EUR 600 million. The big question in 2018 concerns the capital markets – will the equity markets be able to achieve the tenth successive year of growth or will the rising interest rates bring the share valuations down.
Sampo Group’s profitability remained at a good level in 2017. Pre-tax profit was EUR 2,482 million (1,871). Even without the non-recurring profit item of EUR 706 million this represents an excellent achievement. Especially noteworthy were the extremely low combined ratios of our P&C insurers, If and Topdanmark.
85.3 per cent, which is the best ever recorded in the company’s history. The profit before taxes was also excellent and stood at EUR 818 million.
Sampo’s share of Nordea’s net profit for 2017 amounted to EUR 616 million, which was less than we expected. However, future prospects are looking bright as the bank is going through several major transformations. As the biggest shareholder, Sampo is confident that the planned measures to increase operational efficiency will be implemented successfully and that the company’s profitability will rise to a new level in the coming years. Nordea’s balance sheet is stronger than ever before and therefore the Board proposes to the AGM on 15 March that the dividend be raised to EUR 0.68 per share. If implemented, the dividend will be the highest ever, bringing Sampo EUR 585 million.
For Topdanmark 2017 proved to be another excellent year. Sampo’s share of the company’s net profit without the nonrecurring item due to consolidation was EUR 142 million.
Meanwhile, the combined ratio was very good at 82.0 per cent. The Board proposes to the AGM on 12 April that a dividend of DKK 19 per share be paid. Sampo’s share of the dividend, which will be distributed for the first time in a number of years, will be EUR 107 million. Finally, there has been a change of leadership, with Peter Hermann being appointed CEO of Topdanmark in February 2018.
In 2017, the parent company Sampo plc invested in three companies that operate in the financial sector – Nets, Saxo Bank and Nordax.
The Danish company Nets is a leading payment services provider in the Nordic countries and a pioneer in digital payments. Saxo Bank, on the other hand, is a Danish fintech company specialized in online trading. In February 2018, Nordic Capital and Sampo made a takeover offer for Nordax, which is a Swedish online bank offering consumer credit. If all of these investments are fully executed, Sampo will have invested approximately EUR 750 million in these three companies.
We have carefully analyzed the companies we are investing in and we have a great faith in the strategies that have been made together with or by our co-investors in order to further develop these companies. It is quite possible that we will continue to make direct investments in the Nordic financial and insurance sectors in the future as well.
Sampo´s objective, since my work as the CEO of Sampo Group started in 2009, has been to raise the dividend every year. To this end, The Board’s dividend proposal for the AGM on 19 April is EUR 2.60 per share. If the AGM approves the proposal, the dividend will have increased for the ninth year in a row. Sampo has one of the longest dividend growth streaks on Nasdaq Helsinki. Our objective is to continue to raise our dividend in the future.
January 2018 marked the 30th anniversary of Sampo’s listing on Nasdaq Helsinki. Sampo’s success has reflected in our shareholders’ returns. In particular, during the last two decades, the total return, with the dividends reinvested, has been excellent, averaging 17 per cent a year. I would like to express my sincere gratitude to all those who have invested in Sampo, many of whom have been our shareholders for a long time.
I would like to thank the 14 million customers of our subsidiaries and associates who have trusted in us over the past year. I am delighted to see that the number of our customers is steadily growing. Our personnel have been working under increasing reporting and statutory requirements in 2017. We have responded extremely well to them and I am confident that we will continue to meet all challenges in the future as well.
PrProfit fofit for the period **)or the period **) 2,2392,239 1,6501,650 3636
Average number of staff (FTE) 9,364 6,780 2,584 *) 2017 figures contain a non-recurring profit item of EUR 706 million related to the start of consolidation of Topdanmark as a subsidiary, without which profit before taxes for Topdanmark segment would have been EUR 142 million.
The parent company Sampo plc’s A shares are listed on the Nasdaq Helsinki. The parent company sets financial targets for the subsidiaries. For both If and Mandatum Life the return on equity target is to exceed 17.5 per cent. In addition a separate target has been set for the combined ratio in the P&C insurance operation, i.e. the annual combined ratio to be below 95 per cent each and every year.
If’s vision is to offer insurance solutions that provide customers with security and stability in their daily lives and business operations with such excellence that If is the preferred insurance provider in the Nordic and Baltic markets. This vision is expressed through If’s customer promise “Relax, we’ll help you”.
• The Commercial business area is the largest commercial insurer in the Nordic countries. This business area insures companies with up to 500 employees and has about 340,000 companies as customers.
• The Industrial business area is the leading insurer for large corporate customers in the Nordic region with approximately 1,300 customers. Customers are companies with a turnover of more than EUR 50 million and more than 500 employees.
• Stable profitability through underwriting excellence and operational efficiency Profitability in the core business by accurate pricing of risk. Continuous focus on cost efficiency, an investment strategy based on balanced risk and creditworthiness also contribute to a strong and stable profitability.
In life insurance, Topdanmark has a 9 per cent market share in Denmark. Topdanmark serves around 130,000 Danish corporate and private customers. The majority are company pension customers with compulsory pension schemes for the employees.
TTopdanmark’opdanmark’s Vs Vision Is tision Is to Beo Be Denmark’Denmark’s Bess Best-run Insurt-run Insurancancee CCompanompanyy
In order to fulfil the vision of being Denmark’s best-run insurance company, Topdanmark aims continuously to combine new technology, digitalization and automation with competent experience in insurance and risk assessment.
• Digitalization, innovation and utilization of new technology are important means for achieving targets
The Mandatum Life Group began offering its own wealth management services related to insurance and capital redemption contracts in 2008. Mandatum Life makes its own investment expertise available to its customers. This approach is called co-investing strategy which means that Mandatum Life invests in objects that are aligned with the company’s and its partners’ successful investment operations. Co-investing is available to institutional investors, wealth management customers and other customers in unit-linked services, for example pension insurance. Through digital services, an increasing number of Mandatum Life’s private customers and company personnel can make use of the services.
Mandatum Life’s goal is to strengthen its position as Finland’s largest life and supplementary pension insurer in the corporate customer segment. The company estimates that the need for Finns to secure their income during retirement will increase further following the pension reform that entered into force at the start of 2017. The reform aims at extending careers. In Mandatum Life’s view, motivated employees are a key to extending careers. Investing in personnel has a major impact on the length of work careers, motivation and on companies’ earnings power. Mandatum Life offers companies a broad range of services related to personnel rewards and incentives.
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In terms of the existing with-profit insurance portfolio, the company’s strategy is to maintain a sufficiently strong solvency position, which makes it possible to seek a higher long-term investment return than that offered by low-risk fixed income instruments. The goal will be to actively accelerate the downward trend of the with profit portfolio. The transitional provisions of the Solvency II framework, together with the downward trend of this insurance portfolio, will enable the company to carry out effective capital management in future.
Mandatum Life’s result consists of three components: investment result, risk result and expense result. In the
expense and risk results, Mandatum Life seeks growth through both higher operational efficiency and volume growth. The company’s financial target is to achieve a return on equity (RoE) of at least 17.5 per cent.
Businesses Sampo plc Sampo Group is active in insurance and banking. The Group’s operations are divided into four main businesses, which are subsidiaries If, Topdanmark and Mandatum Life and associated company Nordea. Sampo plc is Sampo Group's parent company. Sampo plc has no business activities of its own but administers the subsidiaries and is responsible for centralized functions in Sampo Group such as investments, group finance, risk management and investor relations. Sampo plc has been listed on the Nasdaq Helsinki since January 1988.
Topdanmark is the second largest non-life insurance company and the sixth largest life insurance company in Denmark. The company focuses on the private, agricultural, and SME market. Topdanmark’s share is listed on Nasdaq Copenhagen. Topdanmark is Sampo plc’s subsidiary. Sampo plc held 46.7 per cent of Topdanmark’s shares at the end of 2017.
The company provides its customers with a variety of services, including wealth management, investments, savings, personal risk insurance, as well as, incentive and reward solutions. In addition to Finland, Mandatum Life operates in the Baltic countries. Mandatum Life has an estimated 250,000 private and 25,000 corporate customers. Mandatum Life is Sampo plc’s fully-owned subsidiary.
If’s premium growth for 2017 was 1.8 per cent (-0.1). The growth was driven by an increase in the number of customers and continued strong new car sales. Also, development of partnerships and substantial online sales affected growth positively.
new technologies, creating processes that are more efficient, and providing better tools to the organization.
As of 1 January 2016 If applies Solvency II principles in its regulatory solvency calculations. If uses a standard model when calculating its solvency requirements and eligible own funds at Group level. During the year If’s Finnish subsidiary was transformed into a branch of the Swedish company. If has an A+ rating with stable outlook with Standard & Poor’s.
The profit on life insurance increased to DKK 249 million from DKK 189 million in 2017. The improvement was primarily due to a higher investment result and an improvement in the profit on sales and administration.
A combination of risk-based prices, restrictive acceptance criteria and focus on increasing the customer satisfaction and engagement of profitable customers has resulted in a relatively stable development in combined ratio.
Topdanmark’s investment return was DKK 396 million. Good investment return was achieved despite limited financial risk, where the interest rate risk of the reserves are covered on the asset side through investment in bonds of the same duration as on the liability side.
In 2017, Topdanmark initiated the first activities in order to achieve the goal of becoming Denmark’s best-run insurance company.
• In life insurance, Topdanmark achieved a 11 per cent growth and is thus still one of the fastest-growing life insurance companies in Denmark. Topdanmark holds a good position based on competitive investment returns, high customer satisfaction and low administrative costs.
TThe Main Elements of the Ahe Main Elements of the Activity Plan and Sctivity Plan and Statatus artus are:e: ANNUAL REPORT 2017 Group
Topdanmark is the second largest non-life insurance company and the sixth largest life insurance company in Denmark.
In life insurance, Topdanmark has a 9 per cent market share in Denmark and serves around 130,000 Danish small and medium-sized companies and private customers. The majority are group pension customers with compulsory pension schemes for the employees. Topdanmark is Sampo plc’s subsidiary. Sampo plc held 46.7 per cent of Topdanmark’s shares at the end of 2017.
• digital platform investments, which will lead to an increased roll out frequency of improved products and services to customers
• a substantial improvement in cost efficiency, with a target to reduce operational expenses between 2017 and 2021, and
In the business areas, the significant transformation continues and the influence of digitalisation changes what customers expect from their bank. In Personal Banking, more and more customers choose to handle their banking activities in digital channels, and one out of four advisory meetings is held online. In Commercial & Business Banking, there was a substantial growth in the usage of online and mobile services. The demand for solutions that meet the expectations of Nordea’s customers and support their new business models also grew.
In Wholesale Banking, the leading position in corporate advisory services in the Nordics was confirmed and Nordea received several number one rankings in customer surveys and leading league table positions. In Wealth Management, total assets under management grew to a new all-time high of EUR 330 bn. Nordea is now in top 10 of the annual brand ranking of the European Asset Management Industry according to The Fund Brand 50 Report.
The positive effects of Nordea’s transformation are starting to reach customers all over the Nordics. As a result, Nordea received awards and top rankings including: best private bank, IT innovation of the year, best in real estate finance, best transaction banking and a number one ranking for the large corporates operation. In addition, several partnerships have been developed to meet customers’ demands in the payment area. Mobile bank is becoming the natural contact point between Nordea and its customers.
In 2017, it was for the first time a synchronised growth in all four of Nordea’s Nordic home markets. It was also the lowest market volatility in a very long time, and the geopolitics challenged the globalisation trends as the dominating force.
No changes took place in Mandatum Life’s strategy and key focal areas during the year. The business areas focus on unitlinked and personal risk insurance. Existing customers, companies and their employees and institutions are at the heart of the customer strategy. Mandatum Life’s private customer potential is largely based on the current insurance portfolio and the employees of corporate clients. In terms of wealth management, the co-investment approach was expanded to cover an even broader customer base and group of investment instruments. Co-investing strategy means that Mandatum Life invests in objects that are aligned with companys’s and its partners’ successful investment operations. The controlled winding down of the insurance portfolio with particularly high guarantees continues to be one of the key strategic areas.
At the end of 2016, Mandatum Life announced that its longstanding distribution co-operation with Danske Bank would come to an end and that the company would exercise its right to sell the insurance portfolio, consisting of private customers’ insurance policies generated through the cooperation, to Danske Bank. The portfolio transfer involves approximately 150,000 policies, unit-linked insurance savings of around EUR 3 billion and with-profit insurance savings of some EUR 0.2 billion. The valuation of the insurance portfolio was completed in June 2017. The portfolio transfer is expected to be completed by the end of 2018. Mandatum Life and Danske Bank have agreed on a transitional period during which fund management cooperation will be continued to ensure that the services offered to existing customers remain unchanged until the portfolio transfer. From customers’ perspective, the services will remain unchanged during the transitional period.
The total reward package of Sampo Group also encompasses competitive remuneration and benefits such as private health care and broad insurance coverage, in addition to extensive competence development.
AAvvererage Page Personnel (FTE) bersonnel (FTE) by Cy Countryountry Sampo Group, 2017
DisDistribution of Ptribution of Personnel bersonnel by Cy Country (FTE aountry (FTE avvererageage)) Sampo Group, 2015–2017
In the mature insurance industry, having the industry’s most competent employees is the main source of sustainable competitive advantage. If’s competence development unit – If Academy – supports the business units and ensures efficient planning and delivery of competence development across the company. Senior competence partners are working in close cooperation with business leaders in setting the competence development agenda.
If believes in building top analytical skills to manage the continuously evolving competition. To support the analytical core, If focuses on ensuring the right competences in customer orientation, product development and marketing.
In Business Area Commercial, the SEE-journey (Safe, Easy, Express) challenges both managers and employees to take an intense customer focus. 40 ambassadors have been appointed to take the message forward within the organization. In Business Area Industrial, the Challenger Approach aspires to increase customer orientation and team work around key customers.
A key factor in ensuring the industry’s most competent employees is recruitment. Recruiting employees with both the right skill set and the right motivation and attitude is essential. During 2017, HR launched initiatives to increase the emphasis on attitude, motivation and cultural fit in If’s recruitment processes. The resources working with recruitment have been strengthened, for example through junior HR Partners focusing on recruitment in customer centers. In addition, HR is starting up a project to analyze and develop If’s employee value proposition.
Through If Academy, If supports a balanced development of skills in business management, customer service and initiatives and employee engagement. Specific training has been offered for new leaders as well as for more experienced ones. Also informal leaders, such as project leaders, have been targeted.
updated mid-year review process was launched. The aim was to make the mid-year review-discussions more interactive and supportive of a true employeeship-approach, where employee engagement and own initiative are central to the progress and development.
The Equal Opportunities Advisory Board will work further on diversity issues based on a plan of concrete actions, which will be initiated at different levels of the organization. Voluntary Diversity Ambassadors will be appointed. Their task will be to promote diversity both from a business and an ethical perspective.
In If Sweden, the project Sweden’s Best Work Place was launched in the Sales and Service organization. In the Gothenburg office, a pilot group has tested yoga classes. In the Sundsvall office, a Stress and Health Program was introduced, targeting employees on long-term sick leave due to stress, and also employees at risk of stress-related sickness.
In Norway, a pilot took place in Business Area Commercial to improve wellbeing and boost preventive health. A Job Stretch session, 10 minutes a week with basic physical activities, has been very popular in many offices in Norway. It was introduced to prevent sickness by helping employees to stretch the neck, back, arms and shoulders. Denmark has launched MIND-strain, an anti-stress training program.
The number of personnel at If increased slightly during 2017 compared to the previous year. As a result of strategic initiatives in Business Area Private, the number of employees in central flagship offices is growing and the number of employees in small branch offices is decreasing. The number of employees in Business Area Private’s sales, claims and product units has grown and Business Area Commercial’s New Business unit is expanding. A new claims support company, Nordic Assistance AB, was also established in the beginning of 2017.
Managers (male 53.5%, female 46.5%) All employees (male 45.6%, female 54.4%)
HR strives to provide the leaders and employees of If with great service every day. HR has implemented a modern, fully integrated HR system that facilitates harmonizing HR
processes across country borders and offers better onboarding and learning management, facilitated feedback discussions, improved compliance work and enhanced work force analytics.
Topdanmark’s employees are the most important resource for ensuring that the company’s customers get the best service in every situation. Therefore, competent and motivated employees are crucial for the company. The objective is that the company’s employees and the labor market in general would consider Topdanmark as an attractive workplace characterized by competence, motivation, and cooperation.
Topdanmark has a comprehensive training and development program for all occupational groups.
Topdanmark wants to promote a motivating and inspiring work environment. For many years, Topdanmark has conducted an employee satisfaction survey as a part of the company’s efforts to promote job satisfaction and the commitment of its employees. In 2016 and in 2017, other methods for evaluating employee satisfaction and commitment were tested, involving approximately 900 employees. Based on that work, at the end of 2017, Topdanmark decided on a new direction and a model for how to use employee satisfaction and commitment surveys in the future. The new method will be implemented in 2018.
In 2017, employees who were at risk of getting lifestyle diseases were offered an individual health program, My Health. 30 programs were made available to employees with a minor self-payment – each program lasted for three to four months. Similar programs have been tested among the company’s employees previously as well, and they have resulted in long-lasting lifestyle changes.
Life believes that only satisfied employees give rise to satisfied customers. That is why investing in personnel practices not only reflects the company’s values but also makes good business sense.
Employee satisfaction is one of Mandatum Life’s long-term strategic business targets. At Mandatum Life it is believed that a positive employee experience leads to a good customer experience. The objective is to build a work culture based on trust, where having the right people in the right places results in the highest quality of service for the company’s customers.
Mandatum Life measures its employee satisfaction every year through the Great Place to Work Finland survey. The goal is for 90 per cent of Mandatum Life’s personnel to feel that they are employed in a very good workplace. The company’s focus on well-being at work has paid off. In 2017, the target was exceeded for the third year in a row and was 94 per cent (92). In addition, Mandatum Life’s efforts to be a truly good workplace are bearing fruit: according to the survey carried out in 2017, 91 per cent of the company’s personnel would recommend Mandatum Life as a workplace.
Mandatum Life is proactive in identifying and fostering the growing potential that lies within the company and in ensuring that it is an attractive workplace for new talent. This requires a culture with a low hierarchy, confidence building and employee engagement. Up to 96 per cent of Mandatum Life’s personnel feel that they are given a lot of responsibility in their work.
Learning through feedback is supported by, among other things, a mentoring program, which was implemented for the sixth time in 2017. A 360-degree evaluation is carried out every two years to support leadership development. Based on the survey carried out in autumn 2017, supervisory work at Mandatum Life is at a very high level compared to other Finnish expert organizations. Based on the feedback, the strengths of the supervisory work are enthusiasm, customer focus, taking responsibility, leading by example, approachability and ease of cooperation. Identified development areas included, among other things, controlled implementation of new procedures, efficiency of resources and work organization and time management challenges. On a scale of 1–7, the weakest scores were 5.5 and the top scores were 6.5 on average. Of the personnel, 96 per cent responded to the survey.
During 2017, the company developed study programs to be completed in an online learning environment. The entire personnel completed an online course on preventing money laundering in the business of investment service companies and in insurance services and on knowing the customer.
