• Sampo Life, a life insurance company operating in Finland and the Baltic countries, and
I am frequently asked the reason for choosing Nordea and not some other Nordic banking or insurance stock. I usually start by reminding of the starting point for our deliberations. We had just sold a bank at price-to-book multiple of 3.6 and price-to-earnings multiple of 16. By investing half of the proceeds into a highly correlated asset producing roughly the same return on equity as Sampo Bank, namely Nordea Bank, at a price-to-book multiple of less than 2, we easily obtain a yield pick-up of 50–60 per cent. The best part is that we have about 2 billion euros of cash left after having done this. Cash is king, they say. It is certainly the case in turbulent capital markets of today.
insurance operation If continues to be excellent. If reached a combined ratio of 90.6 per cent for the full-year 2007 despite the rather harsh competition it faced in some of its markets.
All Chief Executive Offi cers end their reviews with an obligatory thank-you to diff erent interest groups. In my case it is not only a mere formality but comes from the heart. I wish to thank my colleagues throughout the Group for excellent performance in 2007 and our shareholders for trust shown in these uncertain times. Finally I want to extend my thanks to our more than three million customers for choosing us in 2007.
Nordic P&C insurer with a market share of more than 20 per cent. Operations are focused on maintaining high profi tability rather than increasing market share. The company also commands a strong position in the rapidly growing Baltic insurance markets. If ’s market position and size off er it advantages, which are refl ected in cost effi ciency, superior underwriting and geographical diversifi cation.
Sampo Group aims to create value for its shareholders. Whilst the
Life has an over 20 per cent market share in Finland and approximately 15 per cent of the Baltic life insurance market.
The Group’s business areas are long-term savings (life insurance, asset management and mutual funds), banking, investment banking, and P&C insurance.
Mandatum Bank joins the Group, and the Group’s name is shortened to Sampo.
Following the transaction, Sampo’s business areas are P&C insurance and life insurance. In addition,
Market shares remained stable. The operating result dropped due to a weakening of the fi nancial markets.
If ’s success is a consequence of a systematic and long-term strategy, with strong client-focus, a selective growth strategy and cost-eff ectiveness as principal elements.
If ’s business operations are conducted on a pan-Nordic basis. The business is divided into customer segments within the
Nordic countries. Business area Private has more than three million customers in Norway, Sweden, Finland and Denmark.
In general, the commercial insurance market has become more and more demanding, both due to a more intensive competition and because of claims infl ation has started to increase.
Internet, customers are already able to assess their individual risk situation. Another example is the Internet portal, If Login, which provides customers with an overview and an opportunity to administer their total insurance cover online. The next step is to further develop opportunities for customers to use the Internet in the case of claims adjustment.
Baltic and Russia Business area Baltic and Russia encompasses If ’s operations in Estonia, Latvia, Lithuania and Russia. It has approximately 300,000 customers, both private customers and companies.
Year 2007 was characterised by strong growth and good profi tability. The technical result increased by almost 60 per cent to eur 16 million and the combined ratio improved to 90.8 per cent. Despite the fact that some overall slowdown in economic growth can be seen, If ’s assessment is that the insurance market will continue to grow rapidly, not just in Russia with its strong economy, but also in the Baltic countries.
Changes in the Operating Environment – Challenges and Opportunities The most signifi cant domestic event for Sampo Life in 2007 was the divestment of Sampo Bank, the company’s primary sales channel, to Danske Bank A/S, eff ective on 1 February, 2007.
Finland was the transfer of it services, formerly outsourced to the bank, to Sampo Life. The separation of administrative services will increase the costs of Sampo Life’s services in the long term, too.
Life, developed favorably for the most part. Of the focus areas, the best performers were pure life and disability insurance and the entire corporate segment. In contrast, sales and premiums written in the unit-linked endowment policies decreased substantially from the preceding year. This was due to the reorganization of the main sales channel, Sampo Bank, and the unfavorable fourth quarter performance of the equity markets and the generally more gloomy economic outlooks.
Sampo Life’s market share of the entire unit-linked business fell from its record level of 25.2 per cent in 2006 to 22.4 per cent.
In the households segment, the most favorable development took place in unit-linked individual pension insurance and in pure life and disability insurance. Premiums written in these regular premium products increased by a good 10 per cent. However, premiums written from unit-linked endowment policies decreased due to the reasons explained earlier by more than eur 40 million, or by 17 per cent. Premium income from households totalled eur 340 million, a decrease of over 10 per cent from the previous year.
Sampo Bank and the inputs required in sales networks to secure growth resulted in an increase in Sampo Life’s operating expenses. The solid development in regular premium products increased the income allocated to operating expenses to an almost equivalent extent, and therefore Sampo Life’s expense ratio remained gratifyingly under 100 per cent.
Some of the above-mentioned additional expenses will be realized in Sampo Life’s result in full only in 2008, as is the case with collective bargaining settlements made in the insurance industry late in the year. Thus, systematic eff orts to increase process effi ciency and generate sales growth in selected segments will continue. Introduction of a new insurance policy management system, which advanced to the pilot stage in 2007, is one of the major steps in raising effi ciency.
In the review year, Sampo Life’s investments yielded 5.0 per cent at fair values. Sampo Life’s solvency remained good, with the solvency ratio at 16.8 per cent.
The Baltic subsidiary’s premiums written totalled nearly eur 64 million, representing growth of 67 per cent on the previous year. Unit-linked technical provisions amounted to eur 114 million, accounting for almost 90 per cent of the total technical provisions of eur 131 million. The company was the third-largest life insurer in the Baltic countries, and its market share in its focus area of unit-linked insurance was approximately 20 per cent.
Future Outlook Sampo Life’s lifetime solutions are very timely in Finland, for at the same time as Finns are becoming more affl uent, society’s safety net is becoming weaker. Pure life and disability insurance and unit-linked products will remain the strategic focus areas.
Sampo Life will be active in developing new attractive investment solutions for both private and corporate customers.
To follow on from its success in 2007, Sampo Life will further boost the sales of its life and pension insurance policies to corporate customers by increasing the resources. In the households ’ segment, eff orts will be made to increase the easy availability of solutions by establishing sales channels that complement the work done by the bank network. Development of
The Sampo Life Group’s profi t for 2008 will, as in previous years, depend primarily on the performance of the investment markets.
Sampo plc coordinates the Group's investment activities, capital allocation, risk management, corporate accounting, investor relations and communications, and legal and tax matters.
The company has no strictly defi ned strategy, but it seeks to take advantage of opportunities in the market to generate shareholder value through m&a or other activities.
Sampo plc's A shares have been listed on the omx Nordic Exchange Helsinki (formerly Helsinki Stock Exchange)
since 1988. All B shares are owned by Kaleva Mutual Insurance Company. At the end of 2007, Sampo plc had more than 64,000 shareholders.
2 January Sampo Life combined its Baltic subsidiaries under one company
Sampo Life Insurance Company Limited combined its subsidiaries operating in the
On 9 November 2006, Sampo plc announced the sale of Sampo Bank plc’s entire stock to Danske Bank A/S of Denmark. The transaction price paid in cash was eur 4,050 million. The necessary offi cial permits, upon which the transaction was conditional, were obtained on 30 January 2007, and the transaction was closed on 1 February 2007.
Sampo plc recognised a tax-free sales gain of eur 2.9 billion from the transaction, reported under the Holding segment for the fi rst quarter of 2007.
Danske Bank and Sampo Life agreed on cooperation that will secure the continuance of the sales of Sampo Life’s life and pension insurance products via Sampo Bank’s distribution network in the future.
If P&CSampo Bank plc Sampo Life 12 sampo group annual report 2007 | Year 2007 in Brief
2nd Quarter 3rd Quarter 12 April Sampo plc's Annual General Meeting held at Helsinki Fair Centre
The Annual General Meeting of Sampo plc was held at the Helsinki Fair Centre on 12
April 2007. The Annual General Meeting decided to distribute a dividend of eur 1.20 per share for the year 2006.
Sampo plc moved into new offi ces on 30 June 2007. The new address is Fabianinkatu 27, 00100 Helsinki.
Sampo plc’s Annual General Meeting on 12 April 2007, the company’s Board of
3 October If P&C Insurance Company signed a signifi cant cooperation agreement with SOK
On 3 October, If P&C Insurance Company signed a cooperation agreement with sok, the central organisation of the S Group. The
Supervisory Authority for a permission to increase its holding in Nordea Bank AB
Year 2007 in Brief | sampo group annual report 2007 13
Nordic Exchanges), the Central Chamber of Commerce of Finland and the Confederation of Finnish Industry and
Employers (Confederation of Finnish Industries ek) which entered into eff ect on 1 July 2004. Sampo’s Board of Directors has also approved internal rules concerning corporate governance, internal control and reporting in Sampo Group.
Board of Directors board of directors’ duties Sampo’s Board of Directors is responsible for the management of the company in compliance with law, regulations of the authorities, Sampo’s Articles of Association and the decisions of
The Board of Directors decides on Sampo Group’s business strategy, approves the budget and the principles governing the
Board also decides, within the limits of the company’s fi eld of activities, on exceptional and far-reaching matters with respect to the scope and nature of Sampo Group.
Group’s staff planning targets and monitors their fulfi lment, determines the grounds for the Group’s compensation system and decides on other far-reaching matters concerning the staff .
Meeting that fi rst follows their election. The members of the
Committee, which supports the ceo in preparing matters to be handled by the Executive Committee.
questions of principle, and in ensuring a good internal fl ow of information.
The composition of the Group’s Executive Committee is as follows: Björn Wahlroos, Group CEO and President
In 2007, the Executive Committee convened regularly, once every quarter, at the request of the ceo. The Group md Committee, which assists the Executive Committee, normally met twice a month, except when the Executive Committee convened in its entirety.
Committees appointed by the Board nomination and compensation committee The Nomination and Compensation Committee is entrusted to prepare proposals for Sampo’s Annual General Meeting on the composition of the Board, the compensation of Board members and the principles on which this compensation is determined. The Committee consults the largest shareholders in these matters. The Committee is also responsible for preparing proposals for Sampo’s Board on the composition and chairmen of the Board’s committees and the composition of the Group md Committee, on the appointment of Sampo Group’s ceo
and the composition of Sampo Group’s Executive Committee, and on the principles by which the members of the Executive
As authorised by the Board of Directors, the Committee also decides on the compensation of the members of the Executive Committee, excluding the Group’s ceo and Deputy ceo.
Further, the Committee prepares a proposal on the appointment, employment conditions and other compensation of the
Sampo Group’s Head of Internal Audit, and on the principles by which the Sampo Group’s staff are to be compensated. In addition, the Committee is responsible for preparing proposals
The Nomination and Compensation Committee is composed of the Chairman of the Board (who acts as the Committee ’s Chairman), the Vice Chairman of the Board and one member elected from among the members of the Board. The
Chairman of the Nomination and Compensation Committee is Georg Ehrnrooth and other members Matti Vuoria and
The Board of Directors’ Audit Committee comprises at least three members elected from among those Board members who do not hold management positions in Sampo and are independ ent of the company. In addition, present in the meetings of the Committee are the Responsible Auditor, the ceo, the cfo, Group Chief Counsel, Group Chief Audit Executive,
Chairman of the Group Investment Committee, the Member of the Group Executive Committee responsible for risk control and the Group Chief Risk Offi cer. The Chairman of the Audit Committee is Christoff er Taxell and other members Anne
Other Committees investment committee The Board appoints the Investment Committee to manage
Chief Executive Offi cer The company has a Managing Director who is simultaneously the ceo of Sampo Group. The Board of Directors elects and releases the ceo, and decides on the terms of employment and other compensation. The Managing Director of the company and the ceo of Sampo Group is Björn Wahlroos.
The ceo of Sampo Group 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 authorisation by the Board of Directors. The Group ceo ensures the legal compliance of Sampo’s accounting and the trustworthy organisation of asset management.
Compensation compensation of the members of the board of directors According to Sampo’s Articles of Association, the Annual General Meeting decides on the compensation of the members of the Board of Directors.
Board member’s annual fee being paid in Sampo A shares. Board members employed by the company will not receive separate compensation for the Board work.
Members of the Board of Directors did not receive any other benefi ts, nor did they participate in Sampo’s incentive systems. However, in accordance with a decision of the Annual General Meeting held in spring 2007, the Group ceo is included in the Sampo 2006 long-term share incentive system for the company’s management.
compensation of the managing director and other executives The Board of Directors decides on the terms of employment and compensation of the ceo and other executives on the Sampo Group’s Executive Committee, on the basis of a proposal by the Nomination and Compensation Committee. However, the
The Group ceo will be paid long-term compensation based on his employment contract, the payment of which the Board will decide separately in compliance, as applicable, with the principles of the long-term incentive system for Sampo’s executive management.
Audit reports on the audits performed to the ceo and the Audit
Insider Administration Sampo’s Board of Directors has approved the Sampo Group’s
Insiders issued by omx Helsinki, the Insider Guidelines for Investment Activities issued by the Federation of Finnish Insurance Companies and the Standards of the Financial Supervision
The ceo was paid a total of eur 2,998,879 in salaries and bonuses for 2007. The Deputy ceo was paid a total of eur 1,789,923 in salaries and profi t bonuses.
Members of the Group Executive Committee participate in local retirement programs applicable to employees in their country of residence. As part of their service contract, they are also participating in supplementary retirement programs. The retirement ages are 60 or 65 years.
Internal audit Sampo’s Internal Audit is a function independent of business operations which evaluates the suffi ciency and eff ectiveness of the internal control system and the quality with which tasks are performed in Sampo Group. The Internal Audit reports to the ceo. Internal Audit has been organised to correspond with the business organisation.
