12 BUSINESSES 12 P&C Insurance 13 Nordea 14 Life Insurance 15 PERSONNEL
For Sampo, 2012 was like swimming upstream. During the year, with the euro zone falling into recession and the pace of growth slowing down elsewhere in Europe, Sampo received no support from the outside world. At the same time, officials placed new regulatory burdens on the financial sector, as has been the case in previous years.
Best Ever Combined Ratio 2012 proved to be a historically good year for Sampo Group’s
P&C operations. The technical result of If P&C Insurance improved further and the combined ratio of 89.3 per cent was the best in the company’s history. Our uncompromising focus on risk selection and underwriting laid the ground for this excellent result.
The premium income of If P&C Insurance also developed positively, reaching EUR 4,441 million.
Another important event was the cooperation agreement signed with Nordea that will begin offering If insurances in Finland,
Nordea’s starting point is strong as the Group’s historical earnings development has proven to be one of the most stable in the
European banking sector. This is due to both economies of scale and diversification as its operations cover all Nordic countries.
The efficiency program to improve Nordea's cost efficiency and capital position is well on track. Nordea is already among the top performers in each market where it operates.
Dividend Proposal of EUR 1.35 per Share Sampo is known as a dividend stock. To this end, in accordance with our dividend policy, we will distribute more than half of our net profit to our shareholders in spring 2013. Sampo’s Board of
Sampo’s share price increased by 27 per cent in 2012, and it reached its highest value in Sampo’s 25-year history as a listed company in March 2013. We are the only financial group with P&C
STRATEGY Sampo Group aims to create value for its shareholders. Value is created through efficient and highly profitable operating units and by investments in situations offering significant upside potential with manageable downside risk. Shareholders benefit from the value creation through a high and stable dividend yield.
Group is also the largest shareholder in Nordea Bank, the leading
Nasdaq OMX Helsinki. The parent company sets financial targets for the subsidiaries. For both P&C and life insurance operations the return on equity target is to exceed 17.5 per cent. In addition a separate target has been set for the combined ratio in the P&C
If's long-term priorities to ensure a strong and stable profitability development are based on a sound operating platform, leading cost position, most satisfied customers, leading edge insurance expertise and an investment strategy based on balanced risk. The following four areas constitute the key elements in If's strategic direction: • Customer value – If will exceed customer expectations through superior insurance solutions, fast and accurate claims management and sympathetic behavior.
• Investment Strategy with Balanced Risk – If has adopted a low risk strategy in investments by maintaining a balance between insurance commitments and investment assets in terms of currency and duration. Surplus capital is invested to enhance total returns.
Life’s core product areas consist of unit-linked savings contracts and group pensions as well as risk insurance. As a result of the existing balance sheet, unit-linked individual pension policies and the with-profit portfolio in general play a significant role in the company, even though they are not being sold actively. In 2011, operations were expanded beyond the life insurance sector to cover the management of personnel fund services and corporate pension funds. Since, as a result of the changes made to the lowest possible retirement age, the company no longer grants new individual corporate pension policies, it will also look into other opportunities outside the life insurance sector to guarantee comprehensive services for its customers.
The company estimates that there is still a growing need for Finns to make preparations to secure their income during retirement.
Mandatum Life started its own wealth management and investment solutions activities in 2008, with a focus on high-networth individuals and institutions.
Danske Bank’s network. Co-operation with Danske Bank has been successful, and there is no apparent need to alter the strategy in this respect.
Dividend Policy Sampo plc, the listed parent company of Sampo Group, is a good dividend payer. Sampo aims to pay at least 50 per cent of Group’s net profit as dividend. Share buy-backs can be used to complement the dividend. The Board proposes to the AGM a dividend of EUR 1.35 per share for the year 2012. The proposed dividend corresponds to a pay-out ratio of 54 per cent.
Sampo plc Sampo plc, the parent company, is listed in the Nasdaq OMX
Helsinki since January 1988. It has no business activities of its own but administers the subsidiaries and is responsible for certain centralized functions in Sampo Group.
If P&C Insurance If P&C Insurance is the leading property and casualty insurer in the Nordic region, with operations in Finland, Sweden, Norway,
Nordea Nordea, the largest bank in the Nordic region, has around 11 million customers and is one of the largest universal banks in
Europe in terms of total market capitalization. The Nordea share is listed in the NASDAQ OMX Nordic Exchanges in Stockholm,
Helsinki and Copenhagen. In Sampo Group’s reporting Nordea is included in the segment Holding.
The year 2012 was yet another stable year for If and the group delivered both solid insurance result and healthy growth.
If’s business developed very well in 2012 with a combined ratio of 89.3 per cent. The combined ratio was better than the long-term target. The technical result was EUR 560 million (457) and profit before taxes amounted to EUR 858 million (636). The result was improved, among other things, by fewer weather-related claims compared to the last couple of years. If’s profit also includes a share of associated company Topdanmark’s profit, corresponding to If’s ownership in Topdanmark, which amounted to EUR 50 million.
business co-operations. During the year, If entered a partnership with Nordea in Finland, Sweden and the Baltic countries. The partnership, which will strengthen If’s distribution network, is expected to be launched in the first half of 2013. If also acquired the Finnish P&C insurance business of Tryg with premium volume of approximately 80 MEUR and a market share of some 2 per cent. The transaction is still subject to approval by regulatory authorities. In car insurance, which is an important part of If’s business, the partnership agreement with Volkswagen Group
Sweden (VGS) was extended by another three years. During the year, the partnership agreement with Coop Norway was also successfully implemented. If’s strategic investment in health insurance continued during the year with new initiatives and partnership agreements. Furthermore, If’s Russian subsidiary
If’s focus areas remained unchanged in 2012, with continued improvement in underwriting and cost efficiency and further development of partnerships and customer relations.
Improvements in customer and claims service are continuously made in all business areas and markets. In line with this, If works systematically to involve all employees to contribute to its customer promises “Claims handling the way it should be” and
If’s focus on online solutions continued during the year, with both sales and claims handling on the internet growing steadily. In 2012 a number of e-business solutions were further developed creating both efficiency and customer value.
Solvency II requirements have high priority within If and the group is well positioned to meet the new regulatory demands.
If has systematically worked for the environment and reduced its carbon dioxide emissions significantly. The year 2012 was the second carbon neutral year in a row for If.
Despite continued pressure on interest rates, the financial turmoil and slowdown in European economic activity having negative effects on many banks in Europe, Nordea’s development during 2012 remained solid and business momentum was maintained.
Nordea continues to focus on the relationship strategy. By striving to create great customer experiences Nordea deepens the relationship with each customer and expands the customer base, thereby growing the overall business volume. Despite the financial unrest, Nordea proactively adjusted the direction to ensure ability to reach higher customer satisfaction, continuous growth in income and stable profitability.
Nordea has into 2012 further strengthened the platform for its future business, combining increased efficiency with a maintained high service level towards the customers. Advice capacity in branches was improved, the services available through contact centres, internet bank and mobile bank were expanded and the presence in social media enhanced. The relationship and advice concepts for both household and corporate customers were further developed, as were products and services.
Following the New Normal Plan, Nordea’s plan is directed towards sustainable profitability and efficiency, long-term customer relations and a solid capital position. This includes focus on income, cost efficiency, capital efficiency and risk management, reflecting the ambition to stay in the top league of
Nordea was in 2012 named the safest bank in the Nordic region by the magazine Global Finance in an evaluation of long-term credit ratings. Few banks in Europe have as high a rating as
Nordea’s vision is to be a Great European bank, acknowledged for its people, creating superior value for customers and shareholders. Nordea has around 11 million customers, approx.
In 2012, Mandatum Life’s return on both equity and fixed-income investments was good, resulting in an exceptionally high overall return on investment assets. The high return on fixed-income investments largely results from a strong decline in interest rates and the narrower risk margins of corporate bonds. This creates significant challenges for investment activities during the next few years; due to the exceptionally low interest rate level, maturing fixed-income investments present a considerable re-investment risk. For this reason, the company continued to supplement the reserves for lowering the discount rate, enabling it to reduce the return requirement on technical provisions for 2013 and 2014.
In the Baltics, premiums written for the full year fell short of the previous year’s level, even though demand and the market picked up towards year-end. However, thanks to lower surrender rates and higher investment returns, the company’s unit-linked technical provisions developed more favourably compared to 2011. During the year, the sales and customer service organizations were adjusted to better meet customer demand and needs.
development of the competence of the sales and customer interface in investment products. Efforts to enhance the personnel’s other competencies and managerial work as well as personnel well-being were also continued. Based on these efforts, Mandatum Life was ranked 21st among Finland’s best workplaces (Great Place to Work Research 2012).
PERSONNEL More than 90 per cent of Sampo Group’s personnel works in P&C insurance. Life insurance employs 8 per cent and the parent company Sampo plc less than one per cent of the personnel.
HR in If P&C Insurance During 2012, HR in If P&C focused on supporting If’s corporate strategy theme, Skills and Initiatives, and its aim to strengthen the competence and innovation culture in the company. The theme, and the significant investments it has led to, made 2012 a year when people topics were in the forefront of realizing company strategy.
HR Activities Supporting the Company Strategy During the fall of 2011 and the beginning of 2012, Performance
Management was thoroughly discussed to secure that If has all the necessary building blocks in place to maintain its performance leadership. As a result of the discussions, HR launched the If
People Framework – a road map to Performance Management in a broad sense.
The If People Framework puts emphasis on people issues, with targeted actions during 2012 within four key areas: • Developing If’s leadership model – Leadership the If Way: Increasing emphasis on maximizing employee engagement and commitment, customer and innovation focus while maintaining our world class business and management skills, hence evaluating and developing all If leaders accordingly.
• Securing ’the right person in the right place‘: Strengthening the If employer brand through social media, investing in focused activities for targeted groups, utilizing new recruitment technology, building internal ‘ambassadorship’
Another emerging focus area is specialist training and underwriting competence in particular. New tools and support to facilitate cooperation and sharing of information and skills are being developed in joint cooperation between If Academy and the business units.
Employee Satisfaction at a Very High Level The result of the bi-annual employee satisfaction survey ’Temper’
continues to be very good. 9 out of 10 employees respond that they enjoy working in If, and the score of 6.11 (out of 7) for the question ’My leader and I have a good cooperation’ is evidence of the excellent leadership quality in If. There is a clear link between employee satisfaction, customer satisfaction and financial results, thus promising good things for the future.
HR in Mandatum Life In 2012, Mandatum Life continued to invest in competence development and the development of a customer centric culture.
strategic decision to pilot and participate in the development of new HR related services for customers. During spring 2012, a motivation and engagement survey was conducted for Mandatum
Life employees. The survey has later been productized and piloted with corporate customers. A new personnel fund has been founded for the employees of Innova Personnel Fund and
A long list of sustainable actions was implemented in 2012: • If introduced a car insurance in Denmark for which the premium is based on the CO2 emission for the car.
• Since If handles claims for more than 300,000 damaged cars and outsources repairs to homes and commercial properties for millions of Euro each year, its suppliers are required to maintain high environmental standards with regard to transport, materials, working methods and other aspects. For example, If is responsible for almost half the repairs of plastic parts on damaged cars in Sweden. As a result of If's efforts to promote the reuse of vehicle parts, more than 800 tonnes of material were recycled.
• If’s office in Turku, Finland, became a WWF Finland Green
Furthermore, If places great focus on helping clients prevent accidents themselves. If does this, for example, by offering private clients affordable safety products and supporting business clients with systematic risk assessments.
Corporate Responsibility in Mandatum Life Mandatum Life’s corporate responsibility is based on the cornerstones of its operations: increasing and securing the financial welfare of its customers and safeguarding against risks.
Mandatum Life develops, in close co-operation with its major corporate customers, strategies and processes to promote wellbeing at work and thus plays an active part in fostering responsible personnel practices. Through commitment and reward solutions, it promotes the well-being of the companies’
personnel and indirectly also looks after their families, for example by offering additional cover against disability or death and by encouraging the personnel in a long-sighted and fair manner.
The most important factors influencing our happiness are family, our own health and the health of our loved ones and financial stability. A serious illness, disability, accident or death may pose significant financial risks. The indemnities paid by Mandatum Life help people and their families to cope better in difficult situations.
