If P&C, Nordea and Mandatum Life are all in an excellent position to prevail and succeed when digitalization further advances: they all hold market leader positions, comprehensive geographical coverage, good profitability and a great number of satisfied customers in the Nordic countries. This creates a solid base for a forerunner even when meeting the future demands of customers. Significant investments in the digitalization are already proceeding at full speed.
Several significant administrative reforms were executed in our associated company Nordea during 2015, the most important of which was obviously the appointment of Casper von Koskull as the new Group CEO. Even resources in administrative and supporting functions (risk management, compliance, internal audit etc.) were strengthened in order to meet the demands of increasing regulation.
2015 was the first full year when Suomi Mutual’s group pension portfolio of EUR 1.3 billion, which had been transferred to Mandatum Life at the end of 2014, was included in the company’s financial figures.
Furthermore, the ECB’s quantitative easing policy – whilst it has reached unprecedented proportions – have not, at least yet, borne the desired fruit. The amount of government bonds trading at negative interest rates has doubled to approximately EUR 5,500 billion in one year. When obligations resulting from the regulation to invest in government bonds are added to negative interest rates, it goes without saying that at present we are experiencing a transfer of wealth with historical proportions - in particular, the transfer from Europe’s pension savers to the public sector running into deeper levels of indebtness.
In the current quite unfavorable environment for the financial sector, Sampo’s ability to generate profits is not going to change significantly in the short-term one way or the other. To improve from the present level of good profitability, the economic situation of our customers should be enhanced and their willingness to invest should grow, or GDP should get back on a growth track and interest rates should rise. Naturally, when the ongoing IT and digitalization investments are completed, product innovations and working process reforms offer the possibility of cost savings in the coming years. The objective behind the significant investments, especially in Nordea, is to further raise the current good level of results.
Strategy Sampo Group creates value for its shareholders 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 as Sampo plc upstreams the dividends it receives from its subsidiaries and associates to its shareholders.
Sampo Group's business areas are P&C insurance and life insurance. P&C insurance under If brand and Mandatum Life brand, respectively. The Group is also the largest shareholder in Nordea Bank, the leading Nordic banking franchise. On a Group level Sampo has no stated strategy but the business areas have welldefined strategies based on return on equity targets.
If is the leading property and casualty insurer in the Nordic region, with over 3.7 million customers in the Nordic and Baltic countries. If offers a full range of P&C insurance solutions and services to a broad customer base, from private individuals to large corporate customers.
If operates on a pan-Nordic basis leveraging both scale and capabilities across all areas in If. If’s key success factor is continuous improvement of its operations. Underwriting focus by understanding risk better than competitors, setting the right prices, and offer the best products and services, has been the strategic theme for more than a decade.
• The CCommerommercialcial business area is the largest commercial insurer in the Nordic countries and accounts for nearly one third of If’s insurance premiums. This business area insures companies with up to 500 employees and has about 350,000 companies as customers.
• EurEurope’ope’s moss most prt profofesessional and innosional and innovvaativtive Pe P&C&C insurinsurancance peoplee people If continues to strengthen its underwriting competences within the “Best in Risk” concept. The concept focuses on understanding all aspects of risk management, including product, pricing and risk quality, throughout the organization.
Mandatum Life Group began offering its own wealth management services related to insurance and capital redemption contracts in 2008. These services are primarily focused on high-net-worth individuals, but the comprehensive range of investment baskets is also available to a broad spectrum of private customers. Institutions constitute a key segment of Mandatum Life’s wealth management customers. Mandatum Life’s fund business operations caters for the needs of institutional customers in particular.
Mandatum Life serves its private customers mainly through Danske Bank’s distribution channel. Cooperation with Danske Bank has been successful for many years now.
Mandatum Life’s goal is to maintain its position as Finland’s largest life insurer in the corporate customer segment. Mandatum Life estimates that there is still a growing need for Finns to secure their income during retirement and to prepare for health and life risks. The pension reform of 2017, which aims to lengthen careers and help close the sustainability gap in public finances, increases the level of preparedness for retirement. The company believes that voluntary corporate pension schemes will play an increasingly important role in complementing statutory earningsrelated pensions. In addition, services intended for
In terms of the existing insurance portfolio with high guarantees, the strategy is to maintain a sufficiently strong solvency position which makes it possible to target a higher long-term return than that offered by low-risk fixed income instruments in the company’s investment operations. The goal will be to actively accelerate the downward trend of the with-profit portfolio. The transition rules of the Solvency II framework, together with the downward trend of this insurance portfolio, will enable the company to carry out effective capital management in the future. The company is keen to find growth also in the area of new with-profit contracts, provided that this takes place on favorable terms, taking into account profitability, risk management and Solvency II, and brings added value to both customers and the company.
Businesses Sampo Group is active in insurance and banking. Sampo plc, the parent company, has two fully owned insurance subsidiaries, If P&C Insurance Holding Ltd (publ) and Mandatum Life Insurance Company Ltd, and is the biggest shareholder in Nordea Bank AB, the largest bank in the Nordic region.
If P&C Insurance is the leading property and casualty insurer in the Nordic region, with operations in Finland, Sweden, Norway, Denmark and the Baltic countries. Danish insurance company Topdanmark A/S, in which If P&C Insurance is the largest owner with more than 30 per cent of the shares, is accounted for as an associated company in the P&C insurance segment.
In 2015 the Nordic insurance market remained competitive with weaker macroeconomic conditions contributing to a generally lower economic growth. If P&C’s combined ratio for the year was 85.4 (87.7) per cent which is the best ever for the company. The technical result increased to EUR 657
If P&C’s premium growth for 2015 was 0.4 (1.7) per cent. The growth was positively affected by successful renewal and development of major partnerships as well as a high level of new car sales.
In line with its core objective to be the industry leader in online solutions, If P&C continued its investments in digital initiatives during the year. Examples include further improved and simplified e-commerce operations including responsive websites as well as optimized sales and renewal processes. During the
Solvency II regulation came into effect as of January 1, 2016. If is well prepared and already compliant with
NorNordic Online Sales Grdic Online Sales Groowth, Prwth, Premiumemium If P&C
the principles of Solvency II. If has a strong capital base, good systems for reporting and internal control as well as a risk-based management model. Standard
In 2015, the Nordic economies showed diverging trends. While Sweden continued to show one of the best growth rates in Europe, Finland was struggling to get back to a growth path. Norway was experiencing a slowdown of growth, mainly in the offshore economy, while Denmark displayed a better growth rate and higher real estate prices.
In Wholesale Banking, customer activity was solid despite intense competition. Nordea consolidated its position as the leading business partner to corporates and institutions in the Nordics. Nordea was awarded Best Equity Research and Brokerage in the Nordic region by TNS SIFO Prospera and Greenwich announced Nordea to be the bank with the largest corporate customer base.
In Wealth Management, Nordea’s customers continued to show strong interest in the broad offering of investment products. Nordea was the eighth bestselling fund provider in Europe and had an overall positive net inflow of EUR 15 billion with contribution from all segments – Nordic retail funds, Private
Nordea will undertake a number of activities to accelerate this transition. These will be carried out during 2016-2017 and will start to deliver efficiencies in late 2016, which will enable continued investments in competencies, product offerings and IT. As substantial investments will be carried out in 2017-2018, net cost reductions will start materializing from 2019.
Together with the investments in the core banking platform, the outcome of the transformational agenda will lead to a more efficient and straightforward structure and reduce administrative complexity to the benefit of customers, employees and investors and enable the bank to become truly One Nordea.
Mandatum Life’s investment returns exceeded the return requirement on technical provisions, especially due to the excellent return on equity investments. Low-risk, long-term interest rates remained at a low level, which means that, as in previous years, maturing fixed income investments continue to present a considerable re-investment risk. In response to the low interest rate levels, the company continued to supplement the reserve for decreased discount rates, and has consequently considerably lowered the return requirement on technical provisions for 2016–2018.
Mandatum Life’s premiums written reached an all-time high in the company’s history. The growth was a result of successful sales work across all distribution channels. Due to the strong growth of premium income in the sector, however, Mandatum Life lost some of its market share.
Cost-effectiveness becomes increasingly important as the weight of unit-linked business grows. Three years ago, the company launched a cost-efficiency program with the goal of maintaining the organization’s fixed operating costs in 2015 at the 2012 level. The target was reached despite simultaneously implementing significant measures, such as the launch of fund business operations and taking over the group pension insurance portfolio transferred from Suomi Mutual. The cost-efficiency program, together with increased fee and commission income, raised the company’s expense result to an all-time high for the second year in a row. The expense result for the next few years is expected to grow, despite being increasingly vulnerable to changes in the investment markets due to the growth in the weight of unit-linked savings.
In the Baltic countries, premiums written on risk insurance and capital at risk grew, as did unit-linked savings. Gross premiums written and the operating result were lower than they were in the previous year. Alongside operations management, efforts were made to develop new products and solutions. Results from and feedback on online services for wealth management customers and unit-linked group insurance for companies in Latvia were positive.
Our strategy is to recruit and develop the best people in the industry. With competent, creative and engaged staff, we can stay ahead of the competition. Employee satisfaction surveys show that we have succeeded in offering a working environment that inspires and engages employees.
Insurance is a business of trust. Customers are buying peace of mind and the promise of our help when making big decisions, such as buying a home, a car or starting a business. The employees of If P&C are thus central speaking partners to customers in some of their most important life situations.
At If P&C, HR work and customer focus go hand in hand. Leadership is emphasized, but also employeeship – the employees’ own responsibility for their development, customer service and performance. Furthermore, competence development is seen as central to the customer promise and HR processes are built with the customer in mind.
If P&C is increasingly emphasizing the role each employee plays in ensuring the best possible customer service. Providing employees with the tools and mindset to undertake this responsibility is a big part of HR’s work.
If P&C is also currently building a common organization across Business Areas in the Baltics, working with Nordic back office processes to secure a higher quality and more efficient level of customer service.
Due to structural improvements If P&C also invested heavily in change management. However, the total number of employees has remained stable during 2015.
Increasing employee competence and responsibility is also changing the role of the leader. Follow-up and control is still important, but the need for coaching self-regulated employees is growing. Coaching competence among leaders has been developed during the past few years and nearly 160 leaders have attended training on this.
At If P&C, employee well-being is continuously monitored. Over the last few years, the sick leave rates in Norway have been higher than usual. With persistent work the situation has been improved. Findings from Norway are now being applied to the other If countries, with special focus on Sweden and Denmark.
If P&C is committed to promoting equal opportunities among employees, and to promote this theme an Equal Opportunities Advisory Board has been formed. The board discusses gender equality issues in relation to careers in If P&C, analyzes statistics and recommends actions to further improve the situation. Special attention is being paid to gender equality in senior leadership, where men are overrepresented.
To reinforce customer focus, If P&C decided to bring the theme closer to the personnel. Even though some employees do not talk directly to customers, all employees should be immersed in a company culture that emphasizes the customer.
The feedback from employees was very positive, making people feel pride of working at If P&C. The film is a powerful illustration of how important a role the company plays in customers’ lives, and in the society as a whole.
Gender SGender Structurtructure (Managers and All Emploe (Managers and All Employyeesees)) If P&C, 2015
Mandatum Life set employee satisfaction as one of its strategic business targets in 2015. Employee wellbeing has a significant impact on the company’s success: satisfied employees generate satisfied customers.
The efficiency drive included an assessment and rationalization of the ways of working by streamlining processes and centralizing operations. The total number of personnel in Mandatum has remained nearly unchanged.
AAge Sge Structurtructure of Pe of Personnel in Finlandersonnel in Finland Mandatum Life, 2015
Mandatum Life is committed to developing leadership skills on a systematic basis. One of the key tools includes the biannual 360 management assessment that involved all of Mandatum Life’s managers in 2015.
The objective of the assessment is to evaluate the leadership of the whole managerial staff, the competence level of our current management and to identify development areas. Furthermore, the aim is to offer managers the opportunity to receive individual feedback on their performance.
Management training is also provided through the Mandatum Life Management School program, which was organized for the sixth time in 2015.
Mandatum Life’s sustained efforts for staff well-being are reflected in low absenteeism and staff turnover
(9.5 per cent in 2015). The sick day rate has also remained at a good level from year to year, being 0.4 per cent lower in 2015 than in the previous year.
Mandatum Life offers its clients reward and compensation services. A good reward structure supports Mandatum Life's strategy and business objectives and motivates employees. The main idea with the company’s own reward structure is to offer the personnel the same compensation solutions that are offered to our clients.
A good example of this is the reward fund established in 2014. This service product enjoys wide popularity among the staff with a funding rate of nearly 90 per cent.
Participants have been able to influence the program and propose ideas. For example, the participants have received social media trainings and retirement info. It’s ultimately a win-win: the young learn from the more experienced employees who in turn learn new skills from the young.
In 2015 alone, If P&C dealt with more than 1.8 million insurance claims. These vary greatly, ranging from private clients injured in road accidents to companies whose production has been suspended, for example, due to fire. The company paid out over EUR 3 billion in claims over the past year.
If P&C has to a large extent incorporated CSR into its communication. In August If P&C launched Slow Down GPS - a navigation application for smart phones with the purpose of preventing drivers from speeding in areas where children are present. Furthermore, in order to increase the use of reflectors, especially among young people, If P&C collaborated with the leading fashion designers in Finland, Norway and Sweden and produced trendy clothes in reflective material.
If P&C is also a significant tax payer in the Nordic countries, having paid slightly more than EUR 185 million in corporate taxes in 2014.
EnEnvirvironmental impact of claims handling:onmental impact of claims handling: In 2015, If P&C handled around 950,000 claims for damaged cars and properties. The correct handling of damaged materials is a key environmental issue. The goal is to reuse undamaged parts and increase recycling. As a step towards achieving this, If P&C has implemented stringent environmental standards for its suppliers.