Sampo plc’s insider guidelines and insider register may be viewed on the Internet at www.sampo.com/english, see Investor Relations/
Anne Brunila, born 1957 president and ceo, finnish forest industries federation
–Member of the Board of Directors of Sampo plc since 26 June 1992.
Matti Vuoria, born 1951 ceo, president of varma mutual pension insurance company
The CVs of members of the Board of Directors can be viewed on the Internet at www.sampo.com, see Sampo Group/Corporate Governance.
–Member of the Board of Directors of Sampo plc since 5 April 2006.
–Pekkarinen holds 2,192 Sampo plc shares directly or through a controlled company.
–Taxell holds 3,195 Sampo plc shares directly or through a controlled company.
–Wahlroos was appointed to the Board of Directors of Sampo plc on 5 April 2001.
Björn Wahlroos, born 1952 group ceo and president, managing director of sampo plc
Aspo plc, Chairman of the Board, Alma-Media plc, Chairman of the Board
Positions of Trust: Fiskars Corporation, Board Member, Finnish Literature Society, Board
The Panel on Takeovers and Mergers at the Central Chamber of Commerce of
Chairman of the Board (from 1 January 2008), FNH Norway (the organisation for the Financial Sector in Norway), Board Member
Positions of Trust: If P&C Insurance Ltd (Sweden), Chairman of the Board
FNH Norway (the organisation for the Financial Sector in Norway), Member of the Executive committee of P&C Insurance
–Niemisvirta holds 29,579 Sampo plc shares directly or through controlled companies.
Morten Thorsrud, born 1971 group executive vice president, head of ba industrial, if p&c
–Thorsrud holds 1,718 Sampo plc shares directly or through controlled companies.
–Wennerklint holds 4,677 Sampo plc shares directly or through controlled companies.
Important Personnel Related Initiatives in 2007 Trends such as globalization, shorter product lifecycles, increasing pace of change and demographic changes make employee competence, attitude and motivation some of the most important drivers of value creation. This is especially true for
Group. Our business success is entirely dependent on being able to attract, recruit, develop and retain excellent people. In light of this our focus on people is very high. The 'Best in Risk'
Manager each employee has a personal fi le containing data such as Competence Profi le, cv and Job Description. Performance Manager also contains functionality enabling the manager and the employee to prepare for Appraisal and Development
reorganization of hr To further improve the way we work with the personnel matters of Sampo Group, the hr function has been reorganized during 2007. Previously hr was geographically organized with one hr department in each country. Refl ecting the true Nordic organization of Sampo, the hr department has now instead been functionally reorganized. The national hr departments have been replaced by Nordic functional organizations for hr Administration, Employment Relations, hr Consulting and Competence Development. In this way we ensure that our best Nordic competence is brought to bear on each issue.
Finland 30% Sweden 27% Norway 24% Estonia 6% Lithuania 3%Denmark 6% Latvia 3% Other 1%
Staff numbers are expressed as full-time equivalents. In other words, the numbers of part-time employees have been converted into numbers of full-time employees, by taking their working hours into account.
The average number of employees in Sampo Group in year 2007 was
As a listed company, Sampo plc has the responsibility to act in the best interests of its shareholders, in compliance with legislation and in accordance with sound business practices.
Sampo’s core values; ethicality, loyalty, transparency and entrepreneurship, relate to the entire Group. Sampo Group is also committed to applying high ethical standards, and, to ensure this, the company’s corporate governance is based on principles that are more stringent than offi cial requirements – with respect to insider administration, for example.
Danske Bank A/S, more emphasis in the Corporate Responsibility issues has been placed on the Group’s remaining business areas and especially on If P&C. It is natural for If, as a P&C
insurance company, to promote a society in which everyone can live securely. Preventing and limiting the need for claims is a natural feature of If ’s operations as it attempts to increase corporate profi tability while reducing the human suff ering of its customers. Therefore, If actively participates in claims prevention measures for private individuals and companies on both short and long term basis.
If in Society The core of P&C insurance is a commitment to help when damage occurs. Along with public bodies such as the police, rescue services, and the judiciary, the insurance industry is one of society’s most important providers of safety and security to citizens, companies, and other organisations. Insurance provides security against economic risk. Through their insurance policies, companies get the necessary predictability and stability to be able to take various business risks. It is therefore natural for
If ’s ceo and other representatives have also contributed as speakers at various conferences on our future climate.
concerns over fire damage development In Norway, the number of people killed in house fi res increased in 2007. In Finland the number of major fi res continued to be high.
continued struggle against insurance-related crime Insurance claims connected to development of crime in society are also constantly in focus. Among other things, If has noted the growing problem with serious truck robberies. To protect customers, the incidence of insurance fraud must be reduced.
welfare system in change The future shape of the social insurance system is under continual discussion in all the Scandinavian countries. The common goal is to create a long-term stable system and to reduce sickness absence.
Finnish model. The aim of this reform is fewer and less expensive claims for traffi c accidents. As a fi rst step, a premium tax on motor insurance has been introduced to fi nance unresolved old claims.
Representatives of If management have made an active contribution to the debate on a future social insurance system.
The sickness and healthcare system has also been debated intensively and there is continued strong growth of private healthcare and rehabilitation insurance. New ideas have been launched, such as establishing children’s hospitals with healthcare wholly fi nanced by private insurance. An area being discussed in the research is the increasing health problem with obesity in children.
Working towards a Safer Society If ’s sponsorship has taken on a socially responsible aspect and primarily supports areas that have a natural connection to insurance activity.
If therefore collaborates with organisations that are working to increase safety in society by long-term counteractions against negative phenomena such as segregation and isolation.
The most important target groups for If are children and young people. We work with the youth organisation 'Fryshuset' including 'Lugna Gatan (Calm Street)' and a special price for
If ’s Safety Fund supports eff orts and projects that increase safety in our customers’ local environments. The grant is up to sek 50,000 and is regularly distributed in all Scandinavian countries. Money from the fund can be sought by individuals, companies, or organisations and has gone during the year to various activities. One important application of these funds is to support training and donate safety equipment of various types for children and young people.
In Sweden, the Safety Fund has also been used for a newlyinstituted grant, 'If ’s Safety Pin', the aim of which is to support especially vulnerable children.
To reduce fi re risks in society, If supports the Norwegian
'Firefi ghting Week'. In Finland, If is involved in 'Nou Hätä!'
If also works with Trygg Trafi k in a project aiming to increase traffi c safety in Norway.
If also increased its involvement with environmental concerns via an internal project, intended to promote activities for reducing the company’s own environmental impact and also to off er If customers insurance solutions with built-in environmental considerations.
We take note of trends and insurance needs through regular surveys of people’s experiences of various risks.
In our magazine ‘Risk Consulting’, customers are informed about current themes in the risk handling and insurance areas.
If has also launched an Internet-based safety test for commercial customers which has been very well received especially in Finland. For private customers there is also the previous If
If ’s Safety Centre in Norway, which each year is visited by many customers and other interested parties. During the autumn, the
Also, a large number of employees from Oslo Municipality have undergone damage prevention training in theory and practice at the Safety Centre. Several school classes have also experienced safety training with the support of If ’s Safety Fund.
Notes to the Consolidated Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Summary of Signifi cant Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . 52
Other than Subsidiaries and Associates. . . . . . . . . . . . . . . . . . . . . . . 125 39 Events after the Balance Sheet Date. . . . . . . . . . . . . . . . . . . . . . . . .127
Parent Company Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . .130
Sampo Group’s profi t before taxes for 2007 rose to eur 3,833 million (1,353). The profi t contains the sales gain of eur 2,830 million from the Sampo Bank transaction closed on 1 February 2007. Earnings per share amounted to eur 6.18 (1.73) and, including the change in the fair value reserve, to eur 5.89 per share (1.89). Earnings per share from continuing operations were eur 1.25 (1.27). Net asset value per share amounted to eur 13.49 (9.21).
The return on equity for the Group was 52.6 per cent for 2007 (22.6). The Board proposes to the agm a dividend of eur 1.20 per share and an authorisation to repurchase Sampo shares.
Reported profi t before taxes in life insurance improved further and amounted to eur 342 million (295). The fair value reserve decreased in 2007 by eur 174 million and was eur 289 million (after tax) on 31 December 2007. Because of the decrease in the market value of investments, RoE target of 17.5 per cent was not achieved and the RoE at market value was 9.1 per cent (30.0).
Profi t before taxes for the segment ‘Holding’ amounted to eur 95 million (-27).
The Group’s equity on 31 December 2007 amounted to eur 7,733 million (5,189). Equity was strengthened by the profi t for the period of eur 3,573 million and by new capital through subscriptions with option rights in January 2007 of eur 6 million. Equity was reduced by the dividends of eur 693 million paid in April, the decrease in the fair value reserve by eur 169 million, the repurchase of Sampo A shares for eur 81 million, and the exchange rate changes of eur 74 million.
At the end of December 2007 Sampo Group’s own funds exceeded the minimum solvency requirements by eur 5,969 million and the solvency ratio was 774.6 per cent (202.7).
EPS including change in fair value reserve, euro 5.89 1.89 212
P&C insurance group’s parent company, If P&C Insurance Holding Ltd, is located in Sweden, and the If subsidiaries provide insurance solutions and services in Finland, Sweden, Norway,
Profi t before taxes for P&C insurance for the full year 2007 was eur 534 million (730). The decrease was due to a lower investment result that was caused by a weakened development in the equity market, mainly during the latter half of 2007. The technical result improved compared to the previous year and ended at eur 565 million (554). Of the technical result, business area Private accounted for 53 per cent, Commercial for 31 per cent, Industrial for 11 per cent and Baltic & Russia for 3 per cent. Insurance margin (technical result in relation to net premiums earned) was in line with the previous year, 14.8 per cent (14.7).
return on equity (RoE) target of 17.5 per cent was clearly exceeded with a RoE of 19.2 per cent (22.0).
Gross written premiums increased by 2 percent to eur 4,085 million (4,019). Compared to the previous year, premiums increased in all business areas except in Commercial. The strongest growth was again seen in business area Baltic & Russia. If ’s recently established Russian operation has grown rapidly. In 2007 a new branch offi ce was also opened in Moscow to off er better service for customers in the Moscow region.
Cost effi ciency continued to improve and the cost ratio decreased to 23.7 per cent (24.0). Total costs decreased to eur 963 million (969) due to continued focus on effi ciency improvements and cost awareness throughout the organization. Investments in new technology are expected to further increase effi ciency as well as improve If ’s customer service and communication with the customers.
Claims incurred increased to eur 2,541 million (2,480) and risk ratio ended at 66.9 per cent
(65.9). eur 76 million (65) was released from the technical reserves relating to prior year claims.
Reserve ratio increased somewhat and was 170 percent (159) of net premiums written and 261 per cent (254) of claims paid aff ected by both currency eff ects and a real increase of reserves mainly corresponding to the increase in volumes.
Nordic level. In Denmark, 2007 was a very active year and at the end of the year If had eight car brand agreements there. In January 2008 an agreement was also signed with Suzuki. In 2007 If also signed an agreement regarding tailor-made guarantee insurance for used cars sold through
Customer satisfaction has been a priority for If and will be one of the focus areas also in the coming years. New technology in interaction with clients is of increasing importance, both regarding distribution and claims. If is already a forerunner in terms of integration of business processes with customers. Customers are already able to assess their individual risk situation online. Another example is the internet portal, If Login, which makes it possible for the customers to obtain an overview of and administrate their total insurance coverage from a single site. The next step will be a further development of the claims handling process through internet.
life insurance Sampo Life Group consists of Sampo Life, a wholly-owned subsidiary of Sampo plc operating in Finland, and of its subsidiary Sampo Life Insurance Baltic SE, a European company headquartered in Estonia. Sampo Life Insurance Baltic SE operates in Latvia and Lithuania through branches. Sampo Life also had until January 2008 a subsidiary in Sweden to complement the product off ering of If P&C.
Net investment income, excluding income on unit-linked contracts, amounted to eur 543 million (462). Net income from unit-linked investments was eur 57 million (139).
Excluding the assets of eur 2.1 billion (1.8) covering unit-linked liabilities, Sampo Life
Group’s investment assets amounted to eur 5.7 billion (5.9) at market value on 31 December 2007. Fixed income covered 73 per cent (66), equity 25 per cent (31) and real estate 3 per cent
Reserve for future customer bonuses amounted to 39.8 million (35.6) at the end of 2007.
Sampo Life Group’s premium income on own account amounted to eur 618 million (660).
Premiums in the main focus area, unit-linked insurance, declined to eur 403 million (429). Private and group unit-linked retirement pension insurance premiums continued to grow. Endowment sales was aff ected by uncertain conditions in the capital market and by reorganization of the main distribution channel Sampo Bank during the fourth quarter of 2007. Sales through Sampo Bank may temporarily suff er due to the integration of the Bank to Danske Bank’s it platform in early 2008. In addition, the fi gures of 2006 include an exceptional amount of large single premium contracts. The share of unit-linked premiums remained at 65 per cent of the total premiums (65).
Baltic companies grew by 67 per cent to eur 64 million (38). Sampo Life is one of the three main players in the unit-linked business in the Baltics. Sampo Life increased its market share in unit-linked policies in the Baltics to 19 per cent (15). Sampo Life continues selling insurance policies in the Baltics both via Sampo Bank and via its own branch network.
If Livförsäkring AB, Sampo Life’s Swedish subsidiary, increased its premium income to eur 6 million (3). If Livförsäkring focuses on risk policies. The company was sold to If P&C Insurance Holding Ltd., a fully-owned subsidiary of Sampo plc, on 1 January 2008.
In Finland Sampo Life’s overall market share measured by premium income was 19.8 per cent (20.4) and its market share in unit-linked premiums was 22.4 per cent (25.2). The market share in pure risk insurance in Finland amounted to 14.6 per cent (15.4). According to preliminary premium income statistics, Sampo Life is the market leader in group pension policies and in corporate pension policies in Finland.