All new Mandatum Life managers participate in the introduction training for managers as they take on their new role. In addition, in their first year of working for the company, all managers participate in the Mandatum Life Management School – a coaching program that aims to examine the role and tools of managers, as well as interaction in situations involving managerial work. The coaching provides a foundation for analyzing and developing one’s own supervisory work and for managing the team’s activities. The goal is to maintain a consistent leadership culture at Mandatum Life. The program was arranged for the seventh time in 2017, and more than 95 per cent of the company’s managers have taken part in it.
Mandatum Life favors an effective and agile reward system, which also means being prepared to make changes. The company continuously learns from the feedback of its personnel in order to find the best employee reward practices. In addition to monetary rewards, Mandatum Life has also developed practices related to quick rewards and thank-you gifts. The company has, for example, awarded its most positive employees.
In ensuring the effectiveness of the reward system, responsibility and fairness are emphasized. Mandatum Life focuses on communicating the reward criteria to all of the employees so that they know what they are paid for and why. The most important consideration is that the rewards are perceived as fair. An effective reward scheme calls for clear communication.
At Mandatum Life, the main focus of occupational health are preventive well-being-at-work measures. The absences due to illness have been declining since 2011 and are currently at a very low level in the company. The absence due to illness rate was 2.3 per cent (2.4) in 2017.
achieve”, at 92 per cent (88). The response rate for the survey was 86 per cent (91).
Most of Sampo Group’s practical corporate responsibility work is carried out at the subsidiary level. The logic is clear especially from the social and environmental standing points as that is where the customers are and most of the personnel work and the direct environmental impacts are the most significant. Further, the operations of Sampo plc’s subsidiaries If, Topdanmark and Mandatum Life differ from each other and, therefore, the nature of their corporate responsibility activities also differ to a great extent. The subsidiaries have their own models of corporate responsibility reporting reflecting the special features of their businesses.
The primary responsibility of If is to make sure that its customers are correctly insured. If keeps track of customer needs in life-changing situations, offering its customers preventive insurance services. Through risk management and underwriting, corporate responsibility becomes a part of If’s core business. Thereby, If’s role in society is crucial in mitigating the economic losses tied to environmental or social harm. Preventing injuries, damages and accidents is in the interest of If, the customer and the society at large.
Sampo Group’s Corporate Responsibility Report 2017 will be released by the end of June 2018. The report will be available on the Annual Report website.*
Global warming will affect the whole insurance business and the societies it serves. If operates in countries where abnormal weather phenomena, such as storms, heavy rains and floods, are likely effects of climate change. The insurance industry provides early indicators of the consequences of environmental impacts in general and climate change in particular.
For years, If has actively cooperated with numerous organizations on different topics, climate change being one of them. A recent example is the cooperation with CICERO Center for Climate Research in Oslo, Norway. In this five-year research plan the world-renowned scientists at CICERO are studying the effects of cloudbursts and where they most likely will hit in the coming years. In order to help people adapt to changes in the climate, the findings of the studies are then shared with If’s customers and the general public.
In Denmark, If is actively involved in the Network for Eco Labelled products. As an engaged member of the network, If helps to send a clear signal to suppliers and manufacturers, that leading Nordic companies demand products that are manufactured with the highest possible consideration for the environment.
For years, If’s experts have analyzed the company’s extensive injury statistics and published this information in order to increase traffic safety. In the past year in Sweden, cyclists have been in focus. If created a shortlist with suggestions for changes to traffic laws and regulations, which would increase safety for cyclists. The list has generated significant interest in the media and the cycling community.
With the “If Safety Pin” scholarship, If also strives to combat different types of exclusion in society in Sweden. The scholarship is awarded annually to a young social entrepreneur working to support other young people in vulnerable situations. In 2017, the recipient of the SEK 50,000 scholarship was Madeleine Beermann, chairperson of the Swedish organization called Unga Reumatiker (Young Rheumatics).
In 2017, If introduced “If House Inspections” to all Nordic markets. If offers house owners with extensive house insurance a comprehensive home inspection free of charge. Specially trained inspectors inspected almost 40,000 homes in 2017 and the plan is to inspect 40,000 homes every year. The benefit is that people can learn how to better maintain their house and improve security, for example how to minimize the risk of fire and burglary.
For Topdanmark, corporate responsibility (CR) goes hand in hand with the company’s core business. Topdanmark’s products and services give the customers financial and social security in case of a claim or when retiring. Thus, Topdanmark makes a positive contribution to the Danish society.
Topdanmark is a participant in the UN Global Compact, supporting the 10 principles concerning human rights, workers’ rights, environment and anti-corruption. These principles are interpreted at Topdanmark in a way that they give value to the business and the society around. Topdanmark also encourages its suppliers to integrate the Global Compact principles into their business with Topdanmark’s CSR Program for Suppliers.
Topdanmark aims to attain the best possible return on investments in relation to risk, but the company also wants to ensure that value creation is responsible and not in violation of the internationally recognized standards and principles or conventions adopted by Denmark – including the UN Global Compact Principles.
Topdanmark launched a pilot project concerning a prevention concept based on online health screening in 2017. Topdanmark has also entered into cooperation with the Centre for Mental Health Promotion, University of Copenhagen, concerning stress reduction. Further, in order to reduce the high number of work-related accidents in agriculture in Denmark, Topdanmark has developed a new service concept of preventive advice for farmers, in cooperation with a technical knowledge and innovation center.
In 2017, Mandatum Life focused on promoting responsible investing and the sustainability of its own investment activities. During the year, both investment objects, investing in the most responsible companies in their sector and those aimed at managing climate change risks, were included in all of the full-mandate investment solutions managed by Mandatum Life.
Mandatum Life launched cooperation with WWF Finland to mitigate climate change, involving, among other things, guidance to investors on how they can replace carbonintensive investment products with other, more climateresilient options. The backdrop to this is the need to adjust the investment sector’s operations to the level required by the 1.5–2-degree temperature goal agreed on in the Paris climate agreement.
and employees’ financial security by providing personal insurance, growing wealth, securing entrepreneurship and supplementing pension cover.
Mandatum Life encourages employers to secure their personnel’s pension and insurance cover and at the same time takes care of their employees’ work ability. In 2017, Mandatum Life paid out a total of EUR 402 million in pensions to 66,000 pensioners and the number of other indemnities paid was in total 50,000.
Efforts to improve the well-being of personnel and good leadership paid off in 2017. According to the Great Place to Work Finland study, up to 94 per cent of employees, who participated in the study, find Mandatum Life to be a very good place to work. The results of the 360-degree survey pertaining to the quality of leadership indicated that leadership is also at an excellent level. Of the personnel, 96 per cent responded to the survey, which provides managers with feedback on their interaction and leadership skills from their own manager, peer group and subordinates.
published an investor guide related to the topic together with WWF Finland.
In responsible personnel practices, Mandatum Life will continue its efforts to be one of Finland’s best workplaces and to help its client companies achieve greater success. In the beginning of 2018, Mandatum Life also joined the FIBS Diversity Charter and engages in promoting equal leadership and equal opportunities in the work community, and in communicating about goals and achievements pertaining to equality.
In November 2016, Sampo launched a project to reach the holders of shares that had not been transferred to the bookentry system. The scale of the project was exceptional. Nearly seven million shares had not been transferred to the bookentry system, which corresponded to approximately one per cent of the total number of shares.
On 3 November 2016, Sampo plc sent a reminder letter to around 75,000 private persons who had been registered, in accordance with the shareholders' register dated 12 September 1997, as holders of the shares in the joint account who had not yet transferred their shares to their own bookentry account. The letter asked these persons to take their Sampo plc paper share certificates to a bank and register them in a book-entry account, in case Sampo’s AGM of April 2017 decided on the forfeiture of shareholder rights attaching to shares that had not been transferred to the book-entry system.
This paper share certificate project was Sampo’s last attempt to reach those shareholders whose shares had not been transferred to the book-entry system. The company had already tried to reach them through letters and newspaper ads in 1997, when the company transferred to the book-entry system. The matter was also extensively covered by the media.
Media CMedia Coovvererage Helped Sampo tage Helped Sampo too RReach Shareach Shareholderseholders
The media helped to activate the general public by highlighting the current value of Sampo paper share certificates. The coverage on Yle’s main news broadcast and articles published in national newspapers were immediately reflected in the number of inquiries to Sampo’s Shareholder Services. On the busiest days, Shareholder Services received more than 5,000 email messages per day concerning the share certificates. Between October 2016 and October 2017, Sampo received approximately 100,000 inquiries related to the share certificates. During a period of less than six months, more than 150 articles were published in newspapers and magazines on Sampo’s attempt to reach the holders of its share certificates.
In December 2017, Sampo plc announced that its Board of Directors had decided, according to the authorisation by the
In January 2017, the invalidation applications submitted to the District Court were published in the year’s first issue of the Official Journal of Finland. Due to this, the issue had 993 pages, compared to the average 20 pages.
Sampo received more than 100,000 inquiries concerning the paper share certificates.
45Governance Structure 46Board of Directors 49- Board of Directors' Duties 49- Election and Terms of Office of Board Members 52Board-Appointed Committees 53- Audit Committee 54- Nomination and Compensation Committee 55Group Executive Committee 58- Group Executive Committee's Duties 59Group CEO and President 59Remuneration 59- Remuneration Statement 59- Remuneration of the Members of the Board of Directors 60- Remuneration of the Group CEO and Other Group Executive Committee Members 61Corporate Responsibility 61Internal Audit 61Insider Administration 62External Auditor
Nordea Bank AB (publ), Chairman of the Board; UPM-Kymmene Corporation, Chairman of the Board; Hanken School of Economics, Chairman of the Board; The Mannerheim Foundation, Board Member; Finnish Business and Policy Forum EVA, Board Member; The Research Institute of the Finnish Economy ETLA, Board Member; Several other charitable institutions
Wahlroos was appointed to the Board of Directors of Sampo plc on 5 April 2001. Wahlroos holds 10,501,265 Sampo plc shares directly or through a controlled company.
Wahlroos has been determined by Sampo’s Board of Directors to be independent of the company and of major shareholders under the rules on Finnish Corporate Governance Code.
Member of the Board of Directors of Sampo plc since 15 April 2008. Palin-Lehtinen holds 5,682 Sampo plc shares directly or through a controlled company.
Palin-Lehtinen has been determined by Sampo’s Board of Directors to be independent of the company and of major shareholders under the rules on Finnish Corporate Governance Code.
Board of Directors Sampo plc's Board of Directors, elected annually by the Annual General Meeting of Sampo plc, uses the highest decision making power in Sampo Group between the AGMs. Sampo's Board of Directors is responsible for the management of the company in compliance with the law, the regulations of the authorities, Sampo's Articles of Association and the decisions of Shareholders Meetings.
Christian Clausen Chairman fChairman for the Noror the Nordics, BlackRdics, BlackRock, Inc.ock, Inc. Born 1955Born 1955
Member of the Board of Directors of Sampo plc since 21 April 2016. Clausen holds 929 Sampo plc shares directly or through a controlled company.
Jannica Fagerholm Managing DirManaging Directectoror, Signe and Ane G, Signe and Ane Gyllenberyllenberg Fg Foundaoundationtion Born 1961Born 1961
Member of the Board of Directors of Sampo plc since 18 April 2013. Fagerholm holds 2,826 Sampo plc shares directly or through a controlled company.
Fagerholm has been determined by Sampo’s Board of Directors to be independent of the company and of major shareholders under the rules on Finnish Corporate Governance Code.
Member of the Board of Directors of Sampo plc since 14 April 2011. Grate Axén holds 5,590 Sampo plc shares directly or through a controlled company.
Confederation of Finnish Industries EK, Chairman of the Board and Member of Representative Assembly; Finnish Business and Policy Forum EVA, Board Member; The Research Institute of the Finnish Economy ETLA, Board Member; The National Emergency Supply Council, Member; The Finnish Fair Association, Member of the Supervisory Board
Member of the Board of Directors of Sampo plc since 7 April 2009. Mattila holds 5,680 Sampo plc shares directly or through a controlled company.
Risto Murto CEO and PrCEO and President, Vesident, Varma Mutual Parma Mutual Pension Insurension Insurancance Ce Companompanyy Born 1963Born 1963
The operating procedures and main duties of the Board of Directors have been defined in the Board's Charter.
The Board of Directors decides, among other things, on Sampo Group's strategy and approves the principles governing the Group's risk management, remuneration, compliance and internal control. It also takes responsibility for the proper organization of the Group's operations, defines the required internal minimum capitalization for Group companies and supervises Group’s profitability and liquidity position as well as capitalization. The Board also decides, within the framework of the company's business area, on other exceptional and far-reaching matters with respect to the scope and nature of Sampo Group.
The Board elects the Group CEO and President, the members of the Group Executive Committee and the Group Chief Audit Executive, and releases them from their duties. The Board also decides on the terms and conditions of their employment and on other compensation. In addition, the Board confirms the Group's personnel planning targets and monitors their fulfillment, determines the grounds for the Group's compensation system and decides on other farreaching matters concerning the personnel.
The Audit Committee is responsible for monitoring the statutory auditing and reporting process of the financial statements and consolidated financial statements, and for overseeing the veracity of Sampo Group's financial statements and the financial reporting process as well as the preparation of group’s non-financial reporting.
The Committee also oversees the actions of the auditor under the laws of Finland and monitors the auditor’s invoicing for audit and non-audit services as deemed appropriate. Furthermore, the Audit Committee is responsible for evaluating the auditor’s and auditing firm's independence and particularly their provision of related services to Sampo Group, and for preparing proposals to the Annual General Meeting concerning the auditor’s election and his fee.
Nomination and Compensation Committee also prepares for the Board’s decision Sampo Group’s Remuneration Principles and Sampo plc’s Remuneration Policy, Sampo Group’s longterm incentive schemes, maximum pay-outs based on shortterm incentive programs and long-term incentive schemes as well as the actual payments to be made.
The Committee convened five times in 2017. Ms. PalinLehtinen was prevented from attending one meeting. Other members attended all meetings, so the attendance of members at meetings was 95 per cent.
Kari Stadigh GrGroup CEO and Proup CEO and President, Sampo Gresident, Sampo Groupoup CEOCEO, Sampo plc, Sampo plc Born 1955Born 1955
Member of Sampo Group Executive Committee since 2001. Stadigh holds 286,558 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Knut Arne Alsaker CFCFOO, If P, If P&C Insur&C Insurancance Holding Le Holding Lttd (publ)d (publ) Born 1973Born 1973
If P&C Insurance Ltd (publ), Board Member; If Livförsäkring AB, Board Member; If P&C Insurance AS, Board Member
If P&C Insurance Holding Ltd (publ), Board Member; Mandatum Life Insurance Company Ltd, Vice Chairman of the Board
Asiakastieto Group Plc, Chairman of the Board; If P&C Insurance Holding Ltd (publ), Board Member; Mandatum Life Insurance Company Ltd, Board Member
Petri Niemisvirta CEOCEO, Manda, Mandatum Liftum Life Insure Insurancance Ce Companompany Ly Lttdd Born 1970Born 1970
Alma Media Corporation, Deputy Chairman of the Board; BenCo Insurance Holding B.V., Board Member; Topdanmark A/S, Board Member; Kaleva Mutual Insurance Company, Chairman of the Board; Varma Mutual Pension Insurance Company, Board Member; Finland Chamber of Commerce, Board Member; Finance Finland (FFI), Life Insurance Executive Committee, Member; Confederation of Finnish Industries EK, Finance and Tax Commission, Member
Member of Sampo Group Executive Committee since 2001. Niemisvirta holds 77,413 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Member of Sampo Group Executive Committee since 2006. Thorsrud holds 47,485 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Topdanmark A/S, Board Member; Nobia AB, Board Member; If P&C Insurance AS, Chairman of the Board
Born 1964 Member of Sampo Group Executive Committee from 1 September 2009 to 2 November 2017.
The Group Executive Committee addresses especially the following: Sampo Group's strategy, profit development, large purchases and projects, the Group's structure and organization, as well as key strategic issues pertaining to administration and personnel.
The Group MD Committee comprised Kari Stadigh (Chairman), Peter Johansson, Patrick Lapveteläinen, Torbjörn Magnusson, Petri Niemisvirta and Ricard Wennerklint.
Group CEO and President The company has a Managing Director who is simultaneously Group CEO and President of Sampo Group.
Remuneration Fair and rewarding remuneration to all employees is an important factor in Sampo Group’s ability to enhance shareholder value in a competitive business environment. Remuneration is an equally important determinant of success in the competition for talent. Sampo's remuneration strategy is responsible both towards the employees and the shareholders and, consequently, long-term financial stability and value creation of Sampo Group guides the design of remuneration systems.
Sampo plc's Board of Directors has established the Sampo Group Remuneration Principles, which apply to all companies within Sampo Group.
The members of the Board of Directors have not received any other benefits, nor do they participate in Sampo's incentive schemes.
Remuneration of the Group CEO and Other Group Executive Committee Members
The Board of Directors decides on the terms of employment and remuneration of the Group CEO and other Group Executive Committee members, on the basis of a proposal by the Nomination and Compensation Committee. However, the Nomination and Compensation Committee decides, upon authorization by the Board of Directors, on the fixed remuneration of the Group Executive Committee members, excluding the Group CEO.
The remuneration of the Group CEO, Mr. Kari Stadigh, includes fixed salary, fringe benefits and a defined contribution pension contract, and may also include payments from short-term incentive programs and long-term incentive schemes.
The Group CEO is a participant in a short-term incentive program, which is decided upon separately each year. The maximum amount that can be paid to the Group CEO from the program corresponds to nine months’ fixed salary.
As part of the Group CEO contract, which became effective on 1 January 2016, Sampo has agreed on a supplementary defined contribution pension contract with the Group CEO. The annual cost of the agreement to Sampo is EUR 400,000.
The Group Executive Committee members are participants in company-specific short-term incentive programs, which are decided upon separately each year. Short-term incentives are determined on the basis of the Group result, business area result and individual performance. The maximum amount that can be paid to the members of the Group Executive Committee corresponds to nine months’ fixed salary.
During 2017, the Group Executive Committee members were participants in the long-term incentive schemes 2011 I/2, 2014 I and 2017 I for Sampo Group’s key employees.
Part of the variable compensation payable to the Group CEO and to the members of the Group Executive Committee is deferred as required in the regulatory framework applicable to each Group company. After the deferral period, a retrospective risk adjustment review shall be carried out and the Board of Directors decides whether the deferred variable compensations shall be paid out in full, partly or cancelled in whole.
Sampo plc’s Board of Directors is responsible for and has the ultimate oversight of group-level corporate responsibility issues. The board has assigned its Audit Committee to monitor the preparation of Sampo Group’s non-financial reporting (Corporate Responsibility Report). On operational level, Sampo’s Investor Relations and Group Communications organization is in charge of group-level corporate responsibility tasks and duties. At each subsidiary various business areas, operational departments and units are actively involved in Sampo Group’s corporate responsibility endeavors.
Sampo will publish its first group-level Corporate Responsibility Report in June 2018, covering the period from 1 January to 31 December 2017. The report will provide further insight into Sampo’s corporate responsibility activities. As of 2019 the Corporate Responsibility Report will be published annually as soon as possible after the publication of the Annual Report, however, no later than 30 June each year.
