Sampo Group is one of the largest investors in the Nordic countries. In the beginning of February 2009, Sampo Group's investment assets totalled approximately EUR 17 billion.
We at Sampo Group made preparations for tougher times by significantly reducing our equity exposure in the operating businesses already in 2006 and 2007 and by maintaining high levels of solvency and liquidity. With the benefit of hindsight one can, of course, say that we should have done some things differently. Had we fully understood the situation we would have sold all our equity holdings and postponed our entry into Nordea with a year or so. Our net asset value development reflects the rough ride in the capital markets. In addition we have suffered from the extremely weak development of Swedish krona which depreciated by 15 per cent in the last quarter of 2008. Our largest operating unit, If P&C, is headquartered in Stockholm and reports in Swedish kronas.
But when you look at our reported asset values, please keep in mind that, in sharp contrast to almost any other financial institution, we book all our assets at true market value. In illiquid markets many prices on the screens are absurdly low. We have not made use of any of the relaxed reporting rules that are now available for banks and insurance companies, for the simple reason that we have enough capital to take the hits upfront. Our NAV is hard NAV, in the truest sense of the word.
We already have invested in two Nordic financial stocks. The bigger investment, Nordea, hasn’t fared well, as Nordea’s share price dropped by 55 per cent in 2008. Our aim is further out and short-term volatility, however extreme, is not significant. To me Nordea is an obvious winner in Nordic banking consolidation. Our smaller investment, Topdanmark, is surprisingly resistant to market turbulence and traded, at least when writing this review, clearly above our acquisition price. At the current share price we will not be investing more into the stock but in times like these, of course, things can change very quickly.
Our life insurance operation had a difficult start of the year with distribution problems in its main sales channel, Sampo Bank. Difficult times require new thinking and action was taken to transform the life insurance company from a production facility into a service unit. This was reflected in renaming the company to Mandatum Life Insurance Company Limited in August 2008. The innovative approach and a smart interest rate swap will help Mandatum Life over the worst of 2009.
Average number of staff (FTE) 7,145 6,855 4 * Year 2008 figure is the Board of Directors’ dividend proposal.
Distribution Policy The Board of Sampo plc adopted a distribution policy on 9 November 2006 according to which the company aims to distribute to the shareholders an annual dividend corresponding to a dividend yield of 4-6 per cent. However, the dividend shall not exceed the reported profit after taxes for the calendar year for which the dividend is payable. Share buy-backs can be used to complement dividends.
assets itself. Sampo plc is also a major shareholder in the Nordic banking group Nordea. On 31 December 2008 Sampo Group held 12 per cent of Nordea’s shares.
The Group utilizes flexibly opportunities arising in the market to create shareholder value through transactions such as disposals and acquisitions.
Sampo and Industrial Insurance are merged into a new P&C insurance group as of 1 January 1994. Sampo Group becomes Finland’s leading P&C insurer.
NASDAQ OMX Helsinki). The figure shows the development of the share price and key changes in the Group during its 20-year history as a listed company.
In November 2006, Sampo plc announces the divestment of Sampo Bank Group to Danske Bank A/S of Denmark. The transaction takes place in February 2007.
In February 2008, Sampo plc announces that it has increased its holding in the Swedish bank Nordea to over 10 per cent.
Sampo Life, a subsidiary of Sampo, and Nova Life Insurance Company Limited merge in December 1998. The new company is called Sampo Life and it is a subsidiary of Sampo.
Sampo’s P&C insurance business becomes part of If. Following the arrangement, Sampo holds 38 per cent of If ’s total stock.
The Group takes on a holding company structure. The Group’s P&C insurance business is transferred to the Group subsidiaries.
The composition of the Board of Directors of Sampo plc in 2008 was as follows: Georg Ehrnrooth, Chairman
In 2008, the Nomination and Compensation Committee comprised the Chairman of the Board (who acted 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 was Georg Ehrnrooth, and the other members were Matti Vuoria and Christoffer Taxell. The Committee met five times in 2008. Each member of the committee participated in every meeting.
AUDIT COMMITTEE The Audit Committee is responsible for monitoring the statutory auditing and reporting process of the financial statements and consolidated financial statements and for overseeing the authenticity of Sampo Group’s financial statements and the financial reporting process. Furthermore, the Audit Committee is responsible for evaluating the auditors’ and auditing firm’s professional competence and independence and particularly the provision of related services to Sampo Group, and for preparing proposals to be made to the Annual General Meeting concerning the election of the auditors and the auditing fees. The Committee also oversees the Sampo Group’s internal audit and the actions of the auditors under the laws of Finland, monitors the auditors’ invoicing for audit and non-audit services in the way it sees fit, monitors the efficiency of the company’s internal control, internal audit and risk management systems, and monitors the Group’s risks and the quality and scope of risk management. In addition, the Committee approves the internal audit action plan, monitors the internal audit’s reporting, monitors in the various business areas the fulfilment of risk policies, the use of limits and the development of profit, oversees the preparation of and compliance with risk management policies and other related guidelines, and reviews the description of the main features of the internal control and risk management systems pertaining to the financial reporting process, which is included in the company’s Corporate Governance Statement. The Committee also evaluates the compliance with laws and regulations in Sampo Group and carries out any other tasks that may be bestowed upon it by the Board.
THE SAMPO GROUP EXECUTIVE COMMITTEE The Board of Directors has appointed the Sampo Group Executive Committee and a Group MD Committee to the Executive Committee, which supports the CEO in preparing matters to be handled by the Executive Committee.
Sampo Group Executive Committee supports the CEO in the preparation of strategic issues relating to Sampo Group, in the handling of operating matters that are significant or involve questions of principle, and in ensuring a good internal flow of information.
The Group MD Committee comprised Björn Wahlroos, Kari Stadigh, Torbjörn Magnusson and Patrick Lapveteläinen. Ilona Ervasti-Vaintola acted as the Group MD Committee’s secretary.
In 2008, the Executive Committee convened five times 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 – and altogether 25 times.
Other Committees INVESTMENT COMMITTEE The Board appoints the Investment Committee to manage Sampo’s investment assets. The Investment Committee comprises the Group Deputy CEO, the Group CIO and two other members appointed by Sampo’s Board.
The Investment Committee is responsible for preparing the Group’s investment policy for approval by the Board, preparing investment decision authorisations for the Boards of the Group companies, and monitoring the use of limits and authorisations.
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.
In accordance with a decision of the Annual General Meeting in 2008, the members of the Board were paid the following annual fees for their Board and committee work until the close of the Annual General Meeting in 2009: the Chairman EUR 160,000, the Vice Chairman EUR 100,000, and the other members of the Board EUR 80,000, with 30 per cent of the annual fee being paid in Sampo A shares. Board members employed by the company do not receive separate compensation for Board work.
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 Executive Committee, on the basis of a proposal by the Nomination and Compensation Committee. However, the Nomination and Compensation Committee can decide, upon authorisation by the Board of Directors, on the salaries of the members of the Group Executive Committee, excluding the Group CEO and Deputy.
PRINCIPLES OF THE COMPENSATION SYSTEM In addition to receiving monthly salaries, executives who are members of the Group Executive Committee are participants in the Group’s profit bonus system which is decided upon separately each year. The criteria used in determining the profit bonus are the Group’s result, the business area’s result and the individual performance of the person in question. The maximum profit bonus that can be paid for 2008 to executives who are members of the Executive Committee is an amount corresponding to nine months’ salary.
Corporate Governance pants in the long-term share incentive system for the Sampo Group’s key management, entitled Sampo 2006. The terms of the incentive systems are available on Sampo’s website at www.sampo.com.
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.
The total fees paid to the auditor for services rendered and invoiced were EUR 1,994,281. In addition, Ernst & Young Oy were paid fees for non-audit services rendered and invoiced totalling EUR 473,373.
Georg Ehrnrooth, born 1940 Positions of Trust: Oy Karl Fazer Ab, Board Member, Sandvik AB (publ.), Board Member, Nokia Corporation, Board Member, Finnish Business and Policy Forum EVA, Vice Chairman of the Board, Research Institute of the Finnish Economy ETLA, Vice Chairman of the Board –Member of the Board of Directors of Sampo plc since 26 June 1992. –Ehrnrooth holds 26,024 Sampo plc shares directly or through a controlled company.
Christoffer Taxell, born 1948 Positions of Trust: Åbo Akademi University, Chancellor, Stiftelsen för Åbo Akademi, Chairman of the Board, Finnair plc, Chairman of the Board, Stockmann plc, Chairman of the Board, Nordkalk Corporation, Board Member, Luvata Oy, Board Member, Föreningen Konstsamfundet (Finland), Chairman of the Board, Society of Swedish Literature in Finland, Investment Committee, Member –Taxell was transferred to the Board of Directors of Sampo plc from the Supervisory Board on 1 January 1998. –Taxell holds 4,524 Sampo plc shares directly or through a controlled company.
Lýdur Gudmundsson, born 1967 Positions of Trust: Exista hf., Executive Chairman of Board, Bakkavör Group, Chairman of the Board, Skipti hf., Chairman of the Board –Member of the Board of Directors of Sampo plc since 15 April 2008. –Gudmundsson holds no Sampo plc shares.
Eira Palin-Lehtinen, born 1950 Positions of Trust: Elisa Corporation, Board Member, Sigrid Jusélius Foundation, Deputy Board Member and Member of Finance Committee, Nordea funds (Nordea Alternative Investment, Nordea Funds of Funds, Nordea I Sicav), Board Member –Member of the Board of Directors of Sampo plc since 15 April 2008. –Palin-Lehtinen holds 2,329 Sampo plc shares directly or through a controlled company.
Group Executive Committee Björn Wahlroos, born 1952 group ceo and president, managing director of sampo plc (until 7 april 2009) Positions of Trust: Sampo plc, Board Member, UPM-Kymmene Corporation, Chairman of the Board, Nordea Bank AB, Board Member, Finnish Business and Policy Forum EVA, Board Member, The Research Institute of the Finnish Economy ETLA, Board Member –Wahlroos holds 11,839,890 Sampo plc shares directly or through controlled company.
Line Hestvik, born 1969 group executive vice president, head of ba private, if p&c insurance Positions of Trust: If Life Insurance Ltd (Sweden), Chairman of the Board, FNH Norway (the organisation for the Financial Sector in Norway), Board Member –Hestvik holds 10,260 Sampo plc shares directly or through controlled companies.
Patrick Lapveteläinen, born 1966 group cio Positions of Trust: If P&C Insurance Holding Ltd, Board Member, Mandatum Life Insurance Company Limited, Board Member –Lapveteläinen holds 211,045 Sampo plc shares directly or through controlled companies.
Torbjörn Magnusson, born 1963 president and ceo, if p&c insurance holding ltd Positions of Trust: If P&C Insurance Ltd (Sweden), Chairman of the Board, If P&C Insurance Company Ltd (Finland), Chairman of the Board, Swedish Insurance Federation, Chairman, Swedish Insurance Employer Association, Chairman –Magnusson holds 17,401 Sampo plc shares directly or through controlled companies.
Ivar Martinsen, born 1961 group executive vice president, head of ba commercial, if p&c insurance Positions of Trust: If Life Insurance Ltd (Sweden), Board Member, FNH Norway (the organisation for the Financial Sector in Norway), Member of the Executive committee of P&C Insurance –Martinsen holds 10,283 Sampo plc shares directly or through controlled companies.
Petri Niemisvirta, born 1970 president and head of life insurance, managing director of mandatum life insurance company Positions of Trust: Amanda Capital Plc, Board Member, Consumers’ Insurance Office, Board Member, Nordben Life and Pension Insurance Co. Limited (Guernsey), Board Member, Federation of Finnish Financial Services, Life Insurance Executive Committee, Chairman, Silta Oy, Board Member –Niemisvirta holds 29,579 Sampo plc shares directly or through controlled companies.
Sampo Group’s P&C insurance operation, If P&C, had another year of sound insurance technical performance with a combined ratio of 91.8 per cent for the full year 2008 (90.6).
The profit before taxes rose to EUR 549 million (534). Return on equity was -0.8 per cent (19.2). Fair value reserve in P&C
Profit before taxes for the segment ‘Holding’ amounted to EUR 180 million (95). The fair value reserve decreased to
Sampo Group’s total investment assets at the end of the reporting period amounted to EUR 17 billion (21), of which 80 per cent was invested in fixed income instruments (74), 16 per cent in equities (23), two per cent in private equity (2)
and two per cent in other assets (1). Investment income was
At the end of 2008 Sampo Group’s own funds exceeded the minimum solvency requirements by EUR 2,656 million
EUR 2.1 billion of excess capital calculated as the difference between group equity and the economic capital required to manage the operations.
EUR 16,139 million. Unit-linked investments decreased by approximately 20 per cent to EUR 1,637 million (2,072). On the liability side of the balance sheet, in addition to equity, the unitlinked liabilities decreased to EUR 1,637 million (2,071).