Sampo Life has reinforced its sales organization and r&d organizations with new personnel and will continue to recruit new personnel to its sales organization in 2008. A selection of new structured products will be introduced in 2008.
holding Sampo plc manages investment assets of approximately eur 5 billion and, in addition, owns and controls its subsidiaries engaged in P&C and life insurance.
The segment’s profi t before taxes amounted to eur 95 million (-27). The fair value reserve increased during 2007 by eur 7 million to eur 26 million (after tax).
Sampo plc’s largest equity holding is Nordea, the market value of which was eur 2.7 billion on 31 December 2007. Sampo plc held 238,283,129 Nordea shares and, in addition, Sampo Life
Profi t from continuing operations before taxes 160 256 289 270 258
Changes in Group Structure Sampo Group experienced a major structural change during the fi rst quarter of the year as
Sampo Bank Group was divested from Sampo Group. The ownership of Sampo Bank, its subsidiary banks in Baltics and Russia, and a group of investment services companies was transferred from Sampo Group to Danske Bank on 1 February 2007. Sampo plc disclosed the sale of Sampo Bank plc to Danske Bank A/S on 9 November 2006.
After the closing of the Sampo Bank transaction Sampo Group comprises Sampo plc and its wholly-owned subsidiaries If P&C insurance and Sampo Life. Sampo plc has in addition investment assets of close to eur 5 billion.
Baltic on 2 January 2007. The new company is a European company and operates in all Baltic countries. The company is domiciled in Estonia and has branches in Latvia and Lithuania.
Administration annual general meeting and management The closing of the Sampo Bank transaction created changes in the administration of Sampo Group.
President from liability for the fi nancial year. Ernst & Young Oy was re-elected as Auditor.
The Annual General Meeting decided to keep the fees payable to the members of the Board of Directors at their present level until the close of the 2008 Annual General Meeting. Accordingly, the Chairman of the Board will be paid eur 120,000 per year, the Vice Chairman eur 85,000 per year and the other members eur 70,000 per year. An amount equivalent to 30 per cent of the annual fee will be paid in Sampo plc A shares. No separate fee will be paid to Björn
Sampo Group follows the recommendation issued by a working group of hex plc (omx Nordic Exchange), Chamber of Commerce and the Federation of Finnish Employers in December 2003 on corporate governance. A more detailed description of the Group’s governance systems is available in the 2006 Annual Report and on the Group’s homepage www.sampo.com.
More detailed information on Sampo Group’s Corporate Responsibility is available in the
The incentive schemes increased staff costs in 2007 by eur 1 million (29) and on 31 December 2007 the total provision for the schemes was eur 20 million (53). The comparison fi gure contains eur 18 million of provisions in the banking and investment services companies.
Shares, Share Capital and Shareholders shares and share capital On 31 December 2007 Sampo plc had 577,330,890 A shares and 1,200,000 B shares. According to company’s Articles of Association A Shares number at least 179,000,000 and at most 711,200,000 and B shares number at least 0 and at most 4,800,000. Each A share entitles the holder to one vote and each B share to fi ve votes at the General Meeting of Shareholders. Sampo A shares have been quoted on the main list of the Helsinki Stock Exchange since 1988. All the B shares are held by Kaleva Mutual Insurance Company. B shares can be converted into an A shares at the request of the holder.
The quotation of Sampo’s year 2000 option programme on the Helsinki Stock Exchange was terminated on 24 January 2007, because of the subscription period ended on 31 January 2007. A
On 31 December 2007 Sampo plc’s share capital amounted to eur 98 million (95). Subscriptions with the warrants of Sampo 2000 option programme for 15,740,245 A shares were approved by the Board in January 2007. The subscriptions increased Sampo plc’s share capital by eur 2.6 million. On 13 February 2007 the Board of Sampo plc decided to cancel 4,827,500
Sampo shares. The authorisation is valid until the close of the next Annual General Meeting.
Exchange at market price prevailing at the time of repurchase. Repurchases decreased the distributable capital and reserves.
During 2007 Sampo plc acquired 4,322,000 Sampo A shares corresponding to 0.75 per cent of all shares and 0.74 per cent of the related voting rights. eur 81 million was used to repurchase the shares at an average price of eur 18.62.
After the end of the reporting period Sampo has continued to purchase its own shares and on 12 February holds 6,437,000 shares corresponding to 1.1 per cent of all shares and related votes. All in all eur 120 million has been used to purchase the shares at an average price of eur 18.68.
year 2000 option programme On 29 September 2000, an Extraordinary General Meeting of Sampo decided to off er options, without consideration and in deviation from the pre-emptive subscription rights of shareholders, to management, middle management and other key personnel of Sampo and its subsidiaries, and to a wholly-owned subsidiary specifi ed by the company’s Board of Directors.
shareholders On 31 December 2007 the number of Sampo plc’s shareholders amounted to 64,283, an increase of 7 per cent from the previous year. 1.3 per cent of shares had not been transferred to the book-entry system. The holdings of nominee-registered and foreign shareholders increased to 54.5 per cent (53.8) of the shares and 54.0 per cent of the votes (53.3).
At the end of 2007, the members of Sampo plc’s Board of Directors, including the
Chief Executive Offi cer, owned directly or indirectly 11,906,412 Sampo A shares. Their combined holdings constituted 2.1 per cent of the share capital and 2.0 per cent of the related votes.
During the year under review, Sampo received the following notifi cations of changes in holdings pursuant to Chapter 2, Section 9 of the Securities Markets Act: - On 8 February 2007, 26 March 2007, 11 April 2007, 25 July 2007 and 9 August 2007 Sampo received disclosures regarding Exista hf.’s and its subsidiaries’ holding in Sampo shares and voting rights. According to the latest disclosure Exista holds 19.98 percent of the total number of shares and 19.82 per cent of the voting rights. Exista hf. also notifi ed Sampo that it had entered into an agreement regarding 100,000 A shares in Sampo plc. The agreement, if consummated through delivery of the shares, would result in Exista holding shares in Sampo plc in excess of 20 percent of the total number of shares.
- On 29 March 2007 Sampo received a disclosure according to which Morgan Stanley & Co
International Limited’s holding in Sampo plc had risen to 5.08 per cent of the total amount of
Monthly share turnover, trading volume, 2003–2007, million sharesMonthly share price performance, 2003–2007, euros
increases and decreases in share capital 2003–2007 terms of sub- share capital mode of subscription scription or sub- number after increase increase/ period/ scriber or rea- of new /decrease decrease registration son for decrease shares (eur million)
Decrease in 11 April 2003 Cancellation -2,434,400 93.15 share capital of shares bought back (2,434,400 A shares)
Bond with Warrants, 1998 Three conversions Warrant 66,100 93.16 A shares in 2003 conversion
Bond with Warrants, 1998 One conversion Warrant 2,018,850 95.16 A shares in 2005 conversion
Bond with Warrants, 1998 Six Warrant 7,555,900 96.09 and Options 2000 conversions and option A shares in 2005 conversion
Bond with Warrants, 2000 One conversion Warrant 382,200 96.15 A shares in 2006 conversion
Bond with Warrants, 2000 Five conversions Warrant 2,917,630 95.47 A shares in 2006 conversion
shareholders on 31 december 2007 number of % of share % of a and b shares shares capital votes
Special mutual fund OMX Helsinki 25 Index Share Fund 764,082 0.13 0.13
Nominee registered total 312,637,813 54.04 53.60 *) 4,927,855 A shares and 1,200,000 B shares.
A more detailed description of Sampo Group’s risk management organisation and activities is available in the Risk Management section of the 2007 Annual Report or on www.sampo.com.
Sampo plc received on 11 February 2008 a disclosure in accordance with Chapter 2 Section 9 of the Securities Market Act regarding Sampo plc’s shares. According to the disclosure Exista
Sampo Life Insurance Company Ltd EUR 200 million ratings All the main ratings for Sampo Group companies remained unchanged in 2007.
Excess Capital On 31 December 2007 Sampo Group’s equity amounted to almost eur 8 billion whereas the economic capital required for managing the Group’s businesses and investments was eur 3.4 billion. Without taking subordinated loans in Sampo plc into account, Sampo Group had approximately eur 4.5 billion of excess capital. This capital derives mainly from the sale of Sampo
Should the valuations of other Northern European fi nancial companies fall signifi cantly,
Board’s Dividend Proposal According to its dividend policy, Sampo plc aims to distribute an annual dividend corresponding to a dividend yield of 4–6 per cent. Dividends cannot, however, exceed reported profi t after tax (excl. extraordinary items) for the calendar year for which the dividend is paid. Share buy-backs can be used to complement dividends.
Sampo Group’s result for 2008 will of course depend on investment returns, which are likely to be more volatile than in the previous years.
The insurance technical development in P&C insurance is not expected to suff er from the economic downturn but remain sound in 2008. If P&C is expected to reach its long-term combined ratio target of below 95 per cent.
Changes in the market values of Sampo Life’s investment assets are recorded in the fair value reserve in the balance sheet rather than refl ected in reported profi ts. Sampo Life Group is not expected to achieve the exceptionally high profi ts of 2006 and 2007 unless the capital market conditions improve signifi cantly. However, full-year 2008 results are expected to remain reasonably good with average expected pre-tax profi ts of approximately 30 million euros per quarter.
Sampo plc has investment assets of approximately eur 5 billion before the dividend payments for 2007 and further share buybacks. At the end of January 2008 Sampo plc held almost 10 per cent of Nordea’s outstanding shares corresponding to over eur 2.5 billion in market value. Remaining funds are invested in money market instruments. Sampo plc’s profi t for the second quarter of 2008 will therefore be considerably higher than for other quarters due to the expected dividend payment from Nordea.
The biggest risk for the outlook is a further severe weakening of equity markets. However,
Return on assets (at fair values) % 11.5 4.0 4.4 4.0 3.3 property & casualty insurance *)
Return on equity (at fair values) % 19.2 22.0 24.1 20.3
Combined ratio excl. unwinding of discount % 90.6 89.9 90.5 89.8
Options diluted earnings per share, continuing operations EUR - 1.24 - - -
Earnings per share, incl. change in fair value reserve, continuing operations EUR 0.95 1.44 - - -
Capital and reserves per share EUR 13.47 9.18 7.65 6.11 5.43
Net asset value per share EUR 13.49 9.21 7.67 6.16 5.64
Average adjusted number of shares 7) 1,000 577,802 563,092 564,864 558,077 553,859
Weighted average number of shares, incl. dilutive potential shares 7) 1,000 577,802 576,341 575,268 566,391 556,400 a shares: Adjusted number of shares at 31 Dec. 7) 1,000 573,009 561,591 563,501 562,562 552,720
Share trading volume during accounting period 1,000 750,748 592,839 663,491 648,086 188,014 b shares: Adjusted number of shares at 31 Dec. 1,000 1,200 1,200 1,200 1,200 1,200
Group fi nancial statements as permitted by the Insurance Supervisory Authority. For years 2004‒2006, the Group solvency is calculated according to the consolidation method defi ned in Chapter 3 of the Act on the Supervision of Financial and
The key fi gures for the insurance business have been calculated in accordance with the decree issued by the Ministry of Finance and the specifying regulations and instructions of the Insurance Supervisory Authority.
Group Key Figures profit before taxes + property & casualty insurance profi t before taxes + life insurance profi t before taxes + holding business profi t before taxes ± Group elimination items with result impact
Property & casualty and life insurance + insurance premiums written + net income from investments + other operating income – claims incurred – change in liabilities for investment and insurance contracts – staff costs – other operating expenses – fi nance costs ± share of associates’ profi t/loss
+ balance sheet total – technical provisions relating to unit-linked insurance ± valuation diff erences on investments (average of values on 1 Jan. and 31 Dec.)
return on economic capital, % + profi t for the fi nancial year – euribor 12 month forward rate x (1 – tax rate) x (net asset value – economic capital) ± change in fair value reserve, net of tax ± change in valuation diff erences on investments, net of tax
equity/assets ratio (at fair values), % + total equity ± valuation diff erences on investments less deferred tax
Property & Casualty Insurance Key Figures profit before taxes Formula shown above in connection with the Group key fi gures.
risk ratio, % + claims incurred – claims settlement expenses insurance premiums cost ratio, % + operating expenses + claims settlement expenses insurance premiums loss ratio, % claims incurred insurance premiums loss ratio excl. unwinding of discount, % claims incurred before unwinding of discount insurance premiums expense ratio, % operating expenses insurance premiums combined ratio, % loss ratio + expense ratio combined ratio excl. unwinding of discount, % loss ratio before unwinding of discount + expense ratio solvency capital (ifrs) + equity after proposed profi t distribution ± valuation diff erences on investment – intangible assets + capital securities – deferred tax liability probably realised in near future ± other required items (Ministry of Finance decree)
Life Insurance Key Figures profit before taxes Formula shown above in connection with the Group key fi gures.
relative share trading volume, % number of shares traded through the Helsinki Exchanges adjusted average number of shares x 100%
Profi t for the fi nancial year 977 977 15 991
Proceeds from the sale of group and associated undertakings 3,230 26
Cash and cash equivalents include cash at bank and in hand eurm 184 (206), and short-term deposits (max. 3 months) eurm 774 (35). The cash and cash equivalents for the year 2006 include also balances with central banks eurm 1,682 and loans and advances to credit institutions repayable on demand eurm 93.