Sampo plc’s Board of Directors appoints and discharges the Sampo Group Chief Audit Executive and decides on his/her terms of employment and remuneration.
The Audit Committee of Sampo's Board of Directors annually approves the Internal Audit's operating plan. The Internal
Audit reports on the audits performed to the Group CEO and the Audit Committee. Company-specific audit observations are reported to the respective companies' governing bodies and management.
In its auditing work, the Internal Audit complies with, in addition to the Internal Audit Policy approved by Sampo's Board of Directors in February 2017, the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing.
The Group Executive Committee and persons working with financial reports and persons having access to such documents before publication thereof are under the following restrictions on trading: • persons must obtain a separate written permission in advance for each share related securities transaction they make with the securities of Sampo plc or any of Sampo’s publicly listed subsidiary or affiliate company,
• persons must not conduct any transactions relating to the financial instruments of Sampo Group during a closed window of 30 calendar days before the announcement of financial report (so called extended closed window), and
between the acquisition and disposal or the disposal and the acquisition of the same shares is less than one month.
Topdanmark AS, which became Sampo plc’s subsidiary as of 30 September 2017, has as Nasdaq Copenhagen listed entity its own insider procedure applicable to Topdanmark’s financial instruments as required by Danish regulations.
65Sampo Group 66- Economic Environment 68Business Areas 68- If 70- Topdanmark 70- Associated Company Nordea 72- Mandatum Life 73- Holding 74Other Developments 74- Consolidation of Topdanmark 74- Changes in Group Structure 74- Mandatum Life’s Portfolio Transfer to Danske Bank 74- Changes in Group Management 75Governance 75- Annual General Meeting 76- Corporate Responsibility 76- Personnel 77- Remuneration 78- Risk Management 78Shares, Share Capital and Shareholders 78- Shares and Share Capital 81- Shares on the Joint Book-Entry Account 82- Authorizations Granted to the Board 82- Shareholders 85Financial Standing 85- Internal Dividends 85- Ratings 85- Solvency 87- Debt Financing 88Outlook 88- Outlook for 2018 88- The Major Risks and Uncertainties to the Group in the Near-Term 88Dividend Proposal
The Board proposes to the Annual General Meeting to be held on 19 April 2018 a dividend of EUR 2.60 per share (2.30). The proposed dividend payment amounts in total to EUR 1,444 million (1,288).
Topdanmark segment’s profit before taxes was EUR 142 million excluding the non-recurring profit item of EUR 706 million. With this profit item i.e. the difference between the carrying value and the fair value of Sampo's holding on 30 September 2017, segment reported a profit of EUR 848 million. Combined ratio was excellent and amounted to 82.0 per cent (85.1). Premium growth was 1.4 per cent in non-life and 11.0 per cent in life insurance. Topdanmark’s Board of Directors proposes to the AGM of 2018 a dividend of DKK 19 per share. If approved Sampo plc’s share of the dividend payment is EUR 107 million.
Sampo’s share of Nordea’s net profit for 2017 decreased to EUR 616 million (773). Nordea’s RoE, excluding non-recurring items, amounted to 9.5 per cent (11.5) and core Tier 1 ratio (excluding transition rules) rose to 19.5 per cent (18.4). In segment reporting the share of Nordea’s profit is included in the segment ‘Holding’. Nordea’s Board of Directors proposes to the AGM 2018 a dividend of EUR 0.68 per share (0.65). If the AGM approves the Board’s dividend proposal, Sampo plc will receive a dividend of EUR 585 million (559) from Nordea on 26 March 2018.
Profit before taxes for segment Mandatum rose to EUR 236 million (210). Return on equity amounted to 13.3 per cent (15.9). The discount rate for with profit policies used for 2018, 2019 and 2020 is 0.25 per cent and 2.75 per cent for 2021. The discount rate reserve at the end of 2017 amounted to EUR 325 million (273).
Sampo Group’s total investment assets, excluding Topdanmark’s life insurance assets, on 31 December 2017 amounted to EUR 22.2 billion (20.7), of which 79 per cent was invested in fixed income instruments (79), 15 per cent in equities (16) and 6 per cent in other assets (4). If P&C’s share of assets was 52 per cent (59), Topdanmark’s 13 per cent, Mandatum Life’s 28 per cent (34) and Sampo plc’s 7 per cent (7).
Sampo Group’s equity as at 31 December 2017 amounted to EUR 12,848 million (11,934), excluding the minority share of EUR 660 million. Equity was strengthened mainly by the comprehensive income for the year of EUR 2,146 million and reduced by the EUR 1,288 million of dividends paid. Other changes were small.
Sampo Group will issue a report on non-financial information in accordance with Chapter 3a, Section 5 of the Accounting Act. The report (Corporate Responsibility Report 2017) will be separate from the Board of Directors’ Report and will be published before the end of June 2018.
Balance sheet (at the end of period) 1.3222 1.2965 1.2963 1.2816 1.2849
The global economy expanded by more than 3 per cent in 2017, as global trade continued to grow. Purchasing managers’ indices rose across the globe, forecasting a sustained positive cycle. In Europe, political uncertainty decreased following the French presidential elections. At the start of the year, there were worries of increased protectionism, but so far the worst fears have not been realized. All in all, the year 2017 will be remembered for stock market highs and a strong global economy.
underpinned by a positive global cycle. Finland’s economic growth was boosted by exports and investments, while in Denmark and Norway private consumption served as a key driver. In Sweden, exports had the biggest contribution to the economy. Moreover, the year was marked by cooling housing markets in Sweden and Norway, although the impact was not yet felt much in the broader real economy.
Finland finally managed to latch onto the strong global economic growth trend, achieving a growth rate of more than 3 per cent, the fastest in the Nordics. The global upcycle particularly supported investments and exports, with the latter playing an important role in beefing up economic growth. Construction continued to grow, and new dwellings are being built at a faster pace than in many years. Despite it all, no new major reforms were passed in Finland last year, and the labor market remains inflexible. This limits the decline in unemployment, although both the unemployment and the employment rates improved.
In mainland Norway, GDP grew at a slower pace than in Sweden. The economy was burdened by the drop in oil prices in early 2017, but the price decline turned mid-year, reaching a multi-year high later in the year. Oil investments have already bottomed out, which will help oil sectors recover. Similarly as in Sweden, the Norwegian housing market cooled down, as home prices began to fall early in the year. However, private consumption continued to grow steadily, shoring up the economy in its usual way. Norwegian inflation decelerated last year, and the central bank’s monetary policy is accommodative, although Norges Bank is preparing for a gradual normalization of its policy. Towards the end of the year, the Norwegian krone depreciated considerably because of the weak housing market, unable to rally even on the back of higher oil prices.
If P&C is the leading property and casualty insurance company in the Nordic region, with insurance operations that also encompass the Baltic countries. The P&C insurance group’s parent company, If P&C Insurance Holding Ltd, is located in Sweden, and the If subsidiaries and branches provide insurance solutions and services in Finland, Sweden, Norway, Denmark and the Baltic countries. If’s operations are divided into four business areas: Private, Commercial, Industrial and Baltic.
Profit before taxes for 2017 for the If segment was EUR 818 million (824). Combined ratio amounted to 85.3 per cent (84.4) and risk ratio to 63.3 per cent (62.3).
In 2017 EUR 111 million (141) was released from technical reserves relating to prior year claims. Return on equity decreased to 21.3 per cent (25.3) and the fair value reserve on 31 December 2017 rose to EUR 519 million (484).
Technical result decreased to EUR 640 million (658). Insurance margin (technical result in relation to net premiums earned) amounted to 15.1 per cent (15.5).
Large claims in BA Industrial were EUR 4 million better and in BA Commercial EUR 50 million worse than expected in 2017. Thus the total large claims for If ended up EUR 46 million worse than expected for the full-year 2017.
Swedish discount rate used to discount the annuity reserves was at -0.13 per cent at the end of 2017 and had a negligible effect on the full-year results. The discount rate was -0.03 per cent at the end of 2016. In Finland the discount rate for annuities was lowered from 1.5 per cent to 1.2 per cent in the first quarter of 2017 and had a negative effect of EUR 72 million on the results.
Gross written premiums increased to EUR 4,526 million (4,458) in 2017. With fixed currency rates premiums grew 1.8 per cent. Growth was positive in all business areas and geographically in all markets except Finland. The number of clients in BA Private grew in all markets including Finland. Gross written premiums grew by 4.1 per cent in Sweden, 2.6 per cent in Norway and 1.5 per cent in Denmark. In Finland premiums decreased -3.2 per cent.
Cost ratio improved slightly to 22.0 per cent (22.1) and expense ratio to 16.4 per cent (16.6).
The AGM on 4 April 2017 decided to revoke the authorization granted to the Board of Directors to buy back Topdanmark shares. In the interim report for January - March 2017, the Board of Directors presented a new earnings distribution policy according to which Topdanmark will maintain its disciplined approach to capital consumption to avoid accumulation of unnecessary capital. The pay-out ratio is at least 70 per cent.
Topdanmark’s pre-tax profit increased to EUR 300 million, of which the share of non-life insurance amounted to EUR 257 million and life insurance to EUR 33 million.
Nordea is the largest bank in the Nordic region and among the ten largest financial groups in Europe in terms of total market capitalization with around 11 million customers. The Nordea share is listed on the Nasdaq exchanges in Stockholm, Helsinki and Copenhagen. In Sampo Group’s reporting Nordea is treated as an associated company and is included in the segment Holding.
Nordea’s Board of Directors proposes to the AGM 2018 a dividend of EUR 0.68 per share (0.65). If the AGM approves the Board’s dividend proposal, Sampo plc will receive dividend of EUR 585 million (557) from Nordea on 26 March 2018.
The following text is based on Nordea’s full-year 2017 result release published on 25 January 2018.
reduced exposure to Russia, Shipping, Offshore & Oil Services, also reduced income levels.
After years of intense investments, things are happening now and Nordea is entering the next stage on the transformation journey. Nordea has built up its capabilities within compliance and risk management functions. Nordea’s digital investments result in an increased roll out frequency of improved products and services to customers. The core banking platform replacement is proceeding in line with budget and will lead to lower operational risks and improved customer satisfaction. Costs are being reduced as part of improved cost efficiency structures throughout the organisation.
Total income was down 3 per cent in both local currencies and EUR from the prior year and operating profit was down 8 per cent in both local currencies and EUR from the previous year excluding non-recurring items.
Mandatum Life Group comprises Mandatum Life Insurance Company Ltd., a wholly-owned subsidiary of Sampo plc, operating in Finland, Estonia, Latvia and Lithuania, and its three subsidiaries. Parent company, Mandatum Life, is responsible for sales functions and all the functions required by the Insurance Companies Act. The subsidiaries are Mandatum Life Services Ltd, Mandatum Life Investment Services Ltd. and Mandatum Life Fund Management S.A.
Profit before taxes for Mandatum Life in 2017 amounted to EUR 236 million (210). The total comprehensive income for the period after tax reflecting the changes in market values of assets decreased to EUR 188 million (232). Return on equity amounted to 13.3 per cent (15.9).
Total technical reserves of Mandatum Life Group increased to EUR 11.6 billion (11.3). The unit-linked reserves grew to EUR 7.1 billion (6.4) at the end of 2017. Unit-linked reserves were highest ever and corresponded to 61 per cent (57) of total technical reserves. Roughly EUR 3 billion of the unit-linked reserves is expected to be transferred to Danske Bank by the end of 2018.
At the end of 2017 Mandatum Life Group’s investment assets, excluding the assets of EUR 7.1 billion (6.5) covering unitlinked liabilities, amounted to EUR 6.3 billion (6.6) at market values.
Holding segment’s profit before taxes amounted to EUR 576 million (778), of which EUR 616 million (773) relates to Sampo’s share of Nordea’s 2017 profit. Segment’s profit excluding Nordea was EUR -40 million (6). The result is burdened by currency losses from US Dollar and Swedish krona to the amount of EUR -39 million impacting both investment income and finance costs.
Sampo plc’s holding in Nordea Bank was booked in the consolidated balance sheet at EUR 7.6 billion. The market value of the holding was EUR 8.7 billion, i.e. EUR 10.09 per share, at 31 December 2017. In addition the assets on Sampo plc’s balance sheet included holdings in subsidiaries for EUR
Before 30 September 2017 Sampo reported three segments; P&C Insurance (including Topdanmark), Life Insurance and Holding segment (including Sampo's share of Nordea's profit). Subsequent to consolidation of Topdanmark as a subsidiary, Sampo has changed its reporting structure and reports four segments; If, Topdanmark, Mandatum and Holding (incl. Nordea).
In the January - September 2017 Interim Statement Topdanmark's balance sheet was already fully consolidated to Sampo Group's balance sheet. As of 1 October 2017 Topdanmark's profit and loss items were recognized line-byline in Sampo Group's consolidated financial statements in the segment Topdanmark. Sampo plc’s share of Topdanmark’s purchase price allocated to customer relations was EUR 271 million. This amount will be amortized over a period of 10 years leading to a quarterly amortization of around EUR 5 million, net of tax.
The statement is available at www.sampo.com/statement. The Governance section of Annual Report 2017 also contains a more detailed description of the Group’s governance system.
The Annual General Meeting of Sampo plc, held on 27 April 2017, decided to distribute a dividend of EUR 2.30 per share for 2016. The dividend was paid on 9 May 2017. The Annual General Meeting adopted the financial accounts for 2016 and discharged the Board of Directors and the Group CEO and President from liability for the financial year.
The Annual General Meeting decided to pay the following fees to the members of the Board of Directors until the close of the 2018 Annual General Meeting the Chairman of the
There were 3,105 shareholders represented at the beginning of the AGM holding altogether 373,911,948 shares and 378,711,948 votes in the company.
In 2017, Sampo focused on developing a more concrete approach to managing corporate responsibility on a grouplevel. This is to better answer the needs of Group’s various stakeholders and to meet the legislative requirements. During the year, Sampo continued to develop its nonfinancial reporting and started to prepare the Group’s first Corporate Responsibility Report. The main activities were to develop a corporate responsibility organization and reporting processes within the Group, to review Sampo’s investment processes and decision-making from environmental, social and governance (ESG) perspectives, to update existing grouplevel policies, and to establish a carbon footprint analysis of Sampo’s investments.
Sampo Group will issue a report on non-financial information in accordance with Chapter 3a, Section 5 of the Accounting
Act. The report (Corporate Responsibility Report 2017) will be separate from the Board of Directors’ Report and be published before the end of June 2018.
In geographical terms Denmark had 32 per cent of the personnel, Finland 24 per cent, Sweden 20 per cent and Norway 14 per cent. The share of other countries was 10 per cent.
During 2017, the total number of staff in If increased 3 per cent. As of 31 December 2017 If employed 6,451 persons.
The total number of staff in Mandatum Life decreased 3 per cent. As of 31 December 2017 Mandatum Life employed 521 persons.
On 14 September 2017 Sampo plc's Board of Directors decided to adopt a new long-term incentive scheme 2017:1 for the management of Sampo Group (including the Group CEO) and other key employees of Sampo Group. The Sampo Board Members are not included in the scheme. The total number of participants in the long-term incentive scheme is 117.
In the 2014:1 scheme, 2,935,350 allocated incentive units remain and will vest in 2018 and 2019.
In 2017 EUR 19 million (37), including social costs, was paid on the basis of the long-term incentive schemes. EUR 37 million (38), including social costs, was paid as short-term incentives during the same period. The result impact of the long-term incentive schemes in force in 2017 was EUR 28 million (15).
As dividends are Sampo plc’s major source of income, its primary target for every sub-group is to maintain a healthy balance between profits, risks and capital, in order to facilitate a steady stream of dividend payments in the long run.
The second target is ensuring stable profitability at business portfolio level. Potential risk concentrations especially and the correlation of reported profits generally are monitored closely and their sources are analyzed. To the extent possible risk concentrations are proactively prevented by strategic decisions.
A more detailed description of Sampo Group’s risk management activities, governance, risks and capitalization is available in the Risk Management section of Annual Report 2017 and in Note 39 of the Group Balance Sheet.
Number of sharNumber of shareses SharShareholders,eholders, numbernumber SharShareholders, %eholders, % SharShares,es, numbernumber SharShares, %es, %
According to the Finnish Companies Act the Annual General Meeting may after 1 September 2016 resolve that the shares in the joint book-entry account and the rights that those shares carry have been forfeited. After the General Meeting’s resolution the provisions on treasury shares apply to forfeited shares and the Board may, for example, resolve on cancellation of treasury shares.
As 2017 was the first time the Annual General Meeting had an option to resolve the issue, the Audit Committee initiated a project to look into the procedure and consequences of such a resolution by the Annual General Meeting with a particular view on the equal treatment of all shareholders.
Sampo plc received two proposals regarding the forfeiture of the rights of the shares in the joint book-entry account from shareholders. First a shareholder proposed that the Annual General Meeting resolves, within the meaning of Chapter 4, Section 10(2) of the Finnish Companies Act, that the rights to shares in the book-entry system and the rights carried by the shares will be forfeited with regard to the shares in the joint book-entry account. On the basis of the proposal, the company’s Board of Directors should cancel the treasury shares to be held by the company as a result of such forfeiture. In its meeting of 8 February 2017, Sampo plc’s Board of Directors resolved to concur with this proposal.
According to Board’s proposal this applies to shares remaining in the joint book-entry account, for which no claim for registration into the book entry system has been made before the General Meeting’s decision on 27 April 2017 at 2pm.
Another shareholder of the company proposed to the General Meeting that if a proposal on the forfeiture of shareholder rights within the meaning of Chapter 4, Section 10(2) of the Finnish Companies Act was submitted to the General Meeting for resolution, the General Meeting would resolve that said decision can be made at the earliest on 1 February 2020 and provided that the company has actively sought to reach out to all shareholders of the company who had not transferred their holdings into the book-entry system.
Given that future General Meetings are not bound by the resolutions of previous General Meetings, the second proposal was, in practice, a motion to dismiss the first mentioned proposal concerning the forfeiture of the shares in the joint book-entry account.
The AGM made the decision on the forfeiture of the share certificates that were still in the joint account and the rights carried by the shares.
The Annual General Meeting of 2017 authorized the Board to repurchase a maximum of 50,000,000 Sampo A shares. Shares are repurchased in other proportion than the shareholders' proportional shareholdings (directed repurchase). The maximum price to be paid is highest market price quoted during the authorization period. The authorization will be valid until the close of the next Annual General Meeting, nevertheless not more than 18 months after AGM's decision.
A and B sharA and B shareses Number of sharNumber of shareses % of shar% of share capitale capital % of v% of vototeses
Nominee registered total 335,854,093 60.48 59.96 *) 1,472,719 A shares and 1,200,000 B shares
During 2017 Sampo plc received altogether 19 notifications of change in holding pursuant to Chapter 9, Section 5 of the Securities Markets Act, of which 18 related to the total number of Sampo A shares or related voting rights owned by
(11,887,408) Sampo A shares. Their combined holdings constituted 1.9 per cent (2.1) of the share capital and related votes.