Profit before taxes for P&C insurance for the full year 2008 increased to EUR 549 million (534). Technical result was
Board of Directors' Report which a record high 95 per cent (89) was invested in fixed income instruments, five per cent (10) in equity and one per cent (1) in other assets. Investment return for year 2008 was -3.1 per cent (2.6). Duration for interest bearing assets was
EUR 2,221 million (2,681). Solvency ratio (solvency capital in relation to net premiums written) was 66 per cent (71).
Finnish central organisation of the S Group, came into force starting from the beginning of June 2008. If P&C and SOK
Net income from unit-linked investments was EUR -485 million (57). The reduction in the fair value reserve from the beginning of the year was EUR 481 million as the fair value reserve totalled at the end of December EUR -192 million.
Return on equity (RoE) in life insurance fell below its target and was -68.8 per cent (9.1).
Combined ratio for 2008 was significantly better than the long-term target of below 95 per cent and ended at 91.8 per cent (90.6). Combined ratios increased somewhat in both business areas Private and Commercial to 91.3 per cent (90.1) in
Private and 92.4 per cent (90.8) in Commercial. The increase was mainly due to higher large claims as well as increased claims frequency cost mainly in Norway. In business area Industrial combined ratio improved to 93.4 per cent (94.1) due to more positive large claims outcome. In Baltic and Russia combined ratio increased to 92.6 per cent (90.8). The increase was mainly due to the inclusion of the Russian SOAO Region to If resulting in increased cost ratio.
and risk ratio ended at 68.1 per cent (66.9) mainly due to a higher large claims cost during the first half of 2008. EUR 90 million (76) was released from the technical reserves relating to prior year claims. Reserve ratio was 177 percent (170) of net premiums written and 250 per cent (261) of claims paid.
Net income from investments -222 600 Other operating income 0 0 0
Mandatum Life pays short-term floating rate and receives fixed interest rate (average 4.6 per cent). The fair value of these swaps was EUR 75 million and they have a maturity of 2-10 years.
The concept is based on launching savings and investment solutions linked to insurance and capital redemption policies.
Investments made into new business concept and into the proprietary sales organisation – some of them being one-time items – burdened the expense ratio. Mandatum Life Group’s expense ratio was 113.1 per cent (101.6). The ratio does not take into account all fees intended to cover the operating expenses. If all fees are taken into account, the ratio decreases to
Mandatum Life Group’s premium income on own account decreased to EUR 529 million (618). Premiums in the main focus area, unit-linked insurance, fell to EUR 287 million (404)
and the share of unit-linked premiums was 54 per cent of total premiums (65). Especially unit-linked endowment policy sales lagged behind the previous year.
Sales through Sampo Bank, the main retail distribution channel, decreased significantly during the year due to the
Bank’s information technology related problems. Especially private pension and loan insurance policies lagged behind the previous year and industry in general. Sales in the bank distribution channel recovered somewhat during the last quarter of the year.
The positive development was partly due to increased risk awareness, partly to sales and marketing efforts made into corporate segment. Corporate customer segment developed during 2008 better than private customer segment and the market share in corporate segment is estimated to remain at the previous year’s level.
Net investment income 232 168 38 Other operating income 8 8 0
The segment’s profit before taxes amounted to EUR 180 million (95). The fair value reserve decreased during 2008 to
On 6 February 2008 Sampo plc received a permission from the Swedish supervisory authorities to increase its holding above 10 per cent in Nordea, which is Sampo plc’s largest equity holding. The market value of the holding was EUR 1.6 billion on 31 December 2008. Sampo plc held 313,202,100 Nordea shares and, in addition, Mandatum Life held 5,150,000 Nordea shares. Sampo Group’s average acquisition price of Nordea share was EUR 10.60 per share. Closing price for Nordea on 30 December 2008 was
EUR 5.07. Sampo plc’s assets also include holdings in subsidiaries for EUR 2.4 billion (2.4).
Profit from continuing operations before taxes 206 242 279 142 160
Balance sheet liabilities include a subordinated note with face value of EUR 600 million which can be called in April 2009 at the earliest.
Changes in Group Structure The ownership of If Livförsäkring AB was transferred on 1 January 2008 from Sampo Life to If P&C Insurance Holding Ltd. If Livförsäkring AB offers life insurance products in
EUR 23.7 million of premium income. The acquisition was completed on 5 June 2008.
Administration ANNUAL GENERAL MEETING AND GOVERNANCE The Annual General Meeting of Sampo plc held on 15 April 2008 adopted the financial accounts for 2007 and discharged the Board of Directors and the Group CEO and President from liability for the financial year. Ernst & Young Oy was elected as Auditor.
Board members. Jussi Pesonen left the Board of Directors. At its organisational meeting, the Board elected Georg Ehrnrooth as Chairman and Matti Vuoria as Vice Chairman.
The AGM decided to pay the following fees to the members of the Board of Directors until the close of the AGM of 2009: the Chairman of the Board will be paid EUR 160,000 per year, the Vice Chairman EUR 100,000 per year and the other members EUR 80,000 per year. An amount equivalent to 30 per cent of the annual fee will be paid in Sampo plc
Wahlroos be re-elected to Sampo’s Board of Directors and that he would be elected Chairman of the Board. Wahlroos would then leave his position as Group CEO and President of
Sampo plc at the end of the AGM of 2009. According to the plan, Group Deputy CEO Kari Stadigh will be nominated as the new CEO and President of Sampo Group.
Holding Ltd starting from 1 October 2008. He acted previously as CFO of If P&C Insurance. Johan Dahlgren, Head of
Group shares the values of ethicality, loyalty, openness and entrepreneurship. Sampo Group aims to follow these values in all business operations and with all stakeholders.
Sampo Group, for its part, aims to contribute to well-being and safety in society. Sampo Group is aware of its corporate responsibility and commits to developing its operations to further economic, social and environmental sustainability.
insurance, 6 per cent in life insurance and 1 per cent in the holding company. Geographically, 30 per cent worked in Finland, 25 per cent in Sweden, 22 per cent in Norway and 23 per cent in the Baltic countries and Russia, Denmark and other countries. The average number of employees during 2008 was 7,145 compared with 6,855 during 2007.
Sampo Group continued to emphasise competence development among the staff by further developing the leadership and competence development program If Academy that was launched in 2007. Special emphasis was also furthermore paid on preventive health care.
Sampo shares and hold them for a certain period of time.
2008 II extend to 2010. The incentive schemes increased staff costs in 2008 by EUR 2 million (1) and on 31 December 2008 the total provision for the schemes was EUR 1 million (20).
Under the program, the participants are granted the right to receive up to a pre-determined number of Sampo shares, if
Sampo’s share price has outperformed a predefined threshold value and insurance margin targets have been exceeded. Furthermore the programs are subject to rules requiring part of the paid bonus to be used to acquire Sampo shares and hold them for a certain period of time.
RISK MANAGEMENT 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 fluctuations in financial results. The risks in
Insurance risks are governed with Underwriting Policies which set principles for risk selection and limits for insured sums. In addition, the adequacy of liabilities is tested on a regular basis.
A more detailed description of Sampo Group’s risk management organisation and activities is available in the Risk
Shares, Share Capital and Shareholders SHARES AND SHARE CAPITAL On 31 December 2008 Sampo plc had 561,372,390 shares, divided into 560,172,390 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 five votes at the
EUR 18.64. On 7 May 2008 Sampo plc’s Board of Directors decided to cancel these shares. The cancellation reduced the number of Sampo A shares with the corresponding amount but had no effect on the share capital. The cancellation was entered into the Trade Register on 16 May 2008.
In the third quarter of 2008 Sampo plc repurchased 443,500 of its own A shares from the market, corresponding to 0.08 per cent of the total amount of shares and votes. A total of
Sampo plc’s Board of Directors decided on 7 October 2008 to repurchase 10 million Sampo A shares with distributable capital and reserves by participating in the afore-mentioned book built offering. The amount repurchased corresponded to approximately 1.7 per cent of the total number of shares. Repurchases decreased the distributable capital and reserves.
At the time of the decision the situation in the financial markets was exceptionally uncertain. In the Board’s opinion the above purchase was in the interest of all shareholders. The purchase also prevented an overliquidity situation in the markets. On the basis of the above weighty financial reasons for repurchases referred to in the Companies Act existed.
On 10 November 2008 the cancellation of Sampo A shares purchased from Exista’s book built and the A shares purchased earlier, totalling 10,443,500 shares, was entered into the Trade Register. The shares represented 1.8 per cent of the total amount of shares and votes in the company. The cancellation reduced the number of Sampo A shares with the corresponding amount but had no effect on the share capital.
In 2008 Sampo plc repurchased a total of 12,836,500 of its own A shares corresponding to 2.2 per cent of the total number of shares and voting rights. The shares were purchased at an average price of EUR 13.02 per share. The total amount paid for the shares was EUR 167 million.
After the end of the reporting period Sampo has not purchased its own shares.
SHAREHOLDERS On 31 December 2008 Sampo plc had 67,322 shareholders, representing an increase of 5 per cent from the previous year.
During the year 2008, Sampo received the following notifications of changes in holdings pursuant to Chapter 2, Section 9 of the Securities Markets Act: - On 12 February 2008 Sampo plc received a disclosure according to which Exista Trading ehf. had extended the agreement of 9 August 2007 regarding 100,000 A shares in
- On 16 May 2008 Sampo received a further disclosure from Exista. According to the disclosure Exista hf. and companies controlled by Exista hf. held shares in Sampo plc below of the flagging threshold of 20 per cent of the number of shares as set forth in Chapter 2, Section 9 of the Securities Market Act.
According to the disclosure Exista Trading ehf. had also cancelled the equity swap agreement regarding 100,000 A shares in Sampo plc referred to in Exista hf.’s previous flagging notification. According to the disclosure Exista hf. and its group companies held 19.98 per cent of the total number of shares and 19.82 per cent of the voting rights in the Sampo plc.
- On 22 October Sampo received a disclosure in accordance with Chapter 2 Section 9 of the Securities Market Act regarding Sampo plc’s shares. The State of Finland and the entirely state-owned Solidium Oy announced an arrangement which lead to a situation in which the holding of the State of Finland decreased below and the holding of Solidium Oy increased above the thresholds in Chapter 2, Section 9 of the Securities
shares and related voting rights owned by Solidium Oy rose above one tenth (1/10) of Sampo plc’s entire stock and voting rights. After the transfer of the shares was completed on 11 December 2008 the State of Finland does not directly hold any Sampo shares and Solidium Oy owns 14.1 per cent of all
Varma Mutual Pension Insurance Company 47,709,421 8.50 8.43 Ilmarinen Mutual Pension Insurance Company 14,035,664 2.50 2.48 Wahlroos Björn 11,739,890 2.09 2.07 Kaleva Mutual Insurance Company**) 6,127,855 1.09 1.93 The State Pension Fund 4,880,000 0.87 0.86 OP-Delta Fund 2,820,108 0.50 0.50 Etera Mutual Pension Insurance Company 2,152,000 0.38 0.38
Financial Institutions and Insurance Companies 19,937,531 3.6 Public Corporations 74,949,740 13.4 Non-profit Corporations 10,667,407 1.9
Foreign Ownership and Nominee Registered 299,442,936 53.3 On Joint Account 7,393,550 1.3
If P&C Insurance Holding Ltd EUR 181 million (SEK 2,000 million) Mandatum Life Insurance Company Ltd EUR 200 million
Social Affairs and Health (1106/2000), Chapter 7.1 §. The adjusted solvency is determined on the basis of the Group financial statements as permitted by the Insurance Supervisory Authority.
Group capital 4,631 7,733 Sectoral items 391 855 Intangibles and other deductibles -1,571 -1,733
Bond with Warrants, 1998 and Options 2000 A shares Seven conversions in 2004
In Sampo Group, and in its insurance subsidiaries, risks are measured and aggregated internally using an economic capital framework, which quantifies the amount of capital required to protect the economic solvency over a one year time horizon at a confidence level equalling the historic bond defaults of AA-rated issuers.
The economic capital tied up in Group’s operations on 31 December 2008 was EUR 2,585 million (3,395) at 99.97 per cent’s confidence level. The upcoming Solvency II regulations will use a confidence level of 99.5 per cent. This would reduce the Economic Capital requirement in Sampo Group to EUR 1,895 million.
Group is not expected to achieve the exceptionally high profits of the years 2006 and 2007.
Equity risk arises from the Group’s equity portfolio amounting to EUR 2.7 billion (4.8), with a large concentration in the shares of Nordea. Interest rate risk is related to the Group’s fixed income investments and insurance liabilities. The amount of the
Group’s fixed income investments decreased to EUR 13.2 billion (15.2) during 2008. Fixed income investments are exposed to interest rate risk as a rise in interest rates would decrease their value. On the other hand, a major interest rate risk in the life insurance business is that fixed income investments will not over a long period of time generate a return at least equal to the guaranteed return of technical provisions. This risk increases when market interest rates fall and remain at a low level. Fixed income investments also expose the Group to credit risks, the significance of which has increased during the year.