In 2012, Mandatum Life paid out pensions to 61,000 pensioners, a total of approximately EUR 320 million, and other indemnities totalling nearly EUR 400 million to 37,000 insured.
◦ Wahlroos was appointed to the Board of Directors of Sampo plc on 5 April 2001.
BOARD OF DIRECTORS Sampo plc's Board of Directors, elected annually by the AGM of
Kone Corporation, Board Member; The Research Institute of the Finnish Economy ETLA, Board
Committee; Swedish Orphan Biovitrum AB (Sobi), Sweden, Board Member and Member of the Audit Committee; Swedavia AB, Sweden, Board Member; 3 Scandinavia, Sweden, Advisor and Executive Board Member; AP 7, Sweden, Vice Chairman of the Board; Madrague Capital Partners AB, Sweden, Board Member; Alhanko & Johnson AB (BASE 23), Sweden, Board Member
◦ Member of the Board of Directors of Sampo plc since 14 April 2011.
The Finnish Fair Association, Member of the Supervisory Board; Confederation of Finnish Industries EK, Member of
Elisa Corporation, Board Member; Sigrid Juselius Foundation, Deputy Board Member and Member of Finance Committee; Nordea Funds (Nordea Alternative Investment, Nordea Funds of
Funds, Nordea I Sicav), Luxembourg, Board Member; Föreningen Konstsamfundet, Member of the Investment
◦ Palin-Lehtinen holds 4,343 Sampo plc shares directly or through a controlled company.
Incomes Policy Information Committee, Chairman; Advisory Board to the Government Institute for Economic
Norway, Chairman of the Board; Confederation of Norwegian Business and Industry (NHO),
Stockmann plc, Chairman of the Board; Stiftelsen för Åbo Akademi, Chairman of the Board; Föreningen Konstsamfundet, Chairman of the Board; Society of Swedish Literature in Finland, Member of Investment
◦ Taxell was transferred to the Board of Directors of Sampo plc from the Supervisory Board on 1 January 1998.
When elected, all Board members were independent of company’s major shareholders and following members were also independent of the company: Adine Grate Axén, Anne Brunila,
Arthur Sørlie and Christoffer Taxell. In addition, Björn Wahlroos became independent of the company as of 1 July 2012.
The CVs of members of the Board of Directors can be viewed at www.sampo.com/board.
Group's risk management and internal control, takes responsibility for the proper organisation of the Group's operations, and decides, within the framework of the company's business area, on other exceptional and far-reaching matters with respect to the scope and nature of Sampo Group.
The Board elects the Group CEO and President, the members of the Group Executive Committee and the Group Chief Audit
Board of Directors has approved internal rules concerning corporate governance, risk management, internal control and reporting in Sampo Group.
Election and Terms of Office of Board Members According to Sampo's Articles of Association, the company's
Board of Directors comprises no fewer than three and no more than ten members elected by shareholders at the Annual General
The AGM of 2012 decided that the Board would consist of nine members until the close of the AGM to be held in 2013. The term of office of the Board members ends at the close of the AGM that first follows their election. The members of the Board elect a
Chairman and Vice Chairman from among their members at their first meeting following the AGM.
The Committee also oversees the actions of the auditor under the laws of Finland, monitors the auditor’s invoicing for audit and nonaudit services as deemed appropriate. Furthermore, the Audit
The Committee also evaluates the compliance with laws and regulations in Sampo Group, monitors significant litigations of
Pekkarinen and Per Arthur Sørlie (as of 12 April 2012). Also participating in the meetings were the Auditor's representative,
The Audit Committee convened five times in 2012 and the average attendance of members at the meetings was 100 per cent.
Nomination and Compensation Committee The Nomination and Compensation Committee is entrusted to prepare and present proposals for Sampo's Annual General
Board members and the principles on which this remuneration is determined. The Committee consults the largest shareholders in these matters.
Sampo's Board on the evaluation of the independence of the members of the Board, on the composition and chairman of the
Sampo plc’s Remuneration Policy, Sampo Group’s long-term incentive programs, maximum pay-outs based on short and longterm incentive programs as well as the actual payments to be made.
Furthermore, the Committee prepares a proposal for the Board on the appointment, employment conditions and other compensation of Sampo Group's Chief Audit Executive, and on the principles by which Sampo Group's staff are to be compensated. In addition, the Committee is responsible for preparing proposals for the
The Committee also regularly evaluates its own practices and cooperation with the executive management.
Chairman), the Vice Chairman of the Board and three members elected from among the members of the Board.
The Committee convened seven times in 2012. The average attendance of members at meetings was 94.3 per cent.
Board; Varma Mutual Pension Insurance Company, Board Member; If P&C Insurance Holding Ltd (publ), Sweden, Chairman of the
Board; Kaleva Mutual Insurance Company, Chairman of the Board; ◦ Member of Sampo Group Executive Committee since 2001.
If P&C Insurance Holding AB (publ), Sweden, Board Member; Mandatum Life Insurance Company Limited, Vice Chairman of the
◦ Johansson holds 55,224 Sampo plc shares directly or through controlled companies.
◦ Lapveteläinen holds 234,759 Sampo plc shares directly or through controlled companies or persons closely associated with the Insider.
◦ Magnusson holds 22,232 Sampo plc shares directly or through controlled companies.
Alma Media Corporation, Board Member; BenCo Insurance Holding B.V., the Netherlands, Board Member; Federation of Finnish Financial Services, Life Insurance Executive
Committee, Board Member; Kaleva Mutual Insurance Company, Board Member (from 2 Jan
◦ Niemisvirta holds 48,403 Sampo plc shares directly or through controlled companies.
◦ Thorsrud holds 20,001 Sampo plc shares directly or through controlled companies.
Timo Vuorinen Head of Business Area Baltic, If P&C Insurance; MD of If P&C Insurance Company Ltd; CEO, Kaleva Mutual Insurance Company
◦ Wennerklint holds 23,127 Sampo plc shares directly or through controlled companies.
CVs of the members of Sampo Group Executive Committee can be viewed at www.sampo.com/management.
In 2012, the Group Executive Committee convened four times at the request of Group CEO. The Group MD Committee, which assists the Group Executive Committee, met nine times.
The Board of Directors elects and releases the Group CEO, and decides on the terms of employment and other compensation.
The Group CEO is in charge of the daily management of Sampo, subject to the instructions and control of the Board of Directors.
The Group CEO is empowered to take extraordinary and broadranging actions, taking into account the scope and nature of
Under the terms of the Group CEO contract, the notice period for the Group CEO is six months. In addition to receiving salary for the period of notice, the Group CEO is entitled to severance compensation of 18 months' full salary, provided that the service contract has been terminated by Sampo.
REMUNERATION Fair and rewarding remuneration to all employees is an important factor in Sampo Group’s ability to enhance shareholder value in a competitive business environment. Remuneration is an equally important determinant of success in the competition for talent.
Sampo's remuneration strategy is responsible both towards the employees and the shareholders and, consequently, long-term financial stability and value creation of the Group guides the design of compensation schemes.
Remuneration Report Sampo has published a Remuneration Report on its website in accordance with section 7 (Remuneration) of the Corporate
In accordance with the decision of the Annual General Meeting in 2012, the following annual fees will be paid to the members of the
In addition, potential statutory social and pension costs incurring to non-Finnish members according to applicable national legislation will be borne by Sampo plc.
Principles of the Remuneration System In addition to receiving monthly salaries, executives who are members of the Group Executive Committee are participants in the Group's short-term incentive programs, which are decided upon separately each year. Short-term incentives are determined on the basis of the Group result, business area result and individual performance. The maximum amount that can be paid for 2012 to members of the Executive Committee is an amount corresponding to nine months' fixed salary.
More detailed information on compensation in Sampo Group during 2012 is available at the Remuneration Report published by
These comply, as required by the Corporate Governance Code, with NASDAQ OMX Helsinki Ltd's Guidelines for Insiders and the
BOARD OF DIRECTORS' REPORT 37 SAMPO GROUP IN 2012 39 BUSINESS AREAS IN 2012 39 P&C Insurance in 2012 42 Associated Company Nordea Bank Ab in 2012 44 Life Insurance in 2012 46 Holding in 2012 46 CHANGES IN GROUP STRUCTURE
47 ADMINISTRATION 47 Annual General Meeting 47 Management Changes 47 Governance in 2012 48 Corporate Responsibility in 2012 48 Personnel in 2012 49 Remuneration 49 Risk Management in 2012 50 SHARES, SHARE CAPITAL AND SHAREHOLDERS 50 Shares and Share Capital
52 Shareholders 56 FINANCIAL STANDING 56 Internal Dividends 57 Ratings 57 Group Solvency 58 Debt Financing 59 OUTLOOK
Nordea achieved an all-time high operating profit and the volume development in life insurance was exceptionally strong. Sampo
Earnings per share amounted to EUR 2.51 (1.85). Mark-to-market earnings per share were EUR 3.31 (1.22) and return on equity for the Group increased to 19.5 per cent for 2012 (7.7).
(11.2). In segment reporting the share of Nordea’s profit is included in the segment ‘Holding’.
In life insurance profit before taxes amounted to EUR 136 million
Income statement items are compared on a year-on-year basis and comparison figures for balance sheet items are from 31 December 2011 unless otherwise stated.
Combined ratio for the year 2012 was 89.3 per cent (92.0), which is the best ever full year combined ratio in If P&C’s history. Also risk ratio improved significantly in 2012 to 65.9 per cent (68.4).
EUR 133 million (135) was released from technical reserves relating to prior year claims.
Technical result for Private business area increased to EUR 349 million (256) and for Commercial to EUR 168 million (124). For business area Industrial technical result decreased to EUR 28 million (53), as large claims in the business area ended up worse than normalized mainly due to some significant single large claims in Sweden and Denmark in the second quarter of 2012. For Baltic operations technical result decreased to EUR 17 million (22).
Both combined ratio and risk ratio improved significantly during 2012 in business areas Private and Commercial, to a large extent helped by the Norwegian operations, which reached an exceptionally good profitability in 2012 due to improved claims frequency, prior year claims result and benign weather conditions.
Adjusted for currency, premiums increased 3.5 per cent. In Private gross written premiums adjusted for currency increased 3.3 per cent, in Commercial 2.6 per cent, in Industrial 3.7 per cent and in
Significant Events During 2012 On 30 June 2012 If P&C Insurance Holding Ltd entered into an agreement to sell its Russian subsidiary Region. The transaction was closed on 29 November 2012. If P&C continues to operate in
Finland, Sweden, Estonia, Latvia and Lithuania. The partnership will begin during the spring of 2013.
In Sampo Group’s segment reporting Topdanmark holding is included in the P&C insurance segment. Due to the late publication of financial reports by Topdanmark, consensus estimate for the company’s net result is used for this purpose and any deviations in relation to subsequently published amounts will be included in the next quarterly report.
Topdanmark’s net profit after the amortization of EUR 8 million amounted to EUR 50 million. If’s solvency capital on 31 December
111.75 (DKK 831). The closing price at the end of trading year 2012 in the Copenhagen Stock Exchange was DKK 1,213 (EUR 163) per share.
In 2012, Nordea delivered on its financial plan from 2011. Costs remained flat, risk-weighted assets decreased and income increased to a record level. The outcome of that plan was a rapid increase in capital and an all-time high operating profit in the full year of 2012, and one of the best quarterly results ever. Nordea improved its return on equity (ROE), which was 11.6 per cent in 2012, on a significantly larger capital base. The core tier 1 capital ratio was above 13 per cent at the end of the year.
Total income increased in 2012 by 8 per cent compared to 2011.
Operating profit increased 16 per cent, due to higher total income, and stable costs. Risk-adjusted profit increased by 20 per cent compared to the preceding year. The effect from currency
Total expenses increased 3 per cent compared to last year and staff costs increased 3 per cent, when excluding the restructuring costs last year. Total expenses decreased 0.5 per cent compared to 2011 in local currencies when excluding the restructuring costs last year and excluding performance related salaries and profitsharing, i.e. with the cost definition for the cost target in the New
Net loan loss provisions increased to EUR 933 million, corresponding to a loan loss ratio of 28 basis points (23 basis points last year excluding provisions related to the Danish deposit guarantee fund).