BoarBoard of Dird of Directectorsors 31 Dec 201731 Dec 2017 31 Dec 201631 Dec 2016
GrGroup Exoup Executivecutive Ce Committommitteeee 31 Dec 201731 Dec 2017 31 Dec 201631 Dec 2016
On 25 January 2018 Nordea Bank AB’s Board of Directors proposed to the Annual General meeting to be held on 15 March 2018, a dividend of EUR 0.68 per share. With its current holding Sampo plc’s share amounts to EUR 585 million. The dividend is proposed to be paid on 26 March 2018.
Topdanmark’s Board of Directors proposed to the Annual General Meeting of 12 April 2018 a dividend of DKK 19 per share. Sampo’s share of the Topdanmark’s total dividend amounts to EUR 107 million.
There were no changes in Sampo Group companies’ ratings during 2017. The table below illustrates all the ratings of Sampo Group companies at the end of December 2017.
Group’s capital requirement is dependent mainly on the capital requirements of the business areas. The parent company’s contribution to Group capital need is most of the time minor, because Sampo plc does not have any business activities of its own other than the management of its capital structure and liquidity portfolio. F/X risk is the moving part in Sampo plc's risk portfolio. At the moment it is elevated because Sampo has large exposure related mainly to the dividend payment in Swedish krona from If.
Sampo Group’s capital requirement and the amount of group’s own funds are calculated either by the conglomerate rules (FICO) or the Solvency II directive. Due to the use of the same sectoral rules in both Solvency II and financial conglomerate calculations, there is no material difference between Sampo’s Solvency II or FICO solvency capital.
Sampo Group’s capital requirement according to the conglomerate rules, is called the Group’s total minimum requirement for own funds and it is the sum of the separate sub-group’s requirements (sectoral rules) and the parent
company’s requirement based on the Capital Requirements Directive/Capital Requirements Regulation (“CRD IV/CRR”). The conglomerate’s capital requirement does not take into account any diversification between the business areas. Hence it is a conservative measure of capital requirement and easy to interpret.
Group’s conglomerate solvency ratio (own funds in relation to minimum requirements for own funds) amounted to 154 per cent (154) as at 31 December 2017.
Topdanmark uses a partially internal model to calculate the non-life insurance risk. This model, approved by the DFSA, provides the basis for including non-life insurance risks in Topdanmark's solvency calculations. Topdanmark’s solvency ratio under the partial internal model was 204 per cent at the end of 2017.
On 31 December 2017 Topdanmark’s Solvency II capital requirement under standard formula amounted to EUR 514 million and own funds to EUR 856 million. Solvency ratio amounted to 166 per cent.
million. Without transitional measures, own funds would have amounted to EUR 1,555 million (1,441) and the solvency capital requirement to EUR 1,220 million (1,409) leading to a solvency ratio of 127 per cent (102).
Sampo plc’s debt financing on 31 December 2017 amounted to EUR 3,177 million (3,548) and interest bearing assets to EUR 1,754 million (2,104). Interest bearing assets include bank accounts, EUR 496 million (637) of hybrid capital and subordinated debt instruments issued by the subsidiaries and associates and EUR 58 million of other fixed income instruments (28). On 31 December 2017 the interest bearing net debt amounted to EUR 1,423 million (1,443). Gross debt to Sampo plc’s equity was 41 per cent (47) and financial leverage 29 per cent (32).
CP’s issued 293 EURm Euribor + Margin - 0.2500% Average 3M
Senior Bond 2,000 SEKm Stibor3M + 1.45% Euribor3M + 1.375% 1.0460% 29 May 2018
Senior Bond 500 EURm 1.2500% EUR6M + 0.735% 0.4610% 20 May 2025
The underlying objective of Sampo plc is to maintain a welldiversified debt structure, relatively low leverage and strong liquidity in order for the company to be able to arrange financing for strategic projects if needed. Strong liquidity and the ability to acquire financing are essential factors in maintaining Sampo Group’s strategic flexibility.
Major risks affecting the Group companies’ profitability and its variation are market, credit, insurance and operational risks that are quantified independently by the major business units. At the group level sources of risks are same, but they are not directly additive because of diversification effects.
Currently there are a number of widely identified macroeconomic, political and other sources of uncertainty which can in various ways affect financial services industry negatively. Especially the political risks are at the elevated level at the moment.
Other sources of uncertainty are unforeseen structural changes in the business environment and already identified trends and potential wide-impact events. These external drivers may also have a long-term impact on how business shall be conducted. Examples of already identified trends are technological development in general, digitalization and sustainability issues that may have profound effects on financial sector companies as well.
The Board proposes to the Annual General Meeting a dividend of EUR 2.60 per share to company’s 555,351,850 shares. The dividends to be paid are EUR 1,443,914,810.00 in total. Rest of funds are left in the equity capital.
Return on equity (at fair values) % 21.3 25.3 21.5 18.1 24.4
Capital and reserves per share EUR 23.14 21.31 20.38 19.51 19.01
Net asset value per share EUR 25.37 24.86 23.79 22.63 22.15
Average adjusted number of shares 1.000 559,873 560,000 560,000 560,000 560,000
Adjusted number of shares at 31 Dec. 1.000 554,152 558,800 558,800 558,800 558,800
Average adjusted number of shares 1.000 554,152 558,800 558,800 558,800 558,800
Share trading volume during the financial year 1.000 179,568 203,996 182,762 194,492 188,402
+ total equity (average of values on 1 Jan. and 31 Dec.) x 100%
Group solvency ratio, % Group's own funds minimum requirements for own funds x 100%
Risk ratio, % + claims incurred - claims settlement expenses premiums earned x 100%
Effective dividend yield, % dividend per share adjusted closing share price at balance sheet date x 100%
Sampo Group’s Structure and Business Model Sampo Group (“Group”) is engaged in non-life insurance, life insurance and banking mainly in Nordics.
In addition to the insurance subsidiaries, as at 31 December 2017 the Group’s parent company held an equity stake of 21.2 per cent in Nordea Bank AB (publ) (“Nordea”) through which Sampo Group is engaged in banking business. The legal structure of Sampo Group including major operative companies of subsidiaries is shown below.
In Topdanmark, the Chairman and two other board members are Sampo Group employees and they constitute three of the total six board members elected by the annual general meeting. Topdanmarks’s Board of Directors and management share Sampo’s view on risk definitions and principles of how to run business activities on an overall level, but have not adopted Sampo’s group-wide policies as such. The dialogue between Sampo and Topdanmark as well as the Risk Management report focus on performance, risk and capitalization reporting and is not as detailed as between Sampo and its wholly-owned subsidiaries.
Nordea is an associated company and not controlled by Sampo. Because of this its risk management is not covered in Sampo Group’s Annual Report. Nordea has however a material effect on the Group’s profits, risks and capital needs. Hence, Nordea is carefully analysed by Sampo as separate business and as a component of Sampo’s portfolio of Nordic financial companies.
As described above Sampo Group’s legal structure and business model are both straightforward and simple. In addition there are only a limited amount of intragroup exposures, of which the most material are as follows: (i) Sampo’s holdings of hybrid capital and subordinated loan instruments issued by If P&C, Mandatum Life, Topdanmark and Nordea, (ii) internal dividends and (iii) service charges. Service charges are related to intragroup outsourcing agreements. If P&C and Mandatum Life have outsourced part of their investment management processes to Sampo. Sampo has outsourced its IT platform services to If P&C and its financial accounting to Mandatum Life. Between Sampo and Topdanmark there are no outsourcing agreements.
As dividends are the parent company’s major source of income, Sampo’s primary target for every sub-group is to maintain a healthy balance between profits, risks and capital, in order to facilitate a steady stream of dividend payments in the long run. The secondary target is ensuring stable profitability at business portfolio level. Potential risk concentrations especially and the correlation of reported profits generally are monitored closely and their sources are analysed. To the extent possible risk concentrations are proactively prevented by strategic decisions. Thirdly, as a general rule Sampo prefers to have low leverage and adequate liquidity buffers to be able to generate liquidity as needed. The size of assessed diversification benefit of the Group companies’ profits is reflected in Sampo’s decisions on own capital structure and liquidity position.
Further information on Sampo Group’s steering framework and risk management process can be found in Appendix 1 (Sampo Group Steering Framework and Risk Management Process).
In its underwriting and investment operations, Sampo Group is consciously taking certain risks in order to generate earnings. These earnings risks are carefully selected and actively managed. Underwriting risks are priced to reflect their inherent risk levels and the expected return of investments is compared to the related risks. Furthermore, earnings related risk exposures are adjusted continuously and their impact on the capital need is assessed regularly.
Concentrations can evolve within separate activities – large single name or industry specific insurance or investment exposures – or across activities when a single name or an industry is contributing widely to the profitability and risks of the company through both insurance and investment activities.
At the company level, these resources are continuously developed. They are in use when the following core activities related to risk pricing, risk taking and active management of risk portfolios are conducted.
• Balance between expected returns and risks in investment portfolios and the balance sheet is optimized, taking into account the features of insurance liabilities, internally assessed capital needs, regulatory solvency rules and rating requirements.
If P&C Group If P&C conducts property and casualty insurance operations in the Nordic and Baltic countries and underwrites policies that cover various risks for both individuals and corporations over a geographically diverse area. In addition, If P&C has branch offices in Germany, France, the United Kingdom and the Netherlands for its Nordic corporate customers that conduct international operations. The underwriting business is also well-diversified over lines of business and clients which further enhances the role of diversifications as a value driver of If P&C.
• Business Area Baltic's underwriting results were higher than in the preceding year, reflecting positive premium development combined with a favorable claims outcome and continued cost efficiency.
The figures are segmented in accordance with Solvency II defined Lines of Business, which differ from the insurance class segmentation according to local GAAP or IFRS requirements that are used in other tables.
As shown in the below figure Breakdown of Gross Written Premiums by Business Area, Country and Line of Business, If P&C, 2017, the If P&C insurance portfolio is well diversified across Business Areas, Countries and Lines of Business. The six Lines of Business are segmented in accordance with insurance class segmentation used in IFRS.
The item Other (including group eliminations) is not shown in the breakdowns above but is included in total gross written premiums. There are minor differences between the figures reported by Sampo Group and If P&C due to differences in foreign exchange rates used in consolidation.
Definitions of premium and catastrophe risk can be found in Appendix 2 (Risk Definitions).
Net premiums earned (EURm) 4,294 +/- 1 per cent +/- 43 +/- 43
Net claims incurred (EURm) 2,959 +/- 1 per cent +/- 30 +/- 29
The Underwriting Committee (“UWC”) shall give its opinion on and propose actions in respect of various issues related to underwriting risk. The committee also considers and proposes changes to the Underwriting Policy (“UW Policy”), which is the principal document for underwriting, and sets general principles, restrictions and directions for the underwriting activities. This document shall be reviewed and decided at least yearly by the Boards of Directors.
If P&C’s Reinsurance Policy stipulates guidelines for the purchase of reinsurance. The need and optimal choice of reinsurance is evaluated by looking at the expected cost versus the benefit of the reinsurance, the impact on result volatility and impact on capital requirements. The main tool for this evaluation is If P&C’s internal model in which
Sensitivity TSensitivity Tesest of Underwriting Rt of Underwriting Resultesult If P&C, 31 December 2017 and 31 December 2016
During 2017 equities have performed well, spreads have tightened and the market volatility has decreased somewhat. The return of investments in 2017 was 2.6 per cent. Average return of investments has been 4.1 per cent during the years 2008-2017. Returns have trended down together with lowering interest rates and tightening credit spreads. However, investment returns have been sufficient taking into account good profitability of underwriting activities.
MarkMarket Risket Risks of Fixs of Fixed Inced Income andome and EEquity Insquity Instrumentstruments
Spread risk and equity risk are derived only from the asset side of the balance sheet. Exposures in fixed income and equity instruments are presented by Sectors, Asset Classes and Rating in below table that also include counterparty risk exposures relating to reinsurance and derivative transactions. Counterparty default risks are described in more detail in section Counterparty default risks. Due to differences in the reporting treatment of derivatives, the figures in the table are not fully comparable with other tables in this annual report.
Annual InAnnual Invvesestment Rtment Returns aeturns at Ft Fair Vair Values 2008–2017alues 2008–2017 If P&C
In regards to equities most of the equity investments are in Scandinavian markets that are selectively picked direct investments. When investing in non-Nordic equities, funds or other assets, third party managed investments are mainly used. The changes of Equity positions during the year can be seen from the table Breakdown of Listed Equity Investments by Geographical regions, If P&C, 31 December 2017 and 31 December 2016.
ExposurExposures bes by Secty Sectoror, As, Asset Classet Class and Ras and Ratingting If P&C, 31 December 2017
The ALM risk is taken into account through the risk appetite framework and its management and governance are based on If P&C’s Investment Policies. In general to maintain the ALM risk within the overall risk appetite, the cash flows of insurance liabilities are matched by investing in fixed income instruments denominated in same currencies as liabilities or in case assets with healthy risk return ratios are not available in liability's currency derivatives are used. During the current low interest rate environment the liquidity of assets has been special focus of investment strategy.
In addition to transaction risk, If P&C is also exposed to translation risk which at group level stems from foreign operations with other base currencies than SEK. Translation risk, and its management principles in Sampo Group, are described in the Appendix 4: Profitability, Risks and Capital.
As seen from above table most of the reinsurers are having either AA- or A- rating. The ten largest individual reinsurance recoverables amounted to EUR 165 million, representing 72 per cent of the total reinsurance recoverables. If P&C’s largest non-captive individual reinsurer is Munich Re (AA-) accounting for 39 per cent of the total non-captive reinsurance recoverables.
The cost of risk transfer related to the reinsurance recoverables and pooled solutions amounted to EUR 52.3 million. Of this amount, 100 per cent was related to reinsurance counterparties with a credit rating of A- or higher.
RReinsureinsurancance Re Rececoovvererables and Pables and Pooled Solutionsooled Solutions If P&C, 31 December 2017 and 31 December 2016
Operational risks are identified and assessed through the Operational and Compliance Risk Assessment (OCRA) process. Self-assessments to identify, measure, monitor and manage operational risks are performed and reported by the line organization periodically. Identified risks are assessed from a likelihood and impact perspective. The residual risk for each risk is assessed using a traffic light system. The process is supported by an operational risk coordinator network and the results are challenged and aggregated by the Risk Management function. The most significant risks are reported to the Operational Risk Committee (ORC), the Own Risk and Solvency Assessment Committee (ORSA committee) and to the Board of Directors.
If P&C Group companies calculate their solo regulatory Solvency Capital Requirements (SCR) as follows: - If P&C Insurance Ltd (publ) is applying internally developed methods approved by the Swedish FSA (SFSA) for the calculation of the main non-life underwriting risks written in Sweden, Norway and Denmark. The Company is in the process of extending the scope of the approval to include also the Finnish non-life insurance operations merged into the company in October 2017. The standard formula (SF) with transitional equity measures is applied for other risk modules. From these modulespecific SCRs the company level solo SCR is calculated by process approved by the SFSA. The end-result is a Partial Internal Model (PIM) SCR.
For If P&C Group there is no regulatory requirement to calculate SCR or own funds. However, for management purposes a so called Economic Capital (EC) is calculated by applying internal methods for the main non-life underwriting risks in all geographical areas and for market risks as well. SF is applied for other risks. Economic capital is used for different purposes, for instance as an internal basis for capital allocation.
As in input to the Sampo Group level capital requirement If P&C applies the SF with transitional equity measures. Since the SF SCR does not take into account any geographical diversification between countries the contribution of underwriting risks of If P&C are very conservative at Sampo Group level.
In order to maintain consistency within this Sampo Group risk report, only the SF figures applying transitional equity measures of If P&C are disclosed in the following paragraphs.
In If P&C, own funds at the end of 2017 were EUR 3,818 million (EUR 3,822 million) while the SF SCR applying transitional measures on equity holdings was EUR 1,938 (1,942) million. Hence, the solvency ratio was 197 (197) per cent and the buffer was EUR 1,880 (1,880) million. In the
EUR 321 (420) million i.e. 8.4 (11.0) per cent of OF consisted of subordinated debt at the end of 2017. The subordinated debt of nominal amount EUR 90 million issued by If P&C Insurance Company Ltd (Finland) was repaid in September 2017, prior to the merger between If P&C Insurance Company
Ltd (Finland) and If P&C Insurance Ltd. As of 31.12.2017 Sampo plc holds If P&C subordinated liabilities with a nominal value of EUR 98.9 million, as presented in the table Solvency II Compliant Subordinated Liabilities of If P&C, 31 December 2017.
If P&C Insurance Ltd (publ) (Sweden) 30NC10 EUR 110 000 000 109,501,816 8.12.2021 Tier 2 98,935,000
As a summary, the solvency of If P&C is adequate and the capital structure is strong. High and stable profitability and capacity to issue subordinated debt if needed puts If P&C in a strong position to generate capital and to maintain a capital level needed for operations in the future as well.
Topdanmark Forsikring is the second largest Danish non-life insurance company with a market share of 17 per cent. It operates mainly within personal-, SME- and agriculture client segments having approximately 500,000 household customers and respectively 100,000 SME and agriculture customers. The market share within the industrial segment has been low and it has further decreased in 2016 and 2017. This is in line with Topdanmark’s strategy to have the material part of its risks in Denmark, as industrial customers typically have the material risk outside Denmark. All in all approximately 300,000 claims are handled on a yearly basis.
Topdanmark Livsforsikring is the fifth largest commercial life insurance company in Denmark with a market share of 8 per cent. Topdanmark Livsforsikring offers pension schemes with participating features and market interest pensions products, including life insurance covers and health insurance. The number of personal customers is around 50,000 and the number of customers within company pension schemes is around 80,000. The main source of the profit is the risk return from with-profit schemes.
There was a moderate growth in premiums of 1.4 per cent in 2017, being a result of company's actions to maintain a balance between growth and profitability in a competitive market. The combined ratio was 85.8 before run-off gains and 82.0 respectively after run-off gains. These figures exceeded the company's expectations mainly due to better weather than expected, a low level of large-scale claims and an improved claims trend mainly in the SME segment, an improved claims trend in theft, fewer and smaller fire claims and an improved claims trend in workers’ compensation.
Topdanmarks non-life insurance risk is measured and monitored by a partial internal model, which was approved in 2015 by the Danish supervisory authorities for the SCR calculation.
The claims provisions are mostly exposed to judicial decisions or changed recognition practices of the Labor Market Occupational Insurance. These events, if happened, may change compensation practices and thus increase claims from previous periods.
BrBreakeakdodown of Grwn of Grososs Ws Writtritten Pren Premiums bemiums by Line of Businesy Line of Businesss Topdanmark, 2017, total EUR 1,216 million
Non-LifNon-Life Insure Insurancance Risk Sce Risk Scenarios Tenarios Topdanmark Fopdanmark Forsikringorsikring
The reserve risk is calculated using Topdanmark’s partial internal model for insurance risk. Workers’ compensation claims provision has by far the biggest risk, followed by the other long-tail claims provisions which mainly consist of personal injury claims.
The actuarial team has a continuous dialogue with the claims departments on any changes in the practices regarding new legislation, case law or compensation practices as well as on the impact of such changes on the routines used to calculate individual provisions.
The development of the provisions for with profit and for unit-link business during the years 2008-2017 is illustrated in the graph below.