Operational risks, such as failures in internal processes and systems, and business risks, such as changes in the economic environment or business cycle, are inherent in all business areas.
The dividends to be paid are EUR 449,097,912 in total. Rest of the funds are left in the equity capital.
No significant changes have taken place in the company’s financial position since the end of the financial year. The company ’s liquidity position is good and the proposed distribution does not, in the Board’s view, jeopardise the company’s ability to fulfil its obligations.
Loss ratio excl. unwinding of discount3) % 74.4 73.4 72.5 72.7 71.1
Premiums written before reinsurers' share EURm 536 622 662 655 528
Return on equity (at fair values) % -68.8 9.1 30.0 39.0 32.2
Earnings per share, continuing operations EUR - 1.25 1.27 - Options diluted earnings per share EUR - - 1.69 1.65 1.44 Options diluted earnings per share, continuing operations EUR - - 1.24 - Earnings per share, incl. change in fair value reserve EUR -3.52 5.89 1.89 1.97 1.58 Earnings per share, incl. change in fair value reserve, continuing operations EUR - 0.95 1.44 - Capital and reserves per share EUR 8.25 13.47 9.18 7.65 6.11 Net asset value per share EUR 8.28 13.49 9.21 7.67 6.16
Adjusted number of shares at 31 Dec.6) 1,000 561,372 574,209 562,791 564,701 563,762 Average adjusted number of shares6) 1,000 569,442 577,802 563,092 564,864 558,077 Weighted average number of shares, incl. dilutive potential shares6) 1,000 569,442 577,802 576,341 575,268 566,391
Adjusted number of shares at 31 Dec.6) 1,000 560,172 573,009 561,591 563,501 562,562 Average adjusted number of shares6) 1,000 568,242 576,602 561,892 563,664 556,877 Weighted average number of shares, incl. dilutive potential shares6) 1,000 569,442 576,602 575,141 574,068 562,562 Weighted average share price EUR 15.96 21.43 16.78 11.97 8.72 Adjusted share price, high EUR 19.3 24.79 20.74 14.95 10.24 Adjusted share price, low EUR 11.42 17.95 13.58 9.83 7.20
Share trading volume during accounting period 1,000 650,816 750,748 592,839 663,491 648,086
(1106/2000), Chapter 7.1 §. The adjusted solvency is determined on the basis of the Group financial statements as permitted by the Insurance Supervisory Authority. For the years 2004–2006, the solvency was calculated according to the consolidation method defined in Chapter 3 of the Act on the Supervision of Financial and Insurance Conglomerates entered into force on 1 January 2005. 3) Key figures for P&C Insurance are based on activity based costs and cannot, therefore, be calculated directly from the consolidated income statement. 4) The income of the Holding business includes the income from If Group, accounted for by the equity method, for the first quarter of 2004. The comparison average numbers of staff for the years 2004–2006 include the staff of Primasoft Oy, then consolidated as a subsidiary.
5) The Board of Director's proposal to the Annual General Meeting for the accounting period 2008. 6) In the average number of shares for 2008, the treasury shares acquired by Sampo Plc and cancelled during the financial year have been taken into account (17,158,000 shares).
The company did not hold any treasury shares at the balance sheet date.
In calculating the key figures the tax corresponding to the result for the accounting period has been taken into account. The valuation differences on investment property and held-to-maturity debt securities have been taken into account in return on assets, return on equity, equity/assets ratio and net asset value per share. Additionally, the change in fair value reserve has been taken into account in return on assets and return on equity. A deferred tax liability has been deducted from valuation differences.
If is consolidated as a subsidiary in Sampo Group’s accounts as of April 1, 2004. Between January 1, 2004 and March 31, 2004 If has been treated as an associate.
PROFIT BEFORE TAXES property & casualty insurance profit before taxes + life insurance profit before taxes + holding business profit before taxes ± group elimination items with result impact
Property & casualty and life insurance + insurance premiums written + net income from investments
+ total equity ± valuation differences on investments less deferred tax (average of values on 1 Jan. and 31 Dec.)
EQUITY/ASSETS RATIO (AT FAIR VALUES), % + total equity ± valuation differences on investments less deferred tax
GROUP SOLVENCY RATIO, % own funds minimum requirements for own funds
AVERAGE NUMBER OF STAFF Average of month-end figures, adjusted for part-time staff.
RETURN ON EQUITY (AT FAIR VALUES), % Formula shown above in connection with the Group key figures.
LOSS RATIO EXCL. UNWINDING OF DISCOUNT, % claims incurred before unwinding of discount premiums earned
SOLVENCY CAPITAL (IFRS) + equity after proposed profit distribution ± valuation differences on investment - intangible assets + subordinated loans - deferred tax liability probably realised in near future ± other required items (Ministry of Finance decree)
SOLVENCY RATIO (IFRS), % solvency capital premiums earned from 12 months
EARNINGS PER SHARE, INCL. CHANGE IN FAIR VALUE RESERVE profit for the financial period attributable to the parent company's equity holders ± change in fair value reserve adjusted average number of shares
NET ASSET VALUE PER SHARE + equity attributable to the parent company's equity holders ± valuation differences on investments ± deferred tax related to valuation differences on investments adjusted number of shares at balance sheet date
DIVIDEND PER SHARE, % dividend for the accounting period adjusted number of shares at balance sheet date
EFFECTIVE DIVIDEND YIELD, % dividend per share adjusted closing share price at 31 Dec.
MARKET CAPITALISATION number of shares at 31 Dec. x closing share price at 31 Dec.
RELATIVE SHARE TRADING VOLUME, % number of shares traded through the Helsinki Exchanges adjusted average number of shares
| Quantification of Credit Risks ............................. 65 8 Liquidity Risks ....................................................68
Sampo Group 2008 1 Overview of Sampo Group's Risks Sampo Group has two business areas: P&C insurance (If P&C)
and life insurance (Mandatum Life). The insurance businesses are based on the bearing of risks resulting from the randomness of insured events. Insurance businesses are also subject to investment risks as the insurance payments the company receives are invested in the financial markets. Moreover, the holding company (Sampo plc), which owns and administers the insurance subsidiaries, also manages investment assets of approximately EUR 2.8 billion. The total amount of investment assets in Sampo Group is EUR 16.5 billion.
SAMPO GROUP’S RISK PROFILE The core of P&C insurance is the transfer of risk from insured clients to the insurer. If P&C collects insurance premiums from a large group of policyholders and commits itself to compensate them if an insured event occurs. For P&C insurance, 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 sufficient assets are always available to cover these liabilities.
In life insurance operations the company offers unit-linked and with-profit savings and pension policies as well as policies covering insurance risks. Insurance premiums received from customers are invested in the financial markets until payments are made to customers in the future. In unit-linked policies the customers carry all the risks of the investments. In with-profit policies the company carries the risks from the investments.
In the long run for the business to prevail, at least the guaranteed interest rate and bonuses according to the principle of fairness, as well as the shareholders’ return requirement, must be earned on the investments. Life insurance operations are also exposed to biometric risks, the most important of which are related to longevity, mortality and disability.
Sampo plc, the holding segment, manages a substantial investment portfolio. The current investment strategy is to invest in shares of Northern European financial companies or to keep investment assets in cash. The Board actively monitors potential investment targets. Market risks related to Sampo plc’s investment portfolio are monitored and regularly reported within the Sampo Group’s risk governance framework.
The classification of Sampo Group’s risks is depicted in figure 1.
Group’s insurance subsidiaries was at a historically low level. The developments in the financial markets are further discussed in the CEO’s Review section of this annual report.
The solvency of Sampo Group’s insurance subsidiaries has decreased during the year due to the weak financial market environment. Solvency capital of If P&C decreased to EUR
2,021 million (EUR 2,481 million) while the regulatory minimum requirement was EUR 570 million (EUR 645 million).
EUR 4,023 million (EUR 7,757 million) while the economic capital calculated with a confidence level of 99.97 per cent was EUR 2,585 million (3,395 million).
Sampo Group’s holding now amounts to over 10 per cent in both of the companies. Moreover, Sampo plc bought back its own shares in connection with the placement of Exista’s 20 per cent stake in Sampo plc. However, on the Group level the proportion of equities in the investment portfolio has fallen from 23 per cent to 16 per cent during the year. The investment allocation has shifted towards fixed income instruments and the relative importance of credit risk has therefore increased. The shift in our investment allocation towards fixed income instruments has also resulted in an increased focus on credit and liquidity risk management.
Sampo Group believes that sound risk management is a decisive competitive advantage. Risk awareness and robust risk management increases the attractiveness of Sampo Group from the perspective of investors, customers, regulators and potential business partners, as described in figure 2.
In Sampo Group, risk is defined as uncertainty related to the Group’s earnings or financial position. The key objectives for risk management are to ensure capital adequacy in relation to the risks inherent in business activities, and to limit fluctuations in financial results. To meet these objectives, Sampo
Group strives to ensure careful capital allocation, a reasonable risk to return ratio and to guarantee efficient and continued business processes under all circumstances. This requires all risks to be properly identified and measured.
Sound risk management ensures that companies Sampo Group does business with can rely on the Group to meet its obligations and agreements.
In pursuit of returns exceeding the risk-free rate, the possibility of losses has to be accepted. Sampo Group however strives to ensure that the risks of running the business do not exceed approved levels. The approved levels of risks are determined based on the availability of capital and the selected risk tolerance. Risk taking is restricted through a system of risk limits that are set by top management. Risks are taken into account for example in pricing decisions. In addition, the main protection mechanisms against losses are the Group’s well organized risk governance system, a steady flow of income financing from the business operations and a prudent capital buffer.
Risk management deals with the identification of the main risks affecting the businesses. In Sampo Group, the assessment of risks is integrated into the annual business planning process, where the key risks related to the strategic plans are identified. Risk management supports the allocation of capital to businesses with the most attractive risk-return opportunities, as well as decisions regarding which risks to take and how to manage the portfolio of risks as efficiently as possible. Risks are constantly monitored in relation to limits and risk management principles defined in risk policies on different levels in the organization. Risk management is based on consistent measurement and reporting of risks.
The reporting of Sampo Group is divided into three segments, which are P&C insurance, life insurance and holding.
Board of Directors and the Audit Committee, together with the Boards of Directors of the subsidiaries, share the overall responsibility for the risk management process. Risk owners within the different business areas are responsible for the day-to-day risk taking decisions. In If P&C, risk owners are represented in the individual committees, e.g. Underwriting and Reinsurance Committees. In Mandatum Life the Investment Control Committee is responsible for the supervision and control of investment risk and the Management team members are responsible for risk management within their own business area or function.
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 organization of risk management and internal control in the business areas. The Board makes decisions on strategies, as well as on general guidelines regarding capital allocations and target returns. Also risk tolerance and capital management decisions are the responsibility of the Board. In addition, the Board of Directors has established and appointed the members of an Investment Committee to control the holding company’s investment activities and investment risks.
Group Chief Risk Officer (CRO) is responsible for supervising risk management on Sampo Group level. The CRO
If P&C, Mandatum Life and Sampo plc are monitored and controlled by the individual Investment Control Committees in the three respective segments (Investment Committee in Sampo plc), and the total Group exposures are monitored and controlled by Sampo’s Chief Investment Officer, Sampo’s
If ’s Risk Control Committee (IRCC) assists the CEO and the Board of Directors of If P&C in fulfilling their responsibilities relating to the risk management process. IRCC monitors reports from the relevant committees and functions as well as the risk position of If P&C in relation to restrictions and limits given by the Board and in comparison to the capital position. Risk Management department is the responsible function for coordinating risk management work on behalf of the IRCC.
reports to the Board and meets at minimum once a month.
The Managing Director of Mandatum Life has the overall responsibility of risk management in Mandatum Life. Management team members are responsible for risk management within their own business area or functions. Mandatum Life’s
Life’s investment operations, which are operated by Sampo plc’s investment unit, and solvency. ICC meets at a minimum on a monthly basis. Under normal circumstances, the members of the Board of Directors and managing director get monthly reports on investments and solvency. However, in special cases, e.g. during the financial crisis, the reports on investments and solvency have been submitted on a daily basis.
The decisions regarding the biggest investment risks are made by the Board.
²) Included in this category are financial assets that are measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions in the same instrument type or based on available market data.
³) Not based upon market observable input means that fair values are determined in whole or in part using a valuation technique (model) based on assumptions that are neither supported by prices from observable current market transactions in the same instrument type nor are they based on available market data.
4 Capital Management in Sampo Group Sampo Group focuses on both capital efficiency and sound risk management while keeping the capital resources at an appropriate level in relation to the risks taken. At a minimum, this means ensuring that available capital exceeds the capital requirements according to Sampo Group’s internal measure as well as the measures of external stakeholders such as regulators and rating agencies.