Total lending, excluding reversed repurchase agreements, amounted to EUR 320 billion, down 1 per cent in local currencies compared to the previous quarter and up somewhat compared to one year ago. Overall, the credit quality in the loan portfolio remained solid in the fourth quarter, with a positive effect from migration in the institutions and retail portfolios. The impaired loans ratio increased to 188 basis points of total loans. Total impaired loans gross increased by 1 per cent from the previous quarter. The provisioning ratio was unchanged compared to the end of the third quarter at 41 per cent.
The Group’s core tier 1 capital ratio, excluding transition rules, was 13.1 per cent at the end of the fourth quarter, a strengthening by 0.9 percentage points from the end of the previous quarter. The total capital ratio excluding transition rules increased 0.9 percentage points to 16.2 per cent. Improved capital ratios have been achieved by strong profit generation and a decrease in riskweighted assets (RWA). Nordea has during the quarter received
Foundation IRB approval for the corporate and institutions portfolio in the Baltic countries, which had an RWA reduction effect of EUR 1.6 billion. Additionally, Nordea was in December 2012 approved by the FSAs in Sweden and Finland to use the internal models method (IMM) for calculating counterparty credit risk. The IMM will be implemented in the RWA calculations in the first quarter in 2013.
The long-term funding portion of total funding was at the end of the fourth quarter approx. 70 per cent (72 per cent at the end of the previous quarter). The Liquidity Coverage Ratio (LCR) for the
Nordea has decided to establish a financial plan for increased return on equity (ROE) and a new capital policy for the new regulatory environment. The plan is set in order to shape the future of Nordea for sustainable profitability and efficiency, closer customer relationships and a solid capital position and follows on the new normal plan, which has further strengthened Nordea’s platform in 2012.
The financial plan has an ambitious financial target of 15 per cent
ROE under normal market interest rate conditions and with a core tier 1 capital ratio of above 13 per cent. The capital policy states that, no later than 1 January 2015, the target for the core tier 1 capital ratio is to be above 13 per cent and for the total capital ratio to be above 17 per cent. The core tier 1 capital ratio is expected to stay above 13 per cent during 2013 and onwards, including the effects from regulatory changes and model rollouts.
Mandatum Life Group consists of Mandatum Life, a wholly-owned subsidiary of Sampo plc, operating in Finland, and its subsidiary Mandatum Life Insurance Baltic SE. Mandatum Life Insurance Baltic SE has the form of a European company and is headquartered in Estonia. It operates in the other Baltic countries through branches.
Profit before taxes in life insurance operations remained on previous year’s level and amounted to EUR 136 million (137). The total comprehensive income for the period reflecting the changes in market values of assets was EUR 286 million (-115) boosted by good investment performance. Return on equity (RoE) rose to 28.5 per cent (-11.7).
EUR 5.5 billion (5.4) at market values as at 31 December 2012.
(-1.4). At the end of December 2012 duration of fixed income assets was 1.8 years (1.8) and average maturity 2.1 years (2.3).
Fixed income running yield was 4.8 per cent (5.4). The impairment losses in 2012 amounted to EUR 38 million.
Net investment income, excluding income on unit-linked contracts, increased to EUR 280 million (255) due to good equity and fixed income returns. Net income from unit-linked contracts was EUR 294 million (-296). In 2012, fair value reserve increased by EUR 177 million to EUR 391 million.
EUR 7.9 billion (7.3). Unit-linked reserves increased EUR 0.7 billion and amounted to EUR 3.8 billion (3.1) at the end of 2012, which corresponds to 48 per cent (42) of total technical reserves. The with-profit reserves decreased by almost EUR 200 million during 2012 and amounted to EUR 4.1 billion.
Majority of Mandatum Life’s traditional policies carry a guaranteed interest of 3.5 per cent. Individual policies sold in Finland before 1999 carry a guaranteed interest of 4.5 per cent. The discount rate for these policies has been lowered to 3.5 per cent and subsequently technical reserves have been supplemented with
EUR 71 million (79). In addition, EUR 47 million has been reserved to lower the interest rate of all with-profit liabilities to 2.5 per cent in 2013 and to 3.25 per cent in 2014. All in all, Mandatum Life has increased its technical reserves with EUR 118 million (108) due to low level of interest rates.
pension insurance policies and PS contracts after 1 January 2013 will, in Mandatum Life’s view, substantially weaken the demand for new pension policies. The company decided to discontinue the sale of individual pension insurance policies to corporate customers, after having already previously ceased selling these products to private customers. Mandatum Life has adjusted both its product and service offering and its sales organization to better reflect the new market situation in the beginning of 2013.
-30 million (-77). The improvement is explained by lower finance costs and positive movement in derivative valuations.
ADMINISTRATION Annual General Meeting The Annual General Meeting of 12 April 2012 decided to distribute a dividend of EUR 1.20 per share for 2011. The record date for dividend payment was 17 April 2012. The dividend was paid on 24
Matti Vuoria and Björn Wahlroos. Per Arthur Sørlie was elected as a new Board member.
The Annual General Meeting decided to pay the following fees to the members of the Board of Directors until the close of the 2013
Ernst & Young Oy was elected as Auditor. Heikki Ilkka, APA, was re-elected as the principally responsible auditor.
Management changes Line Hestvik, member of Sampo's Group Executive Committee and Head of Business Area Private in If P&C, resigned on 27
The annual Corporate Governance Statement will be published in connection to the Annual Report 2012 in March 2013 and will be available at www.sampo.com/cg. The Annual Report 2012 also contains a more detailed description of the Group’s governance system.
Sampo Group will also publish a Remuneration Report in March 2013. The report is drawn up in accordance with section 7
Sampo Group's companies follow the common values of ethicality, loyalty, transparency and enterprise in their business operations and contacts with all stakeholders. Insurance is a business where responsibility and trust are inherent in daily customer contacts.
If is committed to environmental concerns and all company activities are governed by a strict environmental policy. The essence of this policy is that the company will always endeavour to find the most environmentally viable solution for If, its clients, suppliers and partners. Examples of sustainable actions in 2012: • If introduced a car insurance in Denmark for which the premium is based on the CO2 emission for the car
• If handles claims for more than 300,000 damaged cars and outsources repairs to homes and commercial properties for millions of Euro each year and its suppliers are required to maintain high environmental standards with regard to transport, materials, working methods and other aspects. For example, If is responsible for almost half the repairs of plastic parts on damaged cars in Sweden. As a result of If's efforts to promote the reuse of vehicle parts, more than 800 tons of material were recycled.
Award, a new environmental award whose purpose is to recognize the environmental efforts of Sweden's office tenants.
In 2012, Mandatum Life paid out pensions to 61,000 customers, a total of approximately EUR 320 million, and other indemnities totaling nearly EUR 400 million to 37,000 insured.
More detailed information on personnel in Sampo Group is available in the section ‘Personnel’ in the Annual Report 2012.
With regard to the various forms of remuneration, the guiding principles are that: • Fixed compensation (fixed salary) shall support financial stability, represent a sufficiently high share of the total remuneration and be competitive but not leading in the market.
• Variable compensation shall be used to ensure the competitiveness of total remuneration packages while still keeping the fixed cost base reasonable.
• Pensions shall as a general rule be of defined contribution nature.
• Other benefits shall reflect the conditions in the relevant labor markets
The payment of a certain portion of the variable compensation payable to senior executive management and to certain key persons shall be deferred for a defined period of time as required in the regulatory framework applicable to each Group company.
Variable compensation is based either on the contribution to the company’s profitability (e.g. short-term incentive programs) or linked to committing employees to the Group for a longer period of time (long-term incentive programs). During 2012 Sampo plc's
(25), including social costs, was paid as short-term incentives during the same period. The outcome of the long-term incentive schemes is determined by Sampo’s share price development over a period of approximately three years starting from the issue of the respective program. The programs are subject to thresholds on share price development and company profitability, as well as ceilings for maximum payout. Furthermore, the programs are subject to rules requiring part of the paid incentive reward to be used to acquire Sampo shares, which must in turn be held for a specified period of time.
Risk Management in 2012 Sampo Group companies operate in business areas where profit generation based on risk taking and active management of risks is a key component of earnings logic. Core competencies to manage the balance between risks, capitalization, liquidity and profitability in these business areas can be summarized as follows: 1) Appropriate selection and pricing of insurance risks
• Insurance risks are selected carefully and priced reflecting the inherent risk levels
• Insurance products are developed proactively 2) Effective management of insurance exposures
• Transactions are executed effectively at right time 4) Effective management of investment portfolios and balance sheet
• High quality and cost efficient business processes are maintained and continuity of operations is planned and recovery is ensured
As a diverse financial institution, Sampo Group is exposed to a variety of different risks, both financial and non-financial. The most significant risk arising from the operations of the insurance subsidiaries in 2012 was market risk.
On the Group level, the most significant risks were market risk and credit risk, due to Sampo plc’s holding in Nordea, the business activities of which in banking result in credit risk being a key risk.
Sampo Group is to ensure the adequacy of the available capital in relation to the risks arising from the business activities and operating environment, as well as to ensure that expected returns are in balance with risk taking. Various activities within this area were conducted and related procedures fine-tuned continuously during 2012 in different parts of the organization.
A more detailed description of Sampo Group’s risk management organization and activities is available in the Risk Management section of the 2012 Annual Report.
shares. Total number of votes attached to the shares is 564,800,000. Each A share entitles the holder to one vote and each B share entitles the holder to five votes at the General
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 2012
Year A shares B shares Total Change during year Reason for change bought back (A share)
NASDAQ OMX Helsinki since 1988 and all of the B shares are held by Kaleva Mutual Insurance Company. B shares can be converted into A shares at the request of the holder. At the end of the financial year, Sampo plc didn’t hold any of its own A shares.
Neither did the other Group companies hold any shares in the parent company.
Authorizations Granted to the Board The Annual General Meeting of 2012 authorized the Board to acquire in one or several lots a maximum of 50,000,000 Sampo A
The share price will be no higher than the highest price paid for
Sampo shares in public trading at the time of purchase. The authorization is valid until the close of the next Annual General
Shareholders by number of shares owned Sampo plc 31 December 2012
The members of the Group Executive Committee and their close family members owned either directly or indirectly 696,511 (687,795)
Sampo A shares representing 0.1 per cent of the share capital and related votes.
FINANCIAL STANDING Internal dividends Sampo Group’s parent company Sampo plc received a total of
4,700 million) and Nordea on 3 April 2012 a dividend of EUR 224 million to Sampo plc. Mandatum Life paid no dividend to the parent company in 2012.
Group Solvency With Nordea Bank AB (publ) as its associated company as of 31
87/EC of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment.
In addition to the aforementioned conglomerate solvency considerations, Sampo Group’s solvency is assessed internally by comparing the capital required to the capital available. Capital requirement assessment is based on an economic capital framework, in which Group companies quantify the amount of capital required for measurable risks over a one year time horizon at 99.5 per cent’s confidence level. In addition to economic
capital, companies assess their capital need related to nonmeasurable risks like risks in business environment.
Capital available or Adjusted Solvency Capital include regulatory capital and in addition other loss absorbing items like the effect of discounting technical reserves and other reserves excluded from regulatory capital.
December 2012 was EUR 4,560 million (4,374) and adjusted solvency capital was EUR 8,197 million (7,262).
Debt Financing Sampo plc’s debt financing at the end of 2012 amounted to EUR
EUR 1,113 million (1,208). At the end of 2012 gross debt to Sampo plc’s equity was 32 per cent (35).
EUR 1,710 million (1,677) and EUR 451 million (652) of issued shortterm CPs. The average interest on Sampo plc’s debt on 31
Senior Bond EURm 300 4.2500% Euribor 3M + 1.4727% 1.6627% 22 Feb 2016
Interest rate swaps are used to obtain the desired characteristics for the debt portfolio. These derivatives are valued at fair value in the profit and loss account although economically they are related the underlying bonds. As a result Sampo plc maintains the flexibility to adjust derivative position if needed but this comes at the cost of increased volatility in the Holding segment’s net finance costs.
diversified debt structure and strong liquidity in order for the company to be able to arrange financing for strategic projects if needed. Strong liquidity and the ability to acquire financing are essential factors in maintaining Sampo Group’s strategic flexibility.