SourSourcces of Gres of Grososs Lifs Life Pre Premiumsemiums Topdanmark, 2017 and 2016
When an insured event occurs, the effect on the profit will depend on the size of loss absorbing capacity (LAC) of the reserves. When the loss absorbing capacity is higher than the losses, the customers themselves cover the losses.
The scenario-based Solvency Capital Requirement is calculated quarterly. When deemed necessary, due to market developments, the frequency of calculation is increased and, if necessary, the number and type of scenarios are increased.
Declines in the collective bonus potential are most frequent, due to the investment return being lower than the annual addition of interest to deposits. Declines in collective bonus potential are also possible if interest rates are relatively high.
Extra costs, due to a permanent change in disability risk, will be partially covered by individual and collective bonus potential. The remainder affects profit/loss for the year and consequently shareholders' equity.
The run-off profile of the life insurance with profit liabilities shows that the provisions on high guarantees are decreasing. New with profit policies are written, but only with a very low guaranteed accumulated return.
FFororecasecast of Run-off Wt of Run-off With-Prith-Profit Liabilitiesofit Liabilities Topdanmark Livsforsikring, 31 December 2017 – 31 December 2031
attractive savings products to its clients with competitive returns in relation to the accepted investment risks.
AsAsset Allocaset Allocations and Intions and Invvesestmenttment PPerferformancormance - Te - Topdanmark Gropdanmark Groupoup ExExcluding Lifcluding Life Insure Insurancancee
The exposure in equities outside Denmark and credit bonds has been adjusted by the use of derivatives. Private Equity also includes direct holdings in non-listed equities. The class of "Assets related to I/A" (illness/accident) comprises the investments in Topdanmark Livsforsikring, (the life insurance company) corresponding to the size of the illness/accident provisions.
Credit bonds are composed of a well-diversified portfolio, primarily exposed to businesses in Europe and in the United States, predominantly in the investment grade segment.
The CDO category primarily includes positions in CDO equity tranches. The underlying assets consist for the most part of senior secured bank loans, while the remaining part consists primarily of investment grade investments in corporate bonds. The real estate portfolio comprises mainly owneroccupied real estate.
The annual investment return for 2017 compared to earlier years is presented in the graph Annual Investment Returns at Fair Values, Topdanmark Group, Excluding Life, 2008-2017.
Assets total relates to the products with guarantees and profit sharing. The exposure in equities outside Denmark and credit bonds has been adjusted by the use of derivatives. Unlisted shares include Private Equity and Hedge funds. Other investments assets include money markets securities, cash and derivatives.
The Danish part of the equity portfolio is composed on the basis of OMXCCAP index. The rest of the equity holdings are in the foreign equity portfolio that is based on MSCI World DC in its original currency. As a net result Topdanmark Group’s equity holdings are well-diversified.
The real estates are all located in Denmark, with the material part in the areas of Copenhagen and Århus. The holding on group level is diversified over office buildings and residential buildings.
Investment policy stipulates that the portfolio must be welldiversified also in counterparties and that the portfolio must not be particularly exposed to individual counterparties. The main source of spread risk is the government and mortgage bonds. Due to high allocation of these investments in the portfolios, spread risk is the most material source of market risk SCR. SCR was DKK 1,372 million on 31 December 2017.
Topdanmark’s fixed income investments by rating classes are presented in the table Interest-bearing Assets by Rating, Topdanmark, 2017 and 2016.
The company has no significant concentrations on the investment side, except for the category "Treasury and mortgage bonds" that consists primarily of Danish government and AAA-rated Danish mortgage bonds. In terms of SCR the concentration risk was DKK 145 million on 31 December 2017.
Future inflation is implicitly included in a number of the models Topdanmark uses to calculate its provisions. The general principles regarding the inclusion of an allowance for inflation differs between Workers' compensation and illness/ accident insurance. In the former the provisions are calculated on the basis of the expected future indexation of wages and salaries, and in latter on the basis of the expected net price index.
In the table the discounted cash flows related to the insurance activities are shown in general level. In cash flows for life insurance provisions, repurchase and rewrite to paid-up policies are included in 2017. Comparative figures for 2016 have not been adjusted. Life insurance provisions for unit-linked products are covered by corresponding investment assets and therefore not stated in the table.
Further financing requirements are covered by short term money market loans, typically with a maturity of one month or less.
The default risk related to fixed income and equity investments is covered by spread-risk and equity-risk models in SCR calculations and hence they are not discussed in this context. Topdanmark is exposed to counterparty risk in both its insurance and investment activities.
The main sources of counterparty risk are deposits made to individual banks, derivative contracts with banks and current receivables from reinsurance companies with the addition of potential receivables that will arise in case of a 200-year event of disaster. Topdanmark's counterparty risk is assessed by the standard formula SCR, which was DKK 158 million on
The Board of Directors has set the overall principles and framework for how to organize internal control activities and how to ensure independency between the various organizational functions.
With well-documented business practices and procedures as well as effective control environment, Topdanmark minimizes the risk of errors in internal processes and insurance fraud. There are contingency plans for the most important areas. In addition, business practices and procedures in all critical areas are continuously reviewed by Internal Audit. Internal Audit assesses risks and may make recommendations for limiting individual risks.
Topdanmark continuously develops its IT systems. Responsibility for risk management in this connection lies with the responsible business entities. Projects must always prepare a risk assessment containing a description of risks, possible consequences and measures to limit these risks.
• Topdanmark Group SCR is calculated by PIM and module specific SCRs of companies are used as inputs.
Dividends are deducted on the balance sheet date. Extraordinary dividends are deducted when decided by the Board of Directors on the basis of authorization from the general meeting.
At the end of 2017, Topdanmark’s own funds were DKK 6,370 million (DKK 6,348 million) as presented in the table Topdanmark’s Eligible Own Funds, 31 December 2017 and 31 December 2016.
Eligible oEligible own funds, cwn funds, consolidaonsolidation methodtion method 855.6855.6 852.7852.7
Topdanmark A/S (Denmark) PerpNC5 DKK 400 000 000 53,728,055 23.11.2022 Tier 1 234,952,143234,952,143
SolvSolvencency II Cy II Compliant Suborompliant Subordinadinatted Liabilities of Ted Liabilities of Topdanmarkopdanmark
Mandatum Life is a leading pension provider in corporate segment which is the cornerstone in Mandatum Life’s customer strategy. Management and personnel of these corporate customers comprise major highly net worth individual and retail customer potential for other focus business areas e.g. wealth management and unit-linked business and life and health risk business. During last few years Mandatum Life has extended its business area outside the life insurance licence e.g. to mutual fund and consulting business, but these areas are still small from performance and risk management point of view.
200 million of with profit liabilities, will be transferred to Danske Bank A/S. Transfer date is expected to be before year end 2018.
In contrast to the unit-linked trend, the trend of with profit technical provisions has been downward since 2005 (with the exception of year 2014 when group pension portfolio from Suomi Mutual was transferred to Mandatum Life). In particular, the parts of technical provisions with the highest guarantees (4.5 per cent and 3.5 per cent) have decreased. The development of with profit and unit-linked portfolios is presented in the figure Development of With Profit and Unitlinked Technical Provisions, Mandatum Life, 2008–2017.
The above mentioned group pension portfolio transferred from Suomi Mutual and related assets are separated from the rest of the Mandatum Life balance sheet into a segregated group pension portfolio. The segregated group pension portfolio has its own profit sharing rules, investment policy and asset liability management committee. The with profit liabilities other than in the segregated group pension portfolio are hereafter referred to as the “original” with profit liabilities.
During the year 2017 insurance liabilities developed as planned. Unit-linked business increased and with profit liabilities with the highest guarantees decreased. The technical provisions with the highest guarantees fell by EUR 226 million. In total the with profit technical provisions decreased by EUR 248 million and is EUR 4,573 million due to increased discount rate reserves.
The development of insurance liabilities during 2017 is shown in the table Analysis of the Change in Provisions before Reinsurance, Mandatum Life, 2017.
DeDevvelopment of Welopment of With Prith Profit and Unit-Linkofit and Unit-Linked Ted Technical Prechnical Proovisionsvisions Mandatum Life, 2008–2017
Individual lifIndividual life insure insurancancee 180180 3232 -33-33 -10-10 66 00 -12-12 162162 1%1%
In addition, there are reserves for years 2017-2021 to lower interest rates of with profit liabilities as follows: • EUR 264 million has been reserved to lower the interest rate to 0.25 per cent for years 2018-2020; and
AnalyAnalysis of the Change in Prsis of the Change in Proovisions befvisions beforore Re Reinsureinsurancancee Mandatum Life, 31 December 2017
In total, Mandatum Life has set up an extra reserve of EUR 325 million as part of the original insurance portfolio’s technical provisions.
The figure Forecast of With Profit Liabilities, 31 December 2017–31 December 2031 shows the expected trend of existing with profit liabilities.
Mandatum Life’s main biometric risks are longevity, mortality and disability. In general the long duration of policies and restriction of Mandatum Life’s right to change policy terms and conditions and tariffs increases biometric risks. A definition of the biometric risk can be found in
Appendix 2 (Risk Definitions). If the premiums turn out to be inadequate and cannot be increased, technical provisions have to be supplemented by an amount corresponding to the increase in expected losses.
FFororecasecast of Wt of With Prith Profit Liabilitiesofit Liabilities Mandatum Life, 31 December 2017-31 December 2031
policies have mostly been closed for new members for years and due to this the average age of members is relatively high, almost 70 years. In the unit-linked group pension and individual pension portfolio the longevity risk is less significant because most of these policies are fixed term annuities including death cover compensating the longevity risk.
The Insurance Risk Committee is responsible for maintaining the Underwriting Policy and monitoring the functioning of the risk selection and claims processes. The Committee also reports all deviations from the Underwriting Policy to the
RMC. The Insurance Risk Committee is chaired by the Chief Actuary who is responsible for ensuring that the principles for pricing policies and for the calculation of technical provisions are adequate and in line with the underwriting and claims management processes.
Reinsurance is used to limit the amount of individual mortality and disability risks. The Board of Directors annually approves the Reinsurance Policy and determines the maximum amount of risk to be retained on the company’s own account. The highest retention of Mandatum Life is EUR 1,5 million per insured. Mandatum Life has catastrophe cover to mitigate the effect of possible catastrophes.
From an Asset and Liability Management point of view surrender risk is not material because in Mandatum Life around 90 per cent of with profit technical provisions consist of pension policies in which surrender is possible only in exceptional cases. Surrender risk is therefore only relevant in individual life and capital redemption policies of which the related technical provisions amounts to less than 5 per cent (below EUR 200 million) of the total with profit technical provisions. Furthermore, the supplements to technical provisions are not paid out at surrender which also reduces the surrender risk related to the with profit policies. Due to the limited surrender risk, the future cash flows of Mandatum Life’s insurance liabilities are quite predictable.
probability of this risk increases when market interest rates fall and stay at a low level. The duration gap between balance sheet’s technical provisions and fixed income investments is constantly monitored and managed. Control levels based on internal risk capacity model are used to manage and ensure adequate capital in different market situations
Mandatum Life has prepared for low interest rates on the liability side by e.g. reducing the minimum guaranteed interest rate in new contracts and by supplementing the technical provisions by applying a lower discount rate. In addition, existing contracts have been changed to accommodate improved management of reinvestment risk. Guarantees and other main features of with profit liabilities are presented in Section Underwriting risks and performance.
Fixed income investments and listed equity instruments form a major part of the investment portfolio, but the role of alternative investments - real estate, private equity, biometric and other alternative investments – is also material being 11.7 per cent.
Fixed income and equity exposures are presented by Sector, Asset Class and Rating together with counterparty risk exposures relating to reinsurance and derivative transactions.
ExposurExposures bes by Secty Sectoror, As, Asset Classet Class and Ras and Ratingting Mandatum Life, 31 December 2017
Within total portfolio the size of private equity investments has declined. At the same time Mandatum Life has increased its commitments in selectively picked high yield credit funds. These asset classes have been managed, in most cases, by external asset managers with the exception of the real estate portfolio which is managed by Sampo Group’s own real estate management unit. The real estate portfolio includes both direct investments in properties and indirect investments in real estate funds as well as in shares of real estate companies and it has been quite stable.
The Board of Directors of Mandatum Life annually approves the Investment Policies for both segregated assets and other assets regarding the company’s investment risks. These policies set principles and limits for investment portfolio activities and they are based on the features of insurance liabilities, risk taking capacity and shareholders return requirements.
The Investment Policy for other investment assets defines the control levels for the maximum acceptable risk and respective measures to manage the risk. The control levels are set above the Solvency II SCR and are based on predetermined capital stress tests. The general objective of these control levels and respective guidelines is to maintain the required solvency. When the above mentioned control levels are breached, the ALCO reports to the Board which then takes responsibility for the decisions related to the capitalization and the market risks in the balance sheet.
The long-term target for investments is to provide sufficient return to cover the guaranteed interest rate plus bonuses based on the principle of fairness as well as the shareholder’s return requirement with an acceptable level of risk. In the long run, the most significant risk is that fixed income investments will not generate an adequate return compared to the guaranteed rate.
In addition to investment and capitalization decisions, Mandatum Life has implemented active measures on the liability side to manage the balance sheet level interest rate risk. The company has reduced the minimum guaranteed interest rate in new contracts, supplemented the technical provisions with discount rate reserves and adjusted policy terms and conditions as well as policy administration processes to enable more efficient interest rate risk management.
The average duration of fixed income investments was 2.1 years including the effect of hedging derivatives. The respective duration of insurance liabilities was around 10 years. Interest rate risk is managed at the balance sheet level by changing the duration of assets and by using interest rate derivatives.
Liquidity risk is relatively immaterial because liability cash flows in most lines of business are fairly stable and predictable and an adequate share of the investment assets are in cash and short-term money market instruments.
The table shows the financing requirements resulting from expected cash inflows and outflows arising from financial assets and liabilities as well as technical provisions.
The objective of operational risk management in Mandatum Life is to recognize the risks proactively, manage the risks efficiently and to minimize the potential effects of realized risks in as cost-effective a manner as possible.
The OF of Mandatum Life was EUR 1,977 million while the SCR was EUR 1,087 million. The solvency ratio (OF/SCR) was 182 per cent and the buffer was EUR 890 million. OF without transitional measures on Technical Provisions would be EUR 1,555 million, and the SCR without transitional measures on equity risk would be EUR 1,220 million. Danske Bank-related portfolio transfer is expected to improve solvency position by reducing SCR around EUR 100 million and increasing OF by tens of millions.
Risk Considerations at Sampo Group Level and Sampo plc Sampo Group is first and foremost exposed to general performance of Nordic economies. However, Nordic economies typically are at any given time in different stages of their economic cycles, because of reasons like different economic structures and separate currencies. Also geographically Nordics as a large area is more a source of underwriting diversification than a concentration. Hence, inherently Nordic area is a good basis for diversified business.
To further maintain diversification of businesses Sampo Group proactively prevents concentrations to the extent possible by segregating the duties of separate business areas. As a result, separate companies have very few overlapping areas in their underwriting and investments activities. In spite of proactive strategic decisions on segregation of duties, concentrations in underwriting and investments may appear and hence liabilities and assets are monitored at the Group level to identify potential concentrations at single-name or risk factor level.
In addition to “segregation of duties at strategic level” principle Sampo Group has two principles proactively preventing the group-risks. The amount of intragroup exposures between group companies are few and parent company is the only source of liquidity and the main source of capital within Group. These principles effectively prevent the contagion risk and hence potential problems of one company will not affect directly the other group companies.
Consequently, business lines as such are contributing diversification benefits rather than a concentration of risks. This general risk picture has not changed with increased holding in Topdanmark, because it underwrites mainly
Danish risks with focus on client bases which only marginally overlap with If P&C's client bases.
On the following table Underwriting Solvency Capital Requirements of Insurance Sub-group, 31 December 2017, underwriting activities and sensitivities to related risks of three operative insurance companies are compared to each other based on their standard formula gross SCRs, because the reported Sampo Group underwriting SCR is based on them. In Topdanmark's section, the company has presented net SCR numbers. Standard formula SCRs do not either reflect risks as well as internal models used by If P&C and Topdanmark, but in this context they can be used as a common basis for comparison purposes.
In terms of SCRs If P&C is contributing most to the group SCR and it has clear focus on non-life underwriting and related health underwriting. Business is well spread over all Nordic countries, but having smallest portion of business in Denmark. Geographical diversification is not taken into account by SF and hence internally assessed capital need of EUR 672 million is much smaller.
All in all at Sampo Group level, the underwriting activities are well-diversified by lines of businesses, geographical areas and client groups. At Sampo Group level the SF gives diversification benefit of EUR 319 million because underwriting activities at group level are more evenly distributed over lines of businesses than in separate companies. Sampo considers that diversified Group SCR of EUR 1,821 million is relatively conservative measure of the underwriting capital requirement, because SF at sub-group and Sampo Group level does not take into account geographical and client base diversification.
Underwriting SolvUnderwriting Solvencency Capital Ry Capital Requirequirement of Insurement of Insurancance Sub-gre Sub-groupoup
Investment activities and market risk taking are arranged pro-actively in such a way that there is virtually no overlap between the wholly-owned subsidiaries’ single-name risks except with regards to Nordic banks where companies have their extra funds in forms of the short-term money market assets and cash. From asset side diversification perspective Topdanmark is a positive factor, because the role of Danish assets is dominant in portfolios and especially the role of Danish covered bonds is central. In Sampo Group's other insurance companies’ portfolios the weight of Danish investments has been immaterial.
When Market risks of three operative insurance sub-groups and respective figures of parent company Sampo are compared to each other by their SCRs the following things can be seen at Sampo Group level.
MarkMarket risk netet risk net 1,1501,150 768768 1,2631,263 444444 3,3833,383 3,6243,624 -242-242
Mandatum Life takes the largest market risks both in absolute and relative terms and currently equity risk is its dominant risk contributor. In If P&C currency and spread risks are the main risk contributors and there is relatively larger diversification effect than in Mandatum Life because of more evenly spread risk profile. Topdanmark is matching its liabilities with assets and hence the role of interest rate risk and currency risk is minor and equity, spread and property risks are main contributors of market risk SCR. In all companies there is some concentration risk, but at Sampo Group level it does not exist, because the sub-groups’ largest concentrations are not in same single names.
Holdings bHoldings by Indusy Industrytry, Geogr, Geographicalaphical ArArea and Asea and Asset Classet Classs
In regards to Fixed Income and Equity Exposures Financial Institutions and covered bonds have material weight in group-wide portfolios whereas the role of public sector investments is quite limited. Most of these assets are issued by Nordic corporates and institutions. Most corporate issuers, although being based in Nordic countries, are operating at global markets and hence their performance is not that dependent on Nordic markets. This together with steadily growing portion of non-Nordic names in portfolios, is decreasing the concentration risk related to Nordics.
MarkMarket Risk SCRs of Sub-gret Risk SCRs of Sub-groups and Sampo plcoups and Sampo plc
Sampo Group would benefit materially in case interest rates would rise, because economic value of insurance liabilities would decrease more than value of assets backing them. At the same time net interest income of Nordea should increase as well. During 2017 interest rates have continued their slow rise that started at the end of Q3/16.
