asset or an item of property, plant or equipment may be impaired. If any such indication exists, the Group will estimate the recoverable amount of the asset. In addition, goodwill, intangible assets not yet available for use and intangible assets with an indefinite useful life will be tested for impairment annually, independent of any indication of impairment.
For impairment testing the goodwill is allocated to the cash-generating units of the Group from the date of acquisition. In the test the carrying amount of the cash-generating unit, including the goodwill, is compared with its recoverable amount.
Insurance and investment contracts Insurance contracts are treated, in accordance with IFRS
Liability adequacy test A liability adequacy test is performed separately for both the provision for claims outstanding and the provision for unearned premiums. The provision for claims outstanding is based on estimates of future cash flows. The estimates are made by using well-established actuarial methods.
Pensions Act) index in order to maintain the real value of the pensions. The index raises are not the responsibility of the insurance companies, but are funded by the so-called pay-as-you-go principle, i.e. each year premiums written include index raises to the same amount that is paid out in that year. In practice, the P&C insurance companies collect a so-called expense loading along with their premiums written, which is then forwarded to the central organisation for the particular insurance line. The central organisation distributes the pay-as-you-go contributions collected so that the company undertaking the type of insurance in question receives an amount equal to the compensation falling under the pay-as-you-go system it has paid that year. The insurer’s participation in the payment is proportional to the insurer’s market share in the insurance line in question.
The pay-as-you-go system related to pension index raises is not treated as an insurance activity under IFRS 4 and does not generate any risk for the insurance company.
Thus, the pay-as-you-go contribution collected together with the insurance premium is not deemed to be premium income, and the pension index raise paid out is not deemed to be claims incurred. Because the collected index raise corresponds in amount to the paid out pension index raise, the said items are set-off in the Income
Deferred acquisition costs In the P&C insurance business, acquisition costs clearly relating to the writing of insurance contracts and extending beyond the financial year are recognised as assets in the balance sheet. Acquisition costs include operating expenses directly or indirectly attributable to writing insurance contracts, fees and commissions, marketing expenses and the salaries and overheads of sales staff.
Measurement of insurance and investment contracts National accounting standards are applied to all insurance contracts and to investment contracts with DPF.
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.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 55FINANCIAL STATEMENTS 2018
The amounts of short- and long-term liabilities in technical provisions are determined annually.
Principle of fairness According to Chapter 13, Section 2 of the Finnish Insurance Companies’ Act, the Principle of Fairness must be observed in life insurance and investment contracts with a discretionary participation feature. If the solvency requirements do not prevent it, a reasonable part of the surplus has to be returned to these policies as bonuses.
The calculated effects in the form of interest expense for crediting/appreciating the preceding years’ established pension obligations are then added. The calculation of pension costs during the financial year starts at the beginning of the year and is based on assumptions about such factors as salary growth and price inflation throughout the duration of the obligation and on the current market interest rate adjusted to take into account the duration of the pension obligations.
The current year pension cost and the net interest of the net liability is recognised thru p/l in pension costs. The
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 56FINANCIAL STATEMENTS 2018
Termination benefits An obligation based on termination of employment is recognised as a liability when the Group is verifiably committed to terminate the employment of one or more persons before the normal retirement date or to grant benefits payable upon termination as a result of an offer to promote voluntary redundancy. As no economic benefit is expected to flow to the employer from these benefits in the future, they are recognised immediately as an expense. Obligations maturing more than 12 months later than the balance sheet date are discounted. The benefits payable upon termination at Sampo are the monetary and pension packages related to redundancy.
The fair value of the schemes has been determined using the Black-Scholes-pricing model. The fair value of the market-based part of the incentive takes into consideration the model’s forecast concerning the number of incentive units to be paid as a reward. The effects of non-market based terms are not included in the fair value of the incentive; instead, they are taken into account in the number of those incentive units that are expected to be exercised during the vesting period. In this respect, the Group will update the assumption on the estimated final number of incentive units at every interim or annual balance sheet date.
they are approved by the Annual General Meeting. When the parent company or other Group companies purchase the parent company’s equity shares, the consideration paid is deducted from the equity as treasury shares until they are cancelled. If such shares are subsequently sold or reissued, any consideration received is included in equity.
Actuarial assumptions Evaluation of insurance liabilities always involves uncertainty, as technical provisions are based on estimates and assumptions concerning future claims costs. The estimates are based on statistics on historical claims available to the Group on the balance sheet date. The uncertainty related to the estimates is generally greater when estimating new insurance portfolios or portfolios where clarification of a loss takes a long time because complete claims statistics are not yet available. In addition to the historical data, estimates of insurance liabilities take into consideration other matters such as claims development, the amount of unpaid claims, legislative changes, court rulings and the general economic situation.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 58FINANCIAL STATEMENTS 2018
comparative information derived from the market. They include management assumptions concerning market return requirements and the discount rate applied.
Application of new or revised IFRSs and interpretations 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.
The amendments to IFRS 9 Financial Instruments (estimated effective for annual periods beginning on 1 Jan 2021 or after) supersede IAS 39 Financial Instruments: Recognition and Measurement. Sampo is going to utilise the temporary exception option, outlined in the next chapter, and apply the standard on the annual period beginning on 1 Jan 2022. 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.
Insurance Contracts (by IASB tentative decision effective for annual periods beginning on 1 Jan 2022 or after) will have an impact on the insurance liabilities valuation, the insurance companies have been given additional options regarding the adoption of IFRS 9. If certain preconditions regarding the insurance liabilities are met, the company may apply the so-called temporary exception option and defer the implementation until the adoption of IFRS 17 standard, at the latest on annual period beginning on 1
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 59FINANCIAL STATEMENTS 2018
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 284 147 112 506 -16 1,034
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 61FINANCIAL STATEMENTS 2018
Share of associates' profit/loss 1 94 0 616 - 712 - Gain from fair valuation of former associated company - 706 - - - 706
Share of associate's other comprehensive income - - - -57 - -57
Actuarial gains and losses from defined pension plans 5 - - - - 5
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 62FINANCIAL STATEMENTS 2018
Liabilities for insurance and investment contracts 8,934 5,259 4,221 - - 18,415
Reinsurers' share of insurance liabilities 220 77 0 - - 297
Liabilities for unit-linked insurance and investment contracts - 4,036 3,965 - -42 7,959
The revenue includes insurance premiums according to the underwriting country, consisting of premiums earned for P&C insurance and premiums written for life insurance, and net investment income and other operating income in the holding segment.t.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 64FINANCIAL STATEMENTS 2018
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 65FINANCIAL STATEMENTS 2018
Year 2018 The Swedish NDX Intressenter AB became an associate of the Group in March 2018 with an ownership of 36.25%.