Online filing of claims is becoming more common and represents a more environmentally responsible choice than traditional filing methods. The number of claims filed online increased by 4 per cent in 2015 and 36 per cent of claims are filed online today.
CCorpororporaatte Te Taxaxes fes for the Yor the Year 2014ear 2014 If P&C, more than EUR 185 million in total
SharShare of Online Claim Re of Online Claim Reports freports from Businesom Business Ars Area Privea Privaatte on a Nore on a Nordicdic LLeevvelel
SharShare of E-ine of E-invvoicoices in Ves in Vehicle Claims on a Norehicle Claims on a Nordic Ldic Leevvelel If P&C, 2011-2015
If P&C handled about 550,000 damaged cars in 2015. Damaged materials and waste could have an adverse impact on the environment if not managed correctly. Company’s environmental policy requires spare parts to be reused and recycled. Instead of brand new spare parts, thousands of tons of plastic and metal are reused each year.
TTrraavvel and meetings:el and meetings: If P&C has reduced the number of business flights taken by its employees by one third since 2007. Many of its meetings are now conducted online or as video conferences instead of face-to-face.
The total amount of direct and indirect carbon dioxide emissions from Nordic operations in 2015 was 9,004 tons. This is 56 per cent lower than in 2008 when the measurements were first taken. Purchased energy contributes 11 per cent and business travel (air, train and car) 86 per cent of the total. The total emissions from business travel were 7,776 tons. Of all the means of transportation used, air travel has the greatest impact per travelled kilometer, which makes it the most significant source of emissions. The carbon dioxide reduction is mainly due to a 35 per cent decrease in air travel and because the company now purchases almost 100 per cent of its electricity from renewable sources.
• If P&C was ranked number 9 among the companies in Europe by PwC’s review of ClimateWise principles 2015.
DeDevvelopment of Carbon Dioelopment of Carbon Dioxide Emisxide Emissionssions If P&C, 2008-2015
If P&C must take substantial measures to improve the environment on a daily basis: • We always endeavor to find the best possible environmental solution – for our company, our customers, our suppliers and our partners.
During 2015, Mandatum Life’s corporate responsibility work mainly focused on fostering responsible investment practices. In responsible investing, the major role of investors in solving environmental challenges, such as global warming, was a key theme.
In the company’s view, in the long run, successful companies are the ones that operate responsibly, taking into account issues related to their own personnel, the environment and social and financial responsibility in their business operations. They attract more capital, expertise and customers.
opportunities to invest in companies with a smaller carbon footprint. Mandatum Life launched the ML Future Climate index investment basket, the objective of which is to cut carbon dioxide emissions by 50 per cent in relation to the broad MSCI World index without compromising returns.
Mandatum Life wishes to ensure the financial security of its customers through voluntary risk insurance policies, by growing their wealth through investments, securing entrepreneurship, supplementing pension cover and securing the competitiveness of Finnish companies. The company also invests in the well-being of its employees and in improving the quality of working life.
A growing number of Finns are concerned about their income in the face of financial adversity. A survey conducted by the Federation of Finnish Financial Services in 2014 revealed that 80 per cent of Finns consider voluntary insurance necessary for supplementing social security. The number of those concerned about their income has risen in recent years; in 2012, the corresponding figure was 55 per cent. A long-term illness, accidents and unemployment or temporary lay-offs are considered to be the largest threats to financial welfare (Insurance survey, Federation of Finnish Financial Services, 2014).
the future. The most cost-effective way to save is through a group pension insurance policy or a personnel fund provided by the employer.
Mandatum Life’s services for entrepreneurs secure the continuity of their businesses and supplement the statutory cover of the entrepreneurs and their families. In addition to business-related risks, the financial security of the entrepreneur and his or her loved ones must be ensured in preparation for sudden events and retirement.
Entrepreneurs must put more care into preparing for their retirement and any health and financial problems. They pay their whole pension themselves through YEL insurance. When faced with a serious illness or short period of disability, an entrepreneur might have to take care of securing the continuity of his or her business in addition to getting better. Thanks to the insurance, the entrepreneur can focus on recovering, while in cases of death or permanent disability the entrepreneur, his or her family or possible other owner will receive financial assistance during a difficult time.
(Ownership change barometer 2015). It is important for the well-being of society and entrepreneurs that the retirement and generation shifts of entrepreneurs are successful not only in terms of the pension security of the entrepreneurs but also in terms of securing jobs. It has been estimated that 20,000 companies will discontinue their operations over the next ten years in Finland on account of the ageing of the entrepreneur. That means around 2,000 companies and 8,000 jobs each year. Mandatum Life helps entrepreneurs to secure the continuity of their business by preparing well in advance for a generation shift, a corporate transaction or sudden situations, such as a serious illness, disability or death.
Companies can improve their competitiveness through fair and effective personnel reward solutions. A successful reward system also helps the company stand out from the competition and attract new employees. Mandatum Life also helps companies in preparing for personnel risks.
Mandatum Life offers companies expert services and solutions ranging from designing efficient reward systems to their implementation and measurement. When employees know their own targets and are
rewarded for achieving them in a motivating and fair manner, the company and its employees alike flourish. Companies should invest efforts in the fairness of rewards not only with regard to their targets but also from a risk management perspective. Unfair dispersion and disparity in pay within the organization may present a great legal risk to the employer. Mandatum Life offers companies the Pay Scale tool to assess the organization’s pay structure, competitiveness and fairness.
Taking Care of Employees’ Financial Security During and After Their Career
The well-being of its personnel is one of Mandatum Life’s strategic targets. The company has been selected as one of the best workplaces in Finland for six consecutive years. The company’s HR policy is based on the concept that taking care of personnel ensures customer satisfaction and puts the company in an even better position to achieve success. Mandatum Life’s responsibility for its personnel also means providing security for employees and their families in case of financial risks. Mandatum Life also invests in a motivating work environment.
Claim: 'OvClaim: 'Overerall, this isall, this is a gra greaeat plact place te to wo work.'ork.' Great Place to Work survey, 2010–2015
BoarBoard of Dird of Directectorsors .................................................................................................................................................................................... 4444 47Board of Directors' Duties 47Election and Terms of Office of Board Members
During 2015 Sampo complied in full with the Finnish Corporate Governance Code issued by the Securities Market Association, effective from 1 October 2010.
As of 1 January 2016 Sampo complies in full with the new Corporate Governance Code issued by the Securities Market Association on 1 October 2015.
Member of the Board of Directors of Sampo plc since 5 April 2001. Wahlroos holds 11,864,687 Sampo plc shares directly or through a controlled company.
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 Sigrid Jusélius Foundation, Deputy Board Member and Member of the Finance Committee; The Finnish Foundation for Share Promotion, Chairman of the Board; Föreningen Konstsamfundet, Member of the Investment Committee
Jannica Fagerholm Managing Director, Signe and Ane Gyllenberg Foundation Born 1961
Adine Grate Axén Chairman and CEO, Adine Grate AB Born 1961
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 3 Scandinavia, Advisor and Executive Board Member; Nasdaq Stockholm, Chairman of the Swedish Listing Committee; Swedish Orphan Biovitrum AB (Sobi), Board Member; Swedavia AB, Board Member; AP 7, Vice Chairman of the Board; Madrague Capital Partners AB, Board Member; Alhanko & Johnson AB (BASE 23), Chairman of the Board; Sky, Board Member
Member of the Board of Directors of Sampo plc since 14 April 2011. Grate Axén holds 4,317 Sampo plc shares directly or through a controlled company.
Anne Brunila Professor of Practice, Hanken School of Economics Born 1957
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 Wärtsilä Corporation, Board Member; Federation of Finnish Financial Services, Board Member; The Finnish Pension Alliance TELA, I Vice Chairman of the Board; University of Oulu, Chairman of the Board (1 January 2016-)
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 Umkomaas Lignin (Pty) Ltd, Chairman of the Board; Inspiria Science Center, Board Member
Member of the Board of Directors of Sampo plc since 12 April 2012. Sørlie holds 2,710 Sampo plc shares directly or through a controlled company.
Member of the Board of Directors of Sampo plc since 7 April 2009. Mattila holds 4,694 Sampo plc shares directly or through a controlled company.
According to the Policy on Diversity, Sampo’s Nomination and Compensation Committee shall identify, review and recommend candidates for the Board in accordance with the criteria set forth in the Policy.
The AGM of 2015 decided that the Board would consist of eight members until the close of the AGM to be held in 2016. 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.
MaMatti Vtti Vuoria, born 1951uoria, born 1951 Member of the Board of Directors of Sampo plc from 7 April 2004 to 16 April 2015.
Information as of 31 December 2015, unless stated otherwise. The CVs of members of the Board of Directors can be viewed at www.sampo.com/board.
attending one meeting each. Other Board members attended all meetings and, accordingly, the attendance of Board members at meetings was 98 per cent.
GeogrGeographical Mix of the Boaraphical Mix of the Board Membersd Members
The Audit Committee is responsible for monitoring the statutory auditing and reporting process of the financial statements and consolidated financial statements, and for overseeing the veracity of Sampo Group's financial statements and the financial reporting process.
Nomination and Compensation Committee also prepares for the Board’s decision Sampo Group’s Remuneration Principles and Sampo plc’s Remuneration Policy, Sampo Group’s long-term incentive programs, maximum pay-outs based on short and long-term incentive programs as well as the actual payments to be made.
Member of Sampo Group Executive Committee since 2014. Alsaker holds 16,472 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Member of Sampo Group Executive Committee since 2001. Lapveteläinen holds 231,745 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Torbjörn Magnusson Head of P&C Insurance; MD of If P&C Insurance Holding Ltd Born 1963
Morten Thorsrud Head of Business Area Private, If P&C Insurance Born 1971
Member of Sampo Group Executive Committee since 2006. Thorsrud holds 35,926 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Member of Sampo Group Executive Committee since 2005. Martinsen holds 36,652 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Ricard Wennerklint Deputy MD, If P&C Insurance Holding Ltd Born 1969
Information as of 31 December 2015, unless stated otherwise. The CVs of members of the Group Executive Committee can be viewed at www.sampo.com/management.
In 2015, 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.
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 If P&C Insurance AS, Chairman of the Board; Kaleva Mutual Insurance Company, Board Member; Federation of Finnish Financial Services, Non-life Executive Committee, Member
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 broad-ranging actions, taking into account the scope and nature of Sampo's operations, only upon authorization by the Board of
According to his agreement in force during 2015 the Group CEO would have been entitled to retire in December 2015 when he turned 60. However, at the request of Sampo's Board of Directors, Kari Stadigh continues as Group CEO and President as of 1 January 2016 until further notice. Under the terms of the new Group CEO contract, the notice period for the Group CEO is six months, from which period the Group CEO is entitled to receive salary. The new contract does not include a severance compensation.
and pension costs incurring to non-Finnish members according to applicable national legislation will be borne by Sampo plc.
The Board of Directors decides on the terms of employment and remuneration of the Group CEO and other executives on the Sampo Group Executive Committee, on the basis of a proposal by the Nomination and Compensation Committee. However, the Nomination and Compensation Committee decides, upon authorization by the Board of Directors, on the salaries of the members of the Group Executive Committee, excluding the Group CEO and Deputy CEO.
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 2015 to members of the Executive Committee is an amount corresponding to nine months' fixed salary.
Based on his employment contract, the Group CEO will be paid a fixed monthly salary and a yearly shortterm incentive, which may be no more than an amount corresponding to nine months' fixed salary. The Group CEO is also participating in the long-term incentive programs 2011:1 and 2014:1 for Sampo's management.
Part of the variable compensation payable to members of the Group Executive Committee is deferred as required in the regulatory framework applicable to each Group company. After the deferral period and on the basis of a risk adjustment review, the Board of Directors decides whether the deferred variable compensations shall be paid out in full, partly or omitted in whole.
More detailed information on compensation in Sampo Group during 2015 is available at the Remuneration Report published by Sampo.
The Audit Committee of Sampo's Board of Directors annually approves the Internal Audit's operating plan.
Insider Administration Given the nature of Sampo's business areas, especially bearing in mind their extensive investment activities, Sampo's Board of Directors has approved a separate Group Guideline for Insiders. These comply, as required by the Corporate Governance Code, with Nasdaq Helsinki Ltd's Guidelines for Insiders and the Standards of the Financial Supervisory Authority.
Responsible auditor Heikki IlkkHeikki Ilkka, APa, APAA (until 31 March 2015) TTomi Englund, APomi Englund, APAA (as of 1 April 2015)
The total fees paid to the auditor for services rendered and invoiced were EUR 2,371,128. In addition, Ernst & Young Oy were paid fees for non-audit services rendered and invoiced totaling EUR 332,799.
BusinesBusiness Ars Areaseas ................................................................................................................................................................................................ 6464 64P&C Insurance 67Associated Company Nordea Bank AB
SharShares, Shares, Share Capital ande Capital and SharShareholderseholders ............................................................................................................. 7676 76Shares and Share Capital 79Authorizations Granted to the Board 79Shareholders
CalculaCalculation of the Ktion of the Keey Figury Figureses ............................................................................................................................................ 8888 88Group Key Figures 89P&C Insurance Key Figures 91Life Insurance Key Figures 92Per Share Key Figures
The profit before taxes for the P&C insurance amounted to EUR 960 million (931). Combined ratio for the full year 2015 decreased to 85.4 per cent (87.7). Even adjusted for non-recurring items the combined ratio was better than ever before at 86.5 per cent. Return on equity (RoE) increased to 21.5 per cent (18.1). Adjusted for currency gross written premiums grew 0.4 per cent. The contribution of Topdanmark’s net profit for 2015 amounted to EUR 43 million (53).
Sampo’s share of Nordea’s net profit for 2015 amounted to EUR 751 million (680). Nordea’s RoE rose to 12.3 per cent (11.5) and core Tier 1 ratio (excluding transition rules) strengthened to 16.5 per cent (15.7). In segment reporting the share of Nordea’s profit is included in the segment ‘Holding’. Nordea’s Board of Directors proposes to the AGM 2016 a dividend of EUR 0.64 per share (0.62). If the AGM approves the
Board’s dividend proposal, Sampo plc will receive a dividend of EUR 551 million from Nordea on 30 March 2016.