Determination of capital requirements (Regulatory measures, Economic measures, rating agency measures)
CAPITAL AND SOLVENCY The management of capital is about monitoring the relationship between available capital and required capital. To fulfil the requirements of different stakeholders, the Group uses different measures to describe the capital position: regulatory measures, internal economic measures and rating agency measures.
Insurance is a highly regulated business with formal rules for minimum capital and capital structure. Solvency capital is a measure used to assess an insurance company’s ability in fulfilling its liabilities to the policyholders. Solvency capital measures the amount of capital that can be used to cover unexpected losses arising from the insurance or investment operations.
The supervising authorities set minimum requirements for solvency capital. Solvency is reported quarterly to the supervisory authorities monitoring Sampo Group and to the local supervisors of subsidiaries. The regulatory measures, minimum requirement for solvency capital and solvency capital, are presented in table 2.
Sampo Group measures the adequacy of its solvency capital by calculating group solvency ratio, which tells us how much the company has eligible own funds in relation to the minimum requirement for the solvency capital set by the supervising regulators. The group solvency is based on adjusted solvency calculations for insurance groups according to the
Economic capital is an internal measure of Sampo Group which describes the capital required in the Group in order to bear different kinds of risks. Economic capital is defined as the amount of capital required on the Group level to protect the economic solvency over a one year time horizon with a probability of either 99.97 per cent or 99.5 per cent. Economic capital accounts for market, credit, insurance and operational risks, as well as the diversification effect between these risks.
Adjusted solvency capital, which is the Group’s internal measure of available capital, is the measure to compare with economic capital. The difference between adjusted solvency capital and solvency capital, the regulatory measure, is mainly the difference between the book value and market value (including a risk margin) of net technical provisions.
The regulatory measures, minimum requirement for solvency capital and solvency capital, as well as the economic measures, economic capital and adjusted solvency capital, are presented in table 3. The main factor in the assessment of the Group’s solvency is the relationship between the Group’s economic capital and adjusted solvency capital. On the basis of the calculations presented in table 3, Sampo Group is highly solvent. The amount of adjusted solvency capital on the Group level exceeded the economic capital calculated with a confidence level of 99.97 per cent by EUR 1,438 million. All of the Sampo Group companies fulfilled their regulatory minimum capital requirements.
RISK AND CAPITAL MODELLING IN SAMPO GROUP Economic capital is estimated for insurance, market, credit and operational risks using a set of calculation methods. Internal stochastic models are used for some risks and the approach from Solvency II QIS 4 Solvency Capital Requirement
(SCR) methods are used for other. All measures are calculated at the 99.5 per cent confidence level and then calibrated to the 99.97 per cent level. A summary of the calculation methods is shown in figure 5.
model is also used for making decisions on: Overall capital need for If P&C and its subsidiaries.
Investment policy and the minimum and maximum weights for each investment class.
Life are based on a total balance sheet approach, meaning that values and risks of assets and liabilities are recognized market consistently. Market consistent value of liabilities is estimated by using stochastic simulation. The calculation of Mandatum
Life’s economic capital calculated with the 99.5 per cent confidence level is based on the model and parameters that were used in the QIS 4 in Solvency II. Mandatum Life’s economic capital calculated with the 99.97 per cent confidence level is calibrated from the economic capital results calculated with the 99.5 per cent confidence level.
2,491 million on 31 December, 2007. The corresponding economic capital figures on a confidence level of 99.97 per cent were EUR 2,585 million (EUR 3,395 million). The reduction in economic capital is mainly due to the decrease in the economic capital related to market risks particularly in the Holding segment.
The biggest risks in the Group are insurance risks related to
P&C insurance, market risks in Life insurance operations and the Nordea holding in the Holding segment. This is reflected in the allocation of economic capital.
Figure 9 eurm eurm if p&c, eur 949 million mandatum life, eur 692 million if p&c, eur 1,336 million mandatum life, eur 920 million
Figure 10 5 Insurance Risks Insurance risk is the risk that the cost of future insurance claims will be higher than anticipated. Insurance risk is one of the main risks in Sampo Group’s business and the assessment and management of insurance risks forms the foundation for all insurance operations.
Insurance risk is divided into underwriting risk and provision risk. Underwriting risk is the risk of losses due to e.g.
A sensitivity analysis of the aggregated underwriting risk on 31 December, 2008 is presented in table 4.
The UW policy is supplemented with detailed underwriting guidelines which outline in more detail how to conduct underwriting within each business area. These guidelines cover, among other things, tariff and rating models for pricing, guidelines in respect of standard conditions and manuscript wordings, as well as underwriting authorities, underwriting limits such as sums insured and, lists risks that are not acceptable to undertake.
The business areas manage underwriting risk on a day-to-day basis. Separate underwriting and pricing units within each business area are responsible for the tariffs and pricing of products related to the business area Private and smaller risks in the business area Commercial. In the business area Industrial and for more complex risks in the business area Commercial, the underwriting is based more on general principles and individual underwriting than strict tariffs. In general, pricing is based on statistical analyses of historical claims data and assessments of future developments of for instance claims inflation and claims frequency.
Given the large number of customers in P&C insurance and the fact that business is underwritten in different geographical areas and across several classes of insurance, the portfolio is well diversified. The geographical distribution of premium income in P&C insurance is shown in figure 10.
Durations of technical provisions per product, If P&C, 31 December 2008 years
In addition, single large claims can potentially have a big impact on the result. The risk of severe outcomes is therefore mitigated by purchasing reinsurance. Since 2003, a Nordicwide reinsurance program has been in place in If P&C. In 2008 the retentions levels were between SEK 100 million
Provisions for unearned premiums are recognized on the balance sheet at the time contracts are written. These are intended to cover anticipated claims costs and operating expenses during the remaining time of insurance contracts in force. Provisions for claims outstanding on the other hand, are intended to cover the anticipated future payments of all claims incurred, including claims not yet reported to the company. Technical provisions consist of the sum of provisions for unearned premiums and provisions for claims outstanding.
with some delay and in many cases it takes additional time to adjust the claim and determine the actual indemnity. Since the ultimate number of claims and claims size are uncertain it may become evident that provisions are inadequate.
The uncertainty of technical provisions is normally larger for new portfolios for which complete run-off statistics are not yet available, and for long-tailed portfolios, i.e. portfolios that include claims which take a long time to settle. Long-tailed portfolios are Workers’ Compensation (WC), Motor Third Part
Technical provisions per product and country (book value), If P&C, 31 December 2008
Discounted reserves (annuities and part of Finnish IBNR) Decrease in discount rate Decrease by 1%-point Sweden 43.6 Denmark 8.1
The durations of technical provisions for different products are shown in figure 11 and the amount of technical provisions broken down by product and country is shown in table 5.
Actuary is responsible for developing and presenting guidelines on how the technical provisions are to be calculated and for assessing whether the overall level of provisions are sufficient. The Chief Actuary issues a report on the adequacy of technical provisions at least quarterly, which is submitted to the Board of Directors, If ’s Risk Control Committee and If
Ladder and the Bornhuetter-Fergusson methods combined with projections of number of claims and average claim costs.
EURm Risk income Claim expense Claim ratio Risk income Claim expense Claim ratio *) The mortality claim expense of the group pension in 2007 contains the provision made (EUR 20.6 million)
Inflation risk refers to the risk that technical provisions increase due to higher inflation than estimated. The anticipated inflation trend is observed in all provisions but is of highest importance for claims settled over a long period of time. For long-tailed business, such as MTPL and WC, assessments are made regarding the expected claims inflation. These are based on external assessments of the inflation trend (e.g. consumer price index and payroll index) combined with If P&C’s own evaluation of cost increases for various types of claims. Inflation risk in the technical provisions is an important consideration underlying the investment strategy of P&C insurance.
INSURANCE RISKS IN LIFE INSURANCE Similarly to P&C insurance, insurance risk in life insurance can be split into underwriting and provision risks. In addition to insurance risk, interest rate risk is a very important element in the risk of losses due to pricing and inadequate provisions.
The pricing of a single policy for many products is made for decades, and pricing cannot be easily changed. This means that in long-term policies pricing may turn out to be inaccurate.
In both disability and medical expenses policies, the company has the right to raise insurance premiums for existing policies if the claims experience deteriorates.
Mandatum Life is EUR 0.5 million per insured. To mitigate the effects of possible catastrophes, Mandatum Life participates in the catastrophe reinsurance taken by Finnish life insurance companies. Possible pandemics are not covered by the reinsurance. At this stage, no reliable predictions of mortality in the case of a pandemic are available. As an indication of the risk, the effect of doubling normal mortality in the insurance portfolio would mean around EUR 15 million in additional cost for Mandatum Life.
Mandatum Life. Mandatum Life’s Underwriting Policy sets principles for risk selection and limits for insured sums. Compliance with the principles and limits set in the Underwriting
Actuarial department conducts thorough analyses of underwriting result annually. It measures that risk selection is efficient and tariffs are adequate by collecting actual claims expenditure for each product line and each type of risk and comparing it to the claims expenditure assumed in insurance premiums of every risk cover. In addition, adequacy of liabilities is tested quarterly. Tariffs are set, the underwriting policy is updated and changes are made to the provisions relating to existing business if necessary. Tariffs and prices, as well as the reinsurance principles and reserving principles are reviewed and approved annually by the Board of Directors.
Reserve for decreased discount rate 143 0 0 0 0 0 -24 119 2%
*) Before reinsurers’ share **) Investment contracts ***) Operating expenses not included
The provisions related to each product type and guaranteed interest rates are shown in table 8. The table also shows the change in each category during 2008.
In most with-profit policies, the guaranteed interest rate used in the premium basis is 3.5 per cent. In individual policies sold in Finland before 1999, the guaranteed interest rate is 4.5 per cent, this being also the statutory maximum discount rate of these policies. With respect to these policies, the maximum discount rate used when discounting liabilities has been decreased to 3.5 per cent. In addition, EUR 21 million has been reserved to lower the rate of the return requirement during 2008 to 3.0 per cent. Reserve for deceased discount rate, including the preceding EUR 21 million, is EUR 119 million
Expected maturity of insurance and investment contracts of Mandatum Life in presented in table 9.
Duration of outgoing pension payments (longevity risk) is the most critical biometric risk in Mandatum Life. Most of longevity risk arises from the Group Pension portfolio. The main uncertainties of group pension’s mortality are the effect of socio-economical structure of the insured and future trend among the relatively old insured. In individual pension portfolio the longevity risk is less significant because most individual pension policies are fixed term annuities including death cover compensating the longevity risk.
The longevity risk is analyzed regularly. So far the annual result, excluding supplement to liabilities, has been close to zero in group pension portfolio. The assumed life expectancy in all group pension premiums and liabilities was raised in 2002 and in part of the portfolio in 2007.
Reserve for decreased discount rate 5.1 39 17 29 16 9 4 4
MANDATUM LIFE PARENT COMPANY TOTAL 7.9 1,276 1,203 1,900 1,219 861 585 856
6 Market Risks Market risk is defined as the risk of loss, or of adverse change in the financial position, resulting, directly or indirectly, from fluctuations 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.
Figure 12 decisions and setting return and liquidity targets, the structure of the companies’ technical provisions, their risk-bearing capacities, regulatory requirements, rating targets and risk appetites are taken into account. The Investment Policies also include guidelines on the use of derivatives and foreign currency risk.
Committee in Sampo plc. These committees are responsible for the control of investment activities within the respective legal entity. The Investment Control Committees and Sampo plc’s
Mandatum Life’s long-term target is to provide sufficient net income in its investment operations to cover guaranteed interest rate plus bonuses based on principle of fairness as well as the shareholder’s return requirement with acceptable level of risk.
Mandatum Life’s market risk derives mainly from equity investments and interest rate risk related to fixed income assets and insurance liabilities with a guaranteed interest rate.
Investment Control Committee controls regularly that limits and principles set in Investment Policy are followed.
The current investment strategy of Sampo plc is to invest in shares of Northern European financial companies or to keep investment assets in cash. In 2008, Sampo plc invested in
QUANTIFICATION OF MARKET RISKS The portfolio return of Sampo Group’s investment assets in 2008 was -11.9 per cent (13.6 per cent in 2007) reflecting the fall in equity prices during 2008. The amount of investment assets was EUR 16,502 million (EUR 20,510 million in 2007).
The proportion of equities in the investment portfolio decreased from 18 per cent to 12 per cent during the year while the proportion of fixed income investments increased from 73 per cent to 78 per cent. The proportion of other investments was 10 per cent (9 per cent in 2007).
EUR 2,818 million (EUR 4,883 million in 2007). During 2008, Sampo plc continued its purchases of Nordea and Topdanmark, increasing the proportion of Sampo plc’s equity investments to 60 per cent (56 per cent).
Group. Table 11 shows the results in different segments. The effects represent the instantaneous effects of a one-off change in the underlying market variable on the fair values on 31
The changes of interest rates have a strong effect on the reinvestment risk of the insurance companies. The sensitivity analysis includes the effects of derivative positions. All sensitivities are calculated before taxes.