The 50.9% non-controlling interest included in the balance sheet of Topdanmark has been determined as a proportionate share of the net assets.
September 2017 on, Topdanmark has been consolidated as a subsidiary in the financial reporting of the Group.
Group insurance premiums written total, net ¹) 7,907 5,815 1) The change in unearned premiums is presented in note 4, The change in insurance and investment liabilities.
Included in gains/losses from financial assets available-for-sale is a net gain of EURm -23 (-90) transferred from the fair value reserve.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 68FINANCIAL STATEMENTS 2018
Included in gains/losses from financial assets available-for-sale is a net gain of EURm -117 (-147) transferred from the fair value reserve.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 70FINANCIAL STATEMENTS 2018
The changes in the fair value reserve are disclosed in the Statement of changes in equity. Other income and expenses comprise rental income, maintenance expenses and depreciation of investment property. All the income and expenses arising from investments are included in Net income from investments. Gains/losses include realised gains/losses on sales and unrealised and realised changes in fair values. Unrealised fair value changes for financial assets availablefor -sale are recorded in other comprehensive income and presented in the fair value reserve in equity. The effect of discounting annuities in P&C insurance is disclosed separately. The provision for annuities is calculated in accordance with actuarial principles taking anticipated inflation and mortality into consideration, and discounted to take the anticipated future return on investments into account. To cover the costs for upward adjustment of annuity provisions required for the gradual reversal of such discounting, an anticipated return on investments is added to annuity results.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 71FINANCIAL STATEMENTS 2018
Group claims incurred, total -5,015 -4,023 4 Change in liabilities for insurance and investment contracts
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 72FINANCIAL STATEMENTS 2018
Administrative expenses pertaining to other technical operations (operating expenses) -34 -35
Asset management costs (investment expenses) -21 -23 8 Earnings per share
Profit or loss attributable to the equity holders of the parent company 1,687 2,216
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 74FINANCIAL STATEMENTS 2018
EURm Land and buildings Equipment Total Land and buildings Equipment Total At 1 January
Net carrying amount at 31 December 117 44 162 118 40 158
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 75FINANCIAL STATEMENTS 2018
Non-cancellable minimum rental - not later than one year 38 33 - later than one year and not later than five years 57 45 - later than five years 30 24
Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period -28 -13 - direct operating expenses arising from investment property not generating rental income during the period 0 -4
Goodwill is tested for impairment in accordance with IAS 36 Impairment of assets. No impairment losses have been recognised based on these tests.
Forecasts for If, approved by the management, cover years 2019 – 2021. The cash flows beyond that have been extrapolated using a 2% growth rate. A 2% growth rate for years beyond 2027 has been used for the for Mandatum Life as well, as it is believed to be close to the anticipated inflation in both cases.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 77FINANCIAL STATEMENTS 2018
Komplementarselskabet Ottilia København ApS Denmark 35 50.00 *) Published price quatation
Associates that have been accounted for by the equity method at 31 December 2017
IAS 36 permits determing the recoverable amount by using the fair value less costs to sell. For Topdanmark, the valuation of goodwill has been tested on the balance sheet date by using that method. Topdanmark's share price at the acquisition date 30 September 2017 was 247.70 Danish crowns and 303.00 Danish crowns on 31 December 2018. The fair value of Topdanmark on the balance sheet date exceeds its carrying amount in the Group.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 78FINANCIAL STATEMENTS 2018
Changes in the equity of associates -83 50 -33 -33 - -33
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 79FINANCIAL STATEMENTS 2018
Currency options, bought and sold 414 3 2 188 2 1
Total derivatives held for trading 14,096 72 166 14,199 82 96
Total derivatives held for hedging 364 - 4 364 3 0
Fair value hedging is used to hedge a proportion of foreign exchange and interest risk in available-for-sale financial assets. The interest elements of forward contracts have been excluded from hedging relationships in foreign exchange hedges. Net result from exchange derivatives designated as fair value hedges amounted to EURm 12 (-63). Net result from hedged risks in fair value hedges of available for sale financial assets amounted to EURm -12 (63).
Total financial assets designated as at fair value through p/l 5,158 5,422
The fair value for short-term non-interest-bearing receivables and payables is their carrying amount.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 83FINANCIAL STATEMENTS 2018
Fair value Fair value EURm 31 Dec 2018 31 Dec 2017 Change Financial assets
There are no significant credit risk concentrations related to financial instruments that meet the SPPI test.
Financial assets measured at amortised cost, meeting the SPPI test, by credit risk rating grade: BB+ - BB- B+ - B- Total Loans and receivables 49 49 98
The table has been prepared based on current preliminary analysis on business models. The final classification may change before the implementation on 1 January 2022, when the Group finanalises its more detailed analysis.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 84FINANCIAL STATEMENTS 2018
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 85FINANCIAL STATEMENTS 2018
EURm Level 1 Level 2 Level 3 Total FINANCIAL LIABILITIES AT 31 DECEMBER 2018
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 86FINANCIAL STATEMENTS 2018
Total financial liabilities measured at fair value - 96 - 96
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 87FINANCIAL STATEMENTS 2018
The sensitivity of financial assets and liabilites to changes in exchange rates is assessed on business area level due to different base currencies. In If, 10 percentage point depreciation of all other currencies against SEK would result in an increase recognised in profit/loss of EURm 1 (13) and in a decrease recognised directly in equity of EURm -1 (-12). In Topdanmark, 10 percentage depreciation of all other currencies against DKK would result in an increase recognised in profit/ loss of EURm 0 (-1), but would not have an impact on equity. In Mandatum, 10 percentage point depreciation of all other currencies against EUR would result in an increase recognised in profit/loss of EURm 29 (12) and in a decrease recognised directly in equity of EURm -67 (-79). 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 EURm -249 (-216).