In life insurance operations profit before taxes rose to EUR 181 million (163). Return on equity (RoE) amounted to 12.7 per cent (11.4). Premium income on own account increased to EUR 1,144 million (1,105). The reserve for lower discount rates was further strengthened by EUR 109 million during 2015. The rates used for 2016, 2017 and 2018 are 1.0 per cent, 1.25 per cent, and 2.25 per cent, respectively.
Income statement items are compared on a year-on-year basis and comparison figures for balance sheet items are from 31 December 2014 unless otherwise stated.
Balance sheet (at the end of period) 0.9570 0.9878 1.0482 1.0674 1.0388
In Denmark, a broadly-based recovery is emerging, driven mainly by consumer spending. In 2015, the Danish export sector was hit by the marked slowdown in global trade. Moreover, exports remained adversely affected by the trade sanctions against Russia. Even so, the current account surplus remained substantial, among other things due to subdued domestic investment activity. 2015 will be described in history books as yet another year of exceptionally low inflation in Denmark. A closer analysis of Danish inflation data shows, however, that things are changing.
Whereas other western countries have enjoyed a moderate growth cycle for several years, Finland has stagnated, suggesting that the country is in need of reforms. In 2015, the export industry's difficulties broadly hit the rest of the economy, and investments decreased for the fourth consecutive year. The employment declined further and purchasing power did not improve much. These continued to weigh on private consumption, which nonetheless remained on the previous year's level thanks to the declining fuel prices.
Internationally, the advanced economies, headed by the US, are entering a self-sustaining recovery supported by highly accommodative monetary policies and sharply lower commodity prices. The latter has especially benefitted commodity-importing countries. For the commodity-producing countries, however, the situation changed for the worse and the slowdown in China adversely affected activity in the Asian economies in particular.
Profit before taxes for January-December 2015 for the P&C insurance operations increased to EUR 960 million (931). Combined ratio improved to 85.4 per cent (87.7) while risk ratio deteriorated to 66.6 per cent (65.1). Excluding the non-recurring items, combined ratio for 2015 was 86.5 per cent.
Technical result increased to EUR 657 million (588). Insurance margin (technical result in relation to net premiums earned) improved to 15.1 per cent (13.2).
The lowering of the annuities discount rate in Finland during the second quarter of 2015 affected all business areas’ results negatively and weakened the Finnish country specific result in 2015. Business area Industrial suffered from a negative large claims outcome in the fourth quarter of the year, particularly in Norway, resulting in EUR 45 million worse than expected large claims outcome in 2015 and a 10.4 percentage points weaker combined ratio than a year before. Total large claims ended up EUR 32 million worse than expected in 2015.
In Sweden, combined ratio improved by 7.8 percentage points supported by a positive large claims outcome compared to the previous year. Swedish discount rate used to discount the annuity reserves decreased to 0.41 per cent by the end of December 2015 and had a negative effect of EUR 12 million for full-year 2015 and a EUR 1 million positive effect in the fourth quarter of 2015 results.
Gross written premiums decreased to EUR 4,559 million (4,634) in 2015. Adjusted for currency, premium growth was slightly positive. Growth was positive in business areas Private and Baltic, and negative in business areas Commercial and Industrial. Geographically, gross written premiums grew by 5 per cent in Sweden, while the growth was slightly negative in Norway and Denmark and stable in Finland.
On 31 December 2015, the total investment assets of If P&C amounted to EUR 11.4 billion (11.5), of which fixed income investments constituted 74 per cent (75), money market 12 per cent (13) and equity 13 per cent (12). Net income from investments amounted to EUR 304 million (353). Investment return marked-to-market for the full year 2015 decreased to 1.5 per cent (4.1) as a result of widening credit spreads towards the end of the year. Duration for interest bearing assets was 1.2 years (1.0) and average maturity 2.6 years (2.4). Fixed income running yield as at 31 December 2015 was 1.8 per cent (2.4).
If P&C paid a dividend of SEK 5.5 billion (approx. EUR 590 million) to Sampo plc in December 2015. If P&C’s solvency ratio as at 31 December 2015 (solvency capital in relation to net written premiums) amounted to 75 per cent (82). Solvency capital amounted to EUR 3,351 million (3,544). Reserve ratios remained strong and were 168 per cent (161) of net written premiums and 250 per cent (237) of claims paid. Issues relating to Solvency II regime, entered into force on 1 January 2016, are dealt with under the section Solvency.
On 31 December 2015 If P&C held 31,476,920 Topdanmark shares, corresponding to 31.7 per cent of all votes. All Topdanmark shares held by Sampo Group are concentrated in If P&C Insurance Holding Ltd (publ). The acquisition price is DKK 2.5 billion (EUR
327 million) and the book value in Sampo Group’s balance sheet on 31 December 2015 was EUR 362 million. Market value of Sampo Group’s holding was EUR 827 million at 31 December 2015.
On 31 December 2015 Sampo plc held 860,440,497 Nordea shares corresponding to a holding of 21.25 per cent. The average price paid per share amounted to EUR 6.46 and the book value in the Group accounts was EUR 8.49 per share. The closing price as at 30 December 2015 was EUR 10.15.
Board has also decided on a new dividend policy: Nordea strives to maintain a strong capital position in line with Nordea’s capital policy. The ambition is to achieve a yearly increase in the dividend per share.
The following text is based on Nordea’s full-year 2015 result release published on 27 January 2016.
2015 was a challenging year with exceptionally low interest rates, geopolitical tensions and market turmoil. Under these market conditions Nordea reported an increase in the income level of 3 per cent in local currencies (1 per cent in euros) and delivered a reduction of 4 per cent in costs to EUR 4.7 billion in line Nordea’s target. In addition, the credit quality improved during the year. Consequently, the operating income was up 9 per cent in local currencies (7 per cent in euros) from last year excluding non-recurring items.
Net loan loss provisions decreased to EUR 479 million, corresponding to a loan loss ratio of 14 basis points (15 basis points for full year 2014).
Net profit increased 11 per cent in local currencies (9 per cent in euros) to EUR 3,662 million.
Currency fluctuations had a reducing effect of 2 percentage points on income and expenses and no effect on loan and deposit volumes compared to a year ago.
The Group’s Basel III Common equity tier 1 (CET1) capital ratio increased to 16.5 per cent at the end of the fourth quarter from 16.3 per cent at the end of the third quarter 2015. The CET1 capital ratio increase was due to reduced REA, somewhat offset by decreased CET1 capital.
The tier 1 capital ratio increased to 18.5 per cent, up 0.3 per cent from previous quarter and the total capital ratio increased from 21.3 per cent to 21.6 per cent.
The CET1 capital was EUR 23.6 billion, the tier 1 capital was EUR 26.5 billion and the own funds were EUR 30.9 billion. The capital requirement based on Basel 1 transitional rules was EUR 17.7 billion and the adjusted own funds were EUR 31.2 billion.
The coming three years will be a transition period in which Nordea will execute on transformational change agenda in order to generate a truly digital bank. The bank will initiate certain key activities to manage the transition efficiently, which led to a restructuring charge of EUR 263 million in the fourth quarter. Together with the investments in Nordea’s core banking platform, the outcome of this transformational agenda will lead to a more efficient and straightforward structure and reduce administrative complexity.
Mandatum Life Group comprises Mandatum Life Insurance Co. Ltd., a wholly-owned subsidiary of Sampo plc, operating in Finland, and its five subsidiaries. Parent company, Mandatum Life, is responsible for sales functions and all the functions required by the Insurance Companies Act. The subsidiaries are Mandatum Life Services Ltd, Mandatum Life Investment Services Ltd., Mandatum
Life Fund Management S.A., Innova Services Ltd. and Mandatum Life Insurance Baltic SE.
Guaranteed interest rate for the segregated fund has been lowered to 0.75 per cent from the original
discount rate of 3.5 per cent by supplementing the technical reserves with EUR 257 million (241).
The assets covering Mandatum Life’s original with profit liabilities on 31 December 2015 amounted to
EUR 5.5 billion (5.3) at market values. 47 per cent (32) of the assets are in fixed income instruments, 7 per cent (23) in money market, 29 per cent (30) in equities and 16 per cent (16) in alternative investments. The investment return marked-to-market for 2015 was 6.9 per cent (4.6). The duration of fixed income assets at the end of 2015 was 2.1 years (2.0) and average maturity 2.8 years (2.7). Fixed income (incl. money market) running yield was 3.2 per cent (3.2).
InInvvesestment Allocatment Allocationtion Mandatum Life (excl. the Segregated Portfolio), 31 December 2015, Total EUR 5.5 Billion
InInvvesestment Allocatment Allocation, the Segrtion, the Segregaegatted Ped Portfortfolioolio 31 December 2015, Total EUR 1.2 Billion
Risk and expense results were the highest in Mandatum Life’s history. The expense result for life insurance segment increased to EUR 25 million (19).
Mandatum Life Group’s premium income on own account was record high at EUR 1,144 million (1,105). Premiums from unit-linked policies remained at previous year’s level and were EUR 968 million (960). Premium income from the Baltic countries amounted to EUR 34 million (40). Mandatum Life’s market share in Finland was stable at 17.7 per cent (17.9). Market share in the Baltic countries was 8 per cent (11).
Sampo plc’s holding in Nordea Bank was booked in the consolidated balance sheet at EUR 7.3 billion. The market value of the holding was EUR 8.7 billion, i.e. EUR 10.15 per share, at 31 December 2015. In addition the assets on Sampo plc’s balance sheet included holdings in subsidiaries for EUR 2.4 billion (2.4).
Governance In 2015, Sampo plc complied wholly with the Finnish Corporate Governance Code, which came into force on 1 October 2010 and was issued by the Finnish Securities Market Association. The Securities Market Association approved on 1 October 2015 a new Corporate Governance Code replacing the earlier Code. The new Code became effective as of 1 January 2016. The Code can be viewed in full on the Securities Market Association’s website (www.cgfinland.fi).
On an annual basis, Sampo plc publishes a Corporate Governance Statement that is required by the Finnish Corporate Governance Code. The Corporate Governance Statement will be published in connection to the Annual Report in March 2016. The statement will be available at www.sampo.com/statement. The Governance section of this Annual Report also contains a more detailed description of the Group’s governance system.
At its organizational meeting, the Board elected Björn Wahlroos as Chairman and Eira Palin-Lehtinen as Vicechairperson. Veli-Matti Mattila, Risto Murto, Eira PalinLehtinen and Björn Wahlroos were elected to the Nomination and Compensation Committee. Anne
Brunila, Jannica Fagerholm, Adine Grate Axén and Per Arthur Sørlie were elected to the Audit Committee. The compositions of the Committees fulfilled the Finnish Corporate Governance Code's requirement for independence. The curriculum vitaes of the Board Members are available at www.sampo.com/board.
by Sampo. Tomi Englund, APA, was elected as the principally responsible auditor.
There were 2,994 shareholders represented at the meeting holding altogether 368,500,631 shares and 373,300,631 votes in the company. All decisions were made unanimously.
All of If P&C's activities are governed by a strict environmental policy. The essence of this policy is that If P&C will always endeavor to find the most environmentally viable solution for If P&C, its clients, suppliers and partners. Further details on If P&C’s environmental activities can be read from The If Environmental Report 2015 published in March 2016 available at www.sampo.com/environmentalreport.
Financial responsibility means ensuring the continuity, profitability, earnings power and solvency of operations in Sampo Group companies in all market situations. A further key component of financial responsibility is careful risk management. More information on risk management in Sampo Group is available in the Risk Management Section of this Annual Report.
During 2015, the number of staff in P&C insurance remained stable. The number of employees decreased in Norway and Finland and increased in Baltic countries, Sweden and Denmark. As of 31 December 2015, P&C insurance employed 6,739 persons. If P&C’s Finnish subsidiary, If P&C Insurance Company Ltd (Finland), started a cooperation procedure on 12 October 2015 involving approximately 212 staff members at Commercial and Private business areas as well as internal audit. As a result of the procedure, number of personnel in If P&C decreased by 92 persons, of which 78 employment contracts will end by voluntary agreements, 11 by retirement arrangements and 3 by dismissals.
The total number of staff in life insurance increased nearly 3 per cent driven by staff growth in Finland.
Life insurance operations employed 559 persons at the end of 2015. As of 31 December 2015, the total number of staff in Sampo Group totaled 6,782 persons.
More detailed information on personnel in Sampo Group is available in the Personnel section of the Annual Report.
Sampo Group will also publish a Remuneration Report in March 2016. The report has been prepared in accordance with section 7 of the Corporate Governance Code published by the Securities Market
Association in October 2010 as permitted by the new Finnish Corporate Governance Code 2015. The report will be available at www.sampo.com/remuneration.
Sampo Group companies operate in business areas where a specific feature of value creation is pricing of risks and active management of risk portfolios in addition to sound customer services. Successful management of underwriting risks and investment portfolio market risks is the main source of earnings for Sampo Group companies.
The most important objective 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 risks taken.
As at 31 December 2015, Sampo plc had 560,000,000 shares, which were divided into 558,800,000 A shares and 1,200,000 B 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 Meeting of Shareholders. According to the company’s Articles of Association, A Shares must number at least 179,000,000 and no more than 711,200,000. Meanwhile, B shares must number at least zero and no more than 4,800,000. As at 31 December 2015 Sampo plc's share capital amounted to EUR 98 million (98) and the equity capital in total to EUR 11,411 million (10,924).
Sampo plc’s Articles of association contain a redemption obligation (16§) according to which a shareholder whose holding of all shares or of all votes relating to the reaches or exceeds 33 1/3 per cent or 50 per cent, is obliged to redeem, at the presentation of claims by other shareholders, their shares and the documents giving entitlement to the shares, as stipulated in the Finnish Companies Act, in the manner prescribed in the Article. The Article contains further provisions on calculating the shareholder’s holding and redemption price.