Table 11 also shows the effect of the market risk scenarios on the capital situation of Sampo Group by showing how the amount of adjusted solvency capital and economic capital would change in the different scenarios. A rise in interest rates for example would reduce the values of financial instruments causing a fall in the Group's equity. On the other hand, the effect on adjusted solvency capital would be positive due to the fact that insurance liabilities are discounted in the calculation of the liability side adjustment.
Fixed income investments by type of instrument, Sampo Group, If P&C, Mandatum Life, 31 December 2008
Interest rate risk refers to the uncertainty in the values of assets and liabilities as well as interest income and expense resulting from changes in market interest rates. When market interest rates rise, the balance sheet values of fixed income securities fall and this has an impact on the company’s equity capital and earnings. On the other hand, higher interest rates mean increased interest income which improves profitability and the economic capital position.
Euro government bonds and credits increased from 14 to 31 per cent. Within this category a larger proportion was allocated to Euro credits. The investmets into Euro credits increased substantially both in If P&C and Mandatum Life.
Both financial assets and technical provisions are exposed to changes in interest rates. The interest rate risk is limited by duration restrictions. The principle is that insurance liabilities are matched with fixed income investments of corresponding duration and the duration gap between assets and liabilities is constantly monitored.
Short-term fixed income 299 0.1 Scandinavian governments/Credits 3,689 2.9 Euro governments/Credits 2,306 3.0 US government/Credits 1,063 1.9 Other currency governments/Credits 310 0.5 Swedish index-linked bonds 772 8.5
The figures exclude fixed income investments and deposits of Business Area Baltic and
Life is shown in table 13. The amounts and durations include fixed income derivatives. Derivatives are shown under the fixed income categories to which they are related to.
Short-term fixed income 1,484 0.3 Euro governments/Credits 1,752 6.6 Other currency governments/Credits 178 3.5 Global high yield 153 2.3 Other fixed income 106 3.9
In order to mitigate the interest rate risk, Mandatum Life has entered into interest rate swap agreements with nominal amounts of EUR 1.6 billion in 2008. For these swaps, Mandatum Life pays short-term floating rate and receives fixed interest rate (average 4.6 per cent). The fair value of these swaps was EUR 75 million at year-end and they have a maturity of 2-10 years. These swaps are included in the category Euro government/credits in table 13.
If P&C’s equity portfolio is actively managed in-house with a long term investment horizon. At year end the exposure was
Mandatum Life’s equity portfolio is actively managed. At year end the exposure was EUR 583 million (EUR 1,039 million in 2007). The positions and risks in equity portfolio and related derivatives may not exceed the limits set in the Investment pol-
Figure 15 sampo group eur 2,321 million if p&c eur 226 million mandatum life eur 410 million
Investment Management unit while the equity investments outside the Nordic area are mainly managed through funds or external asset managers. When investing in new funds, the Board of Mandatum Life makes the investment decisions.
If P&C and Mandatum Life by geographical regions are shown in figure 14.
CCY EUR SEK NOK DKK EEK LVL LTL GBP USD JPY Other
The proportion of Nordea shares corresponds to 59 per cent of the total equity portfolio of Sampo Group (69 per cent from the direct equity investments), and thus the equity portfolio of Sampo Group is concentrated on the banking sector. The equity portfolios of insurance subsidiaries are more diversified as the largest industry concentrations are under 25 per cent in both If P&C and Mandatum Life.
Currency risk is the risk that Sampo Group will incur losses due to changes in foreign currency exchange rates. Market risk relating to foreign currency in Sampo plc consists of the translation risk linked to the net asset value and dividends of
Mandatum Life’s currency risk derives mainly from investments in financial assets in other currencies than the Euro.
Group is also exposed to a number of other market risks. These risks are related to exposures in real estates, private equity investments and investments in hedge funds. The Investment
Private equity and hedge funds are managed by external asset managers. The private equity portfolio is diversified both according to fund type and geographical areas. Hedge fund investments are placed both directly into individual funds and into funds of funds in order to attain sufficient diversification between funds and investment styles. The real estate portfolio in Mandatum Life is managed by Sampo Group’s real estate management unit. The portfolio includes direct investments in properties and investments in indirect vehicles within decided allocations. The main risks related to property investments are limited by diversifying holdings both geographically and by type of property.
In addition to the credit risk associated with investment assets, credit risk arises from insurance operations through rein-
surance contracts. Credit risk related to reinsurers arises through reinsurance receivables and through the reinsurers’ portion of outstanding claims. Credit risk exposure towards policyholders is very limited, because non-payment of premiums generally results in cancellation of the insurance policies. Credit risk related to reinsurance mainly relates to P&C insurance as the use of reinsurance in life insurance is of relatively low volume.
CREDIT RISK MANAGEMENT AND CONTROL IN SAMPO GROUP Credit risk is managed by specific limits given in the Investment Policies of If P&C and Mandatum Life as well as Sampo plc. Limits and restrictions are assigned to maximum exposures towards single issuers or per rating class. Before an investment in a new instrument, the credit standing of the issuer is thoroughly assessed as well as the valuation and liquidity of the instrument. Credit ratings mainly from Standard & Poor’s,
Credit risks are monitored at business area level and reported to the respective investment committee or investment control committee. The decision making in each business area shall follow the limits defined in the respective investment policy. Credit risk reporting is based primarily on the rating of the issuer, but instrument ratings are also used.
In order to limit and control credit risk associated with reinsurance, If P&C has a Reinsurance Security Policy which sets requirements for the reinsurers’ minimum credit ratings and the maximum exposure to individual reinsurers. Similar to credit risk in investment assets, credit ratings from rating agencies are used to judge the creditworthiness of reinsurance companies.
The figures exclude investments made through mutual interest rate funds which were EUR 341 million in Sampo Group, EUR 66 million in If P&C and EUR 275 million in Mandatum Life. The figures for If P&C exclude credit default swaps with a market value of EUR -4.2 million as well as the fixed income investments and deposits of the Business Area Baltic and Russia with a market value of EUR 24.9 million.
Sector allocation of direct fixed income investments, Sampo Group, If P&C, Mandatum Life, 31 December 2008 sampo group eur 12,873 million if p&c eur 8,377 million
Others the allocations of investments by Standard & Poor’s credit rating.
Sampo Group’s rating distribution is not substantially different from last year. The proportion of the portfolio related to AAA issuers amounted to 38 per cent on Group-level (35 per cent in 2007) and the proportion of issuers rated at least
Figure 17 shows the sector allocation of direct fixed income investments in Sampo Group and the different business areas.
The credit risk in Sampo’s investment portfolios mainly arises from financial institutions and corporations in the Nordic region. The proportion of financial institutions was 63 per cent. During the year the proportion of government bonds in the fixed income portfolio fell.
The distribution of reinsurance receivables and reinsurers’ share of claims provisions on 31 December, 2008 per rating category is presented in table 15. In the table reinsurance receivables and reinsurers’ portion of outstanding claims amounting to EUR
The distribution of ceded treaty and facultative premiums in 2008 per rating category is presented in table 16.
Reinsurance receivables and reinsurers' portion of outstanding claims per rating category, If P&C, 31 December 2008 and 31 December 2007
Market value, EURm Equity Covered bonds Other long-term fixed income Short-term fixed income
Concentration of market and credit risks in individual counterparties by business segment on 31 December 2008
Cash flows according to contractual maturity (expected future payments of technical provisions), no eliminations
The largest single investment exposure in the Sampo Group on 31 December, 2008 was related to its equity holding in
8 Liquidity Risks Liquidity risk is the risk that insurance undertakings are unable to realize investments and other assets in order to settle their financial obligations when they fall due. Liquidity risk can be divided into the refinancing risk of debt and the market liquidity risk of investments. Sampo Group has relatively low amount of financial liabilities and thus the Group’s refinancing risk is minor. Market liquidity risk increased during the year 2008 due to the financial crisis. Sampo Group has a large portion of assets invested in fixed income investments, the liquidity of which has been affected by the liquidity crunch.
In P&C insurance, premiums are collected in advance and large claims payments are usually known a long time before they fall due. In life insurance on the other hand, only a
Risk Management relatively small part of liabilities can be surrendered and it is therefore possible to forecast short-term cash flows related to claims payments to a very large extent.
LIQUIDITY RISK MANAGEMENT AND CONTROL IN SAMPO GROUP Liquidity risks are managed on a legal entity level by cash management functions responsible for liquidity planning. Liquidity risk is reduced by having investments that are readily marketable in sufficiently liquid markets. At year end, the liquidity position in each legal entity was good.
QUANTIFICATION OF LIQUIDITY RISK The maturities of technical provisions and financial assets and liabilities are presented in table 19. In the table, financial assets and liabilities are divided into contracts that have an exact contractual maturity profile, and other contracts. Only the carrying amount is shown for the other contracts. In addition, the table shows expected cash flows for net technical provisions, which by nature, are associated with a certain degree of uncertainty.
9 Operational Risk Operational risk is the risk of loss arising from inadequate or failed internal processes, from personnel and systems, or from external events. The definition includes legal and reputation risk, but excludes strategic and business risk. Characteristics for operational risks, to distinguish from strategic and business risks, are that they are often event based and they can be traced back to a single place and point in time.
In If P&C, operational risk is categorized as follows: Process execution failures, Business disruptions and system failures,
porate Strategy unit on an annual basis. Each year the key trends affecting the insurance industry are identified and their implications to If are assessed. On this basis, the main opportunities and threats are identified and prioritized.
OPERATIONAL RISK MANAGEMENT AND CONTROL IN LIFE INSURANCE The objective of operational risk management in Mandatum
Life is to enhance the efficiency of internal processes and decrease fluctuations in returns. The approach to operational risk management is risk averse and the aim is to minimize operational risks subject to cost-benefit considerations. The coordinated management of operational risks gives management an overall view of the realization and management of risks, as well as of the changes in risk position shown by the risk indicators and analyses of the external environment.
The continuity of operational risk management is secured through the Management Team (MT) where operational risks are followed up. Operational Risk Committee (ORC) discusses and coordinates risk management issues regarding operational risks within Mandatum Life, such as policies and recommendations concerning operational risk management, and gives opinions and advice in those issues to the Mandatum Life MT. The committee also discusses deviations from operational risk management policies and monitors operational risks identified in the self-assessments as well as the occurred incidents. The committee meets at least four times a year. Reports on operational risks are submitted to the MT
major operational risks and their probabilities and significance, including an evaluation of internal control and sufficiency of instructions. Self-assessment is conducted annually.
Each business unit is responsible for ensuring that the occurred incidents are reported to the ORM.
ORM. This includes ad-hoc spot checks into the company ’s business units’ activities in order to identify realized operational risks and interviews with key personnel in order to identify new potential risks.
The most significant operational risks for Mandatum Life identified in the operational risk self-assessment process include the following: changes in the external operating environment; ageing IT systems; severe disruption in outsourced services, information security, malicious codes, viruses and other external attacks; false information to customers; manual phases in processes; false interpretations of contract conditions; system failures; loss of key personnel; damage to physical assets; destruction of data repositories; risk related to new business areas; incorrect underwriting decisions; internal fraud; external fraud; and miss-selling of policies.
Continuity and Preparedness Plans, Outsourcing Policy, Complaints Handling Policy, Claims Handling Policy and a number of other policies related to ongoing operative activities.
Risk indicators have been set to depict changes in the risk positions. The indicator values are compared to earlier averages or with some target level. Mandatum Life keeps a close eye on average and exceptional claims handling times, functionality of call centre services, functional reliability of information technology, negative customer feedback, personnel absences and hours of overtime.
Reputational risk is the risk of direct loss or loss in future business caused by a decline in the reputation of the Group’s businesses. Reputational risks are related to the way the company is perceived from the perspective of different stakeholders
Sampo Group is subject to a wide range of legal obligations in all countries in which we operate. The Group is currently not involved in any legal disputes that could in the Group’s opinion materially affect its earnings in the year 2009.
Group will continue to develop it’s credit risk reporting and management systems. In particular, the risk measurement methods and systems are constantly being improved. Sampo Group is particularly concentrating on developing it’s modelling and reporting capabilities in preparation for Solvency II compliance.
PREPARATIONS FOR SOLVENCY II The European Commission’s Solvency II draft framework directive was published in 2007. The introduction of a new economic risk based solvency regime aims to deepen the integration of the insurance and reinsurance market, enhance the protection of policyholders and beneficiaries, to improve international competitiveness of EU insurers and reinsures and to promote a better regulation. Compared to the existing
Solvency II will more closely reflect the specific risk profile of each company. This will encourage companies to focus on sound risk management and internal control procedures and thus embed risk awareness throughout the organization.
A separate programme to prepare If P&C for the anticipated changes was introduced during 2007. A number of projects within the programme have been initiated to secure full compliance with Solvency II in 2012. The programme has encompassed involvement in the Solvency II debate and continuous review of If P&C’s risk management framework, internal control and corporate governance as well as the internal capital model.