Other financial investments 1% parallel shift down 1% parallel shift up 20% fall in prices 20% fall in prices
EURm Realised gains/losses Fair value gains and losses Total Total gains or losses included in profir or loss for the financial year -37 8 -29
Total gains or losses included in profit and loss for assets held at the end of the financial year -46 8 -39
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 91FINANCIAL STATEMENTS 2018
Recognised in comprehensive income statement Recognised in equity Exchange differences 31 Dec 2018
Depreciation differences and untaxed reserves 257 0 -58 0 -10 189
In Sampo plc, EURm 28 of deferred tax asset has not been recognised on unused tax losses. The first losses will expire in 2019.
Tax losses for which no deferred tax asset has been recognised -1 -2
Total items not reclassifiable to profit or loss, net of tax -5 4
Incurred but not reported losses (IBNR) 2,813 43 2,770 3,093 70 3,023
Provisions for annuities and sickness benefits 657 - 657 654 - 654
EURm Gross Ceded Net Gross Ceded Net Provision for unearned premiums
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 97FINANCIAL STATEMENTS 2018
Provision reported in the balance sheet 2,699 167 193 203 210 266 316 324 388 544 1,169 6,479 of which established vested annuities 1,588 63 76 75 76 86 88 66 50 25 8 2,201
Current estimate of total claims costs 867 902 941 834 1,014 867 882 853 809 857 8,826
Provision reported in the balance sheet 53 64 63 80 99 110 146 173 219 421 1,426
Current estimate of total claims costs 830 854 800 790 841 813 827 796 781 806 8,138
Provision reported in the balance sheet 52 64 63 80 95 105 135 163 212 391 1,356
The change between financial years is mainly due to the claims paid.
Exemption allowed in IFRS 4 Insurance contracts has been applied to investment contracts with DPF or contracts with a right to trade-off for an investment contract with DPF. These investment contracts have been valued like insurance contracts.
EURm Group liabilities from unit-linked insurance and investment contracts, total 11,390 7,959
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 102FINANCIAL STATEMENTS 2018
Preferred capital note, 2016 (nominal value 500 MSEK) 30 years 2,42% 49 51
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 103FINANCIAL STATEMENTS 2018
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 104FINANCIAL STATEMENTS 2018
EURm 1 Jan 2018 Cash flows Exchange differences Other 31 Dec 2018
EURm 1 Jan 2017 Cash flows Exchange differences Other 31 Dec 2017
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 105FINANCIAL STATEMENTS 2018
Sampo has defined benefit plans in P&C insurance business in Sweden and Norway.
When applying IAS 19, the pension obligations are calculated, as is the pension cost attributable to the fiscal period, using actuarial methods. Pension rights are considered to have been vested straight line during the service period. The calculation of pension obligations is based on future anticipated pension payments and includes assumptions regarding mortality, employee turnover and salary growth. The nominally calculated obligation is discounted to the present value using interest rates based on the extrapolated yield-curves in Sweden and in Norway for AAA and AA corporate bonds, including mortgage-backed bonds.The discount rate chosen takes into account the duration of the company’s pension obligations. After a deduction for the plan assets, a net asset or net liability is recognized in the balance sheet.
The carrying amounts have been stated including special payroll tax in Sweden (24.26%) and a corresponding fee in Norway (14.1%–19.1%).
Interest expense on net pension liability 0 1 1 1 1 2
Fair value of plan assets 186 31 217 177 35 211
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 107FINANCIAL STATEMENTS 2018
Mortality table FFFS 2007:31 +1 year FFFS 2007:31 +1 year K2013 K2013
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 108FINANCIAL STATEMENTS 2018
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 2018 is EURm 47.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 109FINANCIAL STATEMENTS 2018
Minimum lease payments not later than one year 31 32 later than one year and not later than five years 92 105 later than five years 40 54
Invested unrestricted equity The reserve includes other investments of equity nature, as well as issue price of shares to an extent it is not recorded in share capital by an express decision.
Other components of equity Other components of equity include fair value changes of financial assets available for sale and derivatives used in cash flow hedges, and exchange differences.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 111FINANCIAL STATEMENTS 2018
Long-term incentive schemes 2014 I – 2017 II The Board of Directors of Sampo plc has decided on the long-term incentive schemes 2014 I – 2017 II for the management and key employees of Sampo Group. The Board has authorised the CEO to decide who will be included in the scheme, as well as the number of calculated incentive units granted for each individual used in determining the amount of the incentive reward. In the schemes, the number of calculated incentive units granted for the members of the Group Executive Committee is decided by the Board of Directors. Some 130 persons were included in the schemes at the end of year 2018.
Each plan has three performance periods and incentive rewards are settled in cash in three installments. The employee shall authorise Sampo plc to buy Sampo's A-shares with 50 per cent (scheme 2017 I) or 60 per cent (schemes 2014 I) of the amount of the reward after taxes and other comparable charges. The shares are subject to transfer restrictions for three years from the day of payout. A premature payment of the reward may occur in the event of changes in the group structure or in the case of employment termination on specifically determined bases. The fair value of the incentive schemes is estimated by using the Black-Scholes pricing model.
Price of Sampo A at terms approval date *) 37.22 37.22 44.02 44.02
Strike price Executive board Senior executives Resigned Total Total number of options (1,000)
Average strike price at 31 December 2018 29 28 27 28
The fair value of the granting for the year has been calculated using the Black and Scholes model assuming a share price of EUR 36 (24). The interest rate corresponds to the zero coupon rate based on the swap curve on 31 December of the previous year. Future volatility is assumed to be 22% and the average life of the options approximately 4 years.