OUTLOOK Outlook for 2013 Sampo Group’s business areas are expected to report good operating results for 2013. However, the mark-to-market results are, particularly in life insurance, highly dependent on capital market developments. The low interest rate level also creates a challenging environment for reinvestment in fixed income instruments.
In light of the excellent combined ratio development in 2012, the
P&C insurance operations are expected to reach their long-term combined ratio target of below 95 per cent in 2013 by a margin.
The Major Risks and Uncertainties to the Group in the Near Term In its day-to-day business activities Sampo Group is exposed to various risks. As a financial group the major sources of profitability and its variation for Sampo Group are market, credit and insurance risks. Their contributions to the Group’s Economic
Adverse structural and macro economic developments, such as current crisis in Europe, and slow growth are major sources of uncertainty which may escalate in ways that can affect the
Group’s activities unfavorably. This is, however, mitigated by the fact that Sampo Group companies do not have direct exposures in sovereigns under pressure and have small exposure to banking sector outside the Nordic region.
DIVIDEND PROPOSAL According to Sampo plc’s dividend policy, total annual dividends paid shall be at least 50 per cent of Group’s net profit for the year
Return on equity (at fair values) % 19.5 7.7 21.8 55.7 -32.4
Loss ratio excl. unwinding of discount ²) % 72.1 74.7 75.6 74.6 74.4
Combined ratio excl. unwinding of discount % 89.3 92.0 92.8 92.1 91.8 *) Based on the financial statements of If Group.
Premiums written before reinsurers' share EURm 983 854 1,117 809 536
Earnings per share, incl. Items in other comprehensive income EUR 3.31 1.22 3.22 5.88 -3.52
Net asset value per share EUR 17.55 14.05 17.79 14.63 8.28
Weighted average number of shares, incl. dilutive potential shares 1,000 560,000 560,863 561,321 561,370 569,442
³) The Board of Director's proposal to the Annual General Meeting for the accounting period 2012.
+ change in valuation differences on investments less deferred tax x 100 %
+ total balance sheet - technical provisions relating to unit-linked insurance
+ valuation differences on investments less deferred tax x 100 %
+ liabilities for insurance and investment contracts - reinsurers’ share of insurance liabilities
number of shares traded through the Helsinki Exchanges x 100 %
127 CAPITALIZATION 128 Capitalization at Group Level 132 Capitalization at Subsidiary Level 134 Sensitivity Analysis of the Capital Position 135 RISK MANAGEMENT PROCESS OUTLOOK
Group level reporting, the central focus areas are potential concentrations arising from the Group companies’ operations as well as the Group’s capitalization and liquidity position. Sampo
Parent Company Guidance The Board of Directors of the parent company decides on the subsidiaries’ return on equity targets which are currently 17.5 per cent for both If P&C and Mandatum Life. In addition, If P&C has a long-term target of maintaining a combined ratio of less than 95 per cent.
The basis for capitalization is the internally estimated amount of economic capital which reflects the capital employed in the company’s measurable risks. In addition, the perceived riskiness of the company’s operating environment is taken into account in assessing capitalization. Capitalization is also affected by the subsidiaries’ credit rating targets of which the most important is the target of rating A set for If P&C. These three aspects, together with the regulatory capital requirement, are the main aspects affecting the level of capitalization that is considered to be adequate for each subsidiary and the amount of dividends distributed by the subsidiaries to the parent company. In Sampo
Board of Directors’ decisions in general and thereby also the guidance given by the parent company.
Continuous dialogue is maintained with parties representing the markets and the views of such parties on, among others, high quality operations, risk taking and capitalization are factors affecting the organization of operations.
Sampo Group. Self-regulation and industry specific best practices are taken into account in developing own operations.
Moreover, the expectations and recommendations of other interest groups regarding the operations are followed in Sampo
Group. These points of view are assessed and thus they potentially may have an effect on the Group’s operations and their organization in the long run.
Subsidiaries' Operations Sampo Group’s subsidiaries decide independently on the governance structure of their own operations as well as on the policies, limits, authorizations and instructions of specific areas in accordance with the main principles steering the operations defined by the parent company. The executive management of the subsidiaries mainly consists of professionals with extensive experience in the insurance industry. Complementary investment, financial, risk and capitalization as well as mergers and acquisitions expertise is provided by the members of the subsidiaries’ Boards of Directors who are mainly in senior management positions in Sampo plc. The members of different committees and governing bodies represent expertise related to business and other functions. The subsidiaries’ operations are monitored by the different governing bodies and ultimately by the
Group Level Control of Operations In addition to the parent company’s employees taking part in the
Board activities of the subsidiaries, the parent company Sampo plc follows and analyzes the performance of the subsidiaries and the associated company Nordea Bank AB based on their reporting. The information on Nordea Bank AB is, however, based on publicly available material and is therefore less detailed.
The parent company Sampo plc is responsible for reporting on its own activities as well as the reporting on the Group’s risk concentrations and capitalization. Based on this information, the
Summary of Sampo Group’s Steering Model The central elements in Sampo Group’s steering model are the following; (i) parent company Sampo plc sets the central targets and preconditions for the subsidiaries’ operations, (ii) the management of the subsidiaries is able to focus on the insurance business as the parent company has an active role in the investment, investor relations, capitalization and M&A activities of the subsidiaries, (iii) Sampo plc analyzes the Group as a business portfolio and is active in matters related to the Group’s capitalization and risks as well as the parent company’s capital structure and liquidity if necessary.
SAMPO GROUP’S OPERATIONS, RISKS AND EARNINGS LOGIC Sampo Group is engaged in three business areas. P&C insurance and life insurance are conducted by subsidiaries If P&C Insurance
Holding Ltd and Mandatum Life Insurance Company Ltd that are wholly owned by parent company Sampo plc. In addition to the insurance subsidiaries, Group’s parent company Sampo plc held, as at 31 December 2012, an equity stake of 21.25 percent in
Nordic clients with operations outside the Nordic countries. In addition to geographical diversification, the business is welldiversified over lines of business. Mandatum Life operates in
Finland and Baltic countries and offers savings and pension policies with life risk features as well as policies covering mortality, morbidity and disability risks.
insurance businesses and therefore the companies are managed and developed mainly as separate units. Investment activities, on the other hand, are centralized. The persons responsible for managing the subsidiaries’ investments report directly to Sampo
The analysis and reporting of investment risks is therefore similar in the subsidiaries and the risks can easily be assessed also at
ALM risk, concentration risk and reputation risk are by their nature linked to various risk factors simultaneously.
P&C insurance underwriting risk: Premium risk is the risk of loss due to inadequate pricing, risk concentration, improper reinsurance coverage or random fluctuations in frequency and/or size of claims.
Catastrophe risk is the risk of low frequency, high severity events, such as natural catastrophes. These events lead to significant deviation in actual claims from the total expected claims.
Life insurance underwriting risk: Biometric risks refer to the risk that the company has to pay more mortality, disability or morbidity benefits than expected or the company has to keep paying pension payments to the pension policy holder for a longer time (longevity risk) than expected when pricing the policies. The specific case in which a single event of major magnitude leads to a significant deviation in actual benefits and payments from the total expected payments is called catastrophe risk. In life insurance, catastrophe events include single events or series of events. These events can occur within short time period or be, by nature, long-lasting events.
Policyholder behavior risks arise from the uncertainty related to the behavior of policyholders. Policyholders have a right to cease paying premiums (lapse risk) and may have a possibility to interrupt their policies (surrender risk).
Sampo Group: interest rates, inflation, credit spreads, foreign exchange rates, share prices and their volatilities.
Credit risk: Credit risk (default) refers to the negative impact in the financial results arising from defaults of debtors (issuer risk) or other counterparties (counterparty risk in derivatives and reinsurance contracts). Credit risk may be realized when the cash flows agreed with the debtor or counterparty fail to materialize. In the case of issuer risk the final loss depends on the company’s holding in the security and the recovery rate. In the case of counterparty risk, final loss depends on potential positive mark-tomarket value at the time of default together with recovery rate.
Liquidity risk: Liquidity risk is the risk that insurance undertakings are unable to conduct their regular business activities in accordance with the strategy, or in extreme cases, are unable to settle their financial obligations when they fall due. Liquidity risk deals with potential illiquidity of investments and non-renewal of insurance policies.
Also the availability and price of refinance and financial derivatives affect the company’s ability to carry out regular business.
General business risk: General business risk is the risk of losses due to changes in the competitive environment or internal flexibility. Unexpected changes in general business environment can cause bigger than expected fluctuations in financial results. Such changes include the general economic development, changes in the institutional environment, technological innovations, changes in legislation and competitive factors such as new competitors and changes in margins and volumes.
Reputational risk: Reputational risk, which is not categorized as an operational or a compliance risk, is the risk of reputational damage due to an action or event.
Sampo Group companies operate in business areas where profit generation based on risk taking and active management of risks is a key component of earnings logic. Core competencies to manage the balance between risks, capitalization, liquidity and profitability in these business areas can be summarized as follows: Appropriate selection and pricing of insurance risks
In Sampo Group’s business, data and analytical tools converting the data into information to be used in different business and risk management processes are as well of paramount importance.
The figure Illustration of company level risk management framework presents the basic elements, tasks and goals of company level risk management.
Management Principles established by the parent company. The subsidiaries organize their own risk management based on these
Group level principles taking into account the business specific characteristics as well as laws and regulations. The central elements for facilitating successful risk management in the subsidiaries include the following: • Risk management governance structure and authorizations
Parties independent of business activities are responsible for the risk management governance framework, risk policies, risk limits and authorizations which form the structure that sets the limits for risk taking and principles for risk monitoring. These structures reflect the capital adequacy targets and risk appetite in general.
High quality execution of the above mentioned tasks contributes to the achievement of the three central goals of the risk management process: • Balance between risks, capital and earnings
more detailed description of Sampo Group’s corporate governance and internal control system is included in the
Board of Directors of the parent company defines financial and capitalization targets for the subsidiaries and approves Group level principles steering the subsidiaries’ activities as described in section Sampo Group’s Operating Model. The risk exposures and capitalization reports of the subsidiaries are consolidated at
companies. The committee shall also monitor the implementation of risk policies, capitalization and the development of risks and profit. At least three members of the AC must be elected from those members of the Board, who do not hold management positions in Sampo Group and are independent of the company.
Risk Management Committee and are responsible for identifying needs to change the policies, principles and instructions related to risk management.
Risk Governance in If P&C The Board of If P&C ensures that the management and follow-up of risks are satisfactory, monitors risk reports and approves risk management plans.
The reporting lines of different governing bodies in If P&C are described in the figure Risk governance in If P&C.
Officers (CEOs) and the Boards of Directors of If P&C in fulfilling their responsibilities pertaining to the risk management process.
The IRCC reviews, discusses and gives input on risk issues raised from the relevant risk committees, experts and line organization.
Officer (CRO), responsible for coordinating and analyzing the information reported to the IRCC.
• The Chairman of the Underwriting Committee (UWC) is responsible for reporting deviations from the Underwriting
Actuarial Function in If Group, as well as a preparatory and advisory body for the Chief Actuary. The committee shall secure a comprehensive view and effective control over reserve risk, as part of the risk management framework. The committee shall discuss and give recommendations regarding policies and guidelines of technical provisions and review and give suggestions for update of the Risk Data
P&C as a whole based on the risks identified in the
• The Ethics Committee (EC) discusses and coordinates ethics issues within If P&C, within the scope of policies or other governing documents regarding values and ethical behavior.
The committee also gives recommendations on ethical issues to the Chairman of the committee to be communicated to the line organization and management. The committee shall also propose changes and/or extensions to the Ethical Policy.
The Managing Director of Mandatum Life has the overall responsibility for the risk management according to Board of
• The Risk Management Committee (RMC) coordinates and monitors all risks in Mandatum Life. The Committee is chaired by the Managing Director. Risks are divided into main groups which are insurance, market, operational, legal and compliance risks as well as business and reputational risks.
