The focus of new sales is on unit-linked schemes and their premiums are almost 83 per cent of the gross premium income. The above table also shows that single premium products are more common than regular premium products. However, the regular premiums are growing steadily while the single premiums are fluctuating more from year to year.
The risk inherent in the life business is first of all related to the with-profit technical provisions. When the majority of new contracts are written as unit-link contracts, the risk will not increase as much as the volume of premiums and total provisions.
The main risks of Topdanmark Livsforsikring can be summarized as follows: • Limited loss-absorbing buffers combined with low interest rates environment
When an insured event occurs, the effect on the profit will depend on the size of loss absorbing capacity (LAC) of the reserves. When the loss absorving capacity is higher than the losses, the customers themselves cover the losses.
Low interest rates mean that the market value of the guarantees granted is high, and hence the related individual bonus potential is low. The lower the individual bonus potential, the higher the risk of any losses to be absorbed wholly or partially by shareholder's equity. If interest rates are high, the same losses could, to a larger degree, be absorbed by the bonus potential.
Longevity risk is the risk that customers with life dependent policies, primarily annuities, live longer than expected. That will increase provisions for lifetime products.
Extra costs, due to longer lifetimes, will be partially covered by individual and collective bonus potential. The remainder affects profit/loss for the year and consequently shareholders' equity.
• Reinsurance • Prices for death and disability are adjusted continuously in relation to the market situation and the observed injury history
Establishment of business processes that ensure that the products are sold at the right price / risk mix
LifLife insure insurancancee *35% increase first year, subsequently 25%, coincident with 20% decline in reactivation rates
Risk ScRisk Scenarios in Lifenarios in Life Insure Insurancancee Topdanmark, 31 December 2017 and 31 December 2016
As described earlier, in life insurance different contribution groups have their own investment strategies and their loss absorbing buffers and hence it is not relevant to assess allocations and returns of these assets in isolation to their respective contribution groups.
Hence, in the two below tables the assets’ allocations and annual investment returns without assets covering life insurance liabilities are presented.
InInvvesestment Allocatment Allocation Ttion Topdanmark Gropdanmark Group Exoup Excludingcluding LifLife Insure Insurancancee
Credit bonds are composed of a well-diversified portfolio, primarily exposed to businesses in Europe and in the United States, predominantly in the investment grade segment. Index linked bonds comprise bonds – primarily Danish mortgage bonds – for which the coupon and principal are index-linked.
Derivates to hedge against the net change in assets and liabilities
InInvvesestment Allocatment Allocationtion Topdanmark Livsforsikring, 31 December 2017 and 31 December 2016
Shifting the market yield curve upwards and downwards and/or changing its shape leads to changed market values of assets and derivatives and thus to unrealized losses / gains.
component was 51bp at the end of 2016 and 30bp at end of 2017.
Most of Topdanmark's interest-bearing assets comprise of AAA rated Danish mortgage bonds and debt issued or guaranteed by top-rated European states. The risk of losses is considered to be minor due to the high credit quality of the issuers and because investments have been made at spreads in balance with the company’s desired risk ratio levels. The portfolio is well diversified both geographically and with regard to type of debtor and therefore the exposure to the concentration of risks is insignificant.
Investment policy stipulates that the portfolio must be welldiversified also in counterparties and that the portfolio must not be particularly exposed to individual counterparties. The main source of spread risk is the government and mortgage bonds. Due to high allocation of these investments in the portfolios, spread risk is the most material source of market risk SCR.
BrBreakeakdodown of Liswn of Listted Eed Equity Inquity Invvesestments btments by Geogry Geographical Raphical Regionsegions Topdanmark Group, 31 December 2017 and 31 December 2016
IntIntereresest-bearing ast-bearing assets bsets by ry raating, %ting, % 20172017 20162016
In practice the only source of currency risk is investment assets, because insurance liabilities are in Danish Krones. The currency risk is mitigated by derivatives and net exposures in different currencies are minor except in Euros.