At 31 December 2018, there were 163,000 options (225,000) which could be exercised.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 114FINANCIAL STATEMENTS 2018
36 Assets and liabilities related to assets held for sale In October 2016, Mandatum Life Insurance Company announced that it will not continue the distribution agreement of insurance policies with Danske Bank Plc after 31 December 2016 and that it will use its right to sell the insurance portfolio acquired via Danske Bank to Danske Bank A/S. The portfolio was then classified according to IFRS 5.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 115FINANCIAL STATEMENTS 2018
Name Group holding % Carrying amount If P&C Insurance Holding Ltd 100 1,886
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 116FINANCIAL STATEMENTS 2018
External drivers behind such changes are varied, including for instance general economic development, changes in commonly shared values, developments in the institutional and physical environment and technological innovations. Currently the themes of sustainable business practices in general and especially the issues related to environment, society and governance, are changing the preferences and values of different stakeholders and, as a result, the competitive environment is also changing in different ways. In case the company’s internal understanding of needed changes or willingness and ability to act accordingly is inadequate and competitors are more able to meet clients’ and regulation’s altered expectations, the company is highly exposed to business risk.
Reputational Risk Reputational risk refers to the risk that adverse publicity regarding the company’s business practices or associations, whether accurate or not, causes a loss of confidence in the integrity of the institution. Reputational risk is often a consequence of a materialized operational or compliance risk and often manifests as a deterioration of reputation amongst customers and other stakeholders.
External Drivers and Business Risks Business risk is the risk of losses due to changes in the competitive environment and/or lack of internal operational flexibility. Unexpected abrupt changes or already identified, but internally neglected trends can cause larger than expected fluctuations in profitability when volumes, margins, costs and capital charges change and in the long run they may also endanger the existence of
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 117FINANCIAL STATEMENTS 2018
Group is consciously taking certain risks in order to generate earnings. These earnings risks are carefully selected and actively managed. Underwriting risks are priced to reflect their inherent risk levels and the expected return of investments is compared to the related risks.
Some risks, such as counterparty default risks and operational risks presented in the figure Classification of Risks in Sampo Group are indirect repercussions of Sampo’s normal business activities. They are one-sided risks, which in principle have no related earnings potential.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 118FINANCIAL STATEMENTS 2018
Accordingly, the risk management objective is to mitigate these risks efficiently rather than actively manage them.
Sampo Group companies have to have a detailed understanding of expected cash flows and their variance within each of the company’s activities. In addition, a thorough understanding of how the market 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 senior management because of their relevance to risks and earnings in the long run.
• Social and relationship capital in the form of good relationships with society and clients to understand the changing needs of different stakeholders.
At the company level, these resources are continuously developed. They are in use when the following core activities related to risk pricing, risk taking, and active management of risk portfolios are conducted.
• Insurance products are developed proactively to meet clients’ changing needs and preferences.
• Continuity and recovery plans are continuously developed to secure business continuity.
• Balance between expected returns and risks in investment portfolios and the balance sheet is optimized, considering the features of insurance liabilities, internally assessed capital needs, regulatory solvency rules and rating requirements.
At the group level, the risk management focus is on group-wide capitalization and liquidity. It is also essential to identify potential risk concentrations and to have a thorough understanding of how reported profits of companies would develop under different scenarios. These concentrations and correlations may have an effect on the group level capitalization and liquidity buffers as well as on the group level management actions.
Key figure Current level (2018) Change in current level 2018 2017 Combined ratio, business area Private 83.7% +/- 1 percentage point 26 +/- 26
Combined ratio, business area Baltics 88.8% +/- 1 percentage point 1 +/- 1
Ceded written premiums (EURm) 176 +/- 10 per cent 18 +/- 17
The Underwriting Committee (“UWC”) shall give its opinion on and propose actions in respect of various issues related to underwriting risk. The committee also considers and proposes changes to the Underwriting
Policy (“UW Policy”), which is the principal document for underwriting, and sets general principles, restrictions and directions for the underwriting activities. This document shall be reviewed and decided at least yearly by the
The Business Areas manage the underwriting risk on a day-to-day basis. A crucial factor affecting the profitability and risk of non-life insurance operations is the ability to accurately estimate future claims and expenses and thereby correctly price insurance contracts. The premiums within the Private Business Area and the premiums for smaller risks within the Commercial Business Area are set through tariffs. The underwriting of risks in the Industrial Business Area and of more complex risks within the
purchase of reinsurance. The need and optimal choice of reinsurance is evaluated by looking at the expected cost versus the benefit of the reinsurance, the impact on result volatility and impact on capital requirements. The main tool for this evaluation is If’s internal model in which frequency of claims, large claims and natural catastrophes are modelled.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 122FINANCIAL STATEMENTS 2018
Annuities and estimated share of claims provisions to future annuities Decrease in mortality Life expectancy increase by 1 year
Motor third party liability and Workers’ compensation. 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’s own estimation of costs for various types of claims. For Lines of Business such as Motor other and Motor third party liability and Workers ’ compensation, legislation differs significantly between countries. Some of the technical provisions for these lines include annuities which are sensitive to changes in mortality assumptions and discount rates. The proportion of technical provisions related to Motor other and Motor third party liability and Workers’ compensation was 66 per cent.
The actuarial estimates are based on historical claims and existing exposures that are available at the balance sheet date. Factors that are monitored include loss development trends, the level of unpaid claims, changes in legislation, case-law and economic conditions. When setting property and casualty provisions, the Chain
Ladder and Bornhuetter- Fergusson methods are generally used, combined with projections of the number of claims and average claims costs. For life provisions, the IBNR
calculations are based on the estimated claims cost (risk premium) over the average time from claim occurrence to reporting.
Money market securities and cash 370 3% 0.0 575 5% 0.1
Credit bonds, funds and loans 8,696 78% 2.8 8,584 73% 2.9
Investment grade bonds and loans 3,770 34% 2.7 3,490 30% 2.9
The composition of the investment portfolios by asset classes in If at year end 2018 and at year end 2017 and average maturities of fixed income investments are shown in the table Investment Allocation, If, 31 December 2018 and 31 December 2017.
investments was at 31 December 2018 concentrated to financial institutions. The role of real estate, private equity, biometric and other alternative investments is immaterial.