Nominee registered total 332,572,627 59.39 58.88 *) 3,170,870 A shares and 1,200,000 B shares
During 2015 Sampo plc received altogether 9 notifications of change in holding pursuant to Chapter 9, Section 5 of the Securities Markets Act, according to which the total number of Sampo A shares and related voting rights owned by BlackRock, Inc. (tax ID
In the first quarter of 2016 Sampo plc has received six further notifications concerning the holdings of BlackRock, Inc. and its funds. On 25 January 2016 their holding of Sampo shares had increased to 5.04 per cent of all shares, on 26 January 2016 it had fallen below 5 per cent, on 29 January increased back to above 5 per cent (5.02), on 1 February 2016 decreased below 5 per cent, on 3 February increased over 5 per cent (5.03) and again on 4 February 2016 decreased below 5 per cent. The share of related votes had all the time remained below 5 per cent.
A dividend of EUR 125 million is planned to be paid by Mandatum Life during the first quarter of 2016. If P&C normally pays its dividend towards the end of the calendar year.
SharShares oes owned bwned by the Boary the Board of Dird of Directectors and bors and by the Gry the Group Exoup Executivecutivee CCommittommitteeee
Sampo Group’s business model is based on three separate business areas each managing their own risks and reserving the required capital to cover these risks.
In Sampo Group the operating entities do not capitalize each other, but rather the parent company provides the capitalization if needed. For this reason the parent company prefers to have a relatively low leverage and a good capacity to generate liquidity in case the business areas need support.
As of 1 January 2016 insurance subgroups If P&C and Mandatum Life apply Solvency II rules in their regulatory solvency calculations.
If P&C Group has over a number of years used its internal economic capital model to estimate the amount of capital needed to cover its risks. Since 2011 development of internal model has been conducted as part of the so called pre-application process with authorities to correspond to the extent possible to Solvency II requirements. As a result If P&C Group planned to use a partial internal model for Solvency II to calculate its SCR. An application for the approval of the model was submitted to the authorities in June 2015.
On 31 December 2015 after transitional measures Mandatum Life’s solvency ratio is strong at 158 per cent. Own funds of EUR 1,913 million exceed Solvency Capital Requirement (SCR) of EUR 1,212 million by EUR 701 million. Without transitional measures, own funds would have amounted to EUR 1,347 and the
Sampo Group is regarded as a financial and insurance conglomerate according to the Act on the Supervision of Financial and Insurance Conglomerates (2004/699). The Act is based on Directive 2002/87/EC of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment. The Act was amended as of 1 January 2016 to correspond to Solvency II and Basel III rules.
EURmEURm 31 Dec 201531 Dec 2015 31 Dec 201431 Dec 2014
Group’s conglomerate solvency ratio (own funds in relation to minimum requirements for own funds) using Solvency I rules for the insurance subsidiaries was 193 per cent (187) as at 31 December 2015. With Solvency II rules applied to the insurance subsidiaries the Group solvency ratio would have been 145 per cent.
More information on Sampo Group’s capital policy is available at the Risk Management section of the Annual Report 2015
Senior Bond 300 EURm (EMTN) 4.2500% Euribor3M + 1.4727% 1.3807% 22 February 2016
Senior Bond 2,000 SEKm (EMTN) Stibor3M + 1.45% - 1.0330% 29 May 2018
Senior Bond 2,000 SEKm (EMTN) Stibor3M + 0.77% - 0.3530% 28 May 2020
On 16 June 2015 If P&C Insurance Company Ltd. (publ), the Swedish subsidiary of If P&C Insurance Holding Ltd (publ), used its call option on the EUR 150 million capital loan issued on 16 June 2005 in accordance with the conditions of the loan.
To balance the risks on the Group level Sampo plc’s debt is mainly tied to short-term interest rates and issued in euro or Swedish krona. Interest rate swaps are used to obtain the desired characteristics for the debt portfolio. These derivatives are valued at fair value in the profit and loss account although economically they are related 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.
In its day-to-day business activities Sampo Group is exposed to various risks and uncertainties mainly through its separately managed major business units. Parent company Sampo plc’s contribution to risks is a minor one.
Uncertainties in the form of major unforeseen events may have an immediate impact on the Group’s profitability. Identification of unforeseen events is easier than estimation of their probabilities, timing and potential outcomes. Currently there are a number of widely identified macro-economic, political and other sources of uncertainty which can in various ways affect financial services industry negatively.
Other sources of uncertainty are unforeseen structural changes in the business environment and already identified trends and potential wide-impact events. These external drivers may also have a long-term impact on how the business shall be conducted.
The dividend will be paid to shareholders registered in the Register of Shareholders held by Euroclear Finland Ltd as at the record date of 25 April 2016. The Board proposes that the dividend be paid on 3 May 2016.
Key Figures GrGroup koup keey figury figureses 20152015 20142014 20132013 20122012 20112011
Return on assets (at fair values) % 7.2 5.6 7.0 9.3 3.7
Premiums written before reinsurers' share EURm 4,559 4,634 4,768 4,698 4,414
Return on equity (at fair values) % 21.5 18.1 24.4 36.9 12.4
Loss ratio excl. unwinding of discount ²) % 72.4 70.9 71.4 72.0 74.7
Combined ratio excl. unwinding of discount % 85.4 87.7 88.1 88.9 92.0 *) Based on the financial statements of If Group.
Capital and reserves per share EUR 20.38 19.51 19.01 17.89 15.93
Adjusted number of shares at 31 Dec. 1.000 558,800 558,800 558,800 558,800 558,800
Average adjusted number of shares 1.000 1,200 1,200 1,200 1,200 1,200
PrProfit befofit beforore taxe taxeses Property & casualty insurance profit before taxes + life insurance profit before taxes
PrProperty & Casualty and Lifoperty & Casualty and Life Insure Insurancancee + insurance premiums written
RReturn on equity (aeturn on equity (at ft fair vair valuesalues), %), % + total comprehensive income
RReturn on aseturn on assets (asets (at ft fair vair valuesalues), %), % + operating profit
EEquity/asquity/assets rsets raatio (atio (at ft fair vair valuesalues), %), % + total equity
PrProfit befofit beforore taxe taxeses Formula shown above in connection with the Group key figures.
LLososs rs raatiotio, %, % claims incurred premiums earned x 100%
CCombined rombined raatio etio exxcl. uncl. unwinding of discwinding of discount, %ount, % Loss ratio before unwinding of discount + expense ratio
SolvSolvencency capital, % of ty capital, % of technical prechnical proovision (IFRS)vision (IFRS) + solvency capital
Expense rExpense raatiotio + operating expenses before change in deferred acquisition costs
SolvSolvencency ry raatiotio, % of t, % of technical prechnical proovision, IFRSvision, IFRS + solvency capital
Earnings per sharEarnings per sharee profit for the financial period attributable to the parent company’s equity holders adjusted average number of shares
Earnings per sharEarnings per sharee, incl. change in f, incl. change in fair vair value ralue reserveservee total comprehensive income for the financial period attributable to the parent company’s equity holders adjusted average number of shares
EEquity per sharquity per sharee equity attributable to the parent company‘s equity holders adjusted number of shares at balance sheet date
EffEffectivective dividend yield, %e dividend yield, % dividend per share adjusted closing share price at 31 Dec. x 100%
PrProfitabilityofitability, Risk, Risks and Capitals and Capital ........................................................................................................................................ 101101 102Capitalization at the Company Level 106Capitalization at Group Level
Appendix 2: Risk DefinitionsAppendix 2: Risk Definitions .............................................................................................................................................. 153153 153Underwriting Risks 156Investment Portfolio Market Risks 159Counterparty Default Risks 160ALM Risks 161Operational Risks
Nordea as an associated company is not controlled by Sampo plc and its risk management is not covered in Sampo Group’s Annual Report. Nordea, however, has a material effect on the Group’s profits, risks and capital needs. Hence, Nordea is carefully analysed by Sampo as a separate business and as one component of Sampo’s portfolio of Nordic financial companies.
The legal sub-groups Mandatum Life and If P&C and the associated company Nordea, conduct their businesses independently from each other, taking into account the specific characteristics of their operations and the guidance from the parent company relating to targets, capitalization and the group-wide principles. The independent sub-groups have their own infrastructures and management as well as operative processes in place. In instances where the subsidiaries and associated companies cooperate in some business areas, cooperation is conducted similarly as with any third-party.
complex and Group companies are not exposed to many contagion risks.
As a Nordic insurance group, If P&C underwrites policies that cover various risks for both individuals and corporations over a geographically diverse area. If P&C mainly underwrites risks in the Nordic and Baltic countries. However, it also underwrites policies for its Nordic clients’ activities outside of the Nordic countries. In addition to geographical diversification, the underwriting business itself is well-diversified over lines of business and clients. All in all diversification is a major value driver of If P&C.
There is virtually no overlap between the subsidiaries’ underwriting risks except with regards to Finnish longevity risk and hence only limited group-wide coordination is needed in relation to underwriting activities and their respective risks.
• The same basic principles are primarily followed in the investment activities of both subsidiaries, although the risk level of If P&C’s investment portfolio is significantly lower than the risk level of Mandatum Life’s investment portfolio due to different features of their insurance liabilities.
Sampo plc as a holding company manages its portfolio of affiliated companies. The major management tools include the work done in the companies’ Boards of Directors and the guidance given to subsidiaries.
As dividends are the parent company’s major source of income, Sampo’s primary target for every subgroup is to maintain healthy balance between profits, risks and capital facilitating a steady stream of dividends in the long run. Secondly, Sampo is interested in how stable the profitability of its business portfolio is. Hence the correlation of reported profits is monitored closely in addition to potential risk concentrations. Thirdly, as a general rule Sampo plc prefers to have low leverage and adequate liquidity buffers to be able to generate liquidity if needed. The size of assessed diversification benefit of the Group companies’ profits is reflected in Sampo’s decisions on own capital structure and liquidity position.
In Sampo Group the risks associated with business activities fall, by definition, into three main categories: strategic risks, reputational risks and risks inherent in business operations. The first two risk classes are only briefly described in this Risk Management Disclosure as the focus is on the third risk class.
Due to the predominantly external nature of the drivers and development in the competitive environment, managing strategic risks is the responsibility of the executive level senior management. Proactive strategic decision-making is the central tool in managing strategic risks which relate to competitive advantage. The maintenance of internal operational flexibility to be able to adjust the business model and cost structure when needed is also an efficient tool in managing strategic risks. Although strategic risks are not covered by the capitalization process in Sampo Group they may, however, have an effect on the amount and structure of the actual capital base, if this is deemed to be prudent in the existing business environment.
Some risks, such as counterparty default risks and operational risks presented in the picture Classification of Risks in Sampo Group are indirect repercussions of Sampo’s normal business activities. They are onesided risks, which in principle have no related earnings potential. Accordingly, the risk management objective is to mitigate these risks efficiently rather than actively manage them. Mitigation of cconsequential riskonsequential riskss is the responsibility of the business areas and the investment unit and the capital need for these risks is measured by independent risk management functions. It has to be noted that the categorization of risks between earnings and consequential risks varies depending on the industry. For Sampo Group’s clients, for instance, the events that are subject to insurance policies are consequential risks and for Sampo Group these same risks are earnings risks.
Some risks such as interest rate, currency and liquidity risks are by their nature simultaneously linked to various activities. In order to manage these risks efficiently, Sampo Group companies have to have a detailed understanding of expected cash flows and their variance within each of the company’s activities. In addition, a thorough understanding of how the market consistent values of assets and liabilities may
fluctuate at the total balance sheet level under different scenarios is needed. These balance sheet level risks are commonly defined as Asset and Liability Management (ALM) risks. In addition to interest rate, currency and liquidity risk, inflation risk and risks relating to GDP growth rates are central ALM risks in Sampo Group. The ALM risks are one of the focus areas of senior management because of their relevance to risks and earnings in the long run.
Concentration risk may also materialize indirectly when profitability and capital position react similarly to general economic developments or to structural changes in the institutional environment in different areas of business. This kind of indirect concentration risk can be seen as part of strategic risk.
More detailed risk definitions may be found in Appendix 2 (Risk Definitions).
• Good technological infrastructure • Intellectual capital in the form of comprehensive proprietary actuarial data and analytical tools to convert this data to information
• Social and relationship capital in the form of good relationships with society and clients to understand changing needs of different stakeholders.
• Underwriting risks are carefully selected and are priced to reflect their inherent risk levels.
AAt the grt the group leoup levvelel, the risk management focus is on group-wide capitalization and liquidity. It is essential to identify potential risk concentrations and to have a thorough understanding of how reported profits of companies would develop under different scenarios. These concentrations and correlations may have an
effect on group level capitalization and liquidity buffers as well as on group level management actions.
This structure implies that the parent company is structurally subordinated. It is dependent on business areas’ dividends that can be paid only after business areas have taken care of their own obligations. Thus, the parent company prefers to maintain in its business areas a balance between profits, risks and capital which supports business areas’ ability to pay stable dividends after servicing their own obligations.
The structure also implies that Sampo plcSampo plc’’s primarys primary ffocus is on the capitalizaocus is on the capitalization ation at the sub-grt the sub-group leoup levvelel and when the sub-groups are well-capitalized, the Group is by definition well-capitalized. The latter may not be true if the sub-groups are cross-capitalizing each other, or the parent company is financially weak (highly leveraged and has inadequate liquidity buffers) or profits of the sub-groups are strongly and positively correlated. In Sampo Group none of these three claims are true.
Hence, from Sampo Group’s perspective, the main objectivobjectiveses are: • Independent business areas generate a stable and growing stream of profits and have the solvency to ensure the continuity of normal business activities.
• The portfolio of separate business areas is stable. From the Group’s perspective, a weak correlation of business areas’ profits is preferred, because this increases the benefits of diversification on a portfolio level.