All in all, Sampo plc is in a good position to refinance its current debt and even issue more debt. This capacity together
Sampo Group Capitalization The principles of Sampo Group capitalization and the calculation methods are described in Appendix 4 in detail.
Topdanmark treatment in Solvency II and FICO changed in 2017 and hence the 2016 figures are not comparable.
Sampo Group’s FICO solvency, calculated according to the Act on the Supervision of Financial and Insurance Conglomerates (2004/699), is presented in the figure Sampo Group’s FICO solvency, 31 December 2017. The Group solvency ratio remained at the same level as year before and was 154 per cent. Topdanmark was consolidated to the Group’s SCR and own funds in Q3/2017. Prior to that, the deduction and aggregation method was applied to the Topdanmark holding. This meant that the part corresponding to Sampo’s share of Topdanmark’s disclosed SCR was included in Sampo’s SCR and own funds.
Both Group’s own funds and minimum requirements for own funds grew in 2017. The consolidation of Topdanmark increased capital requirement by ca. EUR 300 million but at the same time the valuation gain from the consolidation increased group equity. In addition, non-controlling interest and intangible assets stemming from the consolidation were included in the own funds. The net effect of changes from Topdanmark was limited, however.
Group’s profitability increased group equity and compensated the growing dividends to shareholders, which in total contributed to own funds growth. Net changes in other items affecting own funds were limited.
Group’s own funds consist of Group consolidated equity and sectoral items of financial institutions and insurance companies, minus intangible assets, foreseeable dividends and other adjustments. Group consolidated equity including non-controlling interest, EUR 13,508 million as of 31.12.2017, accounts for most of the own funds and is considered as Tier 1 capital for solvency purposes. Sectoral items, most of which come from Nordea’s additional Tier 1 and Tier 2 capital and from the valuation adjustments of If P&C, Mandatum Life and Topdanmark, accounted for EUR 2,517 million (EUR 2,254 million). The deductions in total were EUR 5,004 million (EUR 3,251 million).
The Group level capital requirement is sum of the parts presented in the above figure and no diversification benefit between business areas is taken into account. As of 31.12.2017 the total minimum requirements for own funds were EUR 7,163 million (EUR 7,088 million). Group solvency (Group’s own funds – minimum requirements for own funds) were EUR 3,858 million (EUR 3,849 million).
Topdanmark’s standard formula SCRs is now fully included in Sampo’s Consolidated Group SCR. Also the own funds of Topdanmark are now fully consolidated to Sampo’s own funds with the exception of the part of the own funds, which exceeds Topdanmark’s Standard Formula SCR, belonging to minority shareholders.
The Group SCR decreased by EUR 51 million due to a decrease in the capital requirement for Nordea offset by an increase in Topdanmark’s contribution to the Group SCR. Topdanmark was previously included in the Group SCR by
Group’s own funds consists of ordinary share capital, reconciliation reserve as well as subordinated liabilities, which are eligible at the Group level. As of 31.12 2017 the Group’s own funds were EUR 10,945 million.
Net deferred tax assets shown separately in Tier 3 - -4
Topdanmark was the only group company issuing subordinated debt during 2017. This DKK 400 million instrument was classified to be Tier 1 item in Own Funds. In September 2017 If P&C Insurance Ltd (Finland) bought back its Tier 1 instrument from Sampo plc and cancelled it before its merge into If P&C Insurance Ltd (Publ) (Sweden).
Tier 3 own funds include net deferred tax assets (i.e. those deferred tax asset items which cannot be netted against available deferred tax liabilities, “DTL”) from the Solvency II Balance sheet.
The Group’s own funds decreased by EUR 9 million over the reporting period. Excess of assets over liabilities grew as a result of Topdanmark’s consolidation and Group’s profit for the period, but the total effect of Nordea’s own funds items and increased intangible assets at the group level, which are not included in the SII balance sheet, resulted in the small negative net effect. Because of lower Group SCR, which decreased due to Nordea’s lower capital requirement, Ratio of Eligible own funds to group SCR went up slightly to 156 per cent (155 per cent). There were no restrictions affecting the availability or transferability of own funds at the group level during the period.
Sampo’s regulatory group solvency ratios, 154 per cent (FICO) and 156 per cent (Solvency II), are relatively low compared to many other insurance groups. Conglomerate rules do not take into account any diversification benefits between Group’s business areas. Solvency II rules take into account only the diversification within the consolidated group. Therefore, the diversification benefit from the associated company is not taken into account. Because material part of capital consumption and profits stem from the associated company Nordea, the lack of its diversification benefit has a material effect on reported Solvency ratios.
This internal Solvency Ratio estimate is more in line with reported figures of insurance groups, of which most do not have holdings in financial institutions to the level of Sampo Group’s holdings. Based on this internally adjusted group solvency ratio, the Group solvency would be strong.
Mandatum Life is smaller company than If P&C and Nordea and its OF with transitional measures is relatively high compared to SCR. Mandatum Life’s with profit business with high guarantees is decreasing annually by EUR 200 million. Hence the capital need is decreasing over time.
Topdanmarks result has been stable over the years and it is adequately capitalized.
Group’s parent company steers the wholly-owned subsidiaries by setting targets for their capitalization and return on equity (“RoE”) and by defining the main preconditions for the subsidiaries’ operations in the form of the group-wide principles.
Target Setting: The Board of Directors of Sampo plc decides on the subsidiaries’ return on equity targets which are currently 17.5 per cent for both If P&C and Mandatum Life. In addition, If P&C has a long-term target of maintaining the combined ratio below 95 per cent.
Sampo Group’s subsidiaries decide independently on the governance structure of their operations. The executive management of the subsidiaries have extensive experience in the insurance industry, as well as in financial and risk management. The members of different committees and governing bodies represent expertise related to business and other functions. The subsidiaries’ operations are monitored by the different governing bodies and ultimately by the Boards of Directors whose members are mainly in senior management positions in Sampo or in Sampo Group companies.
Parties independent of business activities are responsible for the risk management governance framework, risk policies, risk limits and authorizations which form the structure that sets the limits for business and investment units’ risk taking as well as principles for risk monitoring. These structures are one prerequisite for the risk management process; they reflect capital adequacy targets and the risk appetite in general.
Both the business lines and the financial and risk management functions are active in supporting the business with continuous analysis and assessment of opportunities. This can be seen as a separate phase in the risk management process as the insurance and investment business units assess different business opportunities, especially their risk return ratios, on a daily basis. In the financial and risk management functions, on the other hand, a considerable amount of time is spent on risk assessment and capital planning.
This assessment of opportunities generates, for example, the following outputs: • Identification of business opportunities (e.g. product and service development and investment opportunities) and analysis of respective earnings potential and capital consumption
• Corporate structure, knowledge and processes in the companies facilitate effective implementation of changes.
When the above targets are met, risk management contributes positively to return on equity and mitigates the yearly fluctuations in profitability. The risk management process is therefore considered to be one of the contributors in creating value for the shareholders of Sampo.
Sampo reviews Group as a business portfolio and is active especially in matters related to Group’s capitalization and risks as well as related to the parent company’s capital structure and liquidity.
Sampo reviews quarterly the performance of Sampo Group both on a company level and on a Group level based on the reporting provided by the subsidiaries and the associated company. The information on associated company is, however, based on publicly available material and is therefore less detailed. Reporting on the subsidiaries’ performance to the Board of Directors and Audit Committee (“AC”) of Sampo is based mainly on the reporting produced by the
subsidiaries. The reporting concentrates on the balance between risks, capitalization and profitability. The parent company is responsible for reporting on its own activities. Reporting from wholly-owned subsidiaries is more detailed than reporting from Topdanmark.
At group level, the central focus areas are potential concentrations arising from Group companies’ operations as well as Group’s capitalization and the parent company’s ability to generate liquidity. The parent company is also projecting and analyzing Group companies’ profitability, risks and capitalization with uniform scenarios to have company specific forecasts that are additive at group level.
The Group Chief Risk Officer (“CRO”) is responsible for the appropriateness of risk management at Group level. The CRO’s responsibility is to monitor Sampo Group’s aggregated risk exposure as a whole and coordinate and monitor company specific and group level risk management.
The Own Risk and Solvency Assessment Committee assists the Chief Executive Officers of If P&C in fulfilling their responsibilities to oversee the risk management process. The ORSAC reviews reporting from If P&C’s other committees within the Risk Management System as well as reporting from both corporate functions and the line organization. Furthermore, the ORSAC monitors If P&C’s short-term and long-term aggregated risk profile to ensure it is aligned with its risk strategy and capital adequacy requirements. The Risk Management function is responsible for coordinating the risk management activities on behalf of the Boards of Directors and the CEOs.
The Managing Director of Mandatum Life has the overall responsibility for risk management according to the Board of Directors’ instructions. The Managing Director is the
The reporting lines of the main governing bodies in Mandatum Life are described in the figure Risk Governance in Mandatum Life.
The reporting lines of the main governing bodies in Topdanmark are described in the figure Risk Governance in Topdanmark.
The risks caused by changes in interest rates, foreign exchange rates and inflation together with a general trend of credit spreads and equity prices are defined as general market risks and are managed by allocation limits and other risk limits. Interest rate, inflation and currency risks are balance sheet level market risks whereas trend of spreads and equity prices relates only to assets.
The risk related to debt and equity instruments issued by a specific issuer can be defined as issuer specific market risk that is managed by issuer specific limits.
Sampo Group is exposed to price risk dependent on changes in equity prices and spreads arising from its fixed income and equity investments, as illustrated by the below table Equity and Spread Risks. Equity price and spread movements are affected by general market trends and by risk factors that are related specifically to a certain issuer or a specific issue.
When changes in different market risk variables (interest rates, inflation, foreign exchange rates) cause a change in the fair values of investment assets and derivatives that is of a different size than the respective change in the economic value of the insurance liabilities, the company is exposed to ALM risk. It has to be noted that the cash flows of insurance liabilities are modelled estimates and are therefore uncertain in relation to both their timing and amount. This uncertainty is a central component of ALM risk. Interest rate risk was defined earlier in the connection of market risks and hence in this section only liquidity risk is defined.
Many external drivers are affecting interest rates, inflation, inflation expectations and foreign exchange rates as illustrated by the following figure Interest Rate and Currency Risks.
Currency risk can be divided into transaction and translation risk. Transaction risk refers to currency risk arising from contractual cash flows in foreign currencies which are related to insurance activities, investment operations and foreign exchange transactions. Translation risk refers to currency risk that may realize when balance sheet values or measures such as SCRs expressed in base currency are converted to other currencies.
The sources of liquidity risk in Sampo Group are either internal or external by their nature. If the company’s rating declines or if the company’s solvency otherwise appears jeopardized, its ability to raise funding, buy reinsurance cover or enter into financial derivatives at a reasonable price is endangered. Moreover, policyholders may also not be willing to renew their policies because of the company’s financial challenges or in the case of reputational issues. If these risks, caused by internal reasons, are realized together with general market turmoil, which makes the selling of investment assets and the refinancing of debt difficult, maintaining adequate liquidity can be a challenge.
Risk factors that are affecting both sides of balance sheet contribute considerably to economic values of insurance liabilities, market value of assets, risks and capital need. According to Sampo’s definitions ALM risks include in addition to interest rate-, inflation- and FX-risk also liquidity risk and behavioural risks affecting maturities of insurance policies and some asset classes. Risk definitions related to ALM risks may be found in Appendix 2 (Risk Definitions).
In Sampo Group companies, insurance liabilities are the starting point for investment policy designing. Insurance liabilities are modelled and analysed to form an understanding of their expected future cash flows and their sensitivities to changes in factors such as inflation, interest rates and foreign exchange rates. Secondly, the solvency position at a time and its target levels (rating-agency and regulatory) and risk appetite define the general capacity and willingness to take market risks and liquidity risk. The stronger the solvency position and the higher the risk appetite, the more the investment portfolio can potentially differentiate from a portfolio replicating cash flows of insurance liabilities. Sampo Group companies manage their investment portfolios within the limits set on Investment Policies on a daily basis as described in more detail at section Principles of Investment Portfolio Management.
Since there is no unambiguous technique to quantify the capital need for liquidity risk, it is not directly taken into account in the internal capital need estimates. Thus only the interest rate, inflation and FX-risks of the ALM risks are accounted for in the capital need framework.
One form of liquidity risk is the access to markets when needed. Sampo Group companies maintain good business relationships with several creditworthy counterparties which mitigate the risk that Group is not able to enter into reinsurance or derivative transactions when needed.
Sampo Group has a thorough understanding of the Nordic markets and issuers and consequently Group’s direct investments are mainly made in Nordic securities although lately direct investments outside non-Nordic countries have increased. Mandatum Life’s direct investments are mainly denominated in euro and in companies geographically located in Finland and selectively in other countries. If P&C has the major part of its direct investments denominated in the Scandinavian currencies and their respective countries. Through effective differentiation in asset selection between companies, concentration risk is proactively managed at Group level.
In financial accounting the investment portfolios are reported on a fair value basis. These fair values are determined either on the basis of direct market quotes or by using various valuation models. More information on the valuation methods of the investment assets is presented in Note 16 of Sampo Group Financial Statements. In regards to
In Sampo Group, the selection of direct fixed income and equity investments is based primarily on stock and bond picking and secondarily on top-down allocation. This investment style ensures that the portfolio includes thoroughly analyzed investments with risk return ratios internally considered to be adequate, although the portfolio might not be necessarily as diversified as finance or portfolio theory suggests.
In Sampo Group companies the net foreign currency transaction exposure is considered as a separate asset class and is managed within investment portfolio activities as considered relevant by the company.
Open transaction risk positions are identified, measured and managed separately by each Sampo Group company. The net position in each currency consists of the assets, liabilities and foreign exchange transactions denominated in the particular currency. Mandatum Life and Topdanmark have their liabilities only in their local currency and hence their transaction exposures are net of foreign currency assets and currency derivatives. In If P&C there are also foreign currency denominated liabilities.
In Sampo Group the main motive for use of derivatives is their efficiency – better liquidity and tighter bid-ask spreads – compared to cash instruments.
In most of the cases, derivatives are booked as trading derivatives at fair value through the profit and loss statement in financial accounting and hedge accounting is applied only seldom.
The counterparty risk related to derivatives is managed as described in counterparty risk section.
Policies. The committee considers and proposes changes to the policies. The Chairman is responsible for the reporting of policy deviations and other issues dealt with by the committee.
• The same basic principles are primarily followed in the investment activities of both wholly owned subsidiaries, although the risk level of If P&C’s investment portfolio is significantly lower than the risk level of Mandatum Life’s investment portfolio due to different features of their insurance liabilities. In Topdanmark as well the insurance liabilities are the starting point to investment risk profiles.
The effects of operational risks have their general causes in external and internal drivers. For example the operational risks may realize as a result of inadequate or failed processes or systems, from personnel or from external events (for further details, see Appendix 2, Risk Definitions - Operational Risks). Group companies have their own specific risk sources which are causes of events that may have negative impacts on different processes, personnel or fixed assets.
This structure implies that the parent company is structurally subordinated. Hence, it is dependent on business areas’ dividends that can be paid only after business areas have met their own obligations. Thus, the parent company prefers to maintain in its business areas a balance between profits, risks and capital which supports business areas’ ability to pay stable dividends after servicing their own obligations.
Hence, from Sampo Group’s perspective, the main objectives are: • Independent business areas generate a stable and growing stream of profits and have adequate solvency to ensure the continuity of normal business activities.
• The portfolio of separate business areas is stable. From the Group’s perspective, a weak correlation of business areas’
Over the years Sampo Group has disclosed its financial information by segments and relevant risk and solvency reporting by insurance sub-groups. Associated company has disclosed their respective reports independently. Sampo Group has disclosed its group solvency (FICO solvency) according to the Act on the Supervision of Financial and Insurance Conglomerates (699/2004), i.e. conglomerate rules.
As noted earlier, in Sampo Group the first priority is to maintain a balance between profits, risks and capital in each of the separate business areas.
In a nutshell a balance between profits, risks and capital means that the actual amount of capital – or Own Funds (“OF”) in Solvency II terminology - is maintained over risk based capital need with a certain buffer; the size of this buffer is dependent on many things but mainly on expected profitability.
There is a need to have a certain buffer between the actual amount of capital and the capital floor defined by the company, because risk exposures and profits evolve continuously over time and capital can sometimes erode rapidly due to stressed situations. An adequate buffer gives time for the company to adjust its risks and capital in times of stress and to maintain the balance between risks and capital. An adequate buffer also gives confidence to supervisors and counterparties (this being the other motivation for the buffer).
In Sampo Group the management steers the balance between SCRs and rating agency capital target and OF through their decisions on risk profiles, dividend payments, capital instrument issuances and technical provisions. In the long run a sound profitability and satisfied clients are the most important factors in maintaining an adequate capitalization.
The following factors are the most material when the size of buffer is considered in Sampo Group companies: • The higher the level of expected profits and the lower the volatility of profits and market value of balance sheet, the less is the volatility of own funds and thus the smaller is the buffer.
• If business is growing, the buffer is larger than in the case of a run-off -business. For instance in Mandatum Life, capital consuming with profit business has already been in a virtual run-off mode for years.
iii. The targeted dividends can be paid to shareholders in the long run without endangering the balance between risk and capital.
In regards to Nordea, the Swedish requirements for banks’ capital include components, which are country-specific and thus the total requirement is higher than in many other countries. The Swedish FSA has communicated the capital requirement for Nordea. Nordea’s capital policy aims to maintain a management buffer of 50–150 basis points above the capital requirement. By the end of third quarter 2017, the communicated Common Equity Tier 1 (“CET1”) ratio requirement for Nordea was 17.4 per cent.
The CET1 ratio of Nordea increased to 19.5 per cent (18.4 per cent) in 2017. The CET1 capital amounted to EUR 24.5 billion and its own funds were EUR 31.7 billion. Nordea’s capital requirement based on the transitional rules was EUR 16.2 billion; without the transitional rules it was EUR 10.1 billion. Sampo consolidates its share of all Nordea’s own funds items and minimum capital requirement to Group solvency under both Solvency II and conglomerate rules. From Sampo Group’s perspective, Nordea is strongly capitalized and its contribution to Group’s own funds and capital requirement is significant. Nordea’s contribution to Sampo Group’s capital requirement changes with effect from Q1/18 as so called transitional rules (Basel I floor) expire in Sweden and Sampo starts to use Minimum requirement for Own funds as defined in Nordea's quarterly Factbook as a capital requirement in Group solvency.
Group’s capital requirement is dependent mainly on the capital requirements of the business areas. The parent company’s contribution to Group capital need is minor most of the time, because Sampo plc does not have any business activities of its own other than the management of its capital structure and liquidity portfolio.
At the Group level, the capital requirement and own funds are both exposed to foreign currency translation risk. Translation risk may realize when the actual capital and the capital needs of If P&C and Topdanmark are converted from their reporting currencies to euros. When the reporting currencies of If P&C and Topdanmark depreciate, the actual amount of Group’s capital in euros decreases and the capital requirements of If P&C and Topdanmark will be lower in euro terms. Translation currency risk is monitored internally and its effect on Sampo Group’s solvency on a going concern basis is analyzed regularly. However, internally no capital need is set for translation risk, because it realizes only when a subgroup is divested.
ii. Sampo plc’s share of Nordea’s and Mandatum Life’s other sectors’ capital requirements are added to the consolidated group’s capital requirement.