Market Risks Fixed income investments and listed equity instruments form a major part of the investment portfolio of EUR
Committee”) quarterly. In addition, the allocation limits, issuer and counterparty limits, the sensitivity limits for interest rates and credit spreads as well as regulatory capital requirements are regularly monitored.
Spread risk and equity risk are derived only from the asset side of the balance sheet. Exposures in fixed income and equity instruments are presented by sector, asset class and rating in the following table that also include counterparty risk exposures relating to derivative transactions. Counterparty default risks are described in more detail in section Counterparty Default Risks. Due to differences in the reporting treatment of derivatives, the figures in the table are not fully comparable with other tables in the Financial Statements.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 125FINANCIAL STATEMENTS 2018
Exposures by Sector, Asset Class and Rating If, 31 December 2018
The ALM risk is considered through the risk appetite framework and its management and governance are based on If’s Investment Policies. In general, to maintain the ALM risk within the overall risk appetite, the cash flows of insurance liabilities are matched by investing in fixed income instruments denominated in the same currencies as the liabilities. In case assets with healthy risk return ratios are not available in the same currency as the liability, derivatives are used. During the current low interest rate environment, the liquidity of assets has been a special focus of If’s investment strategy.
Sensitivities of Technical Provisions, If, 31 December 2018 in the section Reserve Risk and Its Management and
December 2018. 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.
In addition to transaction risk, If is also exposed to translation risk which at group level stems from foreign operations with other base currencies than SEK.
In If, 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 which are responsible for liquidity planning. Liquidity risk is reduced by having investments that are readily tradable in liquid markets. The available liquid financial assets, being that part of the assets, which can be converted into cash at a specific point in time, are analysed and reported to the ORSA Committee.
The average maturity of fixed income investments was 2.7 years in If. The table shows the financing requirements resulting from expected cash inflows and outflows arising from financial assets and liabilities as well as technical provisions.
If has a relatively low amount of financial liabilities and thus the group’s respective refinancing risk is relatively small.
Counterparty Default Risks In If, the major three sources of counterparty risk are reinsurance, financial derivatives and other receivables.
Security Policy. The Chairman is responsible for reporting policy deviations and other issues dealt with by the committee. If has a Reinsurance Security Policy that sets requirements for the reinsurers’ minimum credit ratings
The distribution of reinsurance receivables and reinsurers ’ portion of outstanding claims on 31 December 2018 per rating category is presented in the table Reinsurance
With certain restrictions, terror is covered by the reinsurance contracts. For NBCR (nuclear, biological, chemical, radiological) risks a national Danish pool has been established.
Breakdown of Gross Written Premiums Topdanmark Non-Life, 31 December 2018, total EUR 1,235 million
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 131FINANCIAL STATEMENTS 2018
of operations are as follows: • Collection of data on risk and historical damage
To maintain product and customer profitability, Topdanmark monitors changes in its customer portfolios. Provisions are recalculated, and the profitability reports are updated in the same context on a monthly basis. Based on this reporting, trends in claim levels are carefully assessed and price levels may be adjusted if considered necessary.
The insurance lines of business are divided into short-tail i.e. those lines where the period from notification until settlement is short and long-tail i.e. those lines where the period from notification until settlement is long. The main short-tail lines in Topdanmark are buildings and other property and comprehensive motor insurance. For the short-tail lines the claims are mainly settled within the first year. Long-tail lines relate to personal injury and liability and consist of the lines Workers' compensation,
lines of business are generally riskier than the short-tail lines. It is not unusual that claims in long-tail lines are settled three to five years after notification and in rare cases up to 10–15 years.
The provisioning risk represents mostly the ordinary uncertainty of calculation and claims inflation, i.e. an
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 133FINANCIAL STATEMENTS 2018
Sources of Gross Premiums Topdanmark Life Insurance, 31 December 2018 and 31 December 2017
Topdanmark Life Insurance, 31 December 2018 and 31 December 2017. The regular premiums are growing steadily while the single premiums are fluctuating more from year to year.
• Risk return on shareholders’ equity (divided into a fair risk return and a profit margin) from with profit schemes. The risk return is calculated for each contribution group and has been based on their estimated risk for the company and the desired level of profit margin. The risk return is conditional. The risk return is transferred to shareholders’ equity if it can be covered primarily by collective bonus potentials.
Group life insurance is a collective life insurance without savings – that is, a risk insurance – where the sum insured is paid only to the beneficiaries in case of the insured’s death during the insurance period. It is irrelevant whether the death is due to accident or illness.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 134FINANCIAL STATEMENTS 2018
Falling interest rates and, in particular, sustained low interest rates along with prolonged lives represent a significant risk scenario for insurers with guaranteed benefits as there will be a reduction of the collective and individual bonus potentials used for loss absorption by interest and risk group. When a risk event occurs, the effect on the profit will depend on the size of bonus potentials which are a loss absorbing capacity (LAC) within the insurance liabilities. When the loss absorbing capacity is higher than the losses, losses on the insurance liabilities are covered by the bonus potentials. For risk groups where the bonus potentials are fully used, the equity will hold the risk.
Customers’ individual and collective bonus potential together creates the loss absorbing buffers in Danish life insurance against any losses incurred by customers on investment activities and insurance covers.
Low interest rates mean that the market value of the guarantees granted is high, and hence the related individual bonus potential is low. The lower the individual bonus potential, the higher the risk of any losses to be absorbed wholly or partially by shareholder's equity. In case interest rates are high, the same losses could, to a larger degree, be absorbed by the bonus potential.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 135FINANCIAL STATEMENTS 2018
• Market risk can be adjusted freely in relation to the individual customer groups’ risk capacity
Market Risks In general, the long-term value creation shall be based mainly on the acceptance of insurance risks. To supplement the group’s profit from its insurance activities,
To reach the above general goals, the Investment Policy sets the company's objectives, strategies, organization and reporting practices on investments. The investment strategy is more precisely determined in terms of market risk limits and specific requirements for certain types of positions and sub-portfolios (risk appetite). The investment strategy is determined by the Board and revised at least once a year. Appropriate financial risk mitigation techniques are used.