Risks related to the Baltic subsidiary are also included. Each risk area has a responsible person in the Committee.
• The Insurance Risk Committee is responsible for maintaining the Underwriting Policy and monitoring the functioning of the risk selection and claims processes. The Committee also reports all deviations from the Underwriting Policy to the
• The Operational Risk Committee (ORC) analyzes and handles operational risks, e.g. in relation to new products and services, changes in processes and risks as well as realized operational risk incidents. Significant observations are reported to the Risk Management Committee and to the
• The Legal and Compliance Unit is taking care of compliance matters and Head of the Unit is a member of the Risk
Management Committee. Managing director is responsible for business and reputation risk issues and he is also the
Internal Audit with its audit recommendations has a role to ensure that adequate internal controls are in place and provides Internal
Balance between Risks, Capital and Earnings One of the most important objectives of risk management in
Sampo Group is to ensure the adequacy of the available capital in relation to the risks arising from the business activities and operating environment, as well as to ensure that expected returns are in balance with risk taking.
In addition to the statutory financial statements and solvency figures, Sampo Group companies also use internal performance, risk and capital measures which are based generally on fair values of assets and liabilities.
Sampo Group considers that there is a need to assess capitalization internally, because regulatory and rating agency models have to fit for all and hence cannot take the specific features of different companies into account accurately enough.
Group) to the amount of capital needed. Adjusted solvency capital includes, in addition to the capital components compliant with
This figure is converted from confidence level 99.97 per cent to 99.5 per cent.
Boards of Directors, respectively. Internal and regulatory capitalization figures are disclosed quarterly as well.
When assessing the future business opportunities and respective capital requirements, the views of the management and different stakeholders – regulators and supervisors, rating agencies, debt investors, policyholders and shareholders – are considered.
Group, are reflected in risk management and capitalization recommendations to the business management and the Board of
P&C Underwriting Risks Underwriting risk is the risk of loss or of adverse changes in the value of insurance liabilities, due to inadequate pricing and provisioning assumptions. The figure Illustration of P&C
underwriting risk concepts depicts the P&C underwriting risk on a general level.
Premium Risk and Catastrophe Risk Premium risk is the risk of loss or of adverse changes in the value of insurance liabilities, resulting from fluctuations in the timing, frequency and severity of insured events which have not occurred at the balance sheet date.
The Underwriting Policy (UW Policy) is the principal document for underwriting and sets general principles, restrictions and directions for the organization of underwriting activities. The
Board of Directors of If P&C approves the UW Policy at least once a year.
The business areas manage the underwriting risk on a day-to-day basis. A crucial factor affecting the profitability and risk of P&C
insurance operations is the ability to accurately estimate future claims and administrative costs and thereby correctly price insurance contracts. The pricing within the Private business area and smaller risks within the Commercial business area are set through tariffs. The underwriting of risks in the Industrial business area and more complex risks within Commercial is based to a greater extent on general principles and individual underwriting than on strict tariffs. In general, pricing is based on statistical analyses of historical claims data and assessments of the future development of claims frequency and claims inflation.
Breakdown of Gross Written Premiums by Business Area, Country and Line of Business If P&C, 2012
A Nordic wide reinsurance program has been in place in If P&C
Sensitivity of underwriting result and hence underwriting risk is presented by changes in certain key figures in the table
Sensitivity test of underwriting result, If P&C, 31 December 2012 and 31 December 2011.
Sensitivity Test of Underwriting Result If P&C, 31 December 2012 and 31 December 2011
Net claims incurred 3,146 +/- 1 per cent +/- 31 +/- 31
Ceded written premiums 258 +/- 10 per cent +/-26 +/- 21
Reserve Risk Reserve risk is the risk of loss, or of adverse change in the value of insurance liabilities, resulting from fluctuations in the timing and amount of claim settlements for events which have occurred at or prior to the balance sheet date.
Technical provisions always include a certain degree of uncertainty since the provisions are based on estimates of the size and the frequency of future claim payments. The uncertainty of technical provisions is normally greater for new portfolios for which complete run-off statistics are not yet available, and for portfolios including claims that take a long time to settle. Workers’
The Board of Directors of If P&C decides on the guidelines governing the calculation of technical provisions. If P&C’s Chief
The Chief Actuary issues a quarterly report on the adequacy of technical provisions, which is submitted to the Board of Directors,
The Actuarial Committee is a preparatory and advisory board for If
P&C’s Chief Actuary. The committee makes recommendations concerning guidelines for technical calculations. The committee also monitors technical provisions and provides advice to If P&C’s
calculating all provisions and is of the utmost importance for claims settled over a long period of time, such as Motor Third
Party Liability (MTPL) and Workers’ Compensation (WC). The anticipated inflation is based on external assessments of the inflation trend in various areas, such as the consumer price index and payroll index, combined with If P&C’s own estimation of cost increases for various types of claims costs. Inflation risk in the technical provisions is an important consideration underlying If
For such insurance lines as MTPL and WC, legislation differs significantly between countries. Some of the Finnish, Swedish and
Technical Provisions by Line of Business and Major Geographical Area If P&C, 31 December 2012
The sensitivity of If P&C’s technical provisions to an increase in inflation, an increase in life expectancy and a decrease in the discount rate is presented in the table Sensitivities of technical provisions, If P&C, 2012.
Life Insurance Underwriting Risks Life insurance risks encompass underwriting risk and discount rate risk in technical provisions. Underwriting risk includes biometric, policyholder behavior and expense risks. This chapter presents the development of these life insurance risks during 2012 and the management principles of these risks.
The figure Illustration of life insurance risk concepts depicts the life insurance risk on a general level.
The table Claim ratios after reinsurance, Mandatum Life, 2012 and 2011 shows the insurance risk result in Mandatum Life’s Finnish life insurance policies. The ratio of the actual claims costs to the assumed was 82 per cent in 2012 (77 per cent in 2011). Sensitivity of the insurance risk result can also be assessed on the basis of the information in the table. For instance the increase of mortality by 100 per cent would increase the amount of benefit payments from EUR 15 million to EUR 30 million.
The insurance risk result of other biometric risks has been profitable in total, although the different risk results differ considerably. In a longer term, disability and morbidity risks are mitigated by the company’s right to raise insurance premiums for existing policies in case the claims experience deteriorates. New gender neutral pricing creates uncertainty, although risk result is expected to remain at the same level.
The insurance portfolio of Mandatum Life is relatively well diversified and does not include major concentration risks. To further mitigate the effects of possible risk concentrations,
Policyholder Behavior and Expense Risks Uncertainty related to the behavior of the policyholders is a major risk as well. The policyholders have the right to cease paying premiums (lapse risk) and the possibility to interrupt their policies
For ALM risk, surrender risk is therefore only relevant in individual life and capital redemption policies of which the related technical provisions amounts to only 6 per cent (EUR 259 million) of the total with-profit liabilities. Furthermore, the supplements to technical provisions are not paid out at surrender which also reduces the surrender risk related to the with-profit policies.
Surrender and lapse risks are taken into account when the company is analyzing its ALM risk. This is described in more detail in the Market risks chapter.
In most with-profit policies, the guaranteed interest rate is 3.5 per cent. In individual policies sold in Finland before 1999, the guaranteed interest rate is 4.5 per cent, which is also the statutory maximum discount rate of these policies. With respect to these policies, the maximum discount rate used when discounting technical provisions has been decreased to 3.5 per cent. As a result, technical provisions have been supplemented with EUR 71 million in 2012 (EUR 79 million in 2011). In addition, EUR 37 million has been reserved to lower the interest rate of with-profit liabilities to 2.5 per cent in 2013 and EUR 9 million for the year 2014 to lower the interest rate of with-profit liabilities to 3.25 per cent, i.e. Mandatum Life has set up an extra reserve of EUR 118 million as part of technical provisions.
Analysis of the Change in Provisions Before Reinsurance Mandatum Life, 2012
With-profit and others total 4,229 169 -422 -37 147 3 -37 4,052 51%
Subsidiary Mandatum Life Insurance Baltic SE 137 33 -23 -3 1 0 8 153 2%
Life’s new sales focus area for years and the trend is downward.
The trend of unit-linked technical provisions is upward, except in years like 2008 and 2011 when investment losses of unit-linked savings have exceeded the net subscriptions. Almost 50 per cent of technical provisions are unit-linked savings and their proportion is increasing.
Reserve for decreased discount rate 3.9 65 13 20 10 5 2 3
Mandatum Life parent company total 8.8 1,419 1,192 2,162 1,464 1,118 630 885
Mandatum Life. Mandatum Life’s Underwriting Policy sets principles for risk selection and limits for sums insured.
Technical provisions are analyzed and the possible supplement needs are assessed regularly. Assumptions related to technical provisions are reviewed annually. Adequacy of technical provisions is tested quarterly. Tariffs for new policies are set and the underwriting policy and assumptions used in calculating technical provisions updated based on adequacy tests and risk result analysis. Tariffs and prices, as well as the reinsurance principles and reserving principles are reviewed and approved annually by the Board of Directors of Mandatum Life.
MARKET RISKS In general, market risks refer to fluctuations in the financial results and capital caused by changes in market values of financial assets and liabilities as well as economic value of insurance liabilities.
Group is applying mark-to-market procedures to its investments and only seldom there are instruments requiring mark-to-model procedures.
When changes in different market risk variables (e.g. interest rates, inflation, foreign exchange rates and equity prices) cause a change in the value of investment assets that is of different size than the respective change in the economic value of insurance liabilities, the company is exposed to Asset and Liability
Insurance liabilities are modeled and analyzed to form an understanding of their expected future cash flows and their sensitivities to changes in factors such as inflation, interest rates and currencies.
Rating targets and regulatory requirements are major external factors affecting risk taking in general and ALM and investment portfolio risk management procedures in specific.
In companies’ Investment Policies the asset class allocations, risk limits by risk types, the risk governance of investment activities and the decision making authorizations are set in a way that maintain the balance between earnings potential, risks and capitalization.
Investments are managed according to the Investment Policies which are approved by the Boards of Directors of respective companies.
In Sampo Group, insurance liabilities are analyzed regularly and these analyses together with actual capitalization, risk appetite, regulatory requirements and rating targets are carefully taken into account when defining the Group companies’ Investment Policies.
The operative management of investment portfolios and the whole balance sheet is taken care of in accordance with the
perspective, future inflation and interest rates as well as currency rates for provisions in non-base currencies. A major part of the technical provisions are nominal, whereas a still significant part, being the annuity and so called annuity IBNR reserves, are discounted with interest rates in accordance with regulatory rules.
Thereby If P&C is mainly exposed to changes in inflation and the regulatory discount rates from an accounting perspective. From an economic perspective, in which the technical provisions are discounted with prevailing interest rates, If P&C is exposed to changes both in inflation and nominal interest rates.
In the Solvency I type of approach, control levels are set above the Solvency I requirement that is insensitive to market risks, using a VaR-analysis of the investment assets. In the Solvency II
Sampo Group. The general objective of these control levels and respective guidelines is to maintain the required solvency and to ensure that investments are sufficient and eligible for covering technical provisions.
reports to the Board which then takes the responsibility on the decisions related to the capitalization and the market risks in the balance sheet.
The long-term target for investments is to provide sufficient return to cover the guaranteed interest rate plus bonuses based on principle of fairness as well as the shareholder’s return requirement with acceptable level of risk. In the long run the most significant risk is that fixed income investments will not generate adequate return compared to the guaranteed rate. In addition to investment and capitalization decisions, Mandatum Life is prepared for low interest rates on the liability side by e.g.
reducing the minimum guaranteed interest rate in new contracts and by supplementing the technical provisions by applying a lower discount rate.
Sampo Group’s Chief Investment Officer is responsible for managing investments within the limitations of the Investment
Sampo Group’s direct investments are mainly made into Nordic securities. When investing in non-Nordic securities, funds or other
Market risks and limits are also controlled by the ICC in If P&C and
ALCO in Mandatum Life at minimum on a monthly basis. These committees are responsible for the control of investment activities within the respective legal entity. The aggregated market risks and concentrations at Sampo Group level are controlled by the
Asset Allocations and Investment Returns The total amount of Sampo Group’s investment assets as at 31
Mandatum Life and Sampo plc at year end 2012 and in comparison to year end 2011 are shown in the figure
The investment assets of Sampo plc mainly consist of money market instruments. The main purpose of the assets is to form a liquidity portfolio that fluctuates in size mainly as a result of dividend payments to the shareholders of Sampo plc and dividend payments received from the insurance subsidiaries and the associated company. The investments of Mandatum Life’s Baltic subsidiary are included in Mandatum Life’s investment assets as equity in all tables and graphs in this Risk Management section.