The net cash fl ows of banking and investment services (discontinued operations)
disposed entities during the year 2007 On 9 Nov. 2006 Sampo Plc signed a contract to sell the entire share stock of Sampo Bank Plc to Danske Bank A/S. The major subsidiaries in Sampo Bank Group were Sampo Fund Management Ltd, Mandatum Asset Management Ltd, Mandatum Securities Ltd, Mandatum & Co
Summary of Signifi cant Accounting Policies. . . . . . . . . . . . . . . . . . . . . 52
Consolidated Balance Sheet by Business Segment . . . . . . . . . . . . . . .65
Notes to the Income Statement 5 Change in Liabilities for Insurance and Investment Contracts . . . . . . .93 8 Result Analysis of P&C Insurance Business . . . . . . . . . . . . . . . . . . . 94 9 Performance Analysis per Class of P&C Insurance . . . . . . . . . . . . . . .95
Sampo Group has prepared the consolidated fi nancial statements for 2007 in compliance with the International Financial Reporting Standards (ifrss) as adopted by the eu. In preparing the fi nancial statements, Sampo has applied all the new or amended standards and interpretations relating to its business and eff ective at 31 December 2007. Sampo adopted the following new interpretations that took eff ect during the fi nancial year: ifric 8 Scope of IFRS 2 ifrs 2 Share-based payment applies to arrangements where an entity makes share-based payments for apparently nil or inadequate consideration.
Clarifi es certain aspects for the treatment of specifi c embedded derivatives under ias 39.
An entity shall not reverse an impairment loss recognised in the previous interim report in respect of goodwill or certain fi nancial assets.
In preparing the notes to the consolidated fi nancial statements, attention has also been paid to Finnish accounting and company legislation and applicable regulatory requirements.
The consolidated fi nancial statements are presented in euro (eur), rounded to the nearest million, unless otherwise stated.
The acquisition method of accounting is used for the purchase of subsidiaries. The cost of an acquisition is allocated to the identifi able assets, liabilities and contingent liabilities, which are measured at the fair value of the date of the acquisition. The excess of the cost of an acquisition over the Group’s share of the fair value of the identifi able net assets acquired is recognised as goodwill.
IFRS Financial Statements: Summary of Significant Accounting Policies | sampo group annual report 2007 53 presented in the balance sheet using the historical rate existing at the date of the transaction.
Translation diff erences that existed at the Group’s ifrs transition date, 1 January 2004, are deemed to be zero, in accordance with the exemption permitted by ifrs 1.
The following exchange rates have been applied in the consolidated fi nancial statements: balance average 1 euro (EUR) = sheet date exchange rate
Segment Reporting The Group’s primary segmentation is based on business areas whose risks and performance bases as well as regulatory environment diff er from each other. The control and management of business and management reporting is organised in accordance with the business segments. The
Banking- and investment services has been presented as discontinued operations. On 9 November 2006, Sampo plc signed an agreement on the divestment of Sampo Bank plc’s entire stock to Danske Bank A/S. The classifi cation to discontinued operations was made from that date on. The transaction was closed on the 1 February, 2007.
Interest and Dividends Interest income and expenses are recognised in the income statement using the eff ective interest rate method. This method recognises income and expenses on the instrument evenly in proportion to the amount outstanding over the period to maturity.
Fees and Commissions The fees and transaction costs of fi nancial instruments measured at fair value through profi t or loss are recognised in profi t or loss when the instrument is initially recognised.
The costs of acquiring new and renewed insurance business are treated in the Life Insurance business as fee and commission expenses under ‘Other operating expenses’. In the P&C
Insurance business they are treated as deferred acquisition costs, and are accordingly deferred and amortised.
Insurance Premiums Insurance premiums in the income statement consist of premiums written for P&C insurance and Life insurance.
Financial Assets and Liabilities Based on the measurement practice, fi nancial assets and liabilities are classifi ed in the following categories upon the initial recognition: fi nancial assets at fair value through profi t or loss, loans and receivables, held-to-maturity investments, available-for-sale fi nancial assets, fi nancial liabilities at fair value through profi t or loss, and other liabilities.
54 sampo group annual report 2007 | IFRS Financial Statements: Summary of Significant Accounting Policies
Derivative instruments that are not designated as hedges and do not meet the requirements for hedge accounting are classifi ed as derivatives for trading purposes.
Financial assets designated as at fair value through profi t or loss
loans and receivables Loans and receivables comprise non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately or in the short term. The category also comprises cash and balances with central banks.
In the Life Insurance business, ifrs 4 ‘Insurance Contracts’ provides that insurance contracts with a discretionary participation feature are measured in accordance with national valuation principles (except for the equalisation reserve) rather than at fair value. These contracts and investments made to cover shareholders’ equity are managed in their entirety and are classifi ed as available-for-sale fi nancial assets.
The cumulative change in the fair value is also transferred to profi t or loss when the assets are impaired and the impairment loss is recognised. Translation diff erences due to available-for-sale monetary balance sheet items are always recognised directly in profi t or loss.
IFRS Financial Statements: Summary of Significant Accounting Policies | sampo group annual report 2007 55 other financial liabilities Other fi nancial liabilities comprise debt securities in issue and other fi nancial liabilities.
If debt securities issued are redeemed before maturity, they are derecognised and the difference between the carrying amount and the consideration paid at redemption is recognised in profi t or loss.
fair value The fair value of fi nancial instruments is determined primarily by using quoted prices in active markets. Financial assets are measured at the bid price and fi nancial liabilities at the asking price. If there are items in a position off setting each other’s market position, the mid price may be used to that extent. If a published price quotation does not exist for a fi nancial instrument in its entirety, but active markets exist for its component parts, the fair value is determined on the basis of the relevant market prices of the component parts.
If the fair value of a fi nancial asset cannot be determined, historical cost is deemed to be a suffi cient approximation of fair value. The amount of such assets in the Group balance sheet is immaterial.
Impairment of Financial Assets Sampo assesses on each balance sheet date whether there is any objective evidence that a fi nancial asset, other than those at fair value through p/l, may be impaired. A fi nancial asset is impaired and impairment losses are incurred, if there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset, and if that event has an impact, that can be reliably estimated, on the estimated future cash fl ows of the fi nancial asset.
financial assets carried at amortised cost There is objective evidence of impairment if the payment status of a customer is rated as ‘default’.
When a default occurs, the impairment of a loan is assessed. The amount of the loss is measured as the diff erence between the loan’s carrying amount and the present value of estimated future cash fl ows (excluding future credit losses that have not yet been incurred), discounted at the loan’s original eff ective interest rate. The diff erence is recognised as an impairment loss in profi t or loss. The impairment of loans is assessed individually.
If, in a subsequent period, the amount of the impairment loss decreases, and the decease can be related objectively to an event occurring after the impairment was recognised (the default status is removed), the previously recognised impairment loss shall be reversed.
available-for-sale financial assets The impairment of available-for-sale fi nancial assets is monitored through an investment plan.
The credit risk limits by issuer have been determined in the investment plan and the plan is followed daily. The objective evidence of an impairment of available-for-sale fi nancial assets is based on a separate assessment, which is done if the credit rating of an issuer has declined or the entity is placed on watchlist, or there is a signifi cant or prolonged decline in the fair value of an equity instrument below its cost. When the observable data indicates that an impairment has occurred, the cumulative loss recognised directly in equity is removed from equity and recognised in profi t or loss.
derivatives held for trading Derivative instruments that are not designated as hedges and embedded derivatives separated from a host contract are treated as held for trading. They are measured at fair value and the change in fair value, together with realised gains and losses and interest income and expenses, is recognised in profi t or loss.
If derivatives are used for hedging, but they do not qualify for hedge accounting as required by ias 39, they are treated as held for trading.
hedge accounting The Sampo Group may hedge its operations against interest rate risks, currency risks and price risks through fair value hedging and cash fl ow hedging. Fair value hedging is used to protect against changes in the fair value of recognised assets or liabilities, while cash fl ow hedging is used to protect against the variability of the cash fl ows of recognised assets or liabilities which are attributable to a particular risk and could aff ect profi t or loss. In the fi nancial and comparative year Sampo plc has used hedging against interest rate risks through fair value hedging.
fair value hedging Fair value hedging is used to hedge individual fi xed interest rate loans, debt securities in issue, as well as index-linked deposits and index-linked debt securities in issue. The hedging instruments used include interest rate swaps, interest rate and cross currency swaps and, for indexlinked items, index options. In addition, fi xed interest rate loan portfolios are hedged by using interest rate swaps.
Changes in the fair value of derivative instruments that are documented as fair value hedges and are eff ective in relation to the hedged risk are recognised in profi t or loss. In addition, the hedged assets and liabilities are measured at fair value during the period for which the hedge was designated, with changes in fair value recognised in profi t or loss.
Non-current assets held for sale and discontinued operations Non-current assets and the assets and liabilities related to discontinued operations are classifi ed as held for sale, if their carrying amount will be recovered principally through sales transactions rather than from continuing use. For this to be the case, the sale must be highly probable, the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups), the management must be committed to a plan to sell the asset (or disposal group), and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classifi cation.
A discontinued operation is a component of an entity that either has been disposed of or is classifi ed as held for sale, and 1. represents a separate major line of business or geographical area of operations 2. is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or 3. is a subsidiary acquired exclusively with a view to resale.
Leases in which assets are leased out and the Group retains substantially all the risks and rewards of ownership are classifi ed as operating leases. They are included in ‘Property, plant and equipment ’ in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment, and the impairment losses are recognised on the same basis as for these items. Rental income on assets held as operating leases is recognised on a straight-line basis over the lease term in profi t or loss.
Group and the cost of the assets can be measured reliably. The cost of internally generated intangible assets is determined as the sum of all costs directly attributable to the assets. Research costs are recognised as expenses in profi t or loss as they are incurred. Costs arising from development of new IT software or from signifi cant improvement of existing software are recognised only to the extent they meet the above-mentioned requirements for being recognised as assets in the balance sheet.
Intangible assets with fi nite 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
Property, Plant and Equipment Property, plant and equipment comprise properties occupied for Sampo’s own activities, offi ce equipment, fi xtures and fi ttings, and furniture. Classifi cation of properties as those occupied for own activities and those for investment activities is based on the square metres in use. If the proportion of a property in Sampo’s use is no more than 10 per cent, the property is classifi ed as an investment property.
Property, plant and equipment are measured at historical cost less accumulated depreciation and impairment losses. Improvement costs are added to the carrying amount of a property when it is probable that the future economic benefi ts that are attributable to the asset will fl ow to the entity. Costs for repairs and maintenance are recognised as expenses in the period in which they were incurred.
Impairment of Intangible Assets and Property, Plant and Equipment At each reporting date the Group assesses whether there is any indication that an intangible asset or an item of property, plant or equipment may be impaired. If any such indication exists, the Group will estimate the recoverable amount of the asset. In addition, goodwill, intangible assets not yet available for use and intangible assets with an indefi nite useful life will be tested for impairment annually, independent of any indication of impairment. For impairment testing the goodwill is allocated to the cash-generating units of the Group from the date of acquisition. In the test the carrying amount of the cash-generating unit, including the goodwill, is compared with its recoverable amount.
If the recoverable amount of the asset exceeds the carrying amount, the impairment loss is reversed, but no more than to the carrying amount which it would have been without recognition of the impairment loss. Impairment losses recognised for goodwill are not reversed.
Investment Property Investment property is held to earn rentals and for capital appreciation. The Group applies the cost model to investment property in the same way as it applies to property, plant and equipment. Moreover, the depreciation periods and methods and the impairment principles are the same as those applied to corresponding property occupied for own activities. The fair value of investment property is estimated using a method based on estimates of future cash fl ows and a comparison method based on information from actual sales in the market. The fair value of investment property is presented in the Notes.
reinsurance contracts A reinsurance contract is a contract which meets the ifrs 4 requirements for insurance contracts and on the basis of which the Sampo Group (the cedant) may receive compensation from another insurer (the reinsurer), if it becomes liable for paying compensation based on other insurance contracts it has issued. Such compensation received on the basis of reinsurance contracts is included in the balance sheet under ’Reinsurers’ share of insurance liabilities’ and ’Other assets ’. The former item includes the reinsurers’ share of the provisions for unearned premiums and claims outstanding in the Group’s reinsured insurance contracts, while the latter includes short-term receivables from reinsurers.
When the Group itself has to pay compensation to another insurer on the basis of a reinsurance contract, the liability is recognised in the item ’Other liabilities’.
There are also contracts in P&C insurance in which the insurance risk is eliminated by a retrospective insurance premium, i.e. the diff erence between forecast and actual losses is evened out by an additional premium directly or in connection with the annual renewal of the insurance. The net cash fl ow from these contracts is recognised directly in the balance sheet, without recognising it fi rst in the income statement as premiums written and claims incurred.
The provision for unearned premiums is intended to cover anticipated claims costs and operating expenses during the remaining term of insurance contracts in force. In P&C insurance and reinsurance, the provision for unearned premiums is normally calculated on a strictly proportional basis over time, i.e. on a pro rata temporis basis. In the event that premiums are judged to be insuffi cient to cover anticipated claims costs and operating expenses, the provision for unearned premiums must be augmented by a provision for unexpired risks. Calculation of the provision for unexpired risks must also take into account instalment premiums not yet due.
The provision for unearned premiums is, for the most part, calculated on a strictly proportional basis over time (so called pro rata temporis principle). The adequacy of the provision for unearned premiums is tested by calculating a provision for unexpired risks for each company per business area and line of business. If the provisions are judged to be insuffi cient, the provision for unearned premiums is augmented by recognising a provision for unexpired risks.
In the P&C insurance business, acquisition costs clearly relating to the writing of insurance contracts and extending beyond the fi nancial year are recognised as assets in the balance sheet.
Acquisition costs include operating expenses directly or indirectly attributable to writing insurance contracts, fees and commissions, marketing expenses and the salaries and overheads of sales staff . Acquisition costs are amortised in the same way as provisions for unearned premiums, usually in 12 months at the maximum.
As capital redemption contracts do not carry insurance risk, these contracts are classifi ed as investment contracts.
National accounting standards are applied to all insurance contracts and to investment contracts with dpf, with the exception of the equalisation provision and changes in it.