Risk Scenarios in Life Insurance Topdanmark, 31 December 2018 and 31 December 2017
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 136FINANCIAL STATEMENTS 2018
As described earlier, in life insurance different contribution groups have their own investment strategies and their loss absorbing buffers and hence it is relevant to assess allocations and returns of these assets only in relation to their respective contribution groups. However, the company bears some market risk and thus the investment allocations are shown in the Investment Allocations Excluding Unit-
Linked, Topdanmark, 31 December 2018 and 31 December 2017 -table without assets covering unit-linked liabilities.
Investment Allocations Excluding Unit-Linked Topdanmark, 31 December 2018 and 31 December 2017
Topdanmark Non-Life Topdanmark Life 31 Dec 2018 31 Dec 2017 31 Dec 2018 31 Dec 2017
Money market securities and cash 258 12% 175 7 % 329 7% 282 6%
The main investment assets are government and mortgage bonds, which comprise primarily Danish government and mortgage bonds. The assets of this asset class are interest rate sensitive and to a significant extent equivalent to the interest rate sensitivity of the nonlife insurance provisions. Consequently, the return on government and mortgage bonds should be assessed in connection with return and revaluation of non-life insurance provisions.
equity tranches. The underlying assets consist for the most part of senior secured bank loans, while the remaining part consists primarily of investment grade investments in corporate bonds. The real estate portfolio comprises mainly owner-occupied real estate.
Interest rate risk exposure is net of assets, liabilities and derivative instruments whose carrying amount is dependent on the interest rate level. Regarding insurance liabilities Topdanmark is exposed to interest rate risk due to provisions for outstanding claims in non-life insurance and guaranteed benefits in life insurance.
When assessing the value and sensitivity of insurance provisions Topdanmark uses the Solvency II discount curve that has its basis on market yield curve with volatility adjustment (VA). The VA component of DKK yield curve comprises a corrective element based on the spreads of
VA component was 30 basis points at the end of 2017 and 45 basis points at the end of 2018.
The Danish part of the equity portfolio is composed based on OMXCCAP index. The rest of the equity holdings are in the foreign equity portfolio that is based on MSCI World
The real estates are all located in Denmark, with the material part in the areas of Copenhagen and Århus. The holding covering life insurance provisions is diversified over office buildings and residential buildings. The majority of the holding related to Topdanmark’s property within equity is Topdanmark’s own offices.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 139FINANCIAL STATEMENTS 2018
Most of Topdanmark's interest-bearing assets comprise of AAA-rated Danish mortgage bonds and debt issued or guaranteed by top-rated European states. The risk of losses is considered to be minor due to the high credit quality of the issuers and because investments have been made at spreads in balance with the Topdanmark’s desired risk ratio levels. The portfolio is well diversified both geographically and regarding type of debtor and therefore the exposure to the concentration of risks is insignificant.
Investment policy stipulates that the portfolio must be well-diversified also in counterparties and that the portfolio must not be particularly exposed to individual counterparties. The main source of spread risk is the government and mortgage bonds. Due to high allocation of these investments in the portfolios, spread risk is the most material source of market risk SCR.
Interest-bearing Assets by Rating Topdanmark, 31 December 2018 and 31 December 2017
Topdanmark has no significant concentrations on the investment side, except for the category "Treasury and mortgage bonds" that consists primarily of Danish government and AAA-rated Danish mortgage bonds.
In practice, the only source of currency risk is investment assets because insurance liabilities are in Danish
Krones. The currency risk is mitigated by derivatives and net exposures in different currencies are minor except in
Currency risk is assessed based on SCR. The value of base currency is shocked by 25 per cent against most of the currencies except 0.39 per cent against EUR where the largest exposure exists.
Illness/Accident insurance. In the former the provisions are calculated based on the expected future indexation of wages and salaries, and in latter based on the expected net price index.
Accident insurance, Topdanmark uses index-linked bonds and derivatives to hedge a significant proportion of the expected cash flows sensitive to future inflation.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 140FINANCIAL STATEMENTS 2018
Topdanmark Group has a strong liquidity position. Firstly, as premiums are paid prior to the beginning of the risk period the liquidity risk related to customers’ payments is very limited. Secondly, the combination of insurance businesses is of a character in which it is highly unlikely that liquidity shock could occur, because insurance liabilities are by their nature stable liabilities and in asset portfolios money market investments are complemented by a large portfolio of liquid listed Danish government and mortgage bonds.
EURm after tax Risk scenario 2018 2017 Effective interest rate 1 percentage point increase 3.3 6.4
Underwriting Risks The development of insurance liabilities during 2018 is shown in the table Analysis of the Change in Provisions before Reinsurance, Mandatum Life, 31 December 2018.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 142FINANCIAL STATEMENTS 2018
Analysis of the Change in Provisions Before Reinsurance Mandatum Life, 31 December 2018
With profit and others, excl. Baltic 4,558 104 -438 -33 122 1 -106 4,208 38% Group pension insurance, segregated portfolio 1,065 1 -57 -1 23 0 -22 1,008 9%
Biometric Risks Mandatum Life’s main biometric risks are longevity, mortality and disability. In general, the long duration of policies and restriction of Mandatum Life’s right to change policy terms and conditions and tariffs increase biometric risks. If the premiums turn out to be inadequate and cannot be increased, technical provisions have to be supplemented by an amount corresponding to the increase in expected losses.