The Group’s own funds under Solvency II rules is the excess of assets over liabilities (including any subordinated liabilities which may be called up in order to absorb losses and minus own shares held directly). Assets and liabilities are valued at market value and all intra-group transactions are eliminated. The excess of assets over liabilities is classified
into tiers 1-3. The tiers reflect the degree of loss absorbency of own funds in the event of a winding up. Adjustments are made if all own funds are not available or eligible at the Group level. In addition, associated company’s additional Tier 1 and Tier 2 capital instruments are included in own funds.
Appendix 5: Valuation for Solvency Purposes Sampo Group Solvency II balance sheet is derived from Sampo’s consolidated IFRS financial statements, which are adjusted in accordance with Solvency II regulation. The IFRS accounting principles “Summary of significant accounting principles” are presented in Sampo Group’s Annual Report/ Financial Statements/Notes to the accounts.
AsAssets, EURmsets, EURm IFRS vIFRS valuealue** SolvSolvencency II vy II valuealue AAdjusdjustmenttment
Goodwill, intangible asGoodwill, intangible assets and defsets and deferrerred aced acquisitionquisition
PrPropertyoperty, plant & equipment held f, plant & equipment held for oor own usewn use 158158 160160 11
Liabilities, EURmLiabilities, EURm IFRS vIFRS valuealue SolvSolvencency II vy II valuealue AAdjusdjustmenttment
ExExccesess of ass of assets osets ovver liabilitieser liabilities 13,50813,508 12,77112,771 -737-737 *In IFRS Sampo’s financial assets consist of equity and debt instruments available for sale and fair value through profit/loss, derivatives and loans and receivables. Financial liabilities in IFRS consist of derivatives and other liabilities eg. subordinated liabilities and other debt securities in issue.
In the group Solvency II balance sheet goodwill, intangible assets and deferred acquisition costs are valued at zero.
Loans and mortgages are valued at amortized cost, which is not in line with the treatment for financial assets in Solvency II. Sampo, however, considers the IFRS value to be substantially commensurate with the fair value of the loans.
The adjustment of receivables (trade receivables, not insurance receivables) relates to netting of receivable amounts in relation to the Finnish medical malpractice pool (“MMP”), public sector, which are treated as part of the SII best estimate technical provisions, whereas in Sampo Group’s consolidated accounts the MMP provision public sector is recognized as other assets / liabilities. Receivables of EUR 112 million are reclassified from trade receivables to the insurance obligation.
In Solvency II Own Shares EUR 149 million are recognized on balance sheet whereas in IFRS Own Shares are deducted from Equity.
The Best Estimate is determined as follows: - First, all expected future insurance liability cash flows and cash flows related to the management and claims handling costs of insurance liabilities are estimated by the company at best effort basis based on recognized actuarial and statistical techniques.
ii. With the market risk SCR at zero and no new business being written, the company’s SCR is related to the insurance risk, reinsurance credit risk and operational risk.
iv. All of the resulting future SCR values are discounted to one present value with the risk free-rate as defined by EIOPA.
v. Finally, to get the risk margin, the cost for holding the SCR until full run-off of the best estimate is calculated by multiplying the sum of the future SCRs by 6 per cent – the cost of capital given by EIOPA.
2. In Solvency II, all cash flows are discounted by EIOPAS´s risk free interest rates whereas within the financial accounting regime not all cash flows are discounted, and when discounting, discount rates based on local regulations are typically used.
◦ When a policy is written but no premiums are due yet, the whole premium is already booked as UPR in financial accounting and a corresponding receivable is booked on the asset side. In SII, any insurance receivables that are not yet due are netted against the PP account. This effectively means that the balance sheet shrinks in size when going from financial accounting to SII and that the difference between the UPR and the PP is the biggest when premiums are not yet due.
The nature of technical provisions means that there is always uncertainty associated with the calculations since they inevitably involve assumptions about future events. Main risk factors affecting the reserve risk are described further under “Underwriting Risks”.
The differences between IFRS and Solvency II technical provisions are summarised in the below table Technical Provisions in IFRS and Solvency II, 31 December 2017.
LifLife ee exxcluding healthcluding health 1,0481,048 2424 1,0721,072 00 1,0721,072 1,1371,137 00 1,1371,137 94%94%
Different principles are used for calculating the technical provisions in Solvency II and in the IFRS financial statements: • The largest revaluation effect is due to netting of expected premiums not yet due and amounts to EUR 913 million, affecting both the asset and liability side of the balance sheet to the same degree.
In the IFRS consolidated accounts, recognition of a liability as an insurance contract would be dependent on the existence of significant insurance (underwriting) risk (refer IFRS 4). Based on If P&C’s assessment that there is no material degree of insurance risk prevalent, the Medical Malpractice Pool (MMP) public sector is not recognized as an insurance contract in the consolidated accounts, but is treated as a service contract with its components recognized in other assets and other liabilities. Accordingly, a difference occurs with the Solvency II treatment where the liability should be recognized within the insurance obligations.
Further discussion regarding the reinsurance recoverables can be found under “Counterparty Default Risks”.
The differences between IFRS and Solvency II technical provisions with transitional measures are summarised in the below table Overall position, technical provisions, 31 December 2017.
Mandatum Life applies the transitional measures on technical provisions for its Solvency II technical provision in regards to its original pension policies with 3.5 per cent and 4.5 per cent guarantees. Also, a volatility adjustment is applied when technical provisions are calculated. The size of SII liabilities with transitional measures is EUR 10,876 million and EUR 11,403 million without transitional measures. Hence the transitional measures on technical provisions increase the amount of OF after tax by EUR 422 million. Mandatum Life applies standard formula without undertaking-specific parameters or simplified calculations.
Accounting principles of life insurance contracts are presented in Sampo’s Annual Report/Financial Statements/ Notes to the accounts/Summary of significant accounting policies/Life insurance business.
OvOvererall Pall Position, Tosition, Technical Prechnical Proovisionsvisions Mandatum Life, 31 December 2017
For Topdanmark the principles for calculating the insurance provisions are almost the same for IFRS and Solvency II.
For non-life insurance the calculation of best estimate, risk margin and profit margin (expected profit in future premiums) are the same for IFRS and Solvency II. The only difference is the presentation of the profit margin. In IFRS the profit margin is presented as an insurance provision, while in Solvency II it forms part of the Solvency II own funds deducted for tax liabilities.
The effects of Solvency II valuation on Sampo’s other liabilities than technical provisions are fairly limited, consisting mainly of the valuation impact on financial liabilities and Payables balances related to the technical provisions.
The reclassification of medical malpractice pool public sector from a service contract to an insurance contract effect also payables balances. Payables of EUR 112 million are reclassified from trade payables to the insurance obligations.
200Group's IFRS Financial Statements 200- Statement of Profit and Other Comprehensive Income, IFRS
EEquity aquity attributable tttributable to oo owners of the parwners of the parentent 12,84812,848 11,93411,934
EEquity aquity at 31 Dect 31 December 2016ember 2016 9898 44 1,5271,527 9,7009,700 -518-518 1,1241,124 11,93411,934 -- 11,93411,934
The total comprehensive income includes also the share of the associate Nordea's other comprehensive income, in accordance with the
Net cash frNet cash from inom invvesesting activitiesting activities 534534 343343
Net incrNet increase in cash and cash equivease in cash and cash equivalentsalents 162162 616616
AAdditional infdditional informaormation ttion to the so the statattement of cash floement of cash flowws:s: 20172017 20162016
Dividend income received 124 122 *) Investments include investment property, financial assets and investments related to unit-linked insurance contracts.
The consolidation of Topdanmark as a subisidiary at 30 September 2017 increased Group's cash at bank and in hand by EURm 45.
Topdanmark is the second largest insurance company in Denmark, and is primarily engaged in providing life and non-life insurance products. Sampo Group has consolidated Topdanmark A/S as an associate since May 2011.
On 30 September 2017, Sampo gained the control in the company in accordance with the IFRS standards. Since then, Topdanmark has been consolidated as a subsidiary in the financial reporting of Sampo Group. The acquistion price in the Group was determined as EURm 1,398 which was the fair value of Topdanmark's shares on the acquisition date, 30 Sep 2017. The carrying amount of Topdanmark's shares at the same time was EURm 692. The difference EURm 706 was recognised through p/l as an increase of the carrrying amount. There were no transfer of cash assets or expenses incurred at the moment of gaining of control.
Sampo Group has prepared the consolidated financial statements for 2017 in compliance with the International Financial Reporting Standards (IFRSs). In preparing the financial statements, Sampo has applied all the standards and interpretations relating to its business, adopted by the commission of the EU and effective at 31 December, 2017.
In the comparison year 2016, Topdanmark consolidated as a subsidiary on 30 September 2017, was treated wholly as an associate and as a part of the If Group. Due to the subsidiary consolidation, the company’s p/l for Jan - Sep has been presented in Topdanmark’s own segment in one line as a share of associates’ profit and the p/l for Oct – Dec has been consolidated line by line. The comparison figures have been moved accordingly to Topdanmark segment.
The following exchange rates were applied in the consolidated financial statements: Balance sheet date Average exchange rate 1 euro (EUR) =
The Group’s 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 If, Topdanmark, Mandatum and Holding (including Nordea).
Geographical information has been given on income from external customers and non-current assets. The reported segments are Finland, Sweden, Norway, Denmark and the Baltic countries.
Inter-segment transactions, assets and liabilities are eliminated in the consolidated financial statements on a lineby -line basis.
The change in the provision for unearned premiums is presented as an expense under 'Change in insurance and investment contract liabilities'.
In the life insurance business, IFRS 4 Insurance Contracts provides that insurance contracts with a discretionary participation feature are measured in accordance with national valuation principles (except for the equalisation reserve) rather than at fair value. These contracts and investments made to cover shareholders’ equity are managed in their entirety and are classified mainly as available-for-sale financial assets. An exception to the rule are investments related to unit-linked insurance, valued at fair value thru p/l and shown as a separate line item in the balance sheet. The corresponding liability is also shown as a separate line item.
Financial asset that is held for the purpose of selling or buying in the short term, or belongs to a portfolio that is managed together or is repeatedly used for short-term profit taking, is classified as an asset held for trading. Gains and losses arising from changes in fair value, or realised on disposal, together with related interest income and dividend, are recognised in the income statement.
amount and the present value of estimated future cash flows discounted at the receivable’s original effective interest rate. The difference is recognised as an impairment loss in profit or loss. The impairment is assessed individually.
An impairment on equity funds is recognised in line with the principles above when the starting year of the fund is at least 10 years old and the carrying amount of the fund is maximum EUR 500,000. In these cases both the fair value and the carrying amount are booked to zero. An impairment is only performed to those funds for which the benchmarks are met in all the Sampo Group companies’ portfolios.
Derivative financial instruments are classified as those held for trading and those held for hedging, including interest rate derivatives, credit risk derivatives, foreign exchange derivatives, equity derivatives and commodity derivatives. Derivative instruments are measured initially at fair value. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. During the financial year, the fair value hedging has been applied in Mandatum.
Securities lent to counterparties are retained in the balance sheet. Conversely, securities borrowed are not recognised in the balance sheet, unless these are sold to third parties, in which case the purchase is recorded as a trading asset and the obligation to return the securities as a trading liability at fair value through profit or loss
If there is any indication that an impairment loss recognised for an asset in prior periods may no longer exist or may have decreased, the recoverable amount of the asset will be estimated. If the recoverable amount of the asset exceeds the carrying amount, the impairment loss is reversed, but no more than to the carrying amount which it would have been
There are also contracts in P&C insurance in which the insurance risk is eliminated by a retrospective insurance premium, i.e. the difference between forecast and actual losses is evened out by an additional premium directly or in connection with the annual renewal of the insurance. The net
The provision for claims outstanding in direct P&C insurance and reinsurance may be calculated by statistical methods or through individual assessments of individual claims. Often a combination of the two methods is used, meaning large claims are assessed individually while small claims and claims incurred but not reported (the IBNR provision) are calculated using statistical methods
Pensions and compensation for healthcare or medical rehabilitation paid on the basis of Finland’s statutory P&C insurance (accident, motor third party liability and patient insurance) are raised annually by the TEL (Employee Pensions Act) index in order to maintain the real value of the pensions. The index raises are not the responsibility of the insurance companies, but are funded by the so-called pay-asyou -go principle, i.e. each year premiums written include index raises to the same amount that is paid out in that year. In practice, the P&C insurance companies collect a so-called expense loading along with their premiums written, which is then forwarded to the central organisation for the particular insurance line. The central organisation distributes the payas -you-go contributions collected so that the company undertaking the type of insurance in question receives an amount equal to the compensation falling under the pay-asyou -go system it has paid that year. The insurer’s participation in the payment is proportional to the insurer’s market share in the insurance line in question.
The discretionary participation feature (DPF) of a contract is a contractual right held by a policyholder to receive additional benefits, as a supplement to the guaranteed minimum benefits. 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, the principle of fairness specifies the application of this feature. In unit-linked contracts the policyholder carries the investment risk by choosing the investment funds linked to the contracts.
National accounting standards are applied to all insurance contracts and to investment contracts with DPF.
A liability adequacy test is applied to all portfolios and the need for augmentation is checked, company by company, on the basis of the adequacy of the whole technical provisions. The test includes all the expected contractual cash flows for non-unit-linked liabilities. The expected contractual cash flows include expected premiums, claims, bonuses and expenses. The claims have been estimated including surrenders and other insurance transactions based on historical data. The amounts of claims include the guaranteed interest and an estimation of future bonuses. The present values of the cash flows have been discounted to the balance sheet date.
In the defined contribution plans, the Group pays fixed contributions to a pension insurance company and has no legal or constructive obligation to pay further contributions. The obligations arising from a defined contribution plan are recognised as an expense in the period that the obligation relates to.
Defined benefit plans are both funded and unfunded. The amounts reported as pension costs during a financial year consist of the actuarially calculated earnings of old-age pensions during the year, calculated straight-line, based on pensionable income at the time of retirement. The calculated effects in the form of interest expense for crediting/ appreciating the preceding years’ established pension obligations are then added. 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 current market interest rate adjusted to take into account the duration of the pension obligations.
During the financial year, Sampo had four valid share-based incentive schemes settled in cash (the long-term incentive schemes 2011 II, 2014 I, 2014 II and 2017 I for the management and key employees). Topdanmark had one mainly sharesettled incentive scheme for the executive board and senior executives during the financial year.
Deferred tax is calculated on all temporary differences between the carrying amount of an asset or liability in the
ApplicaApplication of netion of new or rw or reevised IFRSsvised IFRSs and intand interprerpretaetationstions
The Group will apply the following new or amended standards and interpretations related to the Group’s business in later financial years when they become effective, or if the effective date is other than the beginning of the financial year, during the financial year following the effective date.
The amendments to IFRS 9 Financial Instruments (estimated effective for annual periods beginning on 1 Jan 2021 or after) supersede IAS 39 Financial Instruments: Recognition and Measurement. Sampo is going to utilise the temporary exception option, outlined in the next chapter, and apply the standard on the annual period beginning on 1 Jan 2021. The new standard changes the classification and measurement of financial assets and includes a new impairment model based on expected credit losses. The hedge accounting will continue to have three different hedging relationships.
Segment Information Following the subsidiary treatment of Topdanmark A/S as of 30 Sep 2017, the structure of segment reporting changed as well. Previously Sampo reported three segments; P&C Insurance (including Topdanmark), Life Insurance and Holding segment (including Sampo's share of Nordea's profit). Subsequent to consolidation of Topdanmark as a subsidiary, Sampo changed its reporting structure and will report four reportable segments; If, Topdanmark, Mandatum and Holding (incl. Nordea).
Depreciation and amortisation by segment are disclosed in notes 10–12 and investments in associates in note 13.
Share of associates' profit/loss 1 94 0 616 - 712 - Gain from fair valuation of former associated company
PrProfit befofit beforore taxe taxeses 824824 5959 210210 778778 00 1,8711,871
TTotal itotal items not rems not reclaseclassifiable tsifiable to pro profit or losofit or loss,s, net of taxnet of tax -5-5 -- -- -- -- -5-5
EEquity aquity attributable tttributable to paro parent cent companompany'sy's equity holdersequity holders 12,84812,848
Investments related to unit-linked insurance - - 3,468 - -41 3,427
Reinsurers' share of insurance liabilities 236 - 3 - - 239
RReevvenue frenue from eom extxternal cusernal custtomersomers 1,914 1,496 1,316 993 158 5,8775,877
RReevvenue frenue from eom extxternal cusernal custtomersomers 2,129 1,453 1,321 389 161 5,4545,454
Sampo Group has since May 2011 consolidated Danish insurer Topdanmark A/S as an associated company by reporting in the P&C Insurance segment the share of Topdanmark's profit corresponding to Sampo's holding. From 30 September 2017 on, Topdanmark has been consolidated as a subsidiary in the financial reporting of the Group.
The 30 September 2017 became the consolidatation date due to Sampo carrying out assessment on relevant facts and circumstances required by IFRS standards and concluding that the threshold for control in Topdanmark was exceeded, even if Sampo's share of outstanding shares was a little under 50%.
The acquistion price in the Group was determined as EURm 1,398 which was the fair value of Topdanmark's shares on the acquisition date, 30 September 2017. The carrying amount of Topdanmark's shares at the same time was EURm 692. The difference EURm 706 was recognised through p/l as an increase of the carrying amount.
Summarised sSummarised statattement of prement of profit or losofit or losss
1 Insurance premiums written ................................................................................................................... 229 2 Net income from investments ................................................................................................................ 230 4 Change in liabilities for insurance and investment contracts ......................................................... 234 5 Staff costs.................................................................................................................................................... 235 6 Other operating expenses ....................................................................................................................... 235 7 Result analysis of If ................................................................................................................................... 236 8 Earnings per share..................................................................................................................................... 237 9 Financial assets and liabilities ................................................................................................................ 237 10 Property, plant and equipment ............................................................................................................ 238 13 Investments in associates...................................................................................................................... 242 16 Determination and hierarchy of fair values....................................................................................... 248 17 Movements in level 3 financial instruments measured at fair value............................................ 251 18 Sensitivity analysis of level 3 financial instruments measured at fair value ............................. 253 19 Investments related to unit-linked insurance contracts................................................................. 253 20 Deferred tax assets and liabilities ....................................................................................................... 254 22 Components of other comprehensive income................................................................................. 256 23 Tax effects relating to components of other comprehensive income ....................................... 256 25 Liabilities from insurance and investment contracts ...................................................................... 258 26 Liabilities from unit-linked insurance and investment contracts................................................. 265 29 Employee benefits................................................................................................................................... 269 31 Contingent liabilities and commitments............................................................................................ 273 32 Equity and reserves ................................................................................................................................ 275 33 Related party disclosures ...................................................................................................................... 276 35 Assets and liabilities related to assets held for sale ....................................................................... 280 37 Legal proceedings................................................................................................................................... 281 38 Investments in subsidiaries ................................................................................................................... 281 39 Risk management disclosures .............................................................................................................. 282 40 Events after the balance sheet date ................................................................................................... 322
Included in gains/losses from financial assets available-for-sale is a net gain of EURm -147 (-106) transferred from the fair value reserve.