In the subsidiary, SE Sampo Life Insurance Baltic, the discount rate varies by country between 2.3–3.5 per cent and the average guaranteed interest rate between 3.5–3.8 per cent.
The liabilities of assumed reinsurance are based on the reports of the ceding company and on an estimate of claims which have not yet been settled.
The provision for claims outstanding is intended to cover expected future payments for all claims incurred, including claims not yet reported to the company (the “ibnr” provision). The provision for claims outstanding includes claim payments plus all costs of claim settlements.
A liability adequacy test is applied to all portfolios, company by company, and the need for augmentation is checked, company by company, on the basis of the adequacy of the whole technical provisions. The test includes all the expected contractual cash fl ows for non-unit-linked liabilities. The expected contractual cash fl ows include expected premiums, claims, bonuses and expenses. The claims have been estimated including surrenders and other insurance transactions based on historical data. The amounts of claims include the guaranteed interest and an estimation of future bonuses. The present values of the cash fl ows have been discounted to the balance sheet date by using a risk-free, zero-coupon yield curve.
Sampo Life aims at giving a total return before charges and taxes on policyholders’ savings in contracts with dpf that is at least the yield of a Finnish government long-term bond. The total return consists of the guaranteed interest rate and bonuses determined annually. As for the level of the total return, continuity is pursued. The aim is to maintain the company’s solvency status on such a level that it neither limits the giving of bonuses to policyholders nor the distribution of profi t to shareholders.
Employee Benefi ts post-employment benefits Post-employment benefi ts include pensions and life insurance.
Sampo has defi ned benefi t plans in Sweden and Norway, and defi ned contribution plans in other countries. The most signifi cant defi ned contribution plan is that arranged through the
In defi ned contribution plans, the Group pays fi xed contributions to a pension insurance company and has no legal or constructive obligation to pay further contributions. The obligations arising from a defi ned contribution plan are recognised as an expense in the period that the obligation relates to.
When reporting defi ned benefi t plans in the balance sheet, the so-called corridor method is used. According to this model, accrued actuarial gains and losses resulting from diff erences between calculated assumptions and the actual outcome are not reported in the income statement unless the accumulated diff erence exceeds 10 per cent of the present value of the future obligations or the fair value of the plan’s assets, whichever is higher. Accumulated diff erences that exceed the 10 per cent limit are accrued in the income statement as pension costs throughout the duration of the obligation. The accumulated accrued actuarial gains and losses calculated in this way that are not reported in the income statement are reported in the balance sheet as a net asset/net liability.
The Group also has certain voluntary defi ned benefi t plans. These are intra-Group, included in the insurance liabilities of Sampo Life and have no material signifi cance.
termination benefits An obligation based on termination of employment is recognised as a liability when the Group is verifi ably committed to terminate the employment of one or more persons before the normal retirement date or to grant benefi ts payable upon termination as a result of an off er to promote voluntary redundancy. As no economic benefi t is expected to fl ow to the employer from these benefi ts in the future, they are recognised immediately as an expense. Obligations maturing more than 12 months later than the balance sheet date are discounted. The benefi ts payable upon termination at Sampo are the monetary and pension packages related to redundancy.
Share-based Payments Sampo has share-based incentive schemes that are settled either in cash (the long-term incentive schemes 2003 i, 2004 i, 2004 ii, 2005 i, 2006 i and 2006 ii for executives and specialists) or in equity instruments (Sampo 2006). Schemes with cash payments are measured at the intrinsic value of the incentive on interim or annual balance sheet dates, and changes in the liability are recognised through profi t or loss. Schemes where the payment is in equity instruments are measured at fair value at the grant date, and are recognised as an expense and as an increase in equity on a straight-line basis during the vesting period.
The fair value of incentives payable in equity instruments has been determined using the
Black-Scholes-pricing model. The fair value of the market-based part of the incentive takes into consideration the model’s forecast concerning the number of shares to be paid as an incentive.
The eff ects of non-market based terms are not included in the fair value of the incentive; instead, they are taken into account in the number of those share options that are expected to be exercised during the vesting period. In this respect, the Group will update the assumption on the estimated fi nal number of shares at every interim or annual balance sheet date.
Income Taxes Item Tax expenses in the income statement comprise current and deferred tax. Tax expenses are recognised through profi t or loss, except for items recognised directly in equity, in which case the tax eff ect will also be recognised in equity. Current tax is calculated based on the valid tax rate of each country. Tax is adjusted by any tax related to previous periods.
Deferred tax is calculated on all temporary diff erences between the carrying amount of an asset or liability in the balance sheet and its tax base. Deferred tax is not recognised on nondeductible goodwill impairment, and nor is it recognised on the undistributed profi ts of subsidiaries to the extent that it is probable that the temporary diff erence will not reverse in the foreseeable future.
A deferred tax asset is recognised to the extent that it is probable that future taxable income will be available against which a temporary diff erence can be utilised.
Cash and Cash Equivalents Cash and cash equivalents comprise cash and short-term deposits (3 months).
Sampo presents cash fl ows from operating activities using the indirect method in which the profi t (loss) before taxation is adjusted for the eff ects of transactions of a non-cash nature, deferrals and accruals, and income and expense associated with investing or fi nancing cash fl ows.
Accounting Policies Requiring Management Judgement and Key Sources of Estimation Uncertainties Preparation of the accounts in accordance with the ifrs requires management estimates and assumptions that aff ect the revenue, expenses, assets, liabilities and contingent liabilities presented in the fi nancial 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 fi nancial year during which the estimate is reviewed and in all subsequent periods.
Sampo’s main assumptions concerning the future and the key uncertainties related to balance sheet estimates are related, for example, to assumptions used in actuarial calculations, determination of fair values of non-quoted fi nancial assets and liabilities and investment property and determination of the impairment of fi nancial assets and intangible assets. From Sampo’s perspective, accounting policies concerning these areas are most complicated and require most signifi cant use of estimates and assumptions.
A substantial part of the Group’s P&C insurance liabilities concerns statutory accident and traffi c insurance. The most signifi cant uncertainties related to the evaluation of these liabilities are assumptions about infl ation, mortality, discount rates and the eff ects of legislative revisions and legal practices.
Defi ned benefi t plans as intended in ias 19 are also estimated in accordance with actuarial principles. As the calculation of a pension plan reserve is based on expected future pensions, assumptions must be made not only of discount rates, but also of matters such as mortality, employee turnover, price infl ation and future salaries.
determination of fair value The fair value of any non-quoted fi nancial assets is determined using valuation methods that are generally accepted in the market. These methods are discussed in more detail above under ’Fair value’.
IFRS Financial Statements: Summary of Significant Accounting Policies | sampo group annual report 2007 63 impairment tests In testing loans and other receivables for impairment, the carrying amount is compared with the present value of recoverable future cash fl ows. Recoverable future cash fl ows are estimated for each contract by utilising assumptions based on historical data.
Bank plc to Danske Bank A/S in Denmark. The trade became eff ective on 1 Feb. 2007.
The Group’s secondary segmentation is based on geographical distribution. The reported segments are Finland, Sweden, Norway, Denmark, the Baltic countries and other countries.
Change in liabilities for insurance and investment contracts -43 -145 - - -188
Profi t from continuing operations before taxes 534 342 95 3 974
Consolidated Income Statement by Business Segment for Year Ended 31 December 2006 p&c life eliminaEURm insurance insurance holding tion group
Change in liabilities for insurance and investment contracts -8 -345 - - -353
Minority interest 15 ed for preparing and presenting the consolidated fi nancial statements.The segment revenue, expense, assets and liabilities, either directly attributable or reasonably allocable, have been allocated to the segments. Inter-segment pricing is based on market prices. The transactions, assets and liabilities between the segments are eliminated in the consolidated fi nancial statements on a line-by-line basis.
Depreciation and amortisation by segment are disclosed in Note 12 and Investments in associates in Note 15.
Consolidated Balance Sheet by Business Segment at 31 December 2007 p&c life eliminaEURm insurance insurance holding tion group
Investments related to unit-linked insurance contracts - 2,072 - - 2,072
Liabilities for insurance and investment contracts 8,527 4,621 - - 13,148
Liabilities for insurance and investment contracts 8,247 4,695 - - 12,942
Geographical Segment Information revenue by geographical segment EURm finland sweden norway denmark baltics other total
Banking and investment services (discontinued operations) 736 - - - 78 0 814
The revenue for insurance businesses includes insurance premiums according to the underwriting country, consisting of premiums earned for P&C insurance and premiums written for
The revenue for Holding includes all net investment income and other operating income in that segment. The comparison year includes also the income of Primasoft Oy, consolidated as a subsidiary in 2006.
assets by geographical segment EURm finland sweden norway denmark baltics other elimination total
Capitalisation and Capital Management Process . . . . . . . . . . . . . . . . . 70
Market Risk Management and Control . . . . . . . . . . . . . . . . . . . . . . . 72
Liquidity Risk Management and Control . . . . . . . . . . . . . . . . . . . . . . 78
Provision Risk Management and Control in P&C Insurance . . . . . . . 80
Insurance Risk Management and Control in Life Insurance. . . . . . . . 84
Concentration Risk Management and Control . . . . . . . . . . . . . . . . . . 84
68 sampo group annual report 2007 | IFRS Financial Statements: Risk Management 1 Risk Management Overview Risk is an essential and inherent element of Sampo´s business activities and operating environment. Clearly defi ned strategies and responsibilities, together with a strong commitment to the risk management process, are our tools to manage and mitigate the risks.
The key objectives of the risk management process are to ensure capital adequacy in relation to the risks inherent in business activities, and to limit fl uctuations in fi nancial results.
The Board of Directors of Sampo plc is responsible for ensuring that the Group’s risks are properly managed and controlled. The Board sets the principles of risk management and provides guidance on the organisation of risk management and internal control in the business areas.
Sampo plc’s Board of Directors and the Audit Committee, together with the Boards of Directors of the subsidiaries, share the responsibility for risk control. Line organisations are responsible for risk management.
Sampo Board of Directors made a decision, following the divestment of Sampo Bank, to invest the sales proceeds in shares of Northern European fi nancials or to keep them in cash.
The Board identifi es two interesting fi nancial shares presently - Sampo and Nordea. Sampo continues to invest its excess cash into these shares subject to valuations remaining favourable.
IFRS Financial Statements: Risk Management | sampo group annual report 2007 69
The core of P&C insurance is transfer of risk from insured clients to the insurer. If collects insurance premiums from a large group of policyholders and commits itself to compensate them if an insured event occurs. For If, the result depends on both the underwriting result and the return on investment assets. It is of utmost importance for the underwriting result that insurance policies are correctly priced. However, there is a risk of adverse outcomes due to the inherent uncertainty associated with the insurance business. This uncertainty is managed, for example, by reinsurance. Since a major portion of the insurance premium will be paid to policyholders through future claims, it has to be assured that suffi cient assets are always available to cover these liabilities. The duration gap between liabilities and fi xed income investments is under constant monitoring and management. Surplus capital is invested in a diversifi ed portfolio to enhance the total return.
Life insurance business carries and manages risks originating from the randomness of insurance events and the fi nancial risks included in assets and liabilities. Major part of Sampo Life’s risks and result relate to investment assets. Return on assets should cover, in the long term, at least the guaranteed return, bonuses based on the principle of fairness and the cost of capital.
Other profi t elements are generated from carrying insurance risk and expense risk. The insurance risk result is the assumed claims in premium calculations less the actual claims. It is managed through careful risk selection and diversifi cation. The expense result is the expense charges from policies less the actual expenses. It is managed by continuously monitoring expenses, by improving effi ciency, and by using an expense charge structure that also covers expenses after policy inception.
3 Capital Management Insurance is a highly regulated business with formal rules for minimum capital and capital structure. Solvency is reported quarterly to the supervisory authorities monitoring Sampo Group and to the local supervisors of subsidiaries.
on 31 December, 2007 was 774.6 per cent (202.7 per cent).
All Sampo Group companies fulfi lled the regulatory minimum capital requirements during 2007.
The economic capital for market risk, insurance risk and credit risk relating to reinsurance assets is calculated using If ’s own internal stochastic models. For credit risks related to investment assets and for operational risks, the economic capital is calculated in accordance with the standard model used in the third Quantitative Impact Study (’qis 3’) in the Solvency ii project and calibrated to the confi dence level equalling the historic bond defaults of aa-rated issuers.
Quantifi cation of the individual risk types, such as underwriting risk or market risk, is important. However, in order to assess the overall risk profi le, it is necessary to incorporate the interrelationships between the various risk types, as some of the risks may develop in opposite directions creating natural hedges. If has used an internal dynamic fi nancial analysis (dfa) model for the purpose of quantifying individual risks and risk aggregation for several years. Through simulations of both the investment and insurance operations, the eff ects of, for example, alter -
70 sampo group annual report 2007 | IFRS Financial Statements: Risk Management native reinsurance structures and investment allocations can be analyzed simultaneously.
• Allocation of capital to the various lines of business in order to achieve consistent profi t targets throughout the organisation
The capital allocated to life insurance operations increased by eur 191 million. The large increase is due to a change in methodology used as from the fi rst quarter of 2007. The actual risk has however decreased during 2007 and if the same methodology had been used in 2006 the ec would have decreased by approximately eur 100 million. The capital allocated to P&C insurance operations increased by eur 81 million.
4 Market Risks Market risk can be defi ned as the risk of loss, or of adverse change in the fi nancial situation, resulting, directly or indirectly, from fl uctuations in the level and in the volatility of market prices of assets and liabilities. Loss in the investment portfolio might occur due to adverse changes in the levels or volatility of interest rates, equity prices, currencies, commodities and real estate.
The sensitivity analysis of existing fi nancial assets and fi nancial liabilities to diff erent market risk scenarios are shown in table 3. This table does not show the fi nancial risks of technical provisions, which are quantifi ed in tables 9 and 10.