The annual longevity risk result and longevity trend is analyzed regularly. For the segregated group pension portfolio, the assumed life expectancy related to the technical provisions was revised in 2014 and for the other group pension portfolios in 2002 and 2007. In total, these changes increased the 2018 technical provision by EUR
Life, 31 December 2018 and 31 December 2017 shows the insurance risk result in Mandatum Life’s Finnish life insurance policies. The ratio of the actual to expected claims costs was 75 per cent in 2018 (76). Sensitivity of the insurance risk result can also be assessed based on the information in the table. For instance, the increase of mortality by 100 per cent would increase the amount of benefit payments from EUR 10 million to EUR 21 million.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 144FINANCIAL STATEMENTS 2018
well diversified and does not include any major concentration of biometric risks. To further mitigate the effects of possible risk concentrations, Mandatum Life has catastrophe reinsurance in place.
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
The Insurance Risk Committee is responsible for maintaining the Underwriting Policy and monitoring the functioning of the risk selection and claims processes. The
Reinsurance is used to limit the amount of individual mortality and disability risks. The Board of Directors annually approves the Reinsurance Policy and determines the maximum amount of risk to be retained on the company ’s own account. The highest retention of Mandatum
Policyholder Behavior and Expense Risks From an Asset and Liability Management point of view, surrender risk is not material because in Mandatum Life around 90 per cent of with profit technical provisions consists of pension policies in which surrender is possible only in exceptional cases. Surrender risk is therefore only relevant in individual life and capital redemption policies of which the related technical provisions amount to less than 5 per cent (below EUR 200 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. Due to the limited surrender risk, the future cash flows of Mandatum Life’s insurance liabilities are quite predictable.
Group was EUR 35 million (33). Mandatum Life does not defer insurance acquisition costs. Since 2012 the expense result has grown significantly, especially due to increased fee income from unit-linked business, as presented in the figure Expense Result, Mandatum Life Group, 2009–2018.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 145FINANCIAL STATEMENTS 2018
Fixed income investments and listed equity instruments form a major part of the investment portfolio, but the role of alternative investments – real estate, private equity, biometric and other alternative investments – is also material being 13.2 per cent.
Market Risks This section covers market risk related to the Mandatum
Money market securities and cash 486 9% 0.0 904 14% 0.0
Investment grade bonds and loans 1,563 28% 2.7 1,793 29% 2.8
High-yield bonds and loans 953 17% 3.6 760 12% 3.2 *)Private equity also includes direct holdings in non-listed equities.
Fixed income and equity exposures are presented by sector, asset class and rating together with counterparty
Mandatum Life’s portfolio. A part of the money market securities issued by Nordic banks and cash in Nordic banks form a liquidity buffer within fixed income investments. At the moment, the total amount of these investments is higher than what is needed for liquidity purposes.
Nordic equity exposure includes almost only direct investments to Finnish equities and they account for almost one third of equity exposure. Two thirds of equity investments are globally allocated consisting mainly of fund investments, but the role of direct investments is increasing in that part of the portfolio as well.
Mandatum Life over the years. The current allocation weight is 13 per cent. The weight of these investments will be maintained at current levels.
Market Risks of Balance Sheet The Board of Directors of Mandatum Life annually approves 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 and they are based on the features of insurance liabilities, risk taking capacity and shareholders’ return requirements.
The Investment Policy for segregated assets defines the risk bearing capacity and the corresponding control levels for the respective portfolio. Since the future bonus reserves of the segregated group pension portfolio are the first buffer against possible investment losses, the risk bearing capacity is also based on the amount of the future
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 149FINANCIAL STATEMENTS 2018
In Mandatum Life, transaction risk arises mainly from investments in currencies other than euro as the company’s technical provisions are denominated in euro. Mandatum Life does not automatically close its
FX position in foreign currencies, but the 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.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 150FINANCIAL STATEMENTS 2018
Liquidity risk is relatively immaterial for Mandatum Life because liability cash flows in most lines of business are fairly stable and predictable and an adequate share of the investment assets is in cash and short-term money market instruments.
Cash flows of which interest rate swaps 2 0 2 0 0 0 1 1 0 1 of which interest rate swaps 0 0 0 0 0 0 0 0 0 0
The maturities of technical provisions and financial assets and liabilities are presented in the table Cash
Life, 31 December 2018. The average maturity of fixed income investments was 2.8 years in Mandatum Life. The table shows the financing requirements resulting from expected cash inflows and outflows arising from financial assets and liabilities as well as technical provisions.
Mandatum Life has one issued financial liability and thus refinancing risk is immaterial.
Counterparty Default Risks In Mandatum Life, the major three sources of counterparty risk are financial derivatives, reinsurance, and other receivables. Counterparty default risk arising from reinsurance or receivables from policyholders and other receivables related to commercial transactions is very limited.
Agreements backed by Credit Support Annexes. Since 2016 Sampo Group companies apart from Topdanmark have settled interest rate swaps in central clearing houses, which while further mitigating bilateral counterparty risk also exposes Sampo Group companies to the systemic risk related to centralized clearing parties.
Underwriting and market risk concentrations and their management are described in the next sections as well as the parent company´s role as a risk manager of groupwide risks and as a source of liquidity.
If, Topdanmark and Mandatum Life all operate within the Nordic countries, but mostly in different geographical areas and in different lines of business and hence their underwriting risks are different by nature. There are some common risk factors like the life expectancy in Finland.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 152FINANCIAL STATEMENTS 2018
Consequently, business lines as such are contributing diversification benefits rather than a concentration of risks. This general risk picture has not changed with increased holding in Topdanmark, because Topdanmark underwrites mainly Danish risks with a focus on client bases which only marginally overlap with If’s client bases.
The total amount of Sampo Group’s investment assets as at 31 December 2018 was EUR 26,177 million (26,380) as presented in the following figure. Mandatum Life’s and
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 154FINANCIAL STATEMENTS 2018
Topdanmark’s interest rate scenario figures show the net of financial assets and technical provisions. The company figures do not sum up to the Sampo Group figures due to eliminations and the exclusion of Topdanmark's technical provisions from the Sampo Group figures. The figures in this table do not reconcile completely with the table Market Risk Sensitivities, Topdanmark, 31 December 2018 and 31 December 2017 due to differences in calculation methods.