Parent company Sampo plc’s asset portfolio is by nature a liquidity reserve and hence its market risks are limited. Interest rate risk arising from the parent company’s gross debt and the liquidity reserve is the company’s most significant market risk together with the refinancing risk related to gross debt. Most of the parent company’s debt is tied to short-term reference rates as
Group level interest rate risk because, while lower interest rates would reduce subsidiaries’ investment returns in the long-term, the interest expense in the parent company would also be lower.
Investment Allocation If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2012
Mandatum Life, 2003–2012 presents the historical development of investment returns. Mandatum Life has had on average higher returns with higher volatility.
Fixed Income Investments The table Investment allocation, If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2012 presents the amount and average maturity of fixed income investments of Sampo
The average maturity of fixed income investments that affects the size of credit risk and reinvestment risk was 2.3 years in If P&C
At the end of year 2012, the equity exposure of If P&C was
The breakdown of the equity exposures of Sampo Group by geographical regions are shown in the figure Breakdown of equity investments by geographical regions, Sampo Group, If P&C
Breakdown of Equity Investments by Geographical Regions If P&C, 31 December 2012
This is in line with Sampo Group’s Nordic focus and the fact that insurance liabilities are in Nordic currencies.
Scandinavian currencies and in euro. The transaction risk is reduced by matching technical provisions with investment assets in the corresponding currencies or by using currency derivatives.
Mandatum Life’s currency risk strategy is based on active management of the currency position. The objective is to achieve a positive return relative to a situation where the currency risk exposure is fully hedged.
Total transaction risk, net position, If P&C -1 -16 -5 -1 -54 -44 0 -23 -1 -1 1 -144
which are recognized in the consolidated comprehensive income statement. Translation risks arise also within If P&C and to a lesser extent within Mandatum Life from their subsidiaries whose base currency is different from that of the respective parent company.
Currently spread risk related to tradable bonds and notes has a major role in terms of exposures and management procedures when it comes to credit risk in Sampo Group. However, Sampo
In addition, credit risk arises from receivables from policyholders and other receivables related to commercial transactions. Credit risk exposure towards policyholders is very limited, because nonpayment of premiums generally results in cancellation of the insurance policies. Also the credit risk exposures arising from other receivables related to commercial transactions are minor in
The figure Illustration of credit risk presents credit risk on a general level.
Credit exposures including debt instruments and off-balance sheet transactions are shown in the table Credit exposures by sectors, asset classes and rating, If P&C, Mandatum Life and
More detailed distribution of reinsurance receivables and reinsurers’ portion of outstanding claims in If P&C on 31 December 2012 per rating category is presented in the table Reinsurance recoverables, If P&C, 31 December 2012 and 31 December 2011. In the table, EUR 157 million (EUR 164 million in 2011) are excluded, which mainly relates to captives and statutory pool solutions.
Reinsurance Recoverables If P&C, 31 December 2012 and 31 December 2011
2. When the details of an instrument are understood and the related earnings potential and risks are considered to be in balance, investment transaction shall be executable in a short notice regardless of instrument type. This puts pressure on credit limit structures and procedures that must be at the same time (i) flexible enough to facilitate fast decision making regardless of instrument type, (ii) well-structured to ensure that investment opportunities are assessed prudently, taking into account the specific features and risks of all investment types and (iii) they must restrict the maximum exposure of single name risk to the level that is in balance with the company’s risk appetite. During the last years, credit limit structures and procedures have been in focus when developing the companies’ Investment Policies.
3. Credit exposure accumulations over single names and products are monitored regularly at company level and at
In Sampo Group, derivatives’ counterparty risk is a by-product of managing other market risks. Since there is no earnings potential available in derivative counterparty risk, the risk is mitigated by bilateral ISDA and CSA agreements. This is the case especially in
In If P&C, liquidity risk is limited, since premiums are collected in advance and large claims payments are usually known a long time before they fall due. Liquidity risks are managed by cash management functions that are responsible for liquidity planning.
Liquidity risk is reduced by having investments that are readily tradable in liquid markets. The available liquidity buffer of financial assets, i.e. the portion of the assets that can be converted into cash at a specific point in time, is analyzed and reported to the
Sampo Group has a relatively low amount of financial liabilities and thus the Group’s respective refinancing risk is relatively small.
The maturities of technical provisions and financial assets and liabilities are presented in the table Cash flows according to contractual maturity, If P&C, Mandatum Life and Sampo plc, 31
December 2012. The table shows the financing requirements resulting from expected cash inflows and outflows arising from financial assets and liabilities as well as technical provisions.
Cash Flows According to Contractual Maturity If P&C, Mandatum Life and Sampo plc, 31 December 2012
OPERATIONAL RISKS Operational risks differ between industries and within the same industry risks and their sources vary between companies. Hence, they can also be defined in many ways. In Sampo Group, operational risk refers to the risk of loss resulting from inadequate or failed processes or systems, from personnel or from external events.
Group companies have their own specific risk sources which are causes of events that may have negative impacts on different processes, personnel or fixed assets. The figure Illustration of operational risks presents operational risk on a general level.
• To ensure the continuity of business operations in exceptional circumstances.
Operational Risk Management in If P&C The continuity of operational risk management in If P&C is secured through the Operational Risk Committee (ORC), which coordinates the operational risk process. The committee’s task is to give opinions, advice and recommendations to the If Risk
The business organization and corporate functions have the responsibility to identify, assess, monitor and manage their operational risks. Risk identification and assessments are performed quarterly. Identified risks are assessed from a severity perspective, encompassing probability and impact. The control status for each risk is assessed using a traffic light system: green
– good control of risk, yellow – attention required, red – attention required immediately. Severe risks with control status yellow or red are reported to the ORC.
Incident reporting and analysis are managed differently depending on type of incident. All employees are required to report specified types of incidents via intranet, and others are identified through controls and investigations.
These documents are being reviewed and updated at least annually. In addition, If P&C has detailed processes and guidelines in order to manage possible external and internal frauds. Internal training on ethical rules and guidelines is a prioritized area.
Business units are responsible for the identification, assessment and management of own operational risks, including organizing adequate internal control. Operational Risk Committee (ORC)
Operational risks are identified in Mandatum Life through several different sources and methods: • Macro analysis is conducted prior to the annual strategy process where the key trends in Mandatum Life’s business environment are identified, including a macro level business analysis of operational risks. External events are monitored continuously and the company reacts to those as soon as possible.
Internal control system in processes aims at preventing and identifying negative incidents and minimizing their impact. In addition, would there be an operational risk event or near misses, this must be analyzed and reported to ORC.
GROUP LEVEL RISK CONSIDERATIONS As a general principle, the subsidiaries are managed independently from each other. However, it has been deemed pertinent to assess certain risk and capitalization issues also at
Group level, i.e. concentration risks arising from exposures, correlations of Group companies’ profitability and the effect on
At the Group level, large exposures are managed and monitored in several ways. Firstly, concentration risk is proactively managed through effective differentiation in asset selection. Mandatum
Life’s direct investments are mainly denominated in euro and in companies geographically located in Finland and selectively in other countries, whereas, If P&C has the major part of its direct investments denominated in Scandinavian currencies and in the respective countries. Investments managed by external asset managers, on their behalf, are selected for both companies by the same members of Sampo Group’s investment team and the funds are mostly allocated to areas outside the Nordic countries.
Consequently, the risk of unidentified or unwanted concentrations is relatively low. Furthermore, concentrations at Group level are actively monitored and, if deemed necessary, further managed by deploying Group level exposure restrictions, for instance by industries or individual issuers.
On company level, investment risk concentrations are monitored and controlled by the ICC in If P&C and the ALCO in Mandatum
Life, which have been established as independent parties from investment operations. Total group exposures are monitored and controlled at Group level by Sampo Group’s Chief Investment
Credit Risk section. Nordic financial sector is the largest concentration at Sampo Group level. Conversely, the significance of public sector bonds is minor and Sampo Group does not have investments in government bonds of the distressed countries.
Fixed income investments in financial and public sector are shown, respectively, in the tables Fixed income investments in financial sector, Sampo Group, 31 December 2012 and Fixed income investments in public sector, Sampo Group, 31 December 2012. In terms of financial sector, most of the investments are in the Nordic countries, and covered bonds and short-term money market investments have a major emphasis. The public sector figures include government bonds, government guaranteed bonds and other public sector investments.
Fixed Income Investments in Financial Sector Sampo Group, 31 December 2012
Largest Individual Exposures by Issuer and by Asset Class Sampo Group, 31 December 2012
Furthermore, largest exposures of direct equity as well as high yield and non-rated fixed income investments are broken down in the tables Ten largest direct equity investments, Sampo Group, 31
December 2012 and Ten largest direct high yield and non-rated fixed income investments, Sampo Group, 31 December 2012.
Correlations of Profitability and Capital Positions Direct concentration risks may arise in Sampo Group due to large exposures in investment assets. A more general Group level concentration risk arises when the Group companies’ profitability and/or capital positions react similarly to general economic development, i.e. the correlation between general economic development and the profitability of different subsidiaries is more or less analogous. This type of concentration risk can be analyzed indirectly based on profits. From that perspective, especially
Nordea’s, which is Sampo plc’s associated company, result has created clear diversification benefits, in particular when analyzed vis á vis with If P&C and Mandatum Life. The historical correlation between If P&C’s and Nordea’s, as well as Mandatum Life’s and
Because of favorable profit correlations between the companies and relatively low volatilities of If P&C’s and Nordea’s profits, the profit development has been quite stable at Group level and, from that point of view, there is no pressure to maintain large capital buffers over the Group level economic capital. However, the
Corporate Structure Related Risks The structure of Sampo Group, both legal and reporting structure
Sampo Group (i.e. direct and/or indirect claims between different companies excluding normal course of business transactions with
In Sampo Group, risks and the respective capital requirements are assessed internally as well as according to the methods defined by the regulators. Also in Sampo Group’s continuous dialogue with the rating agencies, capitalization is a central subject of discussion. Capitalization assessments are conducted both at company level and at Group level to ensure the balance between risks and capital.
Sampo Group within the internal and regulatory perspectives during the year 2012 is shown in the figure Development of capitalization, If P&C, Mandatum Life and Sampo Group, 31
Updates and refinements are frequently done to the models and assumptions used for calculating the economic capital. Thus, the economic capital figures may not be fully comparable between years.
Solvency I capital is compared to the regulatory capital requirement when regulatory capitalization is under consideration.
7,262 million in 2011) due to strong results and positive changes in fair value reserves. Lower interest rates and respective decreases in the liability side adjustments of subsidiaries contributed negatively to adjusted solvency capital. The adjusted solvency capital exceeded the economic capital by EUR 3,637 million
Regulatory solvency capital amounted to EUR 8,125 million in Sampo Group at the end of year 2012.
The correlations between risk types and business areas, and thereby indirectly the amount of diversification, are defined by
Financial and Insurance Conglomerates (1193/2004) is broken down in the table Group solvency, 31 December 2012 and 31
Share of Nordea's capital not included in Group capital 803 653
Group solvency ratio (solvency capital % of minimum requirement) 170% 139%
December 2012. Regulatory capital requirement is presented in the same figure.
Internal Assessment In If P&C, economic capital increased to EUR 1,613 million
(EUR 677 million at the end of 2011) and insurance risk increased in Mandatum Life to EUR 362 million (EUR 345 million at the end of 2011).
Regulatory solvency capital amounted to EUR 3,101 million in If P&C and to EUR 1,402 in Mandatum Life at the end of year 2012.
EUR 1,076 million (EUR 925 million at the end of 2011). In both companies, good result and positive change in fair value reserve were strengthening capitalization which was partly offset by changes in liability side adjustments due to lower interest rates.