EURm p&c insurance life insurance holding elim. group valuation diff. group
Market risk relating to foreign currency consists of the translation risk linked to the net asset value and dividends of If, and the currency risk related to Sampo plc’s investment portfolio.
market risk management and control The Audit Committee controls the aggregated market risk on Sampo Group level. For If and
Sampo Life the market risks in the investment portfolios are managed and controlled by the two segments’ respective investment committees.
The investment operations of Sampo Group’s insurance companies aim at achieving the highest possible returns at acceptable levels of risk, to ensure that both Sampo Life and If will, under all circumstances, exceed the required solvency ratio and have suffi cient and structurally suitable investment assets to cover the companies’ technical provisions. Profi tability will deteriorate if the value of assets decreases, or if investment returns are lower than what implicitly is required due to guarantees relating to, or discounting of, insurance technical provisions. The intention is to limit these risks by diversifying the investment portfolio by instrument, sector and geography. Currency risks are managed by keeping assets and liabilities suffi ciently balanced across currencies or by using derivatives. In some cases, derivatives are also used to hedge the investment portfolio against value decreases.
When allocating assets and setting return and liquidity targets, the structure and requirements of the companies’ technical provisions, their risk-bearing capacities, regulatory requirements, rating ambitions and risk appetites are taken into account. The investment policy also includes guidelines on the use of derivatives.
The Boards of Directors in each insurance subsidiary and in Sampo plc appoint an Investment Committee, which is responsible for the organisation and control of investment activities within the respective legal entity. The Investment Committee ensures compliance with the principles and limits specifi ed in the investment policy and reports to the company’s Board on
The objective of investment activities in If is to, achieve the highest possible return on investment assets, with a balanced and controlled level of risk and with adequate liquidity; as well as reduce risk by asset matching of the liabilities
According to the matching principle described in If ’s investment policy, the composition of investments assets shall take into account the nature of the insurance commitments with respect to interest rate risk, infl ation risk, liquidity risk and currency risk.
Holding Company translation risk EUR 1,886 0 0 0 0 0 0 0 0 0 5% depriciation of foreign currency against EUR, 2007 -234 -4 -1 2 0 0 0 2 0 -3 5% depriciation of foreign currency against EUR, 2006 -130 -3 0 0 -1 0 0 1 0 -6
Hence, from an accounting perspective, the company is mainly exposed to changes in future infl ation. The economic value of these reserves, i.e. the present value of future claims payments is, however, exposed to changes in interest rates, either real or nominal.
Technical provisions can be split into provisions for unearned premiums and unexpired risks and provisions for claims outstanding. On 31 December 2007, net provisions for unearned premiums and unexpired risks amounted to eur 1,636 million, while net provisions for claims outstanding amounted to eur 6,406 millions.
Reserves for annuities in Finland, Sweden and Denmark are discounted, and potential changes in the discount rates will aff ect the level of technical provisions. The discount rates vary between countries mainly due to diff erences in legislation. On 31 December, 2007 the total amount of discounted provisions is eur 1,756 million.
If writes insurance policies mostly denominated in Scandinavian currencies (sek, nok, dkk) and in Euro. The currency risk is reduced by matching technical provisions with investments in the corresponding currencies or by using derivatives.
74 sampo group annual report 2007 | IFRS Financial Statements: Risk Management market risks in life insurance Sampo Life’s market risk derives mainly from equity investments and interest rate risk of assets and liabilities. Market risk is continuously followed and managed based on principles set by the Board in the Investment policy. The Investment policy outlines the acceptable risk profi le and limitations to be followed in investment operations. The objective is to always, under all circumstances, exceed the required solvency and to ensure that investments are suffi cient and eligible as assets covering technical provisions.
Sampo Life’s investment operations’ long-term target is to provide suffi cient net income to cover guaranteed return plus bonuses based on principle of fairness and shareholder expectations with acceptable level of risk. More than 80 per cent of Sampo Life’s liabilities with a guaranteed return originate from the long-term pension business with a very low surrender risk. This fact, coupled with high solvency, makes it possible for the investment strategy to look for an extra return, e.g. from the equity markets or from alternative investments.
The most signifi cant interest rate risk is that fi xed income investments will not over a longer period of time generate a return at least equal to the required minimum return of technical provisions to cover guarantees. This risk increases when market interest rates decrease and remain at a low level. The duration gap between liabilities and fi xed income investments is under constant monitoring and management.
Sampo Life has also prepared for low interest rates on the liability side by, for example, reducing the minimum guaranteed return in new contracts and increasing the reserve for policies with higher guaranteed returns. Due to these actions, the minimum return requirement for assets backing the pension business has been decreased to 3.5 per cent and, with respect to other business, to 2.5 per cent. In addition, existing contracts have been changed to accommodate improved management of reinvestment risk.
IFRS Financial Statements: Risk Management | sampo group annual report 2007 75
Figure 2 allocation of investment assets, sampo group, sampo life, if p&c, sampo plc, 31 december 2007
Private equity, hedge funds and commodities are managed by external asset managers. The private equity portfolio is diversifi ed both according to fund type and geographical areas. Hedge fund investments are placed both directly into individual funds and into fund of funds in order to attain suffi cient diversifi cation between funds and investment styles. Commodity investments are made through derivatives and funds.
Sampo Life’s currency risk derives mainly from investments in fi nancial assets in other currencies than eur. Sampo Life’s currency strategy is based on active management of the FX position. The objective is to bear absolute surplus value in proportion to a situation where the open currency risk exposure is fully hedged.
Credit risk in the investment operations includes the risk that a government or corporate issuer will not fulfi ll its obligations or otherwise obstruct the remittance of funds by debtors, particularly in the context of fi xed income securities.
Figure 5 rating fixed income investments; sampo group, sampo life, if p&c, 31 december 2007
IFRS Financial Statements: Risk Management | sampo group annual report 2007 77 issuer risk and counterparty risk. Issuer risk is often associated with a direct holding in a security, while counterparty risk is related to derivatives. The essential diff erence in terms of risk is that in the former case, the entire value of the bond is at risk, whereas in the latter case it is only the current market value of the derivative contract that is at risk.
Credit ratings mainly from Standard & Poor’s, Moody’s and Fitch, are used to judge the creditworthiness of issuers and counterparties. The credit risk is controlled by restrictions and limits given in the investment policy, and followed up on a continuous basis.
In addition to the credit risk associated with investment assets, If has credit risk towards reinsurers, partly through reinsurance receivables and partly through the reinsurers’ portion of outstanding claims. Credit risk exposure towards policyholders is very limited, because nonpayment of premiums generally results in cancellation of the insurance policies.
The distribution of reinsurance receivables and reinsurers’ share of claims provisions on 31 December, 2007 per rating category is presented in Table 6. In the table reinsurance receivables and reinsurers’ portion of outstanding claims amounting to eur 137 million are excluded.
Table 7 ratings for ceded treaty and facultative premiums, if p&c s&p rating premiums eurm % of total premiums eurm credit risks in life insurance Exposure to credit risks in Sampo Life’s investment portfolio is mainly associated with fi xed income assets. The investment policy sets restricting limits for diff erent rating classes. Credit risk reporting is based primarily on the rating of the issuer, but instrument ratings are also used
Currently reinsurers’ share of Sampo Life’s technical provisions is very small and thus credit risk related to reinsurers is not a signifi cant risk.
liquidity risk management and control Liquidity risk is a minor risk in P&C insurance, as premiums are collected in advance, large claims payments are usually known a long time before they fall due and the investment portfolio comprises securities which are readily marketable without material movements in market prices. The expected maturity for technical provisions is presented in Table 8.
Liquidity risks are managed on a legal entity level by cash management functions responsible for liquidity planning. Table 8 shows a contractual maturity analysis. In the table, fi nancial assets and liabilities are divided into contracts having an exact contractual maturity profi le, and other contracts. Only the carrying amount is shown for the other contracts. In addition, the table shows expected cash fl ows for net technical provisions, which by nature, are associated with a certain degree of uncertainty.
Table 8 financial assets and financial liabilities together with the insurance liability carrying amount total cash flows
CASH FLOWS ACCORDING TO CONTRACTUAL MATURITY (EXPECTED FUTURE PAYMENTS OF TECHNICAL PROVISIONS), NO ELIMINATIONS
carrying non maturity carrying amount amount carrying with contractual EURm total amount maturity 2008 2009 2010 2011 2012 2013-2022 2023P &C insurance
IFRS Financial Statements: Risk Management | sampo group annual report 2007 79 7 Insurance Risks insurance risks in p&c insurance The main insurance risks in the P&C insurance segment are underwriting risk and provision risk. Underwriting risk is the risk of losses due to inadequate pricing, risk concentration, improper reinsurance coverage or random fl uctuations in frequency and/or size of claims. Naturally a crucial factor contributing to the profi tability of P&C insurance operations is the company’s ability to accurately estimate future claims and administrative costs and thereby the correct pricing of insurance contracts.
A sensitivity analysis of the aggregated underwriting risk on 31 December, 2007 is presented in table 9.
Large claims are an inherent part of the property and casualty insurance business. If ’s Reinsurance policy stipulates guidelines for purchase of reinsurance. Based on statistical methods and models, the need and optimal choice of reinsurance is evaluated. The remaining net exposure is subject to the capital requirements (regulatory, economic and rating) and the cost of reinsurance must be favourable compared to the cost of capital.
Table 9 sensitivity test, underwriting risk effect on pretax profit 1% change in Private’s combined ratio +/- 20 +/- 20 1% change in Commercial’s combined ratio +/- 12 +/- 12 1% change in Industrial’s combined ratio +/- 5 +/- 5 1% change in Baltics’ combined ratio +/- 1 +/- 1 1% change in premium level +/- 38 +/- 39 1% change in claims frequency +/- 28 +/- 28 10% change in ceded reinsurance premium +/- 24 +/- 24
The uw policy is supplemented with detailed underwriting guidelines which outline in more detail how to conduct underwriting within each of If ’s Business Areas. These guidelines cover, among other things, tariff and rating models for pricing, guidelines in respect of stand-
Table 10 sensitivity test provision risk change effect in risk eurm portfolio risk parameter country 2007 Nominal reserves Infl ation increase Increase by 1%-point Sweden 177
Annuities Decrease in mortality Life expectancy increase by 1 year Sweden 8
The estimation of technical provisions for P&C insurance portfolios includes an element of uncertainty, since the provisions correspond to an approximation of future claims payments.
The methods used in general are the Chain Ladder and the Bornhuetter-Fergusson methods combined with projections of numbers of claims and average claims costs.
Actuary issues quarterly a report on the adequacy of technical provisions, which is submitted to the Board of Directors, If ’s Risk Control Committee and If ’s ceo and cfo.
The Actuarial Committee is a preparatory and advisory board for If ’s Chief Actuary. The committee makes recommendations on policies and guidelines for technical calculations, including the actuarial sections of the Guiding Technical Principles. It also monitors technical provisions and gives advice to If ’s Chief Actuary regarding their adequacy.
insurance risks in life insurance As for P&C insurance, insurance risk in life insurance can be split into underwriting and provision risks. Underwriting risk is the risk of losses due to inadequate pricing, risk concentration, improper reinsurance coverage or random fl uctuations in frequency and size of claims. The underwriting risk is mostly related to mortality rate and the incidence of disability and illness.
Provision risk is the risk of loss due to technical provisions not being suffi cient to cover cost of claim. In life insurance, the main provision risk is due to the discount rate risk, but also contains the same risks as the underwriting risk, such as random fl uctuations in the claims.
Among the most signifi cant of underwriting risks included in life insurance policies is protection covering death, disability and medical expenses. These risks are limited through careful risk selection, by pricing to refl ect the risks and costs by setting upper limits for the protection granted and by reinsurance. The amount of individual risk is limited by reinsurance. The Board of Directors annually determines the maximum amount of risk to be retained for own account, which for Sampo Life is eur 0.5 million. To mitigate the eff ects of possible catastrophes,
More than half of Sampo Life’s mortality risk premium comes from the Employees’ Group
Provision risk is managed by analysing and annually reviewing the assumptions related to the liabilities. The most signifi cant provision risks are discount rate risk and risk of increase in life expectancy within group pension policies. In most with-profi t policies, the guaranteed return rate used in the premium basis is 3.5 per cent. In individual policies sold in Finland before 1999, the guaranteed return rate is 4.5 per cent, this being also the statutory maximum discount rate of these policies. With respect to these individual pension policies, the maximum discount rate used when discounting liabilities has been decreased to 3.5 per cent. The discount rate of life insurance and capital redemption policies having a guaranteed interest of 3.5 or 4.5 per cent has been decreased to 2.5 per cent. The provisions have been increased by eur 143 million (eur 142 million) due to these measures.
The provisions related to each product type and guaranteed returns are shown in table 12.
The longevity risk in the group pension liabilities is analysed regularly. The assumed life expectancy in all group pension premiums and liabilities was raised in 2002. During 2007 further changes have been made. Part of the provisions of group pension consists of socio-economically selected pensioners. Provisions relating to this group were strengthened by eur 20.6 million on 31 December, 2007. Because of this, supplement provision mortality result of group pension is negative.
In most individual pension insurance policies, the longevity risk is smaller than in group pension insurance due to the fi xed term of the policies and because most policies have been issued with death cover that compensates for the longevity risk. Policyholders are allowed to cancel the death cover and they are allowed to change pension plans. Both of these changes could increase longevity risk, but so far these options have not had any material eff ect.
risk claim claim risk claim claim EURm income expense ratio income expense ratio *) The mortality claim expense of the group pension in 2007 contains the provision made (EUR 20.6 million).