• The Group’s parent company is able to provide liquidity for the strategic arrangements and capital injections, if needed. Hence the capital structure and the parent company’s capacity to generate liquidity is the key. The parent company prefers to have a relatively low leverage and good capacity to generate liquidity in case the business areas need support.
The business model described above has been very well in line with financial accounting and regulatory reporting requirements until the entry of Solvency II (“SII”) regulations. Sampo Group has disclosed its financial information by segments and relevant risk reporting by insurance sub-groups. Nordea has disclosed independently their respective reporting. On a group level Sampo has disclosed its Group Solvency by the Act on the Supervision of Financial and Insurance Conglomerates (1193/2004) (“Conglomerate Rule”) rules which include no diversification effects and is hence easy to interpret.
• The regulatory Insurance Group is created by combining Sampo plc, If P&C group companies and Mandatum Life group companies. One common SCR, including also diversification effect, is calculated. Sampo’s portion of Nordea’s capital requirement is added to Insurance Group requirement when calculating Group solvency for Sampo.
In this Risk Management Disclosure, If P&C group’s and Mandatum Life group’s risk figures are disclosed first, as they are managed separately. After the company level figures, the figures on Conglomerate solvency reporting at the group level are disclosed. In addition to this, the future reporting of Group’s solvency according to Solvency II rules will be described. These reports will be supplied to supervisors for the first time in May 2016. The Risk Management Disclosure includes also the analysis of diversifications between sub-groups as well as an analysis of the leverage and liquidity of the parent company.
As noted before, in Sampo Group the first priority is to maintain a balanca balance betwe between preen profits, riskofits, riskss andand capitalcapital in each of the separate business areas. In Sampo Group a balance between profits, risks and capital means that the actual amount of capital is maintained over a self-defined risk based capital need with a certain buffer.
Solvency II SCRs and own funds (“OF”) are more market consistent estimates of the capital need and the amount of loss absorbing items. In this risk disclosure Sampo Group will mainly disclose the SII based solvency figures.
The illustrative picture Sampo Group Companies’ Capitalization Framework describes Sampo’s approach to company-level capitalization when SII rules are in place.
Because risk exposures and profits evolve continuously over time and capital can sometimes erode rapidly due to stressed situations, there is a need to have a certain buffbufferer between the actual amount of capital and the capital floor defined by the company. An adequate buffer gives time for the company to adjust its risks and capital in times of stress and to maintain the balance between risks and capital. In Sampo Group the management steers the balance between SCRs and OF through their decisions on risk profiles, dividend payments, capital instrument issuances and technical provisions. However, in the long run a sound profitability and satisfied clients are seen as the most important factor in maintaining an adequate capitalization. An adequate buffer also gives confidence to supervisors and counterparties.
The following factors are the most material when the size of buffer is considered: • Expected profits and market values: the higher the level of expected profits and the lower the volatility of profits and market value of balance sheet, the smaller the volatility of own funds and buffer that is needed.
• Other sources of capital: more capacity and ability to issue SII compliant capital instruments means that a lower buffer is needed.
Because of the above reasons, determination of the balance between profits, risks and capital in Sampo Group is based both on statistical modelling and measuring the risks and on subjective management considerations on the prudent level of the buffer.
When the balance between profits, risks and capital is met, the following three goals of Sampo Group are simultaneously obtainable: (i) The company is able to conduct its business activities without supervisory intervention.
(ii) The company is able to conduct its business activities with all targeted client bases and the company has access to financial and debt issuance markets at terms and conditions implied by the company’s creditworthiness.
SolvSolvencency as of 31 Decy as of 31 December 2015:ember 2015: If PIf P&C&C calculates its disclosed SCR, corresponding to what would be the regulatory requirement if Solvency II group rules were enforced at the level of the If P&C group, and respective OF using the standard formula (“SF”). The internal model is currently used solely for the internal analysis. The difference between the SF and the internal model SCRs is mainly due to the standard formula not taking into account the geographical diversification between countries.
In the figure If P&C’s Solvency, 31 December 2015, SCR is divided into risk contributions. The diversification effect between risks is presented also in the figure. If P&C’s share of Topdanmark’s regulatory solvency requirement is included in the SCR as a separate requirement.
MandaMandatum Liftum Lifee applies the Solvency II standard formula with transitional measures on equity. The OF is also affected by transitional measures, because Mandatum Life applies transitional measures on its technical provisions under Solvency II rules in regards to Mandatum Life’s original pension policies with 3.5 per cent and 4.5 per cent guarantees. Also, so called volatility adjustment is applied when technical provisions are calculated. The size of SII liabilities with transitional measures of EUR 10,017 million is less than the respective figure without transitional measures EUR 10,724 million. Hence the transitional measures increase the OF.
The SII OF of Mandatum Life was EUR 1,913 million while the SCR was EUR 1,212 million. The solvency ratio (OF/SCR) was 158 per cent and the buffer was EUR 701 million. The OF without transitional measures on Technical Provisions would be EUR 1,347 million and the SCR without transitional measures on equity risk would be EUR 1,307 million.
Mandatum Life’s view is that the calculation method with the transitional measures describes well the solvency position of the company. Mandatum Life’s balance sheet is expected to be very different after transitional period, due to which the solvency position without the transitional measures is expected to develop favorably during the transitional period. The trend of with profit liabilities is decreasing (see figure Forecast of With Profit Liabilities, 31 December 2015–31 December 2031 within chapter Underwriting Risks) and liabilities with the highest guarantees is expected to fall from EUR 3,100 million to around EUR 1,000 million during the 16 year transitional period.
As a result capital tied to high guarantee business will decrease over time and simultaneously growing unitlinked business will create capital. This results in a positive trend on OF and SCR is expected to decrease, because investments backing decreasing liabilities are decreasing as well. Although the positive effect of the transitional measures decreases over time, the solvency position is expected to remain strong due to the expected positive OF trend and the decreasing
The Basel III Common Equity Tier 1 ratio of Nordea increased to 16.5 per cent in 2015. The CET1 capital amounted to EUR 23.6 billion and its own funds were EUR 30.9 billion. Nordea’s capital requirement based on the transitional rules was EUR 17.7 billion and without the transitional rules, it was EUR 11.5 billion.
GrGroup’oup’s capital needs capital need is dependent mainly on the capital needs of the business areas. The parent company’s contribution to Group capital need is minor, because Sampo plc does not have any business activities of its own except for the management of its capital structure and liquidity portfolio.
• The translation risk realizes into parent company’s result only if the legal entity is sold.
BuffBuffer:er: The amount of capital buffer at group level is dependent mostly on the following issues: • How well-capitalized the separate subsidiaries and the associated company are in their base currencies: the stronger their solvency, the less buffer is needed at group level.
• The business entities’ capacity to issue hybrid capital and subordinated debt instruments: the more capacity there is, the less need there is to increase the capital buffer at group level.
• If the probability for strategic arrangements within the industry increases, the Board of Directors and the management of Sampo plc may favor maintaining a higher buffer than would otherwise be needed.
• Shareholders’ expectations on dividends over time: when the majority of the shareholders expect a steadily increasing stream of dividends, a higher buffer than otherwise needed may be justified.
• When the Group SCR is calculated by SolvSolvencency IIy II rulesrules, there are two phases: (i) The diversified capital requirement is calculated for the insurance group including the parent company Sampo plc, If P&C and Mandatum Life. There is also capital requirement for the translation risk related to SEK denominated equity of If P&C.
(ii) Sampo plc’s portion of Nordea’s capital requirement is added to the insurance group’s capital requirement.
The difference between the two calculation methods as of 31 December 2015 is presented in the two last columns of the table. The difference in Solvency capital stems mainly from the lower value of insurance
RRegulaegulattory solvory solvencencyy, EURm, EURm 31 Dec 201431 Dec 2014 31 Dec 201531 Dec 2015 31 Dec 2015 *31 Dec 2015 *
(*) Solvency II requirements applied to If P&C and Mandatum Life
Calculation method according to Conglomerate Rules does not take into account any diversification effects between Group’s business areas as is the case when insurance groups calculate their Group solvency applying SII rules. In order to include the diversification effect between business areas into Group’s capital need, Sampo is using correlations of quarterly reported profits between business areas when assessing the diversification effect. With this adjustment the resulting diversified Group capital need would be EUR 5,496 million and the Group solvency ratio would be 187 per cent.
When this Net Debt is divided by the book value of Sampo plc’s equity holdings of EUR 7,928 million, the resulting ratio or “Loan-to-Value” (“LTV”) would be 12 per cent. However, the post-dividend Net Debt will be higher than EUR 959 million, but this is compensated by the higher market value of Sampo plc´s holdings compared to the book value of EUR 7,928 million. As a net result the realistic LTV is lower than 12 per cent.
In regards to liquidityliquidity, the liquid funds of Sampo plc were EUR 739 million. After all dividends have been received and paid the estimated liquidity will be approximately EUR 150 million. The need of liquid funds for the normal cash management purposes is about EUR 50 million and thus there is additional liquidity to be used for other purposes amounting to approximately EUR 100 million. Furthermore, investment assets and sub-ordinated loans can be sold if additional liquidity is needed.
The Underwriting Committee (“UWC”) shall give its opinion on and propose actions in respect of various issues related to underwriting risk. The committee also considers and proposes changes to the Underwriting Policy (“UW Policy”) which is the principal document for underwriting, and sets general principles, restrictions and directions for the underwriting activities. The Boards of Directors of If P&C approve 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 non-life insurance operations is the ability to accurately estimate future claims and expenses and thereby correctly price insurance contracts. The premiums within the Private business area and the premiums for smaller risks within the Commercial business area are set through tariffs. The underwriting of risks in the Industrial business area and of more complex risks within the Commercial business area is based to a greater extent on 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.
Despite the diversified portfolio, risk concentrations and consequently severe claims may arise through, for example, exposures to natural catastrophes such as storms and floods. The geographical areas most exposed to such events are Denmark, Norway and Sweden. In addition, single large claims could have an impact on the insurance operations’ result. The economic impact of natural disasters and single large claims is managed using reinsurance and through diversification.
If P&C’s Reinsurance Policy stipulates guidelines for the purchase of reinsurance. The need and optimal choice of reinsurance is evaluated by looking at the expected cost versus the benefit of the reinsurance, the impact on result volatility and decreased capital requirement. The main tool for this evaluation is If P&C’s Internal Model in which small claims, single large claims and natural catastrophes are modelled.
A group-wide reinsurance program has been in place in If P&C since 2003. In 2015, retention levels were between SEK 100 million (approximately EUR 10.9 million) and SEK 250 million (approximately EUR 27.2 million) per risk and SEK 250 million (approximately EUR 27.2 million) per event.
Combined ratio, business area Industrial 99,4% +/- 1 percentage point +/- 4 +/- 5
Net premiums earned (EURm) 4,395 +/- 1 per cent +/- 44 +/- 45
Net claims incurred (EURm) 3,180 +/- 1 per cent +/- 32 +/- 29
Ceded written premiums (EURm) 183 +/- 10 per cent +/- 18 +/- 17
The Boards of Directors of If P&C decide on the guidelines governing the calculation of technical provisions. If P&C’s Chief Actuary is responsible for developing and presenting guidelines on how the technical provisions are to be calculated and for assessing whether the level of the total provisions is sufficient. At group level, the Chief Actuary issues a quarterly report on the adequacy of technical provisions, which is submitted to the Boards of Directors, CEOs, CFO and the ORSAC of If P&C.
Technical provisions and the economic durations broken down by the line of business and major geographical area is shown in the table Technical Provisions by Line of Business and Major Geographical Area, If P&C, 31 December 2015.
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, 2015.
If P&C’s technical provisions are further analysed by claims years. The output from this analysis are illustrated both before and after reinsurance in the claims cost trend tables. These are disclosed in the Note 27 to the Financial Statements.
In 2014 Mandatum Life received from Suomi Mutual its with profit group pension portfolio. This group pension portfolio and related assets are segregated (“segregated group pension portfolio”) from rest of the Mandatum Life balance sheet. The segregated group pension portfolio has its own profit sharing rules, investment policy and asset liability management committee. The with profit liabilities other than segregated group pension portfolio are referred to as the “original” with profit liabilities hereafter.
The long duration of policies and restriction of Mandatum Life’s right to raise tariffs increases biometric risks. If the premiums turn out to be inadequate and cannot be increased, technical provisions have to be supplemented with an amount corresponding to the increase in expected losses.
Longevity risk is the most critical biometric risk in Mandatum Life. Most of the longevity risk arises from the with profit group pension portfolio. With profit group pension policies have mostly been closed for new members for years and due to this the average age of members is relatively high, i.e. for the segregated group pension portfolio the average age is around 67 years and for the other (original) group pension portfolios it’s around 69 years. In the unitlinked group pension and individual pension portfolio the longevity risk is less significant because most of these policies are fixed term annuities including death cover compensating the longevity risk.
Claim RaClaim Ratios Atios Aftfter Rer Reinsureinsurancancee Mandatum Life, 2015 and 2014
The insurance risk result of other biometric risks has been profitable overall, although the different risk results differ considerably. In the 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.
Policy terms and tariffs cannot usually be changed materially during the lifetime of the insurance, which increases the expense risk. The main challenge is to keep the expenses related to insurance administrative processes and complex IT infrastructure at a competitive level. In year 2015, the expense result was EUR 25 million (EUR 19 million in 2014). Mandatum Life does not defer insurance acquisition costs.
In most of the original 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 55 million in 2015 (EUR 69 million in 2014). In addition, EUR 79 million has been reserved to lower the interest rate of with profit liabilities to 1.0 per cent in 2016, EUR 71 million for the year 2017 to lower the interest rate of with profit liabilities to 1.25 per cent and EUR 38 million for the year 2018 to lower the interest rate of with profit liabilities to 2.25 per cent. In total, Mandatum Life has set up an extra reserve of EUR 244 million as part of the original insurance portfolio’s technical provisions.