EURm AEURm Aftfter taxer taxaation and pension rtion and pension return taxeturn tax 20172017 20162016
Provisions for claims and benefits etc. in effective interest rate 68.8 90.3
Annual currency loss with an up to 2.5% probability -0.8 -2.8
Topdanmark Group has a strong liquidity position. Firstly, as premiums are paid prior to the beginning of the risk period the liquidity risk related to customers’ payments is very limited. Secondly, the combination of insurance businesses is of a character in which it is highly unlike that liquidity shock could occur, because insurance liabilities are by their nature stable liabilities and in asset portfolios money market investments are complemented by a large portfolio of liquid listed Danish government and mortgage bonds.
Experience from quite significant and sudden movements in long-term interest rates have confirmed that liquidity of these assets is not significantly affected by market shocks.
Because of the above reasons Topdanmark's liquidity risk is primarily related to the parent company Topdanmark A/S.
Topdanmark A/S finances its activities and dividend programme by receiving dividend from its subsidiaries.
Cash FloCash Flowws fs for Pror Proovisionsvisions Topdanmark, 31 December 2017 and 31 December 2016
For reinsurance counterparties, the Board approves security guidelines for how large a portion of a reinsurance contract can be placed per a separate reinsurer. This portion is dependent on the reinsurer's rating as well as on Topdanmark’s own assessment of the reinsurer. Typically the largest risk concentrations may occur in case of catastrophe, including storms and cloudbursts, through one or more single major disaster events.
TTotal, eotal, exxcl. Balticcl. Baltic 11,08311,083 943943 -996-996 -104-104 131131 22 399399 11,45911,459 98%98%
MandaMandatum Liftum Life gre group toup totalotal 11,26111,261 967967 -1,023-1,023 -107-107 132132 22 406406 11,63811,638 100%100%
Mandatum Life’s main biometric risks are longevity, mortality and disability. In general the long duration of policies and restriction of Mandatum Life’s right to change policy terms and conditions and tariffs increases biometric risks. A definition of the biometric risk can be found in Appendix 2 (Risk Definitions). If the premiums turn out to be inadequate and cannot be increased, technical provisions have to be supplemented by an amount corresponding to the increase in expected losses.
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, almost 70 years. In the unit-linked group pension and individual pension portfolio the longevity risk is less significant because most of these policies are fixed term annuities including death cover compensating the longevity risk.
The table Claim Ratios after Reinsurance, Mandatum Life, 2017 and 2016 shows the insurance risk result in Mandatum Life’s Finnish life insurance policies. The ratio of the actual to expected claims costs was 76 per cent in 2017 (79). Sensitivity of the insurance risk result can also be assessed on the basis of the information in the table. For instance the increase of mortality by 100 per cent would increase the amount of benefit payments from EUR 12 million to EUR 24 million.
The Insurance Risk Committee is responsible for maintaining the Underwriting Policy and monitoring the functioning of the risk selection and claims processes. The Committee also reports all deviations from the Underwriting Policy to the RMC. The Insurance Risk Committee is chaired by the Chief Actuary who is responsible for ensuring that the principles for pricing policies and for the calculation of technical provisions are adequate and in line with the underwriting and claims management processes.
Technical provisions are analyzed and the possible supplemental needs are assessed regularly. Assumptions related to technical provisions are reviewed annually. The adequacy of the technical provisions is tested quarterly. Tariffs for new policies are set and the Underwriting Policy and assumptions used in calculating technical provisions are updated based on adequacy tests and risk result analysis. Tariffs and prices, as well as the reinsurance principles and reserving principles are reviewed and approved annually by the Board of Directors of Mandatum Life.
Claim RaClaim Ratios Atios Aftfter Rer Reinsureinsurancancee Mandatum Life, 2017 and 2016
acquisition costs. Since 2012 the expense result has grown significantly, especially due to increased fee income from unit-linked business.