The most signifi cant items in the column “Other” are the savings conversions between unitlinked and with-profi t savings and the changes in the values of assets linked to unit-linked policies. The column also includes the risk result.
analysis of the change in provisions in 2007 liabilities arising from insurance and investment contracts of sampo life group *)
liability claims expense guaranteed liability share EURm 2006 premiums paid ***) charges interest bonuses other 2007 %
IFRS Financial Statements: Risk Management | sampo group annual report 2007 83
The maturing amounts of Sampo Life are evaluated by assuming lapse rates based on past experience, guaranteed interests and bonus rates based on the liability adequacy test.
Table 13 maturity of sampo life group’s business on 31 december, 2007 maturity of insurance and investment contracts of sampo life group *) matures in the years
SAMPO LIFE PARENT COMPANY TOTAL 7.7 1,357 1,304 2,162 1,342 976 698 1,171 *) Before reinsurers´ share **) Investment contracts
Sampo Life’s Underwriting policy sets principles for risk selection and limits for sum insured.
Sampo Life conducts thorough analyses, at least annually, of the underwriting result i.e. the actual claims expenditure and the claims expenditure assumed in insurance premiums of every risk cover. Based on these analyses, Sampo Life sets tariff s for the new business, updates Underwriting policy and based on these tests makes changes to the provisions relating to existing business if necessary. In both disability and medical expenses policies, the company has the right to raise insurance premiums for existing policies if the claims experience deteriorates.
8 Concentration Risks Concentration risk is the exposure to increased losses associated with inadequately diversifi ed portfolios of assets and/or liabilities.
concentration risk management and control If underwrites business in the Nordic and Baltic countries. Given the large number of customers and the fact that business is underwritten in diff erent geographical areas and across several classes of insurance, the portfolio is relatively well diversifi ed.
investment portfolios. Such risks, market and credit risks are managed by taking into account the total Group exposure when setting individual limits in the investment policies for the various subsidiaries within the Group. Investment risks in Sampo Life, If P&C and Sampo plc, are monitored and controlled by the individual Investment Committees in the three respective segments, and total Group exposures are monitored and controlled by the Sampo Group’s Chief
Concentration risks related to other risk classes than market and credit risks are of less signifi cance. Insurance risk present in the P&C insurance and life insurance segments respectively has a low degree of correlation. The same is true for operational risk because core operational processes in If P&C and Sampo Life are run and managed independently of each other.
and sek 200 million (app. eur 21 million) per risk and sek 200 million per event. In terms of insurance classes, Motor insurance constitutes a relatively large share of the overall business underwritten, especially in Sweden.
is an annual process where operational risks are identifi ed and assessed through interviews and workshops. The risks are analysed and prioritized in all of If ’s business areas and corporate functions as a part of the annual business planning process. In addition, Operational Risk Management is continuously identifying operational risks through the following sources: incident reporting, environmental analysis and operational risk projects. These are reported on a quarterly basis to Operational Risk Committee in If and to If ’s Risk Control Committee.
A separate programme to prepare If for the anticipated changes is organized and was introduced during 2007. The programme has during the year encompassed involvement in the
Solvency ii debate and a review of If ’s risk management framework, internal control and corporate governance as well as the internal capital model. Based on the review and the continuous process for improving risk management, projects will be initiated during 2008 to secure full compliance with Solvency ii.
Other Notes 1 Discontinued Operations On 9 Nov. 2006 Sampo plc signed a contract to sell the entire share stock of Sampo Bank plc to Danske Bank A/S. As a result, in the fi nancial year for 2006 the Banking and investment services segment was classifi ed as discontinued operations. The assets and liabilities related to the segment are presented, for the year 2006, in the balance sheet items Assets classifi ed as held for sale (Note 23) and Liabilities directly associated with assets classifi ed as held for sale (Note 30).
Group total 4,458 4,433 1) The change in unearned premiums is presented in Note 5 ” The change in insurance and investment liabilities”.
IFRS Financial Statements: Other Notes | sampo group annual report 2007 89
Included in gains/losses from fi nancial assets available-for-sale is a net gain of eurm 234 (205) transferred from the fair value reserve.
The changes in the fair value reserve are disclosed in the Statement of changes in equity on p. 48. Other income and expenses comprise rental income, maintenance expenses and depreciation of investment property. All the income and expenses arising from investments are included in Net income from investments. Gains/
losses include realised gains/losses on sales, unrealised and realised changes in fair values and exchange diff erences. The eff ect of discounting annuities in P&C insurance is disclosed separately. The provision for annuities is calculated in accordance with actuarial principles taking anticipated infl ation and mortality into consideration, and discounted to take the anticipated future return on investments into account. To cover the costs for upward adjustment of annuity provisions required for the gradual reversal of such discounting, an anticipated return on investments is added to annuity results.
90 sampo group annual report 2007 | IFRS Financial Statements: Other Notes 4 Claims Incurred p&c insurance 2007 2006 EURm gross ceded net gross ceded net
Change in provision for claims outstanding (incurred but not reported losses, IBNR) 456 -16 439 444 -30 414
Change in provision for claims outstanding (incurred and reported losses) -9 -23 -32 -9 -24 -33
Total change in provision for claims outstanding -272 -15 -287 -291 -23 -313
Contracts with discretionary participation feature (DPF) -259 -241 -99 -99 -358 -340
Contracts with discretionary participation feature (DPF) -36 -14 0 0 -36 -14
92 sampo group annual report 2007 | IFRS Financial Statements: Other Notes
Group, total -479 -483 *) The comparison fi gure includes the staff costs for Primasoft Oy, consolidated as a subsidiary in 2006.
Specifi cation of activity-based operating expenses included in the income statement
Administrative expenses pertaining to other technical operations (Operating expenses) -25 -23
Technical result before investment return legal total direct reinsurance EURm expenses other insurance assumed elimination total
96 sampo group annual report 2007 | IFRS Financial Statements: Other Notes 10 Earning per share
Weighted average number of shares outstanding during the period 578 563
Profi t or loss attributable to the equity holders of the parent company/discontinued operations - 263
Diluted earnings per share (EUR per share)/discontinued operations - 0.46 1) In calculating the diluted earnings per share for 2006, those option rights not exchanged to shares during the year but exercice price of which was lower than the average market price of the ordinary share, have been taken into account. The diluting eff ect was the number of shares that would have been issued without consideration. The fair value of the ordinary share was determined as the average market (closing) price of the shares during the period, being EUR 16.78 in 2006. The dilutive eff ect of 13 million shares resulted from the year 2000 option programme. More detailed information on option programme by Sampo Group is disclosed in Note 34.
11 Financial Assets and Liabilities Financial assets and liabilities have been categorised in accordance with ias 39.9. In the table are also included interest income and expenses, realised and unrealised gains and losses recognised in P/L, impairment losses and dividend income arising from those assets and liabilities.
carrying interest- gains/ impairment dividend EURm amount inc./exp. losses losses income
IFRS Financial Statements: Other Notes | sampo group annual report 2007 97 carrying interest- gains/ impairment dividend EURm amount inc./exp. losses losses income
For the purpose of better comparison, the 2006 table has been adjusted to include only the fi nancial assets and liabilities of the continuing activities.
98 sampo group annual report 2007 | IFRS Financial Statements: Other Notes
IFRS Financial Statements: Other Notes | sampo group annual report 2007 99 holding land and land and EURm buildings equipment total buildings equipment total
Transfers between items - From owner-occupied to investment properties -12 - -12 0 - 0 - From investment
Non-cancellable minimum rental - not later than one year 1 1 - later than one year and not later than fi ve years 1 1
Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period -1 -1 - direct operating expenses arising from investment property not generating rental income during the period 0 0
Non-cancellable minimum rental - not later than one year 10 8 - later than one year and not later than fi ve years 11 12 - later than fi ve years 14 13
Additions resulting from subsequent expenditure recognised as an asset 0 -
Fair values for the Group’s investment property are entirely determined by the Group based on the market evidence.
At 31 December otherp&c insurance customer intangible EURm goodwill relations assets total
In other intangible assets for 2007, the disposal of eurm 9 is the scrappage of IT software used in If P&C Insurance Company Ltd. The scrappage will reduce amortisation expense over the next fi ve years about eurm 1–2 per year.
The premises in investment property for diff erent segments are leased on market-based, irrevocable contracts. The lengths of the contracts vary from those for the time being to those for several years.
Other intangible assets in all segments comprise mainly it software. Depreciation and impairment losses are included in the income statement item Other operating expenses.
testing goodwill for impairment Goodwill is tested for impairment in accordance with ias 36 Impairment of assets. No impairment losses have been recognised based on these tests.
The recoverable amounts for If have been determined by using a discounted cash fl ow model. The model is based on Sampo’s management’s best estimates of both historical evidence and economic conditions such as volumes, margins, income and cost development. The value in use model for Sampo Life has been fundamentally based on the embedded value model where the cash fl ow estimates for existing policies are based on budgets approved by the management and on historical evidence in terms of policy surrendering, death and accident frequencies etc. The derived cash fl ows for If were discounted at the pre-tax rates of 11.9 per cent. For Sampo Life, the weighted average cost of capital of 11.3 per cent has been used for the discounting.
Forecasts for If, approved by the management, cover years 2008–2010. The cash fl ows beyond that have been extrapolated using a 3% growth rate. A 2% growth rate for years beyond 2007 has been used for the markets where Sampo Life operates.
Financial assets designated as at fair value through p/l 9,283 9,732
Group, total 19,575 15,921 p&c insurance Derivative fi nancial instruments 2007 2006 contract/ fair value contract/ fair value notional notional EURm amount assets liabilities amount assets liabilities
Interest rate options, bought and sold 5 0 0 73 0 0
Total fi nancial assets designated as at fair value through p/l 9,283 9,732
Interest options, bought and sold 225 0 0 507 0 0
Total fi nancial assets designated as at fair value through p/l 47 75
Financial assets available-for-sale for Holding business include impairment losses eurm 2 (2).
The fair value for short-term non-interest-bearing receivables and payables is their carrying amount. Disclosed fair values are ”clean” fair values, i.e. full fair value less interest accruals.
Other assets are due to diff erences in cash fl ows. The historical cost of the equity securities related to unit-linked contracts was eurm 1,665 (1,437) and that of the debt securities eurm 81 (57).
19 Deferred Tax Assets and Liabilities changes in deferred tax during the financial period 2007 recognised recognised exchange EURm 1.1. in p/l in equity differences 31.12.
Depreciation diff erences and untaxed reserves 326 23 - -3 346
IFRS Financial Statements: Other Notes | sampo group annual report 2007 109 changes in deferred tax during the financial period 2006 recognised recognised exchange EURm 1.1. in p/l in equity differences 31.12.
Depreciation diff erences and untaxed reserves 250 77 - -1 326
110 sampo group annual report 2007 | IFRS Financial Statements: Other Notes 21 Other Assets p&c insurance
Other assets include non-current assets eurm 48 (42). Item Other comprises rental deposits, salary and travel advancements and assets held for resale.
Item Other includes e.g. vat receivable from Primasoft Oy (see Sampo plc’s Note 24) and asset management fee receivables.
Cash and cash equivalents above equal those used in the statement of cash fl ows.
banking and investment services (discontinued operations) EURm 2006 Assets classifi ed as held for sale
112 sampo group annual report 2007 | IFRS Financial Statements: Other Notes 24 Liabilities from Insurance and Investment Contracts p&c insurance change in insurance liabilities 2007 2006 EURm gross ceded net gross ceded net
claims cost trend of p&c insurance The following tables show the cost trend for the claims between 2003–2007. The upper part of the tables shows how an estimate of the total claims costs per claims year evolves annually. The lower section shows how large a share of this is presented in the balance sheet.
Current estimate of total claims costs 5,433 2,370 2,354 2,508 2,612 2,695
Group, total 13,148 12,942 25 Liabilities from Unit-Linked Insurance and Investment Contracts life insurance
If P&C Insurance issued in June 2005 eurm 150 preferred capital note. The loan is perpetual and pays fi xed interest rate for the fi rst ten years. The loan is listed on the Luxembourg Exchange.
IFRS Financial Statements: Other Notes | sampo group annual report 2007 115 life insurance
Sampo Life issued in 2002 eurm 100 Capital Notes. The loan is perpetual and pays fl oating rate interest. The interest is payable only from distributable capital. The loan is repayable only with the consent of the Insurance Supervisory Authority and at the earliest on 2012 or any interest payment date after that. The loans was 100% subscribed by Sampo plc.
The development of effi cient administrative and claims-adjustment processes and structural changes in distribution channels result in organisational changes that aff ect all business areas. The provision consists mainly of funds reserved for future expenses attributable to previously implemented or planned future organisational changes.
Pension obligations, and the pension cost accrued during the fi scal period, are calculated using actuarial methods. Earned pension rights are calculated on a straight-line basis during the employment period. The calculation of pension obligations is based on anticipated future pension payments and includes assumptions regarding mortality, employee turnover and salary growth. The nominally calculated liability is discounted to present value using an interest rate based on the current market rate and adjusted to take into account the duration of the company’s pension obligations. After deducting plan assets, a net asset or liability is entered in the balance sheet. The net obligation reported in the closing balance pertained to defi ned-benefi t pension plans for employees in Sweden and Norway. The pension benefi ts arising in the other countries covered by the Group’s operations have been classifi ed as defi ned contribution plans.
Net cumulative unrecognised actuarial gains/losses -53 -1 -54 -81 -9 -90
Pension obligations: At the beginning of the year 388 373 290 237
Reconciliation of plan assets: At the beginning of the year 218 211 171 155
The non-current share of other liabilities is eurm 48 (44). Item Other includes e.g. witholding taxes, social expenses related to Workers Compensation insurance policies and employee benefi ts, unpaid premium taxes and other accruals.
Item Other includes e,g. liabilities arising from withholding taxes and social security costs, liabilities to creditors and insurance premium advances.