The guaranteed interest for the segregated group pension policies is mainly 3.5 per cent. More important from the risk management point of view is that the discount rate of liabilities is 0.75 per cent. The discount rate was decreased on 31 December 2015 from 1.0 per cent to 0.75 per cent which increased the reserve for decreased discount rate to EUR 257 million (EUR 241 million in 2014). The reserve for future bonuses has an important role in the risk management of the segregated group pension portfolio. The reserve amounts to EUR 157 million and EUR 145 million of it can be used to cover possible investment losses or to finance possible changes in the discount rate of segregated technical provisions.
Unit-linkUnit-linked ted totalotal 5,1595,159 938938 -531-531 -63-63 00 00 200200 5,7035,703 5252
WWith prith profit and others tofit and others totalotal 5,0475,047 177177 -443-443 -37-37 152152 00 101101 4,9964,996 4646
Capital rCapital redemption operedemption operaationstions 44 3030 -0-0 00 00 00 11 3636 00
MandaMandatum Liftum Life gre group toup totalotal 10,37710,377 1,1491,149 -1,001-1,001 -104-104 153153 00 298298 10,87310,873 100100
The unit-linked business has been Mandatum Life’s main focus area since 2001. Since then the trend of unit-linked technical provisions has been upward and the average annual change in unit-linked technical provisions has been 24 per cent per annum. Due to the nature of unit-linked business, volatility between the years is relatively high.
In contrast, the trend of original with profit technical provisions has been downward since 2005. In particular, the parts of technical provisions with the
The development of the structure and amount of Mandatum Life’s technical provisions is shown in the figure Development of With Profit and Unit-linked Technical Provisions, Mandatum Life, 2005–2015.
The decreasing trend of with profit liabilities is expected to continue, liabilities with the highest guarantees are expected to decrease from EUR 3,100 million to around EUR 1,000 million during the Solvency II transitional period of the technical provision (1 January 2016–31 December 2031). The figure Forecast of With Profit Liabilities, 31 December 2015–31 December 2031 shows the expected trend of existing with profit liabilities.
The table Expected Maturity of Insurance and Investment Contracts before Reinsurance, Mandatum Life, 31 December 2015 shows the expected maturity and duration of insurance and investment contracts of Mandatum Life. The sensitivity of technical provisions to changes in discount rates can be assessed on the basis of the durations shown in the table.
FFororecasecast of Wt of With Prith Profit Liabilitiesofit Liabilities 31 December 2015–31 December 2031
Individual pension insurIndividual pension insurancancee 6.86.8 301301 238238 360360 190190 9595 4646 6464
MandaMandatum Liftum Life gre group toup totalotal 2,2402,240 1,7061,706 3,1173,117 2,1452,145 1,5881,588 847847 1,1901,190 * Investment contracts
Underwriting Policy sets principles for risk selection and limits for sums insured and the Reinsurance Policy governs the use of Reinsurance. The Board approves the Underwriting policy, Reinsurance Policy, pricing guidelines and the central principles for the calculation of technical provisions.
In addition to investment portfolio market risks, the companies’ balance sheets are also exposed to market and liquidity risks. These balance sheet level risks are defined as ALM risks and they are covered later in the section ALM risks. The ALM risks at the balance sheet level are taken carefully into account when investment portfolio allocations are designed and related limits and restrictions are defined.
Principles of Investment Portfolio Management Investments (excluding Mandatum Life’s investments covering unit-linked policies) are managed according to the subsidiaries’ Investment Policies that are based on the features of insurance liabilities and solvency.
Sampo Group’s Chief Investment Officer is responsible for managing investments within the limitations of the Investment Policies prepared by Group companies and approved by Group companies’ Boards of Directors. The insurance subsidiaries and the parent company have a common group-wide infrastructure for investment management as well as for performance and risk reporting which facilitates simultaneous company level and group level reporting.
The ICC is responsible for monitoring the implementation of and compliance with the Investment and Asset Coverage Policies. The committee considers and proposes changes to the policies. The Chairman is responsible for the reporting of policy deviations and other issues dealt with by the committee.
Mandatum Life has two ALCOs, of which one controls the segregated assets and liabilities and the other controls the rest of Mandatum Life’s with profit assets and liabilities. The ALCOs control that the investment activities are conducted within the limits defined in the Investment Policy as approved by the Board and monitors the adequacy of liquidity, profitability and solvency capital in relation to the risks in the balance sheet. The ALCOs prepare proposals of Investment
The total amount of Sampo Group’s investment assets as at 31 December 2015 was EUR 19,373 million (EUR 19,215 million in 2014). Mandatum Life’s investment assets presented here do not include assets which cover unit-linked contracts. The composition of the investment portfolios by asset classes in If P&C, Mandatum Life and Sampo plc at year end 2015 and at year end 2014 are shown in the figure Development of Investment Portfolios, If P&C, Mandatum Life and Sampo plc, 31 December 2015 and 31 December 2014.
The insurance liabilities as well as the risk appetite of Mandatum Life and If P&C differ and as a result, the structures and risks of the investment portfolios of the two companies are often different. This is reflected also in the companies’ investment returns. Mandatum
DeDevvelopment of Inelopment of Invvesestment Ptment Portfortfoliosolios If P&C, Mandatum Life and Sampo plc, 31 December 2015 and 31 December 2014
Annual InAnnual Invvesestment Rtment Returns aeturns at Ft Fair Vair Valuesalues If P&C, 2004–2015
Annual InAnnual Invvesestment Rtment Returns aeturns at Ft Fair Vair Valuesalues Mandatum Life, 2004–2015
More detailed investment allocations and average maturities of fixed income investments of If P&C,
Fixed income investments and listed equity instruments form a major part of the subsidiaries’ investment portfolios. Money market securities, cash and investment grade government bonds form a liquidity buffer within fixed income investments. The average maturity of fixed income investments was 2.6 years in If P&C and 3.1 years in Mandatum Life.
Interest rate sensitivity in terms of the average duration of fixed income investments in If P&C was 1.2 years and in Mandatum Life 2.2 years. These duration figures include the effect of hedging derivatives.
In addition to hedging purposes, derivatives are used to utilize market view or to mitigate risks at the balance sheet level. In both cases, derivatives are booked as trading derivatives at fair value through profit or loss in financial accounting.
In Mandatum Life, transaction risk arises mainly from investments in currencies other than euro as the company’s technical provisions are almost completely denominated in euro. Mandatum Life’s currency risk strategy is based on active management of the currency position. The objective is to achieve a positive return relative to a situation where the currency risk exposure is fully hedged.
The transaction risk positions of If P&C and Mandatum Life against their base currencies are shown in the table Transaction Risk Position, If P&C and Mandatum Life, 31 December 2015. The table shows the net transaction risk exposures and the changes in the value of positions given a 10 per cent decrease in the value of the base currency.
BaseBase currcurrencencyy EUREUR USDUSD JPJPYY GBPGBP SEKSEK NOKNOK CHFCHF DKKDKK OtherOther
TTotal trotal transaction risk, net position, If Pansaction risk, net position, If P&C&C -61-61 -19-19 4444 -2-2 -3-3 -2-2 -5-5 -7-7 -2-2 -58-58
TTotal trotal transaction risk, net position, Mandaansaction risk, net position, Mandatumtum LifLifee
The values of tradable investment assets decrease when credit spreads of debt instruments are changing unfavourably or equity prices are decreasing. Most of Sampo Group’s investments are tradable and hence subject to daily mark-to-market valuation. Moreover, the fair values of non-tradable instruments change adversely when the financial strength or future prospects of the issuer deteriorates or the value of collaterals decreases. Ultimately, the issuer may fail to meet its financial obligations and the risk is realized as a credit loss.
ExposurExposures bes by Secty Sectors, Asors, Asset Classet Classes and Rases and Ratingting If P&C, 31 December 2015
The largest holdings are in financial institutions and covered bonds. Most of these investments are in the Nordic countries as can be seen in the table Fixed Income Investments in Financial Sector, Sampo Group, 31 December 2015. These exposures increased by EUR 0.3 billion during 2015.
ExposurExposures bes by Secty Sectors, Asors, Asset Classet Classes and Rases and Ratingting Sampo Group, 31 December 2015
MoneMoneyy markmarketet securitiessecurities LLong-tong-termerm senior debtsenior debt LLong-tong-termerm suborsubordinadinatted debted debt TTotalotal %%
The public sector exposure includes government bonds, government guaranteed bonds and other public sector investments. The public sector has had a relatively minor role in Sampo Group’s portfolios and these exposures have been mainly in the Nordic countries.
FixFixed Inced Income Inome Invvesestments in Financial Secttments in Financial Sectoror Sampo Group, 31 December 2015
LarLargesgest dirt direct high yield and non-rect high yield and non-raatted fixed fixed inced incomeome ininvvesestmentstments RaRatingting TTotal fotal fair vair valuealue, EURm, EURm
TTotal total top 10 eop 10 exposurxposureses 844844 5.7 %5.7 %
BrBreakeakdodown of Liswn of Listted Eed Equity Inquity Invvesestments btments by Geogry Geographical Raphical Regionsegions Sampo Group, 31 December 2015, total EUR 3,431 million
Furthermore, the largest direct listed equity exposures are presented in the table Ten Largest Direct Listed Equity Investments, Sampo Group, 31 December 2015.
BrBreakeakdodown of Liswn of Listted Eed Equity Inquity Invvesestments btments by Geogry Geographical Raphical Regionsegions If P&C, 31 December 2015, total EUR 1,498 million
TTen Laren Largesgest Dirt Direct Lisect Listted Eed Equity Inquity Invvesestmentstments Sampo Group, 31 December 2015
In the case of financial derivatives the situation is the opposite. Mandatum Life and the parent company are frequent users of interest rate derivatives and are therefore inherently more exposed to the default risk of derivative counterparties than If P&C, which mainly uses short-term foreign exchange derivatives.
The distribution of reinsurance receivables and reinsurers’ portion of outstanding claims in If P&C on 31 December 2015 per rating category is presented in the table Reinsurance Recoverables, If P&C, 31 December 2015 and 31 December 2014.
In the table, EUR 143 million (EUR 130 million in 2014) are excluded, which mainly relates to captives and statutory pool solutions. Thus the total recoverables are EUR 246 million. The ten largest individual reinsurance recoverables amounted to EUR 167 million, representing 68 per cent of the total reinsurance recoverables. If P&C’s largest individual reinsurer is Munich Re (AA-). They account for 17 per cent of the total reinsurance recoverables.
The Reinsurance Committee (RC) is a collaboration forum for reinsurance related issues and shall give its opinion on and propose actions in respect of such issues. The committee shall consider and propose changes to the Reinsurance Policy and the Internal Reinsurance Policy. The Chairman is responsible for the reporting of policy deviations and other issues dealt with by the committee.
The Reinsurance Security Committee (RSC) shall give input and suggestions to decisions in respect of various issues regarding reinsurance default risk and risk exposure, as well as proposed deviations from the Reinsurance Security Policy. The Chairman is responsible for the reporting of policy deviations and other issues dealt with by the committee.
At inception of the reinsurance, the default risk of the reinsurer is considered. The default risks of reinsurance assets are monitored continuously.
The solvency position and risk appetite define the general capacity and willingness for risk taking. The stronger the solvency position and the higher the risk appetite, the more the investment portfolio can potentially differentiate from a portfolio replicating cash flows of insurance liabilities.
Rating targets and regulatory requirements are major external factors affecting market and liquidity risk taking in general at the balance sheet level, and specifically at the investment portfolio level.
In the accounts, most of the technical provision are nominal, while a significant part (the provisions for claims outstanding pertaining to annuities) is discounted with interest rates in accordance with regulatory rules. Thereby If P&C is, from an accounting perspective, mainly exposed to changes in inflation and the regulatory discount rates. From an economic perspective, in which the cash flows of insurance liabilities (technical provisions) are discounted with prevailing interest rates, If P&C is exposed to changes both in inflation and nominal interest rates. For more information see the table Sensitivities of Technical Provisions, If P&C, 2015 in Non-life Underwriting Risks section.
ALM in Mandatum Life The Board of Directors of Mandatum Life annually approves the Investment Policies for both segregated assets and other assets regarding the company’s investment risks. These policies set principles and limits for investment portfolio activities.
The cash flows of Mandatum Life’s with profit technical provisions are relatively predictable, because in most of the company’s with profit products, surrenders and premiums are restricted. The company’s claims costs do not contain a significant inflation risk element and thus the inflation risk in Mandatum Life is mainly related to administrative expenses.
Interest Rate Risk of Balance Sheet Because the duration of liabilities in Sampo Group companies is longer than the duration of assets, the effect of decreasing interest rates is negative for
Liquidity Risks Liquidity risk is relatively immaterial in Sampo Group’s businesses because liability cash flows in most lines of business are fairly stable and predictable and an adequate share of the investment assets are in shortterm money market instruments and liquid government bonds. Sampo Group companies manage the liquidity risk on a daily basis and in addition both the parent company’s and the subsidiaries’ creditworthiness and reputation are proactively managed.
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 who are responsible for liquidity planning. Liquidity risk is reduced by having investments that are readily tradable in liquid markets. The available liquid financial assets, which are the part of the assets that can be converted into cash at a specific point in time, is analysed and reported to the ORSA Committee.
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 2015. The table shows the financing requirements resulting from expected cash inflows and outflows arising from financial assets and liabilities as well as technical provisions.
Sampo Group has a relatively low amount of financial liabilities and thus Group’s respective refinancing risk is relatively small. During 2015, Sampo plc issued two public bonds amounting to 3 billion Swedish kronas and several private placements targeted at Mandatum Life’s retail clients. Sampo Group companies have business relationships with several creditworthy counterparties which mitigate the risk that Group is not able to enter into reinsurance or derivative transactions when needed.