Finnish solvency rules for life insurers changed during 2008. The new rules are based on similar framework as the
QIS 4, along with 1,400 other companies. The tested calculations showed that Sampo Group, If P&C and Mandatum Life are well prepared for the drafted solvency requirements.
Net income from investments 2 275 974 Other operating income 23 25
Change in liabilities for insurance and investment contracts 4 667 -188
Liabilities Liabilities for insurance and investment contracts 22 12,375 13,148 Liabilities for unit-linked insurance and investment contracts 23 1,637 2,071
Total income and expenses recognised for the period - 1 - -2,681 426 -5,182 0 -2,254
Investing activities Investments in group and associated undertakings 0 0 Proceeds from the sale of group and associated undertakings 6 3,230 Other investments -522 -2,646 Net investment in equipment and intangible assets 65 14
Cash and cash equivalents include cash at bank and in hand EURm 176 (184), and short-term deposits (max. 3 months)
Operating activities - -712 Investing activities - 3,224 Financing activities - -299
Liabilities Financial liabilities 24,098 Deferred tax liabilities 25 Other liabilities 1,069
Acquired entities during the year 2008 If P&C Insurance Holding AB acquired the entire share stock of a Russian insurance company SOAO Region on 1 June, 2008.
| 8 Performance Analysis per Class of P&C Insurance ............... 111
S ampo Group has prepared the consolidated financial statements for 2008 in compliance with the International Financial Reporting Standards
On 13 October, 2008, as a result of the global financial crisis, the IASB (International Accounting Standards Board)
amend ed the standards IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures.
The financial statements have been prepared under the historical cost convention, with the exception of financial assets and liabilities at fair value through p/l, financial as sets availablefor -sale, hedged items in fair value hedges and share-based payments settled in equity instruments measured at fair value.
The consolidated financial statements are presented in euro (EUR), rounded to the nearest million, unless otherwise stated.
Consolidation SUBSIDIARIES The consolidated financial statements combine the financial statements of Sampo plc and all its subsidiaries. Entities qualify as subsidiaries if the Group has the controlling power. The
Group exercises control if its shareholding is more than 50 per cent of the voting rights or it otherwise has the power to exercise control over the financial and operating policies of the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group, and cease to be consolidated from the date that control ceases.
Group is committed to fulfilling the obligations of the associate. Goodwill arising on the acquisition is included in the cost of the investment. Unrealised gains (losses) on transactions are eliminated to the extent of the Group’s interest in the entity.
FOREIGN CURRENCY TRANSLATION The consolidated financial statements are presented in euro, which is the functional and reporting currency of the Group and the parent company. Items included in the financial statements of each of the Group entities are measured using their functional currency, being the currency of the primary economic environment in which the entity operates. Foreign currency transactions are translated into the appropriate functional currency using the exchange rates prevailing at the dates of transactions or the average rate for a month. Monetary balance sheet items denominated in foreign currencies are translated into the functional currency at the rate prevailing at the balance sheet date. Non-monetary balance sheet items measured at historical cost are presented in the balance sheet using the historical rate existing at the date of the transaction.
Translation differences arising from translation of transactions and monetary balance sheet items denominated in foreign currencies into functional currency are recognised as translation gains and losses in profit or loss. Translation differences arising from equities classified as available-for-sale financial assets are included directly in the fair value reserve in equity.
transition date, 1 January 2004, are deemed to be zero, in accordance with the exemption permitted by IFRS 1.
Segment reporting The Group’s primary segmentation is based on business areas whose risks and performance bases as well as regulatory environment differ from each other. The control and management of business and management reporting is organised in accordance with the business segments. The Group’s business segments are P&C insurance, life insurance and holding business.
2007. The result for the segment is presented as profit from discontinued operations in the comparison year 2007.
The Group’s secondary segmentation is based on geographical distribution. The reported segments are Finland, Sweden,
Inter-segment transactions, assets and liabilities are eliminated in the consolidated financial statements on a line-byline basis.
The costs of acquiring new and renewed insurance business are treated as deferred acquisition costs in the P&C insurance.
(1 year), so that premiums written are recognised as earned on a pro rata basis, adjusting them by a change in the provision for unearned premiums i.e. by the proportion of the insur ance premium income that, based on the period covered by the insurance contract, belongs to the following financial year.
Financial assets and liabilities Based on the measurement practice, financial assets and liabilities are classified in the following categories upon the initial recognition: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, availablefor -sale financial assets, financial liabilities at fair value through profit or loss, and other liabilities.
Financial assets are derecognised when the contractual rights to receive cash flows have expired or the Group has transferred substantially all the risks and rewards of ownership. Financial liabilities are derecognised when the obligation specified in the contract is discharged or cancelled or expires.
LOANS AND RECEIVABLES Loans and receivables comprise non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately or in the short term. The category also comprises cash and balances with central banks.
AVAILABLE-FOR-SALE FINANCIAL ASSETS Available-for-sale financial assets are non-derivative financial investments that are designated as available for sale and or are not categorised into any other category. Available-for-sale financial assets comprise debt and equity securities.
OTHER FINANCIAL LIABILITIES Other financial liabilities comprise debt securities in issue and other financial liabilities.
FAIR VALUE The fair value of financial instruments is determined primarily by using quoted prices in active markets. Financial assets are measured at the bid price and financial liabilities at the asking price. If there are items in a position offsetting each other’s market position, the mid price may be used to that extent. If a published price quotation does not exist for a financial 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.
FINANCIAL ASSETS CARRIED AT AMORTISED COST There is objective evidence of impairment if the payment status of a customer is rated as ‘default’
CASH FLOW HEDGING Cash flow hedging is used to hedge the interest cash flows of individual floating rate debt securities or other floating rate assets or liabilities. The hedging instruments used include interest rate swaps, interest rate and cross currency swaps and interest rate options. Derivative instruments which are designated as hedges and are effective as such are measured at fair value. The effective part of the change in fair value is recognised in the fair value reserve in equity and the remaining ineffective part is recognised in profit or loss.
FAIR VALUE HEDGING Fair value hedging is used to hedge changes in fair values resulting from changes in price, interest rate or exchange rate levels. The hedging instruments used include foreign exchange forwards, interest rate swaps, interest rate and cross currency swaps and options.
Non-current assets held for sale and discontinued operations Non-current assets and the assets and liabilities related to discontinued operations are classified as held for sale, if their carrying amount will be recovered principally through sales transactions rather than from continuing use. For this to be the case, the sale must be highly probable, the asset (or disposal group)
Assets that meet the criteria to be classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Once classified, depreciation on such assets ceases.
The results of discontinued operations are presented separately on the face of the consolidated income statement. Assets or disposal groups that are classified as held for sale, amounts related to assets held for sale and recognised directly in equity, and the liabilities included in disposal groups held for sale are presented separately on the face of the balance sheet.
Intangible assets GOODWILL Goodwill represents the excess of the cost of an acquisition
(made after 1 January 2004) over the fair value of the Group’s share of the net identifiable assets, liabilities and contingent liabilities of the acquired entity at the date of acquisition.
Goodwill on acquisitions before 1 January 2004 is accounted for in accordance with the previous accounting standards and the carrying amount is used as the deemed cost in accor dance with the IFRS.
OTHER INTANGIBLE ASSETS IT software and other intangible assets, whether procured externally or internally generated, are recognised in the balance sheet as intangible assets with finite useful lives, if it is probable that the expected future economic benefits that are attributable to the assets will flow to the Group and the cost of the assets can be measured reliably. The cost of internally generated intangible assets is determined as the sum of all costs directly attributable to the assets. Research costs are recognised as expenses in profit or loss as they are incurred. Costs arising from development of new
IT software or from significant improvement of existing software are recognised only to the extent they meet the above-mentioned requirements for being recognised as assets in the balance sheet.
Items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful life. In most cases, the residual value is estimated at zero. Land is not depreciated. Estimates of useful life are reviewed at financial year-ends and the useful life is adjusted if the estimates change significantly. The estimated useful lives by asset class are as follows: Residential, business premises and offices 20-60 years
The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. The value in use is calculated by estimating future net cash flows expected to be derived from an asset or a cash-generating unit, and by discounting them to their present value using a pre-tax discount rate. If the carrying amount of an asset is higher than its recoverable amount, an impairment loss is recognised in profit or loss. In conjunction with this, the impaired asset’s useful life will be re-determined.
The former item includes the reinsurers’ share of the provisions for unearned premiums and claims outstanding in the
Receivables and liabilities related to reinsurance are measured uniformly with the cedant's receivables and liabilities.
Impairment losses are recognised through profit or loss, if there is objective evidence indicating that the Group (as the cedant) will not receive all amounts of money it is entitled to on a contractual basis.
Other than insurance contracts, i.e. contracts where the risk is not transferred, include Captive contracts in which an insurance company underwrites a company’s direct business and reinsures the same risk in an insurance company in the same group as the policyholder. There are also contracts in
The provision for claims outstanding is intended to cover the anticipated future payments of all claims incurred, including claims not yet reported to the company; i.e. the IBNR
(incurred but not reported) provision. The provision for claims outstanding includes claims payments plus all estimated costs of claim settlements.
Framework of the IFRS, until it becomes probable that the obligation will be settled. The provision for a collective guarantee is not a part of distributable equity.
The pay-as-you-go system related to pension index raises is not treated as an insurance activity under IFRS 4 and does not generate any risk for the insurance company. Thus, the pay-as-you-go contribution collected together with the insurance premium is not deemed to be premium income, and the pension index raise paid out is not deemed to be claims incurred. Because the collected index raise corresponds in amount to the paid out pension index raise, the said items are set-off in the Income Statement item ‘Other expenses from operations’. The share of a balancing figure not yet received from, or not paid by, a central organisation is presented as current receivables or liabilities in the balance sheet items ‘Other assets’ or ‘Other liabilities’.
The supplements are bonuses based on the reserves of policies credited to the policy reserve, additional benefits in the case of death, or lowering of insurance premiums. In Mandatum Life, the principle of fairness specifies the application of this feature.
Liabilities arising from insurance and investment contracts consist of provisions for unearned premiums and outstanding claims.
Due to the difference in the discount rate of liabilities and the guaranteed interest of 4.5%, and the lowering of the claim of interest for 2009, supplementary provisions for guaranteed interest have been added to technical provisions. 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.
For unit-linked contracts, all the liabilities and the assets covering the unit-linked insurance are matched. Both the liabilities and the assets have been presented in the Notes to the financial statements. In calculating the provision for claims outstanding of direct insurance, discounting is applied only in connection with the liabilities of pensions whose payment has commenced. 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.
For the unit-linked business, the present values of the insurance risk and expense results are calculated correspondingly.
If the aggregate amount of the liability for the unit-linked and other business presumes an augmentation, the liability is increased by the amount shown by the test and recognised in profit or loss.
Companies’ Act, the Principle of Fairness must be observed in life insurance and investment contracts with a discretionary participation feature. If the solvency requirements do not prevent it, a reasonable part of the surplus has to be returned to these policies as bonuses.
Mandatum 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. Continuity is pursued in the level of bonuses. The aim is to maintain the company’s solvency status on such a level that it neither limits the giving of bonuses to policyholders nor the distribution of profit to shareholders. The principle is explained in detail on the company’s website.
The legislation of Estonia, Latvia and Lithuania respectively does not contain provisions corresponding to the Principle of
Employee benefits POST-EMPLOYMENT BENEFITS Post-employment benefits include pensions and life insurance.
Defined benefit plans are both funded and unfunded. The amounts reported as pension costs during a financial year consist of 1) the actuarially calculated earnings of old-age pensions during the year, calculated straight-line, based on pensionable income at the time of retirement, and 2) calculated effects in the form of interest expense for crediting/appreciating the preceding years’ established pension obligations less 3) revenues from the assets covered by the plan. The calculation of pension costs during the financial year starts at the beginning of the year and is based on assumptions about such factors as salary growth and price inflation throughout the duration of the obligation and on the anticipated/expected return on the plan’s assets and the market interest rate on the obligation during the financial year.
When reporting defined benefit plans in the balance sheet, the so-called corridor method is used. According to this model, accrued actuarial gains and losses resulting from differences between calculated assumptions and the actual outcome are not reported in the income statement unless the accumulated difference 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 differences 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.
TERMINATION BENEFITS An obligation based on termination of employment is recognised as a liability when the Group is verifiably committed to terminate the employment of one or more persons before the normal retirement date or to grant benefits payable upon termination as a result of an offer to promote voluntary redundancy. As no economic benefit is expected to flow to the employer from these benefits in the future, they are recognised immediately as an expense. Obligations maturing more than 12 months later than the balance sheet date are discounted. The benefits payable upon termination at Sampo are the monetary and pension packages related to redundancy.
The fair value of 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 effects of non-market based terms are not included in the fair value of the incentive; instead, they are taken into account in the number of those share options that are expected to be exercised during the vesting period. In this respect, the Group will update the assumption on the estimated final number of shares at every interim or annual balance sheet date.