118 sampo group annual report 2007 | IFRS Financial Statements: Other Notes 31 Contingent Liabilities and Commitments p&c insurance
Assets pledged as collateral for liabilities or contingent liabilities 2007 2006 assets liabilities/ assets liabilities/ EURm pledged commitments pledged commitments
The subsidiary If P&C Insurance Ltd provides insurance with mutual undertakings within the Nordic Nuclear Insurance Pool and within the Norwegian Natural Perils’ Pool.
In connection with the transfer of property and casualty insurance business from the Skandia group to the If Group as of March 1, 1999, If P&C Holding Ltd and If P&C Insurance Ltd issued a guarantee for the benefi t of Försäkringsaktiebolaget Skandia (publ.) whereby the aforementioned companies in the If Group mutually guarantee that companies in the Skandia group will be indemnifi ed against any claims or actions due to guarantees or similar commitments made by companies in the Skandia group within the property and casualty insurance business transferred to the If Group.
If P&C Holding Ltd and If P&C Insurance Ltd have separately entered into contracts with Försäkringsaktiebolaget Skandia (publ.) and Tryg-Baltica Forsikrings AS whereby Skandia and Tryg-Baltica will be indemnifi ed against any claims attributable to guarantees issued by Försäkringsaktiebolaget Skandia (publ.) and Vesta Forsikring AS, on behalf of Skandia Marine Insurance Company (u.k.) Ltd. (now Marlon Insurance Company Ltd.) in favor of the Institute of London Underwriters. Marlon Insurance Company Ltd. was disposed during the fi nancial year, and the purchaser issued a guarantee in favour of If for the full amount that If may be required to pay under these guarantees.
If P&C Holding Ltd has issued a guarantee to the benefi t of TietoEnator Corporation whereby If Holdings guarantees the commitments incurred by the If Group company If It Services A/S with TietoEnator based on an agreement covering it-services. The guarantee will indemnify TietoEnator if If it Services A/S is declared bankrupt, suspends payments in general, seeks a composition of creditors or in any other way is deemed to be insolvent.
As a part of the Norwegian OTP-portfolio transfer from Sampo Life to Handelsbanken Liv on 1 Jan. 2007, Sampo Life committed to compensate Handelsbanken Liv for the possible costs caused by the diff erence between Sampo Life’s waiver of contribution tariff s compared to those of Handelsbanken Liv during the period 1 July 2006 – 1 Feb. 2007.
32 Equity and Reserves equity number of share share premium EURm shares capital account total
120 sampo group annual report 2007 | IFRS Financial Statements: Other Notes retained earnings
Sampo’s A shares are quoted on the Helsinki Stock Exchange. Sampo’s options from option programme 2000 were also quoted on the Helsinki Stock Exchange during the comparison year. Subscription period for the options ended 31 Jan, 2007 and the quotation on the Helsinki Stock Exchange on 24 Jan. 2007.
As Sampo’s A shares, subscribed on the basis of the option programme 2000 after 31 Dec. 2006, entitled to dividends only after the dividend distribution for 2006, a new share category was adopted in the main list of Helsinki Stock Exchange on 2 Jan. 2007. The new category Sampo Uudet was combined with the Sampo A share after the dividend distribution for 2006 on 21 May 2007.
Other long-term benefi ts consist of the benefi ts under long-term incentive schemes accounted for the year (see Note 34).
Key management personnel with close family members and entities that are controlled or signifi cantly infl uenced by these - 25
IFRS Financial Statements: Other Notes | sampo group annual report 2007 121 34 Incentive Programmes year 2000 option programme On 29 Sep. 2000, the Extraordinary General Meeting of Sampo plc decided to off er options without consideration to the management, middle management and other key personnel of Sampo and its subsidiaries, and to a wholly-owned subsidiary specifi ed by the Board of Directors. The decision to off er these options disapplied the shareholders’ pre-emptive subscription rights.
long-term incentive schemes 2003 i–2006 ii The Board of Directors for Sampo plc has decided on the long-term incentive schemes 2003 i–2006 ii for the management and experts of the Sampo Group. The Board has authorised the Nomination and Compensation Committee of the Board, or the ceo, to decide who will be included in the scheme, as well as the number of calculated bonus units granted for each individual used in determining the amount of the performance-related bonus. Under 100 persons were included in the schemes at the end of year 2007.
The amount of the performance-related bonus is based on the value performance of Sampo’s A share and on the return on the risk adjusted capital (rorac), or on the insurance margin (im) in the incentive plan 2006 ii. The value of one calculated bonus unit is the trade-weighted average price of Sampo’s A share at the time period specifi ed in the terms of the scheme, and reduced by the starting price adjusted with the dividends per share distributed up to the payment date. The pre-dividend starting prices vary between eur 7.36–20.17 and post-dividend eur 5.06–18.97. The maximum value of one bonus unit varies between eur 19–30, reduced by the dividend-adjusted starting price. The rorac criteria has three levels. If the benchmark varying between 7.22–8.96 per cent is reached, the bonus is paid as a whole. If the benchmark less 2.00–2.50 percent is reached, the payout is 50 percent. If the rorac falls short of the above-mentioned, no bonus will be paid out.
Accordingly, in the 2006 ii incentive scheme, if the insurance margin reaches 4 per cent or more, the bonus is paid in its entirety. If the insurance margin is between 2–3.99 per cent, the payout is 50 per cent. In the case of insurance margin staying below these benchmarks, no bonus will be paid out.
122 sampo group annual report 2007 | IFRS Financial Statements: Other Notes
Terms approved *) 8 May 2003 11 Feb. 2004 5 Oct. 2004 22 Mar. 2005 22 Jun. 2005 11 May 2006 21 Dec. 2006
Price of Sampo A at terms approval date *) 6.30 9.00 8.94 11.01 12.34 16.39 20.25
Dividend-adjusted starting price at 31 Dec. 2007 - 5.87 6.88 9.17 10.87 - 18.97
long-term incentive schemes 2008 i On the 16 Feb. 2008, the Board of Directors for Sampo plc decided on a new long-term incentive scheme 2008 I for the management and appointed experts of the Sampo Group. The Board has authorised the ceo to decide who will be included in the scheme, as well as the number of calculated bonus units granted for each individual used in determining the amount of the performance-related bonus. The number of calculated bonus units granted for the members of the Group’s Executive Committee is decided by the Board of Directors.
The amount of the performance-related bonus is based on the value performance of Sampo’s A share and on the insurance margin (im) of If. The value of one calculated bonus unit is the trade-weighted average price of Sampo’s A share at the time period specifi ed in the terms of the scheme, and reduced by the starting price adjusted with the dividends per share distributed up to the payment date. The maximum value of one bonus unit is eur 28, reduced by the dividend-adjusted starting price. If the insurance margin is 4 percent or more, the bonus is paid as a whole. If the im varies between 2.00–3.99 percent, the payout is 50 percent. If the im falls short of the above-mentionned, no bonus will be paid out.
The plan has three performance periods and bonuses are settled in cash in three installments. When the bonus is paid, the employee shall buy Sampo’s A shares at the fi rst possible opportunity, taking into account the provisions on insiders, with 30 per cent of the amount of the bonus after taxes and other comparable charges, and to keep the shares in his/her possession for one year. A premature payment of the bonuses may occur in the event of changes in the group structure or in the case of employment termination on specifi cally determined bases. The fair value of the incentive scheme is estimated by using the Black-Scholes princing model.
IFRS Financial Statements: Other Notes | sampo group annual report 2007 123 2008 i
50 per cent of the amount of the reward eventually payable is based on the price performance of Sampo’s A share, and the other 50 per cent is based on the development of insurance margin (im). The programme has three performance periods that cover the years 2006–2010, with the fi rst possible installment being paid in December 2008. Each installment corresponds, at the maximum, to one third of the total amount of shares. The terms of the programme include a limitation according to which the amount of the reward payable will be decreased, if Sampo’s share price increases by more than 160 per cent during an individual performance period. The shares to be distributed as a reward are partly subject to a two-year lock-up. The Board of Directors of Sampo has the right to decide to pay the reward partly or as a whole in cash instead of the shares.
A premature payment of the reward may occur in the event of changes in the group structure or in the case of employment termination on specifi cally determined bases. As a result of the sale of the share stock of Sampo Bank plc to Danske Bank A/S in 2007, a prepayment corresponding to 150,000 shares occurred in accordance with the terms of the programme.
Share price May 2005-Q3 -2008 Q4 2006-Q3 -2009 Q4 2007-Q3 -2010
Insurance margin and Return on equity Jan. 2006 -Sep. 2008 Jan. 2007 -Sep. 2009 Jan. 2008 -Sep. 2010 performance conditions increase of dividend for periods adjusted share price insurance margin
Payout of the total maximum reward if the minimum is achieved 20% 40%
Payout between the minimum and the maximum increases linearly. The fair value of the programme at grant date has been measured by using Black-Scholes- pricing model. When measuring the fair value of the part of the reward that is based on market conditions (share price), the estimated amount of shares to vest has been taken into account. Non-market conditions (IM and roe) have not been taken into account in the fair value calculations, but instead these conditions have been taken into account when estimating the amount of shares to vest by the end of the vesting period. In this respect, the Group updates the assumptions of non-market conditions for each interim and annual accounts. The volatility used in the pricing-model, 21.4 per cent, was two and half years’ weekly historical volatility. Other inputs used in the model were risk free interest rates 4.53–4.75 per cent and 5 per cent dividend per share.
Listed foreign shares and participations amount/ EURm country no. of shares holding % fair value
Foreign capital trusts amount/ EURm country no. of shares holding % fair value
Foreign listed companies amount/ EURm country no. of shares holding % fair value
Foreign unit trusts amount/ EURm country no. of shares holding % fair value
Holdings exceeding eurm 5 and holdings in listed companies exceeding fi ve per cent specifi ed.
The accounting principles applied to the separate fi nancial statements of Sampo plc do not materially diff er from those of Sampo Group, prepared in accordance with the International Financial Reporting Standards (ifrs). The fi nancial assets are measured at fair value derived from the markets. The accounting principles for the Group are described starting from p. 52.
Amortisation according to plan during the fi nancial year 0 -1 -3 -4
Carrying amount at end of year 0 1 8 15 7 Property, Plant and Equipment land and land and EURm buildings other buildings other
Carrying amount at end of year 2,370 3,157 9 Receivables from Group Companies
Receivables are subordinated loans issued by subsidiaries. More information in the consolidated Note 26 Financial liabilities.
Avalaible-for-sale equity securities 2,758 1 9 454 -4 44 changes in property shares
Diff erence between current cost and carrying amount 0 -2 12 Other Investment Receivables fair value changes fair value changes recognised recognised recognised in fair value recognised in fair value EURm fair value in p/l reserve fair value in p/l reserve 13 Other Receivables
Profi t for the year 1,391 1,391 restricted equity unrestricted equity share premium fair value other retained EURm share capital account legal reserve reserve reserves earnings total
Notes on the liabilities and commitments 21 Pension Liabilities The basic and suplementary pension insurance of Sampo plc’s staff is handled through insurances in Varma Mutual Insurance Company and in Sampo Life Insurance Company Limited.
Notes on the income taxes 20 Deferred Tax Assets and Liabilities
Over one year but not more than fi ve years 5 4
Sampo plc made an appeal to the Helsinki Administrative Court with respect to the reassessment of the Tax Offi ce for Major Corporations.
By a decision made on 12 December 2007, the Helsinki Administrative Court approved Sampo’s appeal, overruled the reassessment decisions made and returned the issue to the Tax Offi ce for Major Corporations for further handling.
Temporary staff - 1 26 Management’s Remuneration and Post-Employment Benefi ts (EUR thousand) 2007 2006 Managing and Debuty Managing Directors
Matti Vuoria 85 99 pension liability The retirement age of the Managing Director and the Deputy Managing Director is 60 years, when the pension benefi t is 60% of the pensionable salary.
Primasoft Oy, Espoo Finland 20.00 (30.00) 1 *) Percentage of the voting rights held is presented in brackets, if it diff ers from that of the shares held.
Information on associates is disclosed in Note 15 to the consolidated fi nancial statements.
Approval of the fi nancial statements and the board of directors’ report
Directors and the Managing Director of the parent company have complied with the rules of the Companies Act.
consolidated financial statements In our opinion the consolidated fi nancial statements, prepared in accordance with International Financial Reporting Standards as adopted by the eu, give a true and fair view, as defi ned in those standards and in the Finnish Accounting Act, of the consolidated results of operations as well as of the fi nancial position. The consolidated fi nancial statements can be adopted.
parent company’s financial statements, report of the board of directors and administration In our opinion the parent company’s fi nancial statements and the report of the Board of Directors have been prepared in accordance with the Finnish Accounting Act and other applicable
The Annual Report is published on Sampo’s Internet pages at the address www.sampo.com/annualreport. Printed Annual Reports can be ordered at the above Internet address, by mail from Sampo plc Investor Relations, Fabianinkatu 27, 00100 Helsinki, Finland or by calling +358 010 516 0033.
Annual General Meeting Sampo plc’s Annual General Meeting will be held on Tuesday, 15 April 2008 at 2.00 p.m., at the Finlandia Hall Congress wing, address Mannerheimintie 13e, Helsinki. The listing of persons registered for the meeting will commence at 12.30 p.m.
Finnish Central Securities Depository Ltd (Suomen Arvopaperikeskus Oy) by 4 April 2008. Asset managers must enter nominee-registered shareholders in the Sampo shareholder register created for the agm by Finnish Central Securities
The contact information for Group subsidiaries is available on the Internet at the address www.sampo.com/contacts www.sampo.com/ir/feedback
R el at io ns S ha re ho ld er s er vi ce s M
Essi Nikitin IR Offi cer essi.nikitin@sampo.fi contents Sampo Group 1 | CEO’s Review 2