Regulatory Solvency Assessment Subsidiaries’ solvency is reported to the local supervisory authorities. In If P&C, regulatory solvency capital was 3.6 times regulatory capital requirement and the respective figure for
Rating Agency Criteria If P&C is rated by Moody’s and Standard & Poor’s (S&P) and
Sampo plc by Moody’s. The Group’s main rating objective is to retain at least a single A rating for If P&C. The data for S&P rating model is updated regularly by If P&C. Sampo Group is in a continuous dialogue with the rating agencies and therefore has a good understanding of the opinions of agencies.
As a result of the continuous work with risk management issues, If
The effects represent the instantaneous effects of a one-off change in the underlying market variable on the fair values as of 31 December, 2012. The sensitivity analysis includes the effects of derivative positions. All sensitivities are calculated before taxes. The debt issued by Sampo Group companies is not included.
For example, a rise in interest rates would reduce the values of financial instruments causing a fall in the Sampo Group's equity.
timetables, final rules and capital charges as well as ensuing impact studies are to some extent impeding the development of risk management process.
In If P&C, a separate Solvency II program was introduced in 2007 to prepare If P&C for the anticipated changes. The program has encompassed involvement in the Solvency II debate and a thorough review of If P&C’s corporate governance and internal control structure, the risk management system as well as the internal capital model. The program was finalized in 2012 and responsibilities to further develop risk processes and reporting were transferred to the line organization.
In the beginning of 2011, If P&C entered a so-called preapplication process with the Swedish and Finnish Financial
Supervisory Authorities. The process continued during 2012 and is expected to be finalized during 2013. The aim is to have a partial internal model approved when Solvency II regulations enter into force. Also Mandatum Life develops further its corresponding models.
142 Notes to the accounts 142 Summary of significant accounting policies 157 Segment information 163 Notes to the Group’s financial statements 239 SAMPO PLC’S FINANCIAL STATEMENTS 239 Sampo plc’s income statement 240 Sampo plc’s balance sheet 242 Sampo plc’s statement of cash flows 244 Summary of Sampo plc’s significant accounting policies 245 Notes to Sampo plc’s financial statements 255 APPROVAL OF THE FINANCIAL STATEMENTS AND THE BOARD OF DIRECTORS’ REPORT
Income tax relating to components of other comprehensive income -114 141
Total comprehensive income *) The total comprehensive income includes also the share of the associate Nordea's other comprehensive income, in accordance with the Group's share holding. Nordea's other comprehensive income comprise, to a large extent, the currency hedging of net investments and exchange differences, and therefore the Group's exchange differences include also Sampo's share of these items totalling EURm 28 (23). Available-for-sale financial assets include the share of Nordea's valuation differences EURm 11 (-) on these assets. Nordea's share of cash flow hedges amounted to EURm -29 (26).
***) The amount recognised in equity from cash flow hedges for the period totalled EURm -1 (-2) .
Dividend income received 82 102 *) Investments include investment property, financial assets and investments related to unit-linked insurance contracts.
EURm 8. The cash and cash equivalents transferred amounted to EURm 1.
The assets and liabilities of the disposed company did not have a material effect on the Group's income statement, balance sheet or cash flows.
enhances the transparency of the transfer transactions of financial assets and helps users to understand the possible effects of risks remaining with the company and the effect on the financial statements. The amendment had no material impact on the
The financial statements have been prepared under the historical cost convention, with the exception of financial assets and liabilities at fair value through p/l, financial assets available-forsale, hedged items in fair value hedges and share-based payments settled in equity instruments measured at fair value.
The Board of Directors of Sampo plc accepted the financial statements for issue on 13 February 2013.
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 (or decreased) each year by the Group’s share of the post-acquisition net income (or loss), or other movements reflected directly in the equity of the associate. If the Group’s share of the associate’s loss exceeds the carrying amount of the investment, the investment is carried at zero value, and the loss in
the obligations of the associate. Goodwill arising on the acquisition is included in the cost of the investment. Unrealised gains (losses) on transactions are eliminated to the extent of the
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as if they were assets and liabilities of the foreign entity. Exchange differences resulting from the translation of these items at the exchange rate of the balance sheet date are included in equity and their change in other comprehensive income.
In the inter-segment and inter-company pricing, for both domestic and cross border transactions, market-based prices are applied.
Dividends on equity securities are recognised as revenue when the right to receive payment is established.
Group key management at fair value. Investments comprise debt and equity securities. They are mainly classified as financial assets available-for-sale.
Financial assets designated as at fair value through profit or loss in the life insurance business are investments related to unitlinked insurance, presented separately in the balance sheet. The corresponding liabilities are also presented separately. In addition, in the life insurance business, investments classified as the financial assets of foreign subsidiaries, and financial instruments in which embedded derivatives have not been separated from the host contract have been designated as at fair value through profit or loss.
Derivative instruments that are not designated as hedges and do not meet the requirements for hedge accounting are classified as derivatives for trading purposes.
Derivative instruments are recognised at fair value, and gains and losses arising from changes in fair value together with realised gains and losses are recognised in the income statement.
length market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.
The decision on whether the impairment is significant or prolonged requires an assessment of the management. The assessment is done case by case and with consideration paid not only to qualitative criteria but also historical changes in the value of an equity as well as time period during which the fair value of an equity security has been lower than the acquisition cost. In
Sampo Group, the impairment is normally assessed to be significant, if the fair value of a listed equity or participation decreases below the average acquisition cost by 20 per cent and prolonged, when the fair value has been lower than the acquisition cost for over 12 months.
When assessed that there is objective evidence of impairment in debt or equity securities classified as financial assets availablefor -sale, the cumulative loss recognised in other comprehensive income is transferred from equity and recognised in profit or loss as an impairment loss.
loss, the impairment loss shall be reversed by recognising the amount in profit or loss.
During the financial year, fair value hedges have been used in
(made after 1 January 2004) over the fair value of the Group’s share of the net identifiable assets, liabilities and contingent liabilities of the acquired entity at the date of acquisition. Goodwill on acquisitions before 1 January 2004 is accounted for in accordance with the previous accounting standards and the carrying amount is used as the deemed cost in accordance with the IFRS.
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. The cost of internally generated intangible assets is determined as the sum of all costs directly attributable to the assets. Research costs are recognised as expenses in profit or loss as they are incurred. Costs arising from development of new IT software or from significant improvement of existing software are recognised only to the extent they meet the abovementioned requirements for being recognised as assets in the balance sheet.
Intangible assets are amortised on a straight-line basis over the estimated useful life of the asset. The estimated useful lives by asset class are as follows: IT software 4-10 years
For impairment testing the goodwill is allocated to the cashgenerating 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.
Investment property Investment property is held to earn rentals and for capital appreciation. The Group applies the cost model to investment property in the same way as it applies to property, plant and equipment. The depreciation periods and methods and the impairment principles are also the same as those applied to corresponding property occupied for own activities. In the
Nordea is measured at fair value in item Investments in associates.
Sampo Group (the cedant) may receive compensation from another insurer (the reinsurer), if it becomes liable for paying compensation based on other insurance contracts it has issued.
Such compensation received on the basis of reinsurance contracts is included in the balance sheet under 'Reinsurers’
share of insurance liabilities' and 'Other assets'. The former item includes the reinsurers’ share of the provisions for unearned premiums and claims outstanding in the Group’s reinsured insurance contracts, while the latter includes short-term receivables from reinsurers.
Flow Fronting contracts) in which the insurance company grants insurance and then transfers the insurance risk to the final insurer.
The provision for unearned premiums is intended to cover anticipated claims costs and operating expenses during the remaining term of insurance contracts in force. In P&C insurance and reinsurance, the provision for unearned premiums is normally calculated on a strictly proportional basis over time, i.e. on a pro rata temporis basis. In the event that premiums are judged to be insufficient to cover anticipated claims costs and operating expenses, the provision for unearned premiums must be augmented by a provision for unexpired risks. Calculation of the provision for unexpired risks must also take into account instalment premiums not yet due.
claims not yet reported to the company; i.e. the IBNR (incurred but not reported) provision. The provision for claims outstanding includes claims payments plus all estimated costs of claim settlements.
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-asyou -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
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.
The supplements are bonuses based on the reserves of policies credited to the policy reserve, additional benefits in the case of death, or lowering of insurance premiums. In Mandatum Life, the principle of fairness specifies the application of this feature. In unit-linked contracts the policyholder carries the investment risk by choosing the investment funds linked to the contracts.
DPF are discounted by an interest rate of 3.5 per cent, also being the highest discount rate used. In addition, Mandatum Life has for the year 2013 lowered the maximum rate to 2.5 %, and for the
Due to the difference in the discount rate of liabilities and the guaranteed interest of 4.5 %, supplementary provisions for guaranteed interest have been added to technical provisions. In the subsidiary, Mandatum Life Insurance Baltic, the discount rate varies by country between 2.5 - 4.0 per cent and the average guaranteed interest rate between 2.5 – 4.0 per cent.
A liability adequacy test is applied to all portfolios, company by company, and the need for augmentation is checked, company by company, on the basis of the adequacy of the whole technical provisions. The test includes all the expected contractual cash flows for non-unit-linked liabilities. The expected contractual cash flows include expected premiums, claims, bonuses and expenses.
The claims have been estimated including surrenders and other insurance transactions based on historical data. The amounts of claims include the guaranteed interest and an estimation of future bonuses. The present values of the cash flows have been discounted to the balance sheet date by using a swap rate curve.
business presumes an augmentation, the liability is increased by the amount shown by the test and recognised in profit or loss.
Continuity is pursued in the level of bonuses. The aim is to maintain the company’s solvency status on such a level that it neither limits the giving of bonuses to policyholders nor the distribution of profit to shareholders. The principle is explained in detail on the company’s website.
Defined benefit plans are both funded and unfunded. The amounts reported as pension costs during a financial year consist of 1) the actuarially calculated earnings of old-age pensions during the year, calculated straight-line, based on pensionable income at the time of retirement, and 2) calculated effects in the form of interest expense for crediting/appreciating the preceding years’
The Group also has certain voluntary defined benefit plans. These are intra-Group, included in the insurance liabilities of Mandatum
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.
Deferred tax is calculated by using the enacted tax rates prior to the balance sheet date.
uncertainties related to balance sheet estimates are related, for example, to assumptions used in actuarial calculations, determination of fair values of non-quoted financial assets and liabilities and investment property and determination of the impairment of financial assets and intangible assets. From
The fair value of any non-quoted financial assets is determined using valuation methods that are generally accepted in the market. These methods are discussed in more detail above under
Amendment to IAS 1 (effective for annual periods beginning on 7
The amendment to IAS 19 Employee Benefits (effective for annual periods beginning on 1 Jan 2013 or after) mandates all actuarial gains and losses be recognised in other comprehensive income, thus the so-called corridor approach is eliminated and the benefit cost will be determined based on the net funding. The change will have an impact on the employee benefits recognised in the If subgroup. In the transition phase, the accumulated unrecognised losses EURm 157 plus social security fees related to the corridor method at 31 Dec 2011, will reduce the opening equity for the comparison year 2012. The corresponding amount at 31 Dec 2012 is EURm 113. The subsequent changes will be recognised in other comprehensive income. The effect has already been taken into account in the calculation of If-subgroup’s capital base.
clarifies the disclosure requirements for e.g. offset financial instruments. The amendment will have no material impact on the
(effective for annual periods beginning on 1 Jan 2014 or after)
specifies the presentation of situations when financial assets and liabilities are offset.The adoption of the amendment will have no material impact on the Group’s financial statements reporting.
Geographical information has been disclosed about income from external customers and non-current assets. The reported areas are
Other comprehensive income for the year, net of tax 272 177 8 -6 451
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 945 286 631 -7 1,855
Share of associate's other comprehensive income - - 23 - 23
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 308 -115 481 12 686
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 28 (47) transferred from the fair value reserve.