Exposures by Sector, Asset Class and Rating Sampo Group, 31 December 2018
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 156FINANCIAL STATEMENTS 2018
The public sector exposure includes government bonds, government guaranteed bonds and other public sector investments as shown in the table Fixed Income
Topdanmark, 31 December 2018. The public sector has had a relatively minor role in Sampo Group’s portfolios and these exposures have been mainly in the Nordic countries. In Topdanmark’s portfolios AAA rated government bonds and covered bonds have a material role.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 157FINANCIAL STATEMENTS 2018
Topdanmark Group, the allocation to listed equity is higher in the life company.
EUR 3,470 million at the end of year 2018 (3,749). At the end of year 2018, the listed equity exposure of If was EUR
Life, the listed equity exposure was EUR 1,334 million at the end of year 2018 (1,578) and the proportion of listed equities was 23.8 per cent of the investment portfolio.
Largest Exposures by Issuer and by Asset Class Sampo Group Excluding Topdanmark, 31 December 2018
Exluding Topdanmark, 31 December 2018. The largest single name investments in Topdanmark’s portfolios are in AAA rated Danish covered bonds.
Topdanmark, 31 December 2018. Furthermore, the largest direct listed equity exposures are presented in the table
The exposures in fixed income instruments issued by non-investment grade issuers are significant, because a relatively small number of Nordic companies are rated.
Sampo Group would benefit materially in case interest rates would rise, because economic value of insurance liabilities would decrease more than value of assets backing them. At the same time net interest income of Nordea should increase as well.
The Role of Sampo plc Sampo plc is a long-term investor in Nordic financials and a source of liquidity within the Group. Hence, the healthy funding structure and the capacity to generate funds if needed are on continuous focus.
512 million was two years. Funding structure of strategic holdings and other holdings can be considered strong.
Balance Sheet Structure Sampo plc, 31 December 2018 and 31 December 2017
example by these measures: • The financial leverage measured as the portion of debt within all liabilities was 34 (29) per cent.
(489) and a part of other investment assets (770) can be sold in case liquidity is needed. Short-term liquidity can be considered to be adequate.
Sampo plc is managing its funding, capital structure and liquidity it takes into account that some of its operative companies have other base currencies (SEK, DKK) than
EUR and that all its operative business areas are exposed to low interest rates. These risks may affect Sampo’s decisions on issuance of debt instruments and composition of liquidity portfolio.
This is why part of Sampo plc’s debt instruments are issued in SEK and interest rate duration is maintained relatively short. However, the market view is also affecting decisions and for instance at the moment SEK denominated dividends paid by If are still in SEK and SEK debt is converted into EUR using cross-currency swaps, due to tactical market view reasons.
However, at Sampo Group level there are more factors affecting capitalization than at the sub-group level.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 162FINANCIAL STATEMENTS 2018
Conceptually, Group’s own funds is the difference between the market value of assets and liabilities plus the subordinated liabilities. This difference has accrued during the lifetime of the Group and it includes the following main components: • Accrued profits that have not been paid as dividends over the years.
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 163FINANCIAL STATEMENTS 2018
lower in euro terms. Translation currency risk is monitored internally and its effect on Sampo Group’s solvency on a going concern basis is analyzed regularly. However, internally no capital need is set for translation risk, because it is realized only when a sub-group is divested.
In addition to the sub-group level factors – expected profits and their volatility, business growth prospects and ability to issue Solvency II compliant capital instruments
– there are Group level factors that are also relevant when considering the size of the Group level buffer. The most material Group level factors affecting the size of buffer are correlation of sub-groups’ reported profits, parent company’s capacity to generate liquidity, probability of strategic risks and arrangements and shareholders’
Notes to Sampo plc’s Financial StatementsGroup's Notes to the Accounts 164FINANCIAL STATEMENTS 2018
Net change in cash and cash equivalents 248 -239 *) Investments include both investment property and financial assets.
Additional information to the statement of cash flows: Interest income received 42 40
Notes on the Liabilities and Commitments 16 Future rental commitments ............................................... 174
Summary of Significant Accounting Policies The presentation of Sampo plc's financial statements together with the notes has been prepared in accordance with the Finnish Accounting Act and Ordinance. The accounting principles applied to the separate financial statements of Sampo plc do not materially differ from those of the Group, prepared in accordance with the International Financial Reporting Standards (IFRSs). The financial assets are measured at fair value derived from the markets.
Guarantees for derivate contracts 41 7 13 Accruals and deferred income
16 Future rental commitments EURm 2018 2017 Not more than one year 1 1
In accordance with the decision of the Annual General Meeting in 2018, the company has compensated the transfer tax related to the acquisition of the company shares, in total EUR 4,082.75 (EUR 928.50 pertaining to the Vice Chairman and EUR 3,154.25 pertaining to the other members of the Board).
Notes on Shares Held 20 20 Shares held as of 31 dec, 2018
Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.
We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud.
We refer to the Summary of significant accounting policies, Accounting policies regarding management judgment and key sources of estimation uncertainties and Notes 25 and 26.
The life insurance contract liabilities are based on estimate of future claims payments. The estimate is based on assumptions which include uncertainty. Changes in assumptions can result in material impacts to the valuation of the liabilities. Key assumption areas include interest rate and life expectancy of policy holders.
Bank Abp is an associated company of the Group, and is accounted for based on equity accounting. The holding in Nordea Bank Abp represents 15% of the Group’s total assets.
The book value of the Nordea holding exceeded the market value of the Group’s ownership at the reporting date, due to which an impairment test has been prepared
Our audit procedures included testing the effectiveness of controls in place over recognizing the Group’s share of Nordea’s financial information.
Auditor’s Responsibilities for the Audit of Financial Statements Our objectives are to obtain reasonable assurance on whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company’s or the group’s internal control.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements and the report of the Board of
Directors has been prepared in accordance with the applicable laws and regulations.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Opinions based on the assignment of the Audit Committee We support that the financial statements should be adopted. The proposal by the Board of Directors regarding the use of the profit shown in the balance sheet is in compliance with the Limited Liability Companies Act.
We support that the members of the Board of Directors of the parent company and the Managing Director should be discharged from liability for the financial period audited by us.