Mandatum Life’s market risks arise mainly from equity investments and interest rate risk related to fixed income assets and insurance liabilities with a guaranteed interest rate. The most significant interest rate risk in the life insurance business is that fixed income investments will not, over a long period of time, generate a return at least equal to the guaranteed interest rate of technical provisions. The probability of this risk increases when market interest rates fall and stay at a low level. The duration gap between balance sheet’s technical provisions and fixed income investments is constantly monitored and managed. Control levels based on internal risk capacity model are used to manage and ensure adequate capital in different market situations.
Mandatum Life has prepared for low interest rates on the liability side by e.g. reducing the minimum guaranteed interest rate in new contracts and by supplementing the technical provisions by applying a lower discount rate. In addition, existing contracts have been changed to accommodate improved management of reinvestment risk. Guarantees and other main features of with profit liabilities are presented in Section Underwriting Risks and Performance.
Investment allocations and average maturities of fixed income investments as at year-end 2017 and 2016 are presented in the table Investment Allocation Mandatum Life,
FixFixed inced income tome totalotal 3,9533,953 63%63% 2.52.5 3,9383,938 60%60% 2.72.7
Money market securities and cash 904 14% 0.0 859 13% 0.5
Investment grade bonds and loans 1,793 29% 2.8 1,586 24% 2.7
AsAsset classet classes tses totalotal 6,2636,263 100%100% -- 6,5826,582 100%100% --
FX ExposurFX Exposuree, gr, grososs positions position 679679 0%0% -- 833833 -- -- *Private Equity also includes direct holdings in non-listed equities
The role of alternative investments has been material in Mandatum Life over the years. The current allocation weight is 12 per cent. The weight of these investments will be maintained at current levels.
Currency risk can be divided into transaction and translation risk. Mandatum Life is exposed to transaction risk, which refers to currency risk arising from contractual cash flows in foreign currencies.
The transaction risk positions of Mandatum Life against EUR are shown in the table Transaction Risk Position, Mandatum Life, 31 December 2017. The table shows the net transaction risk exposures and the changes in the value of positions given a 10 per cent decrease in the value of the base currency.
In Mandatum Life the major three sources of counterparty risk are financial derivatives, reinsurance, and other receivables. Counterparty default risk arising from reinsurance or receivables from policyholders and other
Cash FloCash Flowws As Accccorording tding to Co Controntractual Maactual Maturityturity Mandatum Life, 31 December 2017
In addition to “segregation of duties at strategic level” principle Sampo Group has two principles proactively preventing group risks. The amount of intragroup exposures between group companies are few and parent company is the only source of liquidity and the main source of capital within Group. These principles effectively prevent the contagion risk and hence potential problems of one company will not affect directly the other group companies.
Consequently, business lines as such are contributing diversification benefits rather than a concentration of risks. This general risk picture has not changed with increased holding in Topdanmark, because it underwrites mainly Danish risks with focus on client bases which only marginally overlap with If P&C's client bases.
Most of the financial institutions and covered bonds are in the Nordic countries as can be seen in the table Fixed Income
ExposurExposures bes by Secty Sectoror, As, Asset Classet Class and Ras and Ratingting Sampo Group excluding Topdanmark, 31 December 2017
cent. In Mandatum Life, the listed equity exposure was EUR 1,578 million at the end of year 2017 (EUR 1,737 million) and the proportion of listed equities was 25.2 per cent of the investment portfolio. In Topdanmark Group, the listed equity exposure was EUR 793 million at the end of year 2017 (EUR 761 million). Within Topdanmark Group, the allocation to listed equity is higher in the life company.
The largest high-yield and non-rated fixed income investment single-name exposures are presented in the table Ten Largest Direct High Yield and Non-rated Fixed Income Investments, Sampo Group excluding Topdanmark, 31
December 2017. Furthermore, the largest direct listed equity exposures are presented in the table Ten Largest Direct Listed Equity Investments, Sampo Group, 31 December 2017.