Cash FloCash Flowws As Accccorording tding to Co Controntractual Maactual Maturityturity If P&C, Mandatum Life and Sampo plc, 31 December 2015
Operational Risks The effects of operational risks have their general causes in external and internal drivers. For example the operational risks may realize as a result of epidemics, criminal acts or various operational failures (for further details, see Appendix 2, Risk Definitions Operational Risks). 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.
In Sampo Group, the parent company sets the following goals of operational risk management for its subsidiaries: • To simultaneously ensure the efficiency and the quality of operations
Each company is responsible for arranging its operational risk management in line with the above mentioned goals, while also taking into account the specific features of its business activities.
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 task of the ORC is to provide opinions, advice and recommendations to the committee’s chairman. The chairman reports a forward looking assessment of the operational risk status to ORSA. The ORC is responsible for preparing a comprehensive overview of the operational risk status in If P&C. The status assessment is based on the selfassessments performed by the organization, reported incidents and other additional risk information. Trend analyses are performed on a yearly basis, during which the most important trends affecting the insurance industry are identified and the effects on If P&C are assessed. The committee considers and proposes changes to policies and instructions regarding operational risks.
In order to manage operational risks, If P&C has issued a number of different steering documents: Operational Risk Policy, Business Continuity Policy, Security Policy, Outsourcing Policy, Complaints Handling Policy, Claims Handling Policy and other steering documents related to different parts of the organization. These documents are reviewed and updated at least annually.
A number of internal governing documents form the basis for the steering of compliance activities, including compliance risk: Sampo Group Compliance Principles, Compliance Policy, Policy on Conflicts of Interest, Internal Control Policy, Risk Management Policy, Compliance Plan, Working Routines for the Compliance Function and the Instruction for Compliance coordinators. The documents are reviewed and updated yearly or when necessary.
The objective of operational risk management in Mandatum Life is to recognize the risks proactively, manage the risks efficiently and to minimize the potential effects of realized risks in as cost-effective manner as possible.
The parent company assesses the adequate level of capitalization and the suitability of the capital structure as described at the section “Capitalization at the Company level”. Based on this analysis, the parent company estimates the amount of dividends distributed by the subsidiaries to the parent company. In Sampo Group, the excess capital from an operational point of view is held by the parent company which capitalizes the subsidiaries if needed.
Moreover, the external regulatory environment and expectations of different stakeholders on Sampo Group’s operations impact on the Sampo plc’s Board of Directors’ decisions in general and thereby also the guidance given by the parent company. Further information on Sampo Group’s stakeholders is available at Code of Conduct at www.sampo.com/ steeringsystem.
Subsidiaries organize their activities independently, taking into account the specific characteristics of their business operations and the guidance from the parent company relating to targets, capitalization and groupwide principles. The stakeholders’ expectations and external regulations also have a direct effect on the subsidiaries’ activities.
The risk management process consists of continuous activities that are partly the responsibility of the personnel involved in business activities and partly the responsibility of independent risk management specialists. Although the responsibilities of business lines and independent risk management are clearly segregated in Sampo Group, these functions are in continuous dialogue with each other.
The tasks included in the risk management process can be classified as follows: CCompanompany Ly Leevvel Financial and Risk Management Prel Financial and Risk Management Prococesesss
Financial and risk management functions are explicitly responsible for preparing the above prerequisites of risk management. Operationally they are responsible for independent measurement and control, including the monitoring of operations in general as well as profitability, risk and capitalization calculations. The following items are examples of these responsibilities: • Detailed reporting on risks to subsidiaries’ and Sampo plc’s Risk Committees and the Boards of Directors
• Intra-group and external dividend plans • Hybrid and senior debt issuance initiatives.
Actions, i.e. transactions representing the actual insurance and investment operations are performed in accordance with the given authorizations, risk policies and other instructions. These actions are the responsibility of business and centralized functions such as the investment unit. Activities related to capitalization and liquidity positions are included in this part of the process. In Sampo Group, proactive actions to manage profitability, risks and capital are seen as the most important phase of the risk and capital management process. Hence, risk policies, limits and decision making authorizations, together with profitability targets, are set up in a way that they facilitate business and investment units to take carefully considered risks. Examples of the actions are as follows: • Pricing of insurance policies and execution of investment asset transactions
• Risk bearing capacity is allocated to different business areas in accordance with the strategy.
When the above targets are met, risk management contributes positively to return on equity and mitigates the yearly fluctuations in profitability. The risk management process is therefore considered to be one of the contributors in creating value for the shareholders of Sampo plc.
Sampo plc reviews the performance of Sampo Group both on a company level and on a group level based on the reporting provided by the subsidiaries and the associated company, Nordea Bank AB. The information on Nordea Bank AB is, however, based on publicly available material and is therefore less detailed. Reporting on the subsidiaries’ performance to the Board of Directors and Audit Committee of Sampo plc is based mainly on the reporting produced by the subsidiaries. The reporting concentrates on the balance between risks, capitalization and profitability. The parent company is responsible for reporting on its own activities.
operations as well as Group’s capitalization and the parent company’s ability to generate liquidity. The parent company is also projecting and analyzing Group companies’ profitability, risks and capitalization with uniform scenarios to have company specific forecasts that are additive at group level.
Based on both the company and group level information, the Board of Directors of Sampo plc decides on Group’s capitalization as well as sets the guidelines on the parent company’s capital structure and liquidity reserve. The underlying objective for Sampo plc is to maintain a prudent capital structure and adequate liquidity in order 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.
The Audit Committee (“AC”) is responsible, on behalf of the Board of Directors, for the preparation of Sampo Group’s risk management principles and other related guidelines. The AC shall ensure that the operations are in compliance with these guidelines, control Sampo Group’s risks and risk concentrations as well as control the quality and scope of risk management in the Group 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 members of the Board who do not hold management positions in Sampo Group and are independent of the company. The AC meets on a quarterly basis.
The main risk steering mechanism used by the Boards of Directors is the policy framework. As part of their responsibilities, the Boards of Directors approve the Risk Management Policy and the other risk steering documents, receive risk reports from the Chief Risk Officer and the Chief Executive Officers, take an active part in the forward looking risk and solvency assessment process and ensure that the management and follow-up of risks is satisfactory and effective. The reporting lines of different governing bodies in If P&C are described in the figure Risk Governance in If P&C.
The Own Risk and Solvency Assessment Committee (“ORSAC”) assists the Chief Executive Officers (”CEO”) of If P&C in fulfilling their responsibilities to oversee the risk management process. The ORSAC reviews and gives input to reporting from If P&C’s other committees within the Risk Management System, as well as reporting from both corporate functions and the line organization. Furthermore, the ORSAC monitors that If P&C’s short-term and longterm aggregated risk profile is aligned with its risk strategy and capital adequacy requirements. The Risk Management function is responsible for coordinating the risk management activities on behalf of the Boards of Directors and the CEOs.
In Mandatum Life the Board of Directors is responsible for risk management and the adequacy of internal control. The Board of Directors annually approves the
Risk Management Plan, Investment Policy and other risk management and internal control instructions.
Internal Audit, through its audit recommendations, has a role to ensure that adequate internal controls are in place and provides Internal Audit’s annual review to the Board of Directors.
The first component is source of underwriting risk and second component is affecting the interest rate risk of total balance sheet.
Technical provisions and the economic value of insurance liabilities always include a degree of uncertainty as they are based on estimates of the size, timing and the frequency of future claim payments. The uncertainty is normally greater for new portfolios for which comprehensive run off statistics are not yet available, and for portfolios which include claims that take a long time to settle. Workers’ Compensation (“WC”), Motor Third Party Liability (“MTPL”), Personal Accident and Liability insurance are examples of nonlife products with the latter characteristics. In principle most of the Life products are embedding the latter characteristics as well. Life insurance policies are also exposed to the behaviour of policyholders, because policyholders can change their premium payment intensity or cancel the existing policy.
Premium risk relates to future claims resulting from expected insured events which have not occurred at the balance sheet date. The frequency, severity and timing of insured events and hence future claims may differ from those expected. As a result, the claims cost for future claims exceeds the expected level and there is a loss or adverse changes in the value of the insurance liabilities.
Reserve risk includes rreevisionvision risk, which is defined as the risk of loss, or of adverse change in the value of
The company is also exposed to expense risk, which arises from the fact that the timing and/or the amount of expenses incurred differs from those expected at the time of pricing. As a result, expense charges originally assumed may not be enough to cover the realized expenses.
Furthermore, market risks include also the risk of worsening market liquidity in terms of widening bidask spreads and the risk of unexpected changes in the repayment schedules of assets. In both cases the market values of financial instruments in investment portfolios may change.
The risks caused by changes in interest rates, foreign exchange rates and inflation together with a general trend of credit spreads and equity prices are defined as genergeneral markal market risket riskss and are managed by allocation limits and other risk limits.
Many external drivers are affecting interest rates, inflation, inflation expectations and foreign exchange rates as illustrated by the following Interest Rate and Currency Risks chart.
Currency risk can be divided into transaction and translation risk. Transaction risk refers to currency risk arising from contractual cash flows in foreign currencies which are related to insurance activities, investment operations and foreign exchange transactions. Translation risk refers to currency risk that may realize when balance sheet values or some measures like SCRs expressed in base currency are converted to other currencies.
In the case of counterparty risk, the final loss depends on the positive mark-to-market value of derivatives or reinsurance recoverables at the time of default and on the recovery rate which is affected by collaterals.
In the case of issuer risk the final loss depends on the investor’s holding of the security or deposit at the time of default, mitigated by the recovery rate.
Materialized operational risks can cause an immediate negative impact on the financial results due to additional costs or loss of earnings. In the longer term, materialized operational risks can lead to a loss of reputation and, eventually, a loss of customers which endangers the company’s ability to conduct business activities in accordance with the strategy.
GrGroup's IFRS Financial Soup's IFRS Financial Statattementsements ......................................................................................................................... 164164 164Statement of profit and other comprehensive income, IFRS
169Notes to the accounts 169Summary of significant accounting policies 185Segment information 192Notes to the Group’s Financial Statements
Change in liabilities for insurance and investment contracts 4 -502 -489
TTOOTTAL CAL COMPREHENSIVE INCOMPREHENSIVE INCOME FOME FOR THE FINANCIAL YEAROR THE FINANCIAL YEAR 1,5641,564 1,1791,179
2) The total comprehensive income includes also the share of the associate Nordea's other comprehensive income, in accordance with the Group's share holding. The retained earnings thus include EURm 80 (-85) of Nordea's actuarial gains/losses. The exchange differences include the share of Nordea's exchange differences EURm -37 (-90). Respectively, available-for-sale financial assets include EURm -26 (7) of Nordea's valuation differences.
Net cash frNet cash from inom invvesesting activitiesting activities 582582 377377
Net incrNet increase in cash and cash equivease in cash and cash equivalentsalents -93-93 1,3111,311
Suomi Mutual assigned its guaranteed interest group pension portfolio to Mandatum Life Insurance Company Ltd on 30 December, 2014. As a result, EURm 100 cash and cash equivalents were transferred.
Summary of significant accounting policies Sampo Group has prepared the consolidated financial statements for 2015 in compliance with the International Financial Reporting Standards (IFRSs). In preparing the financial statements, Sampo has applied all the standards and interpretations relating to its business, adopted by the commission of the EU and effective at 31 December, 2015.
The Board of Directors of Sampo plc accepted the financial statements for issue on 10 February 2016.
The acquisition method of accounting is used for the purchase of subsidiaries. The cost of an acquisition is allocated to the identifiable assets, liabilities and contingent liabilities, which are measured at the fair value of the date of the acquisition. Possible noncontrolling interest of the acquired entity is measured either at fair value or at proportionate interest in the acquiree’s net assets. The acquisition-specific choice affects both the amount of recognised goodwill and non-controlling interest. The excess of the aggregate of consideration transferred, non-controlling interest and possibly previously held equity interest in the acquiree, over the Group’s share of the fair value of the identifiable net assets acquired, is recognised as goodwill.
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
Based on the measurement practice, financial assets and liabilities are classified in the following categories upon the initial recognition: financial assets at fair value through profit or loss, loans and receivables, available-for-sale financial assets, financial liabilities at fair value through profit or loss, and other liabilities.
In the P&C Insurance and Holding business, investments are primarily classified as financial assets available-for-sale.
When there is objective evidence of impairment of a financial asset carried at amortised cost, the amount of the loss is measured as the difference between the receivable’s carrying amount and the present value of estimated future cash flows discounted at the receivable’s original effective interest rate. The difference is recognised as an impairment loss in profit or loss. The impairment is assessed individually.
Whether there is objective evidence of an impairment of available-for-sale financial assets, is evaluated in a separate assessment, which is done if the credit rating of an issuer has declined or the entity is placed on watch list, or there is a significant or prolonged decline in the fair value of an equity instrument below its original acquisition cost.
The significance and prolongation of the impairment in the last-mentioned cases is assessed case by case,
taking into consideration special factors and circumstances related to the investment. Sampo invests in private equity and venture capital in order to keep them to the end of their life cycle, so the typical lifetime is 10 – 12 years. In general, a justifiable assessment of a potential impairment may only be done towards the end of the life cycle. However, if additionally there is a well-founded reason to believe that an amount equivalent to the acquisition cost will not be recovered when selling the investment, an impairment loss is recognised.
Intangible assets with finite useful lives are measured at historical cost less accumulated amortisation and impairment losses. 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
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 Holding segment, the investment property of the associate Nordea is measured at fair value in item Investments in associates.
The fair value of investment property is estimated using a method based on estimates of future cash flows and a comparison method based on information from actual sales in the market. The fair value of investment property is presented in the Notes.
Due to the difference in the discount rate of liabilities and the guaranteed interest of 4.5% and 3.5%, 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 2.0 - 4.0 per cent and the average guaranteed interest rate between 2.0 - 4.0 per cent.