The actuarial assumptions applied to life insurance liabilities are discussed in more detail under ‘Insurance and investment contract liabilities and reinsurance assets’.
Defined benefit 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,
Sampo Group 2008 but also of matters such as mortality, employee turnover, price inflation and future salaries.
IMPAIRMENT TESTS In testing loans and other receivables for impairment, the carrying amount is compared with the present value of recoverable future cash flows. Recoverable future cash flows are estimated for each contract by utilising assumptions based on historical data.
Application of new or revised IFRSs and interpretations APPLICATIONS IN 2009 In 2009, the Group will apply the following new or amended standards and interpretations related to the Group’s business, published by the IASB in 2007 and 2008. If not stated otherwise, the following standards or interpretations or their amendments were approved by the EU at the balance sheet date. The new or amended standards are effective for annual periods beginning on or after 1 Jan. 2009.
IFRS 8 Operating Segments changes the segment reporting by requiring the reported segment information to be based on the information reported to the chief operating decision maker and to comply with those accounting principles. The adoption of the standard will not have a material effect on
Sampo’s segment information, as the segment information published before has already been based on the group’s internal reporting structure. The standard has already been adopted by the EU.
The revised IAS 1 Presentation of Financial Statements aims to improve the analysis and comparison of the information in the financial statements. The amendments mainly concern the presentation of the income statement and the statement of changes in equity, and the used terminology.
Instruments and Obligations Arising on Liquidation) require some financial instruments puttable at fair value to be classified as equity, instead of financial liabilities. The adoption of the amendment will have no material effect on Sampo’s financial statements reporting.
IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction (effective for the annual periods beginning on or after 1 Jan. 2008) clarifies how to assess the limit on the amount of the surplus that can be recognised as an asset, and how the pension asset or liability may be affected when there is a statutory or contractual minimum funding requirement. The adoption of the interpretation will have no material effect on Sampo’s financial statements reporting.
(effective for the annual periods beginning on or after 1 Oct.
APPLICATIONS IN 2010 The Group will adopt the following revised standards and new interpretation (effective for annual periods beginning on or after 1 July, 2009) in 2010, provided the EU will have adopted them by then: The revised IFRS 3 Business combinations includes various significant changed regarding the accounting treatment of business combinations. The revised standard allows the en-
IFRS Financial Statements: Summary of Significant Accounting Policies tity to measure non-controlling interest, in accordance with the prevailing principle, at its proportionate interest in the acquiree’s net assets or at its fair value. The choice is acquisition -specific and affects the amounts of recognised goodwill and non-controlling interest. Other significant changes in the standard regard acquisition-related costs that should be expensed through p/l, the accounting of step acquisitions, and the treatment of contingent consideration.
IFRIC 17 Distributions of Non-cash Assets to Owners clarifies the recognition and measurement of assets other than cash paid as dividend. The adoption of the interpretation will have no material effect on Sampo’s financial statements reporting.
Attributable to Equity holders of parent company 675 Minority interest 0
Sampo plc signed a contract to sell the entire share stock of Sampo Bank plc to Danske Bank A/S in Denmark. The trade became effective on 1 Feb. 2007.
Attributable to Equity holders of parent company 3,572 Minority interest 0
Liabilities Liabilities for insurance and investment contracts 8,527 4,621 - - 13,148 Liabilities for unit-linked insurance and investment contracts - 2,071 - - 2,071
Year 2007 In accordance with the contract signed on 9 Nov. 2006, Sampo plc sold the entire share stock of Sampo Bank plc to Danske
Bank A/S. The trade became effective on 1 Feb. 2007. As a result, the profit of the first month of 2007 for the Banking and
Premiums written, gross 4,057 4,085 Reinsurers' share of premiums written -236 -245
Insurance contracts total, gross 488 609 Premium revenue ceded to reinsurers on insurance contracts issued -7 -6
¹) The change in unearned premiums is presented in note 4 'The change in insurance and investment liabilities'.
Premiums from insurance contracts Premiums from contracts with discretionary participation feature 242 211 Premiums from unit-linked contracts 240 388 Premiums from other contracts 5 7
Single and regular premiums from direct insurance Regular premiums, insurance contracts 365 404 Single premiums, insurance contracts 121 202 Single premiums, investment contracts 47 15
Financial assets designated as at fair value through p/l Debt securities
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 59 (-) transferred from the fair value reserve.
Equity securities Gains/losses 30 263 Impairment losses -1 -10 Dividend income 62 109
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 30 (234) transferred from the fair value reserve.
The changes in the fair value reserve are disclosed in the ‘Statement of changes in equity’ on p. 76.
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 differences. Unrealised fair value changes for financial assets available-for-sale are recognised in equity.
Change in provision for claims outstanding (incurred and reported losses) 685 -41 644 693 -67 626 Change in provision for claims outstanding (incurred but not reported losses, IBNR) 547 -37 510 456 -16 439
Insurance contracts Life-insurance Contracts with discretionary participation feature (DPF) -135 -140 -1 0 -136 -140
Investment contracts Capital redemption policies Contracts with discretionary participation feature (DPF) -38 -36 0 0 -38 -36
Insurance contracts Life insurance Surrender benefits -23 -24 Death benefits -25 -22 Maturity benefits -82 -88 Loss adjustment expenses 0 0
Pension insurance Pension payments -269 -248 Surrender benefits -10 -7 Death benefits -4 -4 Loss adjustment expenses 0 0
Investment contracts Capital redemption policy, unit-linked Surrender benefits -5 -14 Loss adjustment expenses -7 0
Claims paid total, gross -652 -559 Claims paid total, net -648 -554
Staff costs Wages and salaries -18 -16 Equity-settled share-based payments 0 0 Cash-settled share-based payments 0 0 Pension costs – defined contribution plans -3 -2 Other social security costs -1 -2
Staff costs Wages and salaries -7 -7 Equity-settled share-based payments -2 -5 Cash-settled share-based payments 0 0 Pension costs – defined contribution plans -2 -6 Other social security costs -1 -1
Insurance premiums earned 3,807 3,797 Claims incurred -2,834 -2,788 Operating expenses -662 -653 Other insurance technical income and expense 4 5 Allocated investment return transferred from the non-technical account 233 205
EURm Accident and health Motor, third party liability Motor, other classes Marine, air and transport
Basic earnings per share Profit or loss attributable to the equity holders of the parent company/continuing operations 675 720 Profit or loss attributable to the equity holders of the parent company/discontinued operations - 2,852 Weighted average number of shares outstanding during the period 569 578 Basic earnings per share (EUR per share)/continuing operations 1.18 1.25 Basic earnings per share (EUR per share)/discontinued operations - 4.94
Financial assets designated as at fair value through p/l 11,402 370 -146 - 86
FINANCIAL LIABILITIES Financial liabilities at fair value through p/l Derivative financial instruments 91 -
LIFE INSURANCE Land and Land and EURm buildings Equipment Total buildings Equipment Total
Net carrying amount at 1 January 4 1 5 4 1 5
Net carrying amount at 31 December 4 1 5 4 1 5
HOLDING Land and Land and EURm buildings Equipment Total buildings Equipment Total
Net carrying amount at 1 January 1 4 6 13 5 18
Transfer from owner-occupied to investment properties - - - -12 - -12
Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period -7 -8 - direct operating expenses arising from investment property not generating rental income during the period 0 -0
Opening net carrying amount at 1 January 12 19 Additions resulting from subsequent expenditure recognised as an asset - 0
Reversal of impairment losses - 1 Transfer from owner-occupied to investment properties - 12
Property rented out under operating lease Non-cancellable minimum rental - not later than one year 1 1 - later than one year and not later than five years 0 2
Closing net carrying amount at 31 December 530 21 3 554
Net carrying amount at 31 December 153 14 167 153 11 164
The recoverable amounts for If have been determined by using a discounted cash flow 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
Mandatum Life has been fundamentally based on the embedded value model where the cash flow 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 flows for If were discounted at the pre-tax rates of 11.3 per cent. For Mandatum Life, the weighted average cost of capital of 11.1 per cent has been used for the discounting.
Forecasts for If, approved by the management, cover years 2009–2011. The cash flows beyond that have been extrapolated using a 3% growth rate.
ASSOCIATES NOT ACCOUNTED FOR BY THE EQUITY METHOD AT 31 DEC. 2008**)
Consulting AB Lennemark & Andersson 8/5 10 1 Euro-Center Holding A/S 5/3 10 1
ASSOCIATES THAT HAVE BEEN ACCOUNTED FOR BY THE EQUITY METHOD AT 31 DEC. 2007 EURm
ASSOCIATES NOT ACCOUNTED FOR BY THE EQUITY METHOD AT 31 DEC. 2007**)
Derivative financial instruments 362 182 Financial assets designated as at fair value through p/l 355 9,283 Loans and receivables 1 2 Financial assets available-for-sale 8,155 -
Financial assets available-for-sale Debt securities - Other debt securities 5,633 -
Derivatives held for trading Interest rate derivatives OTC derivatives Interest options, bought and sold - - - 50 1 0
Currency options, bought and sold 126 2 3 52 0 0
Total derivatives held for hedging 1,055 35 0 - - -
Financial assets designated as at fair value through p/l Debt securities Issued by public bodies 12 9
Total financial assets designated as at fair value through p/l 41 47
Investments held-to-maturity Debt securities Debt securities issued by other than public bodies 1 8
Financial assets available-for-sale Debt securities Issued by public bodies 105 1,238
Financial assets available-for-sale Debt securities Certificates of deposit issued by banks 994 1,766 Other debt securities 190 257
Financial assets available-for-sale for Holding business include impairment losses EURm 3 (2).
The fair value of loans and other financial instruments which have no quoted price in active markets is based on discounted cash flows, using quoted market rates. The market’s yield curve is adjusted by other components of the instrument, e.g. by credit risk.
Disclosed fair values are ‘clean’ fair values, i.e. full fair value less interest accruals.
Deferred tax liabilities Depreciation differences and untaxed reserves 338 23 - -3 359
Tax calculated at parent company's tax rate -226 -253 Different tax rates on overseas earnings -5 -7 Income not subject to tax 140 202 Expenses not allowable for tax purposes -8 -13 Consolidation procedures and eliminations -118 -188
Net change in the period 10 6 Exchange differences -14 1
Item Other includes e.g. VAT receivable from Primasoft Oy (see Sampo plc's Note 24) and asset management fee receivables.
Cash at bank and in hand 16 10 Short-term deposits (max 3 months) 155 84
Incurred and reported losses 1,756 1,944 Incurred but not reported losses (IBNR) 2,944 3,197 Provisions for claims-adjustment costs 212 227 Provisions for annuities and sickness benefits 1,455 1,467
As the P&C Insurance is exposed to various exchange rates, comparing the balance sheet data from year to year can be misleading. However, all exchange effects have been excluded from the income statement. The exchange effect on technical provisions for own account between 2007 and 2008 amounted to a net increase of EURm 343 (222).
At the close of the claims year 4,473 2,246 2,200 2,336 2,347 2,416 2,532
Current estimate of total claims costs 4,924 2,105 2,095 2,215 2,305 2,410 2,532
Four years later 4,339 2,014 2,036 Five years later 4,367 1,999 Six years later 4,361
The liabilities at 1 Jan. and at 31 Dec. include the future bonus reserves and the effect of the reserve for the decreased discount rate of individual insurances. The calculation is based on items before reinsurers' share. For more detailed specification of changes in liabilities arising from insurance and investment contracts, see Risk Management.
Liabilities for contracts without discretionary participation feature (DPF) Provision for unearned premiums 13 3 Provision for claims outstanding 0 1
Assumed reinsurance Provision for unearned premiums 2 3 Provision for claims outstanding 2 2
Insurance contracts total Provision for unearned premiums 2,644 2,849 Provision for claims outstanding 1,779 1,667
Financial liabilities in the segments include liabilities from derivatives, debt securities in issue and other financial liabilities.
EMPLOYEE BENEFITS Sampo has defined benefit plans in P&C insurance business in Sweden and Norway.
Pension obligations, and the pension cost accrued during the fiscal period, are calculated using actuarial methods. Earned pension rights are calculated on a straight-line basis during the employment period. The calculation of pension obligations is based on anticipated future pension payments and includes assumptions regarding mortality, employee turnover and salary growth. The nominally calculated liability is discounted to present value using an interest rate based on the current market rate and adjusted to take into account the duration of the company’s pension obligations. 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 definedbenefit pension plans for employees in Sweden and Norway. The pension benefits arising in the other countries covered by the Group’s operations have been classified as defined contribution plans.