EURmEURm % of t% of total dirotal direct fixect fixeded incincome inome invvesestmentstments
Sampo Group would benefit materially in case interest rates would rise, because economic value of insurance liabilities would decrease more than value of assets backing them. At the same time net interest income of Nordea should increase as well. During 2017 interest rates have continued their slow rise that started at the end of Q3/2016.
As of 31 December 2017 Sampo had long term strategic holdings of EUR 8,958 million and they were funded mainly by capital of EUR 7,714 million and senior debt of EUR 3,177 million. Average remaining maturity of senior debt was 3.7 years and EUR 1,250 million of it had a maturity longer than 5 years. Senior debt is used to fund other financial assets as well. The average maturity of sub-ordinated loans and fixed income instruments of EUR 554 million was three years. Funding structure of strategic holdings and other holdings can be considered strong.
EURmEURm 31 Dec 201731 Dec 2017 31 Dec 201631 Dec 2016
• Sampo’s net debt of EUR 1,424 (1,443) million is modest when compared to Sampo’s equity holdings and financial assets.
In regards to liquidity, the liquid funds of Sampo plc were EUR 1,199 (1,439) million. At the end of May 2018 when all expected cash flows from dividends and other transactions have been settled the liquidity will normalize to below EUR 100 million which is adequate for normal cash management purposes. Furthermore, a remarkable portion of subordinated loans issued by group-companies (496) and other investment assets (235) can be sold in case liquidity is needed. Short-term liquidity can be considered to be adequate.
Sampo Group has also a buffer for own funds. Because subordinated loans presented in the table Sampo plc Balance Sheet Structure, 31 December 2017 and 31 December 2016 are issued by If P&C, Mandatum Life, Nordea and Topdanmark, they are eliminated from Group’s own funds. In case these assets would be sold, in addition to liquidity in Sampo plc, also own funds would be created and Sampo Group Solvency ratio would increase marginally.
The principles of Sampo Group capitalization and the calculation methods are described in Appendix 4 in detail. Topdanmark treatment in Solvency II and FICO changed in 2017 and hence the 2016 figures are not comparable.
Sampo GrSampo Group’oup’s FICs FICO SolvO Solvencencyy 31 December 2017 (unaudited)
In the meeting of 7 Feb. 2018, the Board of Directors decided to propose at the Annual General Meeting on 19 April 2018 a dividend distribution of EUR 2.60 per share, or total EUR 1.443.914.810, for 2017. The dividends to be paid will be accounted for in the equity in 2018 as a deduction of retained earnings.
Net cash frNet cash from inom invvesesting activitiesting activities 501501 -422-422
Notes to the income statement 1–4 ......................................................................................................... 327 Notes to the assets 5–9 ............................................................................................................................... 328 Notes to the liabilities 10–13 ...................................................................................................................... 329 Notes to the income taxes 14 .................................................................................................................... 330 Notes to the liabilities and commitments 15–16 ................................................................................... 331 Notes to the staff and management 17–19 ............................................................................................ 331 Notes to the shares held 20........................................................................................................................ 333
The presentation of Sampo Plc's financial statements together with the notes has been prepared in accordance with the Finnish Accounting Act and Ordinance. The accounting principles applied to the separate financial statements of Sampo plc do not materially differ from those of the Group, prepared in accordance with the International Financial Reporting Standards (IFRSs). The financial assets are measured at fair value derived from the markets.
CCosost at at beginning of yt beginning of yearear 298 296
Avalaible-for-sale equity securities 175 3 -15 148 -27 9 7 Other investment receivables 20172017 FFair vair value changesalue changes 20162016 FFair vair value changesalue changes
Carrying amoun aCarrying amoun at 1 January 2016t 1 January 2016 9898 88 1,5271,527 273273 5,2545,254 7,1597,159
Information on share capital is disclosed in Note 32 in the consolidated financial statements.