Preparation of the accounts in accordance with the IFRS requires management estimates and assumptions that affect the revenue, expenses, assets, liabilities and contingent liabilities presented in the financial statements. Judgement is needed also in the application of accounting policies. The estimates made are based on the best information available at the balance sheet date. The estimation is based on historical experiences and most probable assumptions concerning the future at the balance sheet date. The actual outcome may deviate from results based on estimates and assumptions. Any changes in the estimates will be recognised in the financial year
during which the estimate is reviewed and in all subsequent periods.
IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on 1 Jan 2018 or after). The new standard will supersede IAS 18 and IAS 11 and related interpretations. The central criterion for revenue recognition is the passing of control. The adoption of the new standard will not have a material impact on the Group’s financial statements reporting, other than possibly in the number of the disclosed notes.
TTotal itotal items rems reclaseclassifiable tsifiable to pro profit or losofit or loss, net ofs, net of taxtax
ItItems not rems not reclaseclassifiable tsifiable to pro profit or losofit or losss -101 - - - -101
The cost of the portfolio transfer EURm 1.4 was included in the income statement in Other operating expenses.
Change in unearned prChange in unearned premium premium proovision, netvision, net -34-34 -6-6
InsurInsurancance and ine and invvesestment ctment controntracts, tacts, totalotal 1,1491,149 1,1101,110
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 259 (10) transferred from the fair value reserve.
TTotal claims cotal claims cosost at attributable tttributable to prior-yo prior-yearear operoperaationstions
InsurInsurancance ce controntracts tacts total, grotal, grososss -644-644 -587-587 -25-25 33 -669-669 -584-584
Change in liabilities fChange in liabilities for insuror insurancance and ine and invvesestment ctment controntracts in tacts in total, netotal, net -462-462 -499-499
Pension costs - defined contribution plans 213 -64 - defined benefit plans (Note 31) -137 -7
Profit or loss attributable to the equity holders of the parent company 1,656 1,540
Financial assets designated as at fair value through p/l 48 1 1 - 0
Net carrying amountNet carrying amount 44 11 55 44 11 55
Net carrying amountNet carrying amount 11 22 33 11 22 33
PrProperty roperty rentented out under opered out under operaating leaseting lease
Non-cancNon-cancellable minimum rellable minimum rentalental - not later than one year 9 10 - later than one year and not later than five years 6 6 - later than five years 0 0
Net carrying amountNet carrying amount 535535 2020 554554 *) The change in the cost is due to exchange differences.
Net carrying amountNet carrying amount 153153 77 160160 153153 99 162162
Forecasts for If, approved by the management, cover years 2015 – 2016. The cash flows beyond that have been extrapolated using a 2% growth rate. A 2% growth rate for years beyond 2024 has been used for the for Mandatum Life as well, as it is believed to be close to the anticipated inflation.
In Mandatum Life, the recoverable amount exceeds its carrying amount by some EURm 780. With the calculation method used, e.g. an increase of about 4.7% in the weighted average cost of capital could lead to a situation where the recoverable amount of the entity would equal its carrying amount.
AsAssociasociattes thaes that hat havve been ace been acccountounted fed for bor by the equity method ay the equity method at 31 Dec. 2015t 31 Dec. 2015
Changes in the equity of associates 23 -51 -28 -151 -47 -198
At 31 Dec. 2015, the carrying amount of investments in associates included goodwill EURm 1,101 (1,101), including goodwill from the Nordea acquisition EURm 978 (978).
Nordea is an universal bank with positions within corporate merchant banking as well as retail banking and private banking. With approximately 1,400 branches, call centers in all Nordic countries and an e-bank, Nordea also has a large distribution network for customers in the Nordic and Baltic sea region.
SharShare of the lose of the loss/prs/profit of an asofit of an associasociattee 751751 680680 15 Financial assets
Group's financial assets comprise investments in derivatives, financial assets designated as at fair value through p/l, loans and receivables, available-for-sale financial assets and investments in subsidiaries. The Holding segment includes also investments in subsidiaries.
Currency options, bought and sold 101 1 0 294 2 1
PP&C insur&C insurancancee, t, total financial asotal financial assetssets 10,56610,566 11,02111,021
Currency options, bought and sold 156 1 1 193 2 1
EEquity and equity indequity and equity index optionsx options -- -- -- 11 00 00
TTotal derivotal derivaativtives held fes held for tror tradingading 7,0507,050 99 2424 3,3983,398 33 3535
LifLife insure insurancancee, t, total financial asotal financial assetssets 6,0396,039 5,6955,695
Financial assets available-for-sale for Holding business do not include impairment losses.
On level 2, inputs for the measurement of the instrument include also other than quoted prices observable for the asset or liability, either directly or indirectly by using valuation techniques.
On level 3, the measurement is based on other inputs rather than observable market data.
Financial asFinancial assets rsets relaelatted ted to unit-linko unit-linked insured insurancancee
TTotal financial asotal financial assessests measurts measured aed at ft fair vair valuealue 14,81714,817 5,8085,808 1,1501,150 21,77521,775
The sensitivity of financial assets and liabilites to changes in exchange rates is assessed on business area level due to differenct base currencies. In P&C insurance, 10 percentage point depreciation of all other currencies against SEK would result in an increase recognised in profit/loss of EURm 9 (30) and in a decrease recognised directly in equity of EURm 3 (13). In Life insurance, 10 percentage point depreciation of all other currencies against EUR would result in an increase recognised in profit/ loss of EURm 23 (35) and in a decrease recognised directly in equity of EURm 79 (94). In Holding, 10 percentage point depreciation of all other currencies against EUR would have no impact in profit/loss, but a decrease recognised in equity of
The sensitivity analysis includes the effects of derivative positions. All sensitivities are calculated before taxes.
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 2 (4) for the debt instruments, and EURm 169 (166) 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 1.5% (1.6).
The historical cost of the equity securities related to unit-linked contracts was EURm 3,645 (3,248) and that of the debt securities 21 Deferred tax assets and liabilities
DefDeferrerred tax ased tax assets in the balancsets in the balance sheete sheet 8686
In Sampo plc, EURm 25 of deferred tax asset has not been recognised on unused tax losses. The first losses will expire in 2021.
TTotal itotal items rems reclaseclassifiable tsifiable to pro profit or losofit or loss, net of taxs, net of tax -103-103 -285-285
TTotal itotal items not rems not reclaseclassifiable tsifiable to pro profit or losofit or loss, net of taxs, net of tax 1111 -76-76
PrProovision rvision reporteported in theed in the balancbalance sheete sheet of which established vested annuities
Net liability aNet liability at 31 Dec. 2014t 31 Dec. 2014 5,0585,058 44 5,0625,062
DerivDerivaativtive financial inse financial instruments (nottruments (note 15)e 15) 17 24
Preferred capital note, 2005 (nominal value EURm 150) perpetual 4.94% - 150
Preferred capital note, 2011 (nominal value EURm 110) 30 years 6.00% 109 109
The loan 2011 was issued with fixed interest rates for the first ten years, after which it becomes subject to variable interest rates. The subordinated loan issued in 2013 has a fixed interest rate for the first 5.5 years afther which it becomes subject to variable interest rates. At the point of change, there is the possibility of redemption for all the loans. All loans and their terms are approved by supervisory authorities and the loans are utilised for solvency purposes.
The loan issued in 2011 is listed on the Luxembourg Exchange.
DerivDerivaativtive financial inse financial instruments (nottruments (note 15)e 15) 33 86
EmploEmployyee benefit obligaee benefit obligations of Ptions of P&C Insur&C Insurancance 31 Dec.e 31 Dec.
Net pension obligaNet pension obligation rtion rececognised in theognised in the balancbalance sheete sheet
Since January 1, 2008, the main Swedish pension plan has been closed to new employees born in 1972 or later and the corresponding Norwegian pension plan has been closed to new employees since January 1, 2006 regardless of age. In May 2015, If decided that all employees born in 1958 or later that are covered by the Norwegian defined-benefit pension plan would be switched to a defined-contribution plan as of January 1, 2016. As of the same date, it was also decided that existing retirees would no longer be covered by the plan, and that future retirees would cease being covered by the plan when they are no longer employed by If. Accordingly, as of year-end 2015, the Norwegian pension plan consists solely of active people employed prior to 2006 and born no later than 1957.
The retirement age for receiving premature pension is normally 62 years in Sweden and normally 65 years in Norway. In Sweden, premature old-age pension following a complete service period is payable at a rate of approximately 65% percent of the pensionable salary and applies to all employees born in 1955 or earlier and who were covered by the insurance sector’s collective bargaining agreement of 2006. In Norway, premature old-age pension following a complete service period is payable at a rate of approximately 70% percent of the pensionable salary and applies to all employees born in 1957 or earlier and who were employed by If in 2013.
The carrying amounts have been stated including special payroll tax in Sweden (24.26%) and a corresponding fee in Norway (14.1%).
Interest expense on net pension liability 1 3 4 -1 -6 -7
TTotal in incotal in income some statattementement 77 -144-144 -137-137 -7-7 -17-17 -24-24
Remeasurement of the net pension liability -9 -4 -14 -34 -71 -105
TTotal in cotal in compromprehensivehensive ince income some statattementement -2-2 -148-148 -150-150 -40-40 -88-88 -129-129
Fair value of plan assets 156 57 213 140 259 399
Net liability rNet liability rececognised in balancognised in balance sheete sheet 4040 4949 9090 5555 211211 265265
Average duration of pension liabilities 21 years 22 years 14 years 17 years
Expected contributions to the defined benefit plans during 2015 and 2016
Fair value of plan assets 213 - 213 399 - 399
Net pension liability rNet pension liability rececognised in the balancognised in the balancee sheetsheet
AnalyAnalysis of the change in net liability rsis of the change in net liability rececognised in the balancognised in the balance sheete sheet
Plan asPlan assets asets at 31 Dec.t 31 Dec. 213213 399399
Item Guarantees received comprise assets accepted as guarantees required in derivative trading and securities lending.
Minimum lease paMinimum lease paymentsyments not later than one year 32 31 later than one year and not later than five years 98 93 later than five years 48 59
Lease and sublease payments recognised as an expense in the period - minimum lease payments -20 -22
If P&C Insurance Company Ltd has outstanding commitments to private equity funds totalling EURm 15, which is the maximum amount that the company has committed to invest in the funds. Capital will be called to these funds over several years as the funds make investments.
Minimum lease paMinimum lease paymentsyments not later than one year 1 1 later than one year and not later than five years 0 1
The legal reserve comprises the amounts to be transferred from the distributable equity according to the articles of association or on the basis of the decision of the AGM.
The reserve includes other investments of equity nature, as well as issue price of shares to an extent it is not recorded in share capital by an express decision.
In addition, deferred compensation EUR 119,269 (134,779) was paid to former members of the Group Executive Committee during the financial year.
There are a number of legal proceedings against the Group companies outstanding on 31 Dec. 2015, arising in the ordinary course of business. The companies estimate it unlikely that any significant loss will arise from these proceedings.
PP&C insur&C insurancancee, t, total sharotal shares and participaes and participationstions 1,5221,522
Elecster OYJ A Finland 6.43% 1 eQ Oyj Finland 5.17% 12
DomesDomestic shartic shares and participaes and participations in ttions in totalotal 803803
Comgest Growth Asia Ex Japan USD I Acc Class Ireland 58
LUX Mandatum Life Nordic High Yield Total Return Fund SICAV-SIF G EUR Share Class
FFororeign shareign shares and participaes and participations in ttions in totalotal 1,7401,740
LifLife insure insurancancee, t, total sharotal shares and participaes and participationstions 2,5432,543
Holding, tHolding, total sharotal shares and participaes and participationstions 248248 41 Events after the balance sheet date
Net cash frNet cash from inom invvesesting activitiesting activities 533533 391391
Additional information to the statement of cash flows: Interest income received 63 61
Carrying amount aCarrying amount at 1 Jan. 2014t 1 Jan. 2014 9898 44 1,5271,527 273273 4,9764,976 6,8776,877
Carrying amount aCarrying amount at 1 Jan. 2015t 1 Jan. 2015 98 7 1,527 273 5,110 7,014
Guarantees for derivate contracts 38 47 13 Accruals and deferred income
Notes on the income taxes 14 Deferred tax assets and liabilities
19 Pension contributions to the CEO, deputy CEO and the members of the board
2) Group pension agreement with a retirement age of 60 years and a pension benefit of 66 per cent of the pensionable TyEL-salary (TyEL: Employee's Pension Act). The supplementary cost pertains to a yearly index adjustement.
Anne BrunilaAnne Brunila Jannica FJannica Fagerholmagerholm AAdine Grdine Graatte Axe Axénén
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements and report of the Board of Directors that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors.
In our opinion, the financial statements and the report of the Board of Directors give a true and fair view of both the consolidated and the parent company’s
Financial InfFinancial Informaormation and Ation and AGM 2016GM 2016 ................................................................................................................... 276276
Sampo plc’s Annual General Meeting will be held on 21 April, 2016 at 2 pm, at the Helsinki Exhibition and Convention Centre, address Messuaukio 1, Helsinki. The listing of persons who have registered for the meeting will commence at 12.30 pm.
The Board proposes that the Sampo dividend be paid on 3 May 2016.
CContact infontact informaormation ftion for Gror Groupoup SubsidiariesSubsidiaries www.if-insurance.com and www.mandatumlife.com
ANNUAL REPORT 2015 Calendar and Contacts mailto:jarmo.salonen@sampo.fi tel:+358105160010 mailto:peter.johansson@sampo.fi tel:+358105160066 mailto:essi.nikitin@sampo.fi tel:+358105160068 mailto:pirkko.rantanen@sampo.fi tel:+358105160030 mailto:jarmo.salonen@sampo.fi tel:+358105160031 mailto:maria.silander@sampo.fi tel:+358105160049 mailto:paivi.wallden@sampo.fi tel:+358105160065 mailto:carolina.oradd@sampo.fi tel:+358105160067 mailto:johanna.tynkkynen@sampo.fi