The expected rate of return on the plan assets has been calculated based on the following division of investment assets: ANALYSIS OF THE EMPLOYEE BENEFIT OBLIGATION
Present value of estimated pension obligation 337 53 390 352 55 406 Fair value of plan assets 220 - 220 255 - 255
Net pension obligation recognised in the balance sheet 31 45 76 44 54 98
ANALYSIS OF THE CHANGE IN NET LIABILITY RECOGNISED IN THE BALANCE SHEET
Pension obligations: At the beginning of the year 406 405 359 302 237 Earned during the financial year 14 16 18 19 13
Used for release of obligations - -2 - - Exchange differences on foreign plans -44 4 -3 3 2
Liabilities arising out of direct insurance operations 94 109 Liabilities arising out of reinsurance operations 38 36 Settlement liabilities 0 0 Liabilities related to Patient Insurance Pool 58 55 Prepayments and accrued income 133 155
The subsidiaries If P&C Insurance Ltd and If P&C Insurance Company Ltd provide insurance with mutual undertakings within the Nordic Nuclear
Holding Ltd and If P&C Insurance Ltd issued a guarantee for the benefit of Försäkringsaktiebolaget Skandia (publ.) whereby the aforementioned companies in the If Group mutually guarantee that companies in the Skandia group will be indemnified 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 indemnified 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 2007, and the purchaser issued a guarantee in favor of If for the full amount that If may be required to pay under these guarantees.
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.
If P&C Holding Ltd has issued a guarantee to the benefit of Svenska Handelsbanken Ab (publ) whereby If Holdings guarantees the commitments incurred by the If P&C Insurance Ltd deriving from short term credits up to an amount of EURm 46 and for commitments deriving from derivates transaction and - on behalf of - If P&C Insurance Ltd, If P&C Insurance Company Ltd and Capital Assurance Company for those companies commitments relating to Letters of Credits issued on behalf of their insurance operations. Capital Assurance Company Inc was sold during 2008, and the purchaser issued a guarantee in favor of If for the amount that If may be required to pay under the stand-by letters of credit pertaining to Capital
Total of sublease payments expected to be received under non-cancellable operating sub-leases 0 0
EQUITY Number of Share Share premium EURm shares capital account Total
Commitments for non-cancellable operating leases Minimum lease payments not later than one year 3 2 later than one year and not later than five years 4 5 later than five years 3 3
The Group had at the end of 2008 premises a total of 180,872 m2 (200,087) taken as a lessee. The contracts have been made mainly for 3 to 10 years.
The fair value reserve consists of changes in the fair values of the financial assets available-for-sale and derivative instruments used for hedging cash flows.
Profit for the financial year 675 3 572 Dividend distribution -686 -693 Share-based payments 3 0 Exchange differences -249 -74 Recognition of undrawn dividends 3 6 Acquisition of own shares -167 -81 Retained earnings related to discontinued operations - -3
SHARES AND VOTES The number of Sampo plc’s shares at 31 December 2008 was 561,372,390, of which 560,172,390 were A-shares and 1,200,000 B-shares. Each A-share has 1 vote and each B-share has 5 votes at General Meetings. All the B-shares are owned by the Kaleva Mutual Insurance Company. B-shares can be converted into A-shares at the request of the holder of B shares. Sampo's A-shares are quoted on the Helsinki Stock Exchange.
The Annual General Meeting of 15 April 2008 granted the Board of Directors authorisation, valid until the close of the next AGM, to buy back
At the balance sheet date, Sampo plc or other Group companies did not hold shares in the parent company.
Other long-term benefits consist of the benefits under long-term incentive schemes accounted for for the year (see note 31).
End of performance period II 35 % Q4-2006 Q4-2006 Q3-2007 Q4-2007 Q1-2009 Q3-2009 Q1-2010 End of performance period III 35 % Q4-2006 Q4-2006 Q4-2007 Q2-2008 Q3-2009 Q2-2010 Q4-2010
Price of Sampo A at terms approval date*) 9.00 8.94 11.01 12.34 20.25 18.23 18.02
Total debt 1 Total cost for the financial period, EURm (incl. social costs) 2 *) Grant dates vary **) Trade-weighted average for ten trading days from the approval of terms
In the schemes 2008 I and 2008 II, the number of calculated bonus units granted for the members of the Group's Executive Committee is decided by the Board of Directors. Over 100 persons were included in the schemes at the end of year 2008.
SAMPO 2006 SHARE-BASED INCENTIVE PROGRAMME On 5 April 2006, the Annual General Meeting of Sampo plc agreed on the ”Sampo 2006” share-based incentive programme. The programme applies to senior executive management of Sampo plc and its subsidiaries, and to Sampo’s president and CEO. On 11 May 2006, the Board of Directors of
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.
In accordance with the programme, the reward is paid in three installments. The first installment, EUR 2,420,000, was paid in December 2008.
Insurance margin 2006– 2007– 2008– 9/2008 9/2009 9/2010 *) Determined as the trade-weighted average for 10 days after the result release of the period in question.
PERFORMANCE CONDITIONS FOR PERIODS Increase of dividend adjusted share price Insurance margin
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, 30.0 per cent, was two and half years' weekly historical volatility. Other inputs used in the model were risk free interest rates 2.50–3.25 per cent and 5 per cent dividend per share.
There are a number of legal proceedings against the Group companies outstanding on 31 Dec. 2008, arising in the ordinary course of business. No provisions have been made as professional advice indicates that it is unlikely that any significant loss will arise.
P&C insurance If P&C Insurance Holding Ltd 100 1,886 If P&C Insurance Ltd 100 1,111 If P&C Insurance Company Ltd 100 465 UAB If Draudimas 100 9 AAS If Latvia 100 7 AS If Eesti Kindlustus 100 41 CJSC If Insurance 100 8 SOAO Region 100 27 If Säkerhet AB 100 0 MSK Vesta 100 0
ABB Ltd Switzerland 223,000 0.01 2 Aker Floating Production Norway 1,030,800 4.69 1 Astra Zeneca Plc Great Britain 88,400 0.01 2 Atlas Copco AB A Sweden 430,000 0.05 3
BE Group AB Sweden 2,498,600 5.00 5 Cardo AB Sweden 2,999,000 10.00 31 Clas Ohlson AB B Sweden 3,182,129 2.71 16 CTT Systems AB Sweden 511,200 4.71 1 Duni Ab Sweden 230,000 0.49 1 Eniro AB Sweden 600,000 0.37 1 Equinox Offshore Accommodation Ltd Singapore 2,610,000 4.97 1
Alma Media Oyj Finland 6,655,512 8.92 33 Amanda Capital Oyj Finland 2,053,296 9.02 3 Comptel Oyj Finland 19,569,925 18.28 14 Finnair Oyj Finland 2,400,000 1.87 12 Kemira Oyj Finland 2,088,089 1.67 12 Kesko Oyj Finland 515,153 0.53 9 Lassila & Tikanoja Oyj Finland 2,231,238 5.75 25 Neste Oil Oyj Finland 598,336 0.23 6 Nokia Oyj Finland 1,551,900 0.04 17 Norvestia Oyj Finland 1,789,538 11.68 10 Salcomp Oyj Finland 3,724,000 9.55 7 Sanoma Oyj Finland 2,710,945 1.66 25 Tamfelt Oyj Abp Finland 788,427 2.86 6 Teleste Oyj Finland 1,679,200 9.43 4 Turvatiimi Oyj Finland 5,699,436 5.04 1 Uponor Oyj Finland 2,369,488 3.24 18 Vaisala Oyj Finland 766,650 4.21 17 YIT Oyj Finland 5,507,004 4.33 25
Danske Invest Emerging Markets Debt Finland 52,084,602 61 Danske Invest Euro High Yield Kasvu Finland 20,064,205 15 Danske Invest European Opportunities Kasvu Finland 22,570,870 14 Danske Invest High Yield Kasvu Finland 170,230,497 138 Danske Invest Japani Osake Kasvu Finland 314,513,376 27 Fourton Odysseus Kasvu Finland 128,399 15
Amanda III Eastern Private Equity Ky Finland 6 CapMan Real Estate I Ky Finland 10 Mandatum Pääomarahasto I Ky Finland 8
Nordea Bank AB Sweden 5,150,000 0.20 26 Topdanmark Forsikring A/S Denmark 831,531 4.98 76
APS Japan Growth Fund Cayman Islands 183,278 9 Comgest Panda Luxembourg 15,354 16 Danske Capital Germany Luxembourg 1,103,086 6 Goldman Sachs Asset Management Liquidity Partners 2007 U.S. 512,415 14 IShares S&P 500 Index Fund ETF U.S. 419,037 27 Lloyd George Asia Small Companies Fund Hong Kong 233,008 9 New Providence Fund Ltd Bahamas 49,039 11 Prosperity Cub Fund Cayman Islands 237,181 18 RMF Commodity Strategies (Class SOE1) Bahamas 14,787 18 RMF Distressed Strategies Cayman Islands 16,159 16 Richelieu France France 32,410 8
Nordea Bank AB Sweden 313,202,100 12.05 1,576 Topdanmark Forsikring A/S Denmark 1,017,545 6.10 94
Financial income and expense 5 Income from shares in Group companies 381 719 Income from shares in participating undertakings 0 1 Income from other shares 133 43 Other interest and financial income
Other investment income and expense 3 3,241 Other interest income 7 12 Interest and other financial expense
Investing activities Investments in group and associated undertakings - 0 Proceeds from the sale of group and associated undertakings 1 4,028 Other investments -522 -2,646 Net investment in equipment and intangible assets 0 20
Financing activities Subscription of share options - 6 Acquisition of own shares -167 -81 Dividends paid -678 -685 Issue of debt securities - 9 Repayments of debt securities in issue - -332
The presentation of Sampo plc's financial statements together with the notes has been prepared in accordance with the Finnish Accounting Act and
Authorised Public Accountants Ernst & Young Oy Auditing fees -0.2 -0.3 Tax consulting -0.0 -0.0 Other fees -0.0 -0.1
Accumulated depreciation at beginning of year -1 0 -1 -7 of which related to disposals 0 - 0 7 Accumulated impairment losses at beginning of year 0 - -1 of which related to disposals - - 1 Depreciation according to plan during the financial year 0 0 0 -1
Receivables are subordinated loans issued by subsidiaries. More information in the consolidated note 24 Financial liabilities.
Recognition of undrawn dividends 6 6 Financial assets available-for-sale - recognised in equity 6 6
The basic and supplementary pension insurance of Sampo plc's staff is handled through insurances in Varma Mutual Insurance Company and in
Not more than one year 3 2 Over one year but not more than five years 4 5 Over five years 3 3
To or on behalf of Group companies - To or on behalf of associates - -
As the Group member liable to tax, Sampo plc paid in January 2005 the VAT debited in December 2004. Accordingly, the VAT in question has been treated as a receivable from the Group members in the accounts since 2004.
Sampo plc made an appeal to the Helsinki Administrative Court with respect to the reassessment of the Tax Office 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 Office for Major Corporations for further handling.
Full-time staff 51 54 Part-time staff 1 2 Temporary staff 1 -
To the Annual General Meeting of Sampo plc We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of Sampo plc for the financial period 1.1.2008 - 31.12.2008. The financial statements comprise the consolidated balance sheet, income statement, cash flow statement, statement of changes in equity and notes to the consolidated financial statements, as well as the parent company's balance sheet, income statement, cash flow statement and notes to the financial statements.
AUDITOR'S RESPONSIBILITY Our responsibility is to perform an audit in accordance with good auditing practice in Finland, and to express an opinion on the parent company’s financial statements, on the consolidated financial statements and on the report of the Board of
Directors based on our audit. Good auditing practice requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements and the report of the Board of Directors are free from material misstatement and whether the members of the Board of Directors and the Managing Director have complied with the Limited Liability Companies Act.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors.
In order to ensure continuity in the management of Sampo Group, the Board’s Nomination and Compensation Committee will propose to the Annual General Meeting in the spring of 2009, having consulted the major shareholders, that Björn Wahlroos be re-elected to Sampo’s Board of Directors and that he would be elected Chairman of the Board. Wahlroos would then leave his position as Group CEO and President at the end of the Annual General Meeting of 2009.
In accordance with the plan Sampo’s Board of Directors has on 5 November 2008 nominated Kari Stadigh as Group CEO and President. Kari Stadigh will start in his new role on 8 April 2009.
Each shareholder who is registered on the record date for the Annual General Meeting, Friday, 27 March 2009, in the company’s Shareholder Register kept by Euroclear Finland Ltd (previously the Finnish Central Securities Depository Ltd) has the right to participate in the General Meeting. Shareholders whose shares are registered on their personal Finnish book-entry account are registered in the company’s Shareholder Register.
Shareholders who wish to participate in the General Meeting must register for the meeting no later than 4 pm on 31 March 2009. A shareholder may register for the General Meeting either: a) via the company’s website, www.sampo.com/agm b) by telephone to +358 (0)10 516 0068 from Monday to Friday between 9 am and 4 pm c) by fax on +358 (0)10 516 0623, or d) by mail to the address Sampo plc,
‘Sampo posted forecast-beating fourth-quarter profi ts, helped by its property and casualty unit, and said the non-life business would remain the mainstay of 2009 results.’ - John Acher and Sudip Kar-Gupta, Reuters, 11 February 2009