Guarantees for derivate contracts 7 17 13 Accruals and deferred income
Members of the BoarMembers of the Board of Dird of Directectorsors
In addition to the above, the company has in accordance with the decision of the Annual General Meeting in 2017 compensated transfer tax of in total EUR 3,345.22 related to the acquisition of the company shares (EUR 916.80 pertaining to the Vice Chairman and EUR 2,428.42 pertaining to the other members of the Board).
Group pension agreement with a retirement age of 60 years and a pension benefit of 66 per cent of the pensionable TyEL-salary
Group pension agreement with a retirement age of 60 and a pension benefit of 60 per cent of the pensionable TyEL-salary. No annual index adjustment in 2017.
Approval of the Financial Statements and the Board of Directors’ Report
• the consolidated financial statements give a true and fair view of the group’s financial position as well as its financial performance and its cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
• the financial statements give a true and fair view of the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements.
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor’s Responsibilities for the Audit of Financial Statements section of our report.
At 31.12.2017 the Group has insurance contract liabilities representing amounting to mEUR 30,158 (31.12.2016: mEUR 20,600) which represents 84 % of the Group’s total liabilities and it is thus the single largest liability of the Group. The insurance contract liabilities comprise life and non-life insurance contract liabilities.
Our audit procedures included evaluation of the governance around the overall Group reserving process, and included testing the operating effectiveness of key controls over the identification, measurement and management of the Group’s calculation of insurance liabilities.
We assessed the adequacy of disclosures relating to insurance contracts liabilities.
Valuation of financial assets We refer to the Summary of significant accounting policies, Accounting policies regarding management judgment and key sources of estimation uncertainties and Notes 9, 14-19 and 35.
We assessed the adequacy of disclosures relating to the financial assets.
The value of the Nordea shares in the consolidated balance sheet amounts to mEUR 7,578 (31.12.2016: mEUR 7,554). The Group’s ownership in Nordea Bank Abp is 21.25%. Nordea Bank Abp is an associated company of the Group, and is accounted for based on equity accounting. The holding in Nordea Bank Abp represents 15% of the Group’s total assets.
Acquisition of Topdanmark A/S We refer to the Summary of significant accounting policies and note Business acquisitions.
• We involved our internal valuation specialists to assess the valuation processes and –methods based on which the acquired assets and liabilities have been identified and the fair values have been determined.
• We tested the determination of the purchase consideration and the accounting treatment of the business combination achieved in stages.
We assessed the adequacy of disclosures relating to the business combination.
In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and the group’s ability to continue as going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alternative but to do so.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company’s or the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern.
We were first appointed as auditors by the Annual General Meeting on 10.4.2002, and our appointment represents a total period of uninterrupted engagement of 16 years.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
The quarterly reports are published on Sampo’s website at www.sampo.com/result. You can subscribe to Sampo’s Stock Exchange Releases and Press Releases at www.sampo.com/subscription.
Please note that you can find the latest information regarding events and dates at www.sampo.com/calendar.*
ANNUAL REPORT 2017 Calendar and Contacts mailto:jarmo.salonen@sampo.fi tel:+358105160010 mailto:peter.johansson@sampo.fi tel+:358105160066 mailto:anniina.nykanen@sampo.fi tel+:358105160030 mailto:jarmo.salonen@sampo.fi tel+:358105160067 mailto:johanna.tynkkynen@sampo.fi tel+:358105160030 mailto:jarmo.salonen@sampo.fi tel+:358105160032 mailto:mirko.hurmerinta@sampo.fi tel+:358105160031 mailto:maria.silander@sampo.fi tel+:358105160049 mailto:paivi.wallden@sampo.fi tel+:358105160065 mailto:carolina.oradd@sampo.fi tel+:358105160066 mailto:anniina.nykanen@sampo.fi