Change in provision for claims outstanding (incurred and reported losses) -894 166 -727 -834 126 -708
Change in claims provision for annuities -9 - -9 -7 - -7
Change in provision for claims outstanding (incurred and reported losses) 938 -100 837 833 -104 729
Change in provision for claims outstanding (incurred and reported losses) 44 66 110 0 22 22
Change in claims provision for annuities 13 0 13 -82 - -82
Total change in provision for claims outstanding 84 35 119 9 14 23
The non-discounted value was EURm 513 (492). The exchange effect on the discounted provisions was a decrease of EURm 11, the real increase amounted to EURm 14. The increase is partly explained by the decrease in the discount rate in Finland from 3.15 % to 3.0 %.
Interest rate used in calculating the technical provisions of annuities (%): Life insurance
Pension costs - defined contribution plans -37 -46 - defined benefit plans (Note 31) -19 -19
EURm Accident and health Motor, third party liability Motor, other classes Marine, air and transport Fire and other damage to property Third party liability Credit insurance
Technical result before investment return 1) Activity-based operating costs EURm 271 (257) have been allocated to claims incurred.
2) Includes other technical income EURm 33 (31) and other technical expenses EURm 30 (27).
Weighted average number of shares outstanding during the period 560 561
Non-cancellable minimum rental - not later than one year 2 1 - later than one year and not later than five years 1 1 - later than five years 0 -
Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period -2 -2 - direct operating expenses arising from investment property not generating rental income during the period -1 -1
Non-cancellable minimum rental - not later than one year 6 7 - later than one year and not later than five years 11 10 - later than five years 3 5
Name Carrying amount Fair value*) Interest held % Assets/ liabilities Revenue Profit/loss
Associates not accounted for by the equity method at 31 Dec. 2011 **)
Besure Forsikring Skandinavia AS 3 / 0 0 -1 *) Published price quatation **) Excluded from accounting for by the equity method because of their immaterial effect on consolidated figures.
At 31 Dec. 2012, the carrying amount of investments in associates included goodwill EURm 1,100 (1,094), including goodwill from the
Nordea was first conslidated as an associate company from 31 Dec. 2009 with Sampo's holding of 20,05 %. In the financial year 2012,
Sampo’s share of Nordea’s loss/profit consists of the following as of 31 Dec. 2012: EURm 2012
Change in deferred tax (incl.the effect of the decrease of Sweden's tax rate to 22 %) 25
At the end of the financial year 2012, Nordea's market value was below its carrying amount in the Group. Sampo performed an impairment test in accordance with IAS 36 Impairment of Assets where the recoverable amount for Nordea was compared with its carrying amount in the Group.The recoverable amount was defined using a discounted cash flow model, where the cash flows were based on the public information on Nordea and Sampo's estimates of Nordea's future based on this information. Based on the test, the recoverable amount exceeded Nordea's carrying amount and no impairment losses were recognised.
Financial assets designated as at fair value through p/l 48 51
Equity and equity index options 0 0 - 0 0 -
Total derivatives held for trading 2,386 40 37 12,516 114 202
Currency options, bought and sold 99 1 0 203 1 1
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, as well as the share of credit risk in interest risk hedges.
The hedge of interest rate risk was assessed ineffective during the first quarter and the hedge accounting was terminated. The hedging result EURm 1 will be amortised with the effective interest method during the remaining 3 years of maturity of the hedged bonds. In the comparison year, the net losses from interest rate swaps designated as fair value hedges amounted to EURm -2. The net gains from hedged risks in fair value hedges of available for sale financial assets amounted to EURm 2.
Total financial assets designated as at fair value through p/l 48 51
Financial assets available-for-sale for life insurance include impairment losses EURm 29 (173).
Financial assets available for sale /shares and participations: Listed equity securities include EURm 589 (635) listed equities. Unlisted equity securities include EURm 752 (692) investments in capital trusts.
Total financial assests measured at fair value 4,984 14,051 1,117 20,301
Total financial liabilities measured at fair value 0 43 19 62 *) During the financial year, debt securities EURm 7 have been transferred from level 1 to level to 2. Mutual funds EURm 34 have been transferred from level 2 to level 1.
Total financial assests measured at fair value 4,409 13,690 1,137 19,401
Other financial investments parallel shift down parallel shift up fall in prices fall in prices
Total gains or losses included in profir or loss for the financial
Total gains or losses included in profit and loss for assets held at the end of the financial year 23 5 28
Financial Statements 19 Sensitivity analysis of level 3 financial instruments measured at fair value
The value of financial assets regarding the debt security instruments has been tested by assuming a rise of 1 per cent unit in interest rate level in all maturities. For other financial assets, the prices were assumed to go down by 20 %. The Sampo Group bears no investment risks relatted to unit-linked insurance, so a change in assumptions regarding these assets does not affect profit or loss. On the basis of the these alternative assumptions, a possible change in interest levels would cause descend of EURm 3 (4) for the debt instruments, and EURm 177 (181) valuation loss for other instruments in the Group's other comprehensive income. The reasonably possible effect, proportionate to the Group's equity, would thus be 1.8 % (2.1).
Total financial assets designated at fair value through p/l 281 291
The historical cost of the equity securities related to unit-linked contracts was EURm 2,460 (2,157) and that of the debt securities EURm
Recognised in comprehensive income statement Recognised in equity Exchange differences 31 Dec.
In Sampo plc, EURm 22 of deferred tax asset has not been recognised on unused tax losses. The first losses will expire in 2021.
EURm Before-tax amount Tax Net-of-tax amount Before-tax amount Tax Net-of-tax amount
The liabilities at 1 Jan. and at 31 Dec. include the future bonus reserves and the effect of the reserve for the decreased discount rate.
29 Financial liabilities The segment financial liabilities include derivatives, debt securities and other financial liabilities.
Preferred capital note, 2005 (nominal value EURm 150) perpetual 149 149
Mandatum Life issued in 2002 EURm 100 Capital Notes. The loan is perpetual and pays floating rate interest. The interest is payable only from distributable capital. The loan is repayable only with the consent of the Insurance Supervisory Authority and at the earliest on 2012 or any interest payment date after that. The loans is wholly subscribed by Sampo Plc.
The development of efficient administrative and claims-adjustment processes and structural changes in distribution channels result in organisational changes that affect all business areas. The provision consists mainly of assets reserved for future expenses attributable to previously implemented or planned future organisational changes.
Present value of estimated pension obligation 390 424 458 577 565
Pension obligations, and the pension cost accrued during the fiscal period, are calculated using actuarial methods. Earned pension rights are calculated on a straight-line basis during the employment period. The calculation of pension obligations is based on anticipated future pension payments and includes assumptions regarding mortality, employee turnover and salary growth. The nominally calculated liability is discounted to present value using an interest rate based on the current market rate and adjusted to take into account the duration of the company’s pension obligations. The discount rate is based on liquid covered mortgage bonds issued by mortgage institutions. After deducting plan assets, a net asset or liability is entered in the balance sheet. The net obligation reported in the closing balance pertained to defined-benefit pension plans for employees in Sweden and Norway. The pension benefits arising in the other countries covered by the Group’s operations are classified as defined contribution plans.
The Norwegian pension rules and regulations are undergoing a material change. As part of the efforts to gradually adapt to these changes, a significant portion of If's early retirement plan has been phased out, resulting a considerable revenue pertaining to prioryear service.
The following actuarial assumptions have been used for the calculation of defined benefit pension plans in Sweden and Norway: Financial Statements
The expected rate of return on the plan assets has been calculated based on the following division of investment assets: EURm Funded plans Unfunded plans Total Funded plans Unfunded plans Total
Fair value of plan assets 392 - 392 347 - 347
Net cumulative unrecognised actuarial gains/losses -105 -9 -113 -138 -13 -151
Expected rate of return on plan assets at the begninning of the year -13 -13 -14 -16 -13
Actuarial gains (-) or losses (+) recognised during the financial year 5 5 2 1 8
Defined benefit plans at 31 Dec. 390 424 458 577 565
Reconciliation of plan assets: At the beginning of the year 255 220 272 326 347
Other short-term employee benefits 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 2012 is EURm 62.
Item Guarantees received comprise assets accepted as guarantees required in derivative trading and securities lending. Item Other includes e.g. liabilities arising from withholding taxes and social security costs, liabilities to creditors and insurance premium advances.
Lease and sublease payments recognised as an expense in the period - minimum lease payments -45 -36
Nuclear Insurance Pool and If P&C Insurance Ltd within the Norwegian Natural Perils’ Pool and the Dutch Terror Pool.
(publ.) and Tryg-Baltica Forsikrings AS whereby Skandia and Tryg-Baltica will be indemnified against any claims attributable to guarantees issued by Försäkringsaktiebolaget Skandia (publ.) and Vesta Forsikring AS, on behalf of Skandia Marine Insurance
Minimum lease payments not later than one year 2 2 later than one year and not later than five years 3 5
Total of sublease payments expected to be received under non-cancellable operating sub-leases at 31 Dec. 1 1
The Board of Directors of Sampo plc has decided on the long-term incentive schemes 2009 I - 2011 I 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.
and, regarding the 2011 I scheme, also on Sampo's return on the risk adjusted capital (RORAC). The value of one calculated incentive unit is the trade-weighted average price of Sampo's A-share at the time period specified in the terms of the scheme, and reduced by the starting price adjusted with the dividends per share distributed up to the payment date. The pre-dividend starting prices vary between eur 16.69 - 24.07. The maximum value of one incentive unit varies between eur 28.49 - 39.07, reduced by the dividendadjusted starting price. The IM criteria in the scheme 2009 I has three levels. If the IM reaches 4 per cent or more, the incentive reward is paid in its entirety. If the IM is between 2 - 3.99 per cent, the payout is 50 per cent. In the case of IM staying below these benchmarks, no reward will be paid out. In the 2011 I scheme, the incentive reward depends on two benchmarks. The payout is 70 per cent, if the IM
There are a number of legal proceedings against the Group companies outstanding on 31 Dec. 2012, arising in the ordinary course of business. The companies estimate it unlikely that any significant loss will arise from these proceedings.
The table does not include investments related to unit-linked insurance contracts.
Net change in cash and cash equivalents 385 33 *) Investments include both investment property and financial assets.
Additional information to the statement of cash flows: Interest income received 84 72
Notes to Sampo plc’s financial statements Notes to the income statement 1 Other operating income
Carrying amount at end of year 5,557 5,557 10 Other shares and participations 2012 Fair value changes 2011 Fair value changes
Difference between current cost and carrying amount 0 0 11 Other investment receivables 2012 Fair value changes 2011 Fair value changes
EURm Share capital Share premium accoun Legal reserve Fair value reserve
Financial assets available-for-sale - recognised in equity 0 0 - recognised
Guarantees for derivate contracts 78 43 17 Accruals and deferred income
We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of
International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the preparation of financial statements and the report of the Board of Directors that give a true and fair view in accordance with the laws and regulations governing the preparation of the financial statements and the report of the
Act requires that we comply with the requirements of professional ethics. We conducted our audit in accordance with good auditing practice in Finland. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the report of the Board of
Directors are free from material misstatement, and whether the members of the Board of Directors of the parent company or the
Managing Director are guilty of an act or negligence which may result in liability in damages towards the company or have violated the Limited Liability Companies Act or the articles of association of the company.
In our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial
In our opinion, the financial statements and the report of the
Director should be discharged from liability for the financial period audited by us.
FINANCIAL INFORMATION AND ANNUAL GENERAL MEETING 2013 Sampo will publish three Interim Reports in 2013. The Interim Reports and related supplementary materials are published on Sampo’s website at www.sampo.com/result. Press and stock exchange releases, the monthly updated list of shareholders and other investor information published by Sampo are available on the site as well.
After the ex-dividend date, the dividend from any shares traded is paid to the seller of the shares.
The Interim Reports are published on Sampo's website at www.sampo.com/result. You can subscribe to Sampo's Stock Exchange Releases and Press Releases at www.sampo.com/ subscription.
The Interim Reports are published on Sampo's website at www.sampo.com/ result. You can subscribe to Sampo's Stock Exchange Releases and Press Releases at www.sampo.com/ subscription.
Sampo Group's Annual Report 2012 mailto:pirkko.rantanen@sampo.fi mailto:jarmo.salonen@sampo.fi mailto:maria.silander@sampo.fi mailto:paivi.wallden@sampo.fi mailto:carolina.oradd@sampo.fi mailto:johanna.tynkkynen@sampo.fi