GrGroup net inoup net invvesestment inctment incomeome, t, totalotal 1,1041,104 827827
GrGroup change in liabilities foup change in liabilities for insuror insurancance and ine and invvesestment ctment controntracts tacts total, netotal, net -603-603 -448-448
GrGroup other operoup other operaating eting expenses, txpenses, totalotal -536-536 -551-551
Item Other includes e.g. expenses related to communication, external services and other administrative expenses.
GrGroup financial asoup financial assets, tsets, totalotal 25,76425,764 281281 335335 -106-106 146146
Financial assets designated as at fair value through p/l 24 1 0 - 0
GrGroup financial liabilities, toup financial liabilities, totalotal 3,8473,847 -52-52 3434 10 Property, plant and equipment
Net carrying amount aNet carrying amount at 1 Januaryt 1 January 211211 195195
RRental incental income frome from inom invvesestment prtment propertyoperty 27 23
Net carrying amount aNet carrying amount at 1 Januaryt 1 January 700700 2424 724724
Goodwill is split betwGoodwill is split between theeen the segments as fsegments as folloollowws:s: 20172017 20162016 *) The change in the cost is due both to Topdanmark's consolidation as a subsidiary and If P&C Insurance Ltd becoming a branch of its Swedish sister company. Exchange differences affect the cost of the intangible assets as well.
Depreciation and impairment losses are included in the income statement item Other operating expenses.
In Mandatum Life, the recoverable amount exceeds its carrying amount by some EURm 600. With the calculation method used, e.g. an increase of about 2% point in the cost of equity could lead to a situation where the recoverable amount of the entity would equal its carrying amount.
AAt end of yt end of yearear 7,5787,578 187187 7,5967,596 7,5547,554 553553 8,1078,107
The carrying amount of investments in associates included goodwill EURm 990 (1,101), including goodwill from the Nordea acquisition EURm 978 (978).
Topdanmark is the second largest insurance company in Denmark, and is primarily engaged in providing life and non-life insurance products. Sampo consolidated Topdanmark as an associated company until 30 September 2017 when it became a subsidiary of Sampo. The share of associates' profit for 2017 is thus for the time period of 1.1. - 30.9.2017. The last quarter of Topdanmark's profit has been conslidated line by line in the Group's financial statements.
SharShare of the lose of the loss/prs/profit of an asofit of an associasociattee 9090 5959
The Group uses derivative instruments for trading and for hedging purposes. The derivatives used are foreign exchange, interest rate and equity derivatives. Fair value hedging has been applied during the financial year in Mandatum.
TTotal fotal fororeign eeign exxchange derivchange derivaativtiveses 11,31911,319 7676 1818 5,4095,409 2727 7575
TTotal derivotal derivaativtives held fes held for hedgingor hedging 364364 33 00 534534 22 00
GrGroup financial derivoup financial derivaativtives, tes, totalotal 14,56314,563 8585 9696 6,6876,687 4545 8181
Fair value hedging is used to hedge a proportion of foreign exchange and interest risk in available-for-sale financial assets. The interest elements of forward contracts have been excluded from hedging relationships in foreign exchange hedges. Net result from exchange derivatives designated as fair value hedges amounted to EURm -63 (19). Net result from hedged risks in fair value hedges of available for sale financial assets amounted to EURm 63 (-19).
TTotal financial liabilities measurotal financial liabilities measured aed at ft fair vair valuealue -- 9696 -- 9696
FINANCIAL LIABILITIES AFINANCIAL LIABILITIES AT 31 DECEMBER 2016T 31 DECEMBER 2016
The sensitivity of financial assets and liabilites to changes in exchange rates is assessed on business area level due to different base currencies. In If, 10 percentage point depreciation of all other currencies against SEK would result in an increase recognised in profit/loss of EURm 13 (10) and in a decrease recognised directly in equity of EURm -12 (-8). In Topdanmark, 10 percentage depreciation of all other currencies against DKK would result in a decrease recognised in profit/loss of EURm -1, but would not have an impact on equity. In Mandatum, 10 percentage point depreciation of all other currencies against EUR would result in an increase recognised in profit/loss of EURm 12 (12) and in a decrease recognised directly in equity of EURm -79 (-94). In Holding, 10 percentage point depreciation of all other currencies against EUR would have no impact in profit/loss, but a decrease recognised in equity of EURm -216 (-163).
Total gains or losses included in profir or loss for the financial year -37 8 -29-29
GGains/ains/ loslossesses includedincluded in p/l fin p/l foror financialfinancial asassets asets att 31.12.201631.12.2016
TTotal financial asotal financial assessests measurts measured aed at ft fairair
The value of financial assets regarding the debt security instruments has been tested by assuming a rise of 1 per cent unit in interest rate level in all maturities. For other financial assets, the prices were assumed to go down by 20 per cent. Sampo Group bears no investment risks related to unit-linked insurance, so a change in assumptions regarding these assets does not affect profit or loss. On the basis of the these alternative assumptions, a possible change in interest levels at 31 December 2017 would cause a descend of EURm 1 (2) for the debt instruments, and EURm 143 (162) valuation loss for other instruments in the Group's other comprehensive income. The reasonably possible effect, proportionate to the Group's equity, would thus be 1.1 per cent (1.4).
GrGroup inoup invvesestments rtments relaelatted ted to unit-linko unit-linked ced controntracts, tacts, totalotal 7,4097,409 3,4273,427
DefDeferrerred tax ased tax assets in the balancsets in the balance sheete sheet 2727
TTotal defotal deferrerred tax liabilities in the balanced tax liabilities in the balancee sheetsheet 527527
In Sampo plc, EURm 27 of deferred tax asset has not been recognised on unused tax losses. The first losses will expire in 2019.
In life insurance, EURm 3 of deferred tax asset has not been recognised on unused tax losses.
Item Other comprise rental deposits, salary and travel advancements and assets held for resale.
Provisions for annuities and sickness benefits 654 - 654 2,148 - 2,148
The tables below show the cost trend for the claims for different years. The upper part of the tables shows how an estimate of the total claims costs per claims year evolves annually. The lower section shows how large a share of this is presented in the balance sheet. More information on insurance liabilities in the risk management note 39.
TTotal protal proovision rvision reporteporteded in the BS of Ifin the BS of If 7,0927,092
Mandatum's liabilities related to assets held for sale -198 -210 -210
GrGroup liabilities froup liabilities from insurom insurancance and ine and invvesestmenttment
LifLife insure insurancance liabilities fre liabilities fromom insurinsurancance ce controntracts, tacts, totalotal 7,5927,592
CControntracts withacts with discrdiscretionary participaetionary participationtion ffeaeaturtureses CControntracts with discracts with discretionaryetionary participaparticipation ftion feaeaturtureses NetNet
TTotal aotal at 31 Dect 31 December 2016ember 2016 4,7944,794 -3-3 4,7914,791
CConsolidaonsolidatted insured insurancance ande and ininvvesestment ctment controntracts, tacts, totalotal 18,90018,900
DerivDerivaativtive financial inse financial instruments (nottruments (note 14)e 14) 1111 6767
Preferred capital note, 2013 (nominal value EURm 90) perpetual 4.70% - 92
Preferred capital note, 2015 (nominal value 500 MDKK) 12/2025 2.92% until
DerivDerivaativtive financial inse financial instruments (nottruments (note 14)e 14) 6 11
TTotal liabilities frotal liabilities from financing activitiesom financing activities 3,5483,548 -353-353 -16-16 -2-2 3,1773,177
TTotal liabilities frotal liabilities from financing activitiesom financing activities 2,3022,302 1,2691,269 -21-21 -2-2 3,5483,548
EURm 9 (11) of the provision consist of assets reserved for the development of efficient administrative and claims-adjustment processes and structural changes in distribution channels result in organisational changes that affect all business areas. In addition, the item includes a provision of about EURm 24 (21) for law suits and other uncertain liabilities.
Net pension obligaNet pension obligation rtion rececognised in theognised in the balancbalance sheete sheet 5757 7979
For both countries, the pension benefits referred to are old-age pension and survivors’ pension. A common feature of the definedbenefit plans is that the employees and survivors encompassed by the plans are entitled to a guaranteed pension that depends on the employees’ service period and pensionable salary at the time of retirement. The dominating benefit is the old-age pension, which refers in part to temporary pension before the anticipated retirement age and in part to a life-long pension after the anticipated retirement age.
Interest expense on net pension liability 1 1 2 1 1 2
Remeasurement of the net pension liability -9 4 -5 8 -2 6
TTotal in cotal in compromprehensivehensive ince income some statattementement -3-3 88 55 1515 -4-4 1111
Net liability rNet liability rececognised in balancognised in balance sheete sheet 2222 3535 5757 4141 3939 7979
The following actuarial assumptions have been used for the calculation of defined benefit pension plans in Norway and Sweden: SSwwedeneden SSwwedeneden NorwNorwaayy NorwNorwaayy
Expected contributions to the defined benefit plans during 2018 and 2017
AnalyAnalysis of the emplosis of the employyee benefit obligaee benefit obligationtion
Fair value of plan assets 211 - 211211 214 - 214214
Net pension liability rNet pension liability rececognised in the balancognised in the balancee
Defined benefit plans aDefined benefit plans at 31 Dec.t 31 Dec. 268268 294294
There are other short-term staff incentive programmes in the Group, the terms of which vary according to country, business area or company. Benefits are recognised in the profit or loss for the year they arise from. An estimated amount of these short-term incentives, social security costs included, for 2017 is EURm 68.
Item Other includes e.g. witholding taxes, social expenses related to Workers Compensation insurance policies and employee benefits and unpaid premium taxes.
Lease and sublease payments recognised as an expense in the period - minimum lease payments -37 -37
With respect to certain IT systems If and Sampo use jointly, If P&C Insurance Holding Ltd has undertaken to indemnify Sampo for any costs caused by It that Sampo may incur in relation to the owners of the systems.
Topdanmark EDB II ApS has entered into a contract with Keylane A/S on procurement and implementation of a new administration system for Topdanmark Life insurance. In connection with the implementation, Topdanmark Livsforsikring A/S has undertaken to give support in fulfilling Topdanmark EDB II ApS' obligations in accordance with the contract with Keylane A/S.
At the end of the financial year, the mother company or other Group companies held no shares in the parent company.
Other components of equity include fair value changes of financial assets available for sale and derivatives used in cash flow hedges, and exchange differences.
The Board of Directors of Sampo plc has decided on the long-term incentive schemes 2011 I - 2017 I for the management and key employees of Sampo Group. The Board has authorised the CEO to decide who will be included in the scheme, as well as the number of calculated incentive units granted for each individual used in determining the amount of the incentive reward. In the schemes, the number of calculated incentive units granted for the members of the Group Executive Committee is decided by the Board of Directors. Some 130 persons were included in the schemes at the end of year 2017.
The amount of the performance-related bonus is based on the value performance of Sampo's A share and on the insurance margin (IM) and on Sampo's return on the risk adjusted capital (RoCaR). The value of one calculated incentive unit is the trade-weighted average price of Sampo's A-share at the time period specified in the terms of the scheme, and reduced by the starting price adjusted with the dividends per share distributed up to the payment date. The pre-dividend starting prices vary between eur 39.07 - 43.81. The maximum value of one incentive unit varies between eur 33.37 - 62.81, reduced by the dividend-adjusted starting price. In all the schemes, the incentive reward depends on two benchmarks. If the IM is 6 per cent or more, the IM-based reward is paid in full. If the IM is between 4 - 5.99 per cent, half of the incentive reward is paid. No IM-related reward will be paid out, if the IM stays below these. In addition, the return on the risk adjusted capital is taken into account. If the return is at least risk free return + 4 per cent, the RORAC-based incentive reward is paid out in full. If the return is risk free return + 2 per cent, but less than risk free return + 4 percent, the payout is 50 per cent. If the return stays below these benchmarks, no RORAC-based reward will be paid out.
End of performance period I 30 % Q2-2015 Q2-2017 Q2-2018 Q2-2020
End of performance period II 35 % Q2-2016 Q2-2018 Q2-2019 Q2-2021
End of performance period III 35 % Q2-2017 Q2-2019 Q2-2020 Q2-2022
Dividend-adjusted starting price at 31 December 2017 16.97 31.86 38.93 43.81
The option scheme requires employment during the whole year of the allocation. Options are allocated at beginning of year and in connection with resignation in the year of allocation a proportional deduction in the number of allocated options is made.
In October 2016, Mandatum Life Insurance Company announced that it will not continue the distribution agreement of insurance policies with Danske Bank Plc after 31 December 2016 and that it will use its right to sell the insurance portfolio acquired via Danske Bank to Danske Bank A/S. As a result of the valuation process the value of the insurance portfolio as at the 31 December 2016 is EUR 334 million. The theoretical result from the beginning of 2017 until the date of the transfer as determined in the valuation process will be deducted from the final sales price. This theoretical result for year 2017 is determined to be EUR 18.1 million and for year 2018 EUR 18.6 million. The actual result produced by the portfolio until the transfer remains with Mandatum Life. After the transfer has been completed the transaction is expected to have a negative impact of EUR 20 - 25 million on Mandatum Life's annual profit before taxes. As a result of the transaction rises a gross sales gain equalling the value of the insurance portfolio adjusted with the items above. In Sampo Group's consolidated accounts the goodwill of approximately EUR 75 million related to assets held for sale will be deducted from the sales gain. The transfer of the portfolio is expected to take place during 2018.
There are a number of legal proceedings against the Group companies outstanding on 31 Dec. 2017, arising in the ordinary course of business. The companies estimate it unlikely that any significant loss will arise from these proceedings.
Sampo Group companies operate in business areas where specific features of value creation are the pricing of risks and the active management of risk portfolios in addition to sound client services. Hence common risk definitions are needed as a basis for business activities.
Some risks, such as counterparty default risks and operational risks presented in the figure Classification of Risks in Sampo Group are indirect repercussions of Sampo’s normal business activities. They are one-sided risks, which in principle have no related earnings potential. Accordingly, the risk management objective is to mitigate these risks efficiently rather than actively manage them. Mitigation of consequential risks is the responsibility of the business areas and the investment unit. The capital need for these risks is measured by independent risk management functions. It has to be noted that the categorization of risks between earnings and consequential risks varies depending on the industry. For Sampo Group’s clients, for instance, the events that are subject to insurance policies are consequential risks and for Sampo Group these same risks are earnings risks.
ClasClassificasification of Risktion of Risks in Sampo Grs in Sampo Groupoup
More detailed risk definitions can be found in Appendix 2 (Risk Definitions).
• Good technological infrastructure. • Intellectual capital in the form of comprehensive proprietary actuarial data and analytical tools to convert this data to information.
• Human capital in the form of skillful and motivated employees.
• Diversification is actively sought. • Reinsurance is used effectively to reduce largest exposures.
• Risk return ratios and sustainability issues of separate investments opportunities are carefully analysed.
When the above mentioned core activities are successfully implemented, a balance between profits, risks and capitalization can be achieved on both a company and group level and shareholder value can be created.
The following adjustments from IFRS LoB´s to Solvency II LoBs are made: • IFRS Line of Business Motor other and Motor third party liability (1,924) include Solvency II Line of Business Motor vehicle liability insurance (590)
Combined ratio, business area Private 84.0% +/- 1 percentage point +/- 26 +/- 26
Combined ratio, business area Commercial 88.0% +/- 1 percentage point +/- 12 +/- 12
Combined ratio, business area Industrial 88.7% +/- 1 percentage point +/- 4 +/- 4
Combined ratio, business area Baltics 88.9% +/- 1 percentage point +/- 1 +/- 1
The Chairman of the UWC is responsible for the reporting of policy deviations and other issues dealt with by the committee.
If P&C’s Reinsurance Policy stipulates guidelines for the purchase of reinsurance. The need and optimal choice of reinsurance is evaluated by looking at the expected cost versus the benefit of the reinsurance, the impact on result volatility and impact on capital requirements. The main tool for this evaluation is If P&C’s internal model in which frequency of claims, large claims and natural catastrophes are modelled.
The main reserve risks for If P&C are stemming from uncertainty in the claim amounts caused by higher claim inflation and increases in life expectancy than expected, with the consequences that both annuities and lump sum payments would increase.
In the table Technical Provisions by Line of Business and Major Geographical Area, If P&C, 31 December 2017 below, If P&C’s technical provisions and durations are presented by Line of Business and Major Geographical Area. When the breakdown of technical provisions is compared to the breakdown of gross written premiums it can be seen that Finland’s and Sweden’s share of technical provisions is larger than the share of gross written premiums. This is mainly due to Sweden and Finland having a long duration of Motor other and Motor third party liability and Finland also having a long duration of Workers compensation. The long duration is mainly due to annuities in these lines of business, which increases the amount of technical provisions. The duration of the provisions, and thus the sensitivity to changes in interest rates, varies with each product portfolio. The weighted average duration for 2017 across the product portfolios was 6.5 years.
The anticipated inflation trend is taken into account when calculating all provisions and is of the utmost importance for claims settled over a long period of time, such as Motor other and Motor third party liability and Workers’ compensation. The anticipated inflation is based on external assessments of the inflation trend in various areas, such as the consumer price index and payroll index, combined with If P&C’s own estimation of costs for various types of claims. For lines of business such as Motor other and Motor third party liability and Workers’ compensation, legislation differs significantly between countries. Some of the Finnish, Swedish and Danish technical provisions for these lines include annuities which are sensitive to changes in mortality assumptions and discount rates. The proportion of technical provisions related to Motor other and Motor third party liability and Workers’ compensation was 68 per cent.
The Board of Directors of If P&C decides on the guidelines governing the calculation of technical provisions. If P&C’s Chief Actuary is responsible for developing and presenting guidelines on how the technical provisions are to be calculated and for assessing whether the level of total provisions is sufficient. On If P&C Group level the Chief Actuary issues a quarterly report on the adequacy of technical provisions.
The actuarial estimates are based on historical claims and existing exposures that are available at the balance sheet date. Factors that are monitored include loss development trends, the level of unpaid claims, changes in legislation, case law and economic conditions. When setting property and casualty provisions, the Chain Ladder and BornhuetterFergusson methods are generally used, combined with projections of the number of claims and average claims costs. For life provisions, the IBNR calculations are based on the estimated claims cost (risk premium) over the average time from claim occurrence to reporting.
FixFixed inced income tome totalotal 10,20010,200 87%87% 2.72.7 10,62410,624 87%87% 2.82.8
Credit bonds, funds and loans 8,584 73% 2.9 8,401 69% 3.1
AltAlternaernativtive ine invvesestments ttments totalotal 3939 0%0% -- 4444 0%0% --
If P&C´s investment management strategy is conservative, with a low equity share and low fixed-income duration.
The performance and market risk is actively monitored and controlled by the Investment Control Committee on a monthly basis and reported to the ORSA Committee quarterly. In addition, the allocation limits, issuer and counterparty limits, the sensitivity limits for interest rates and credit spreads as well as regulatory capital requirements are regularly monitored.
Spread risk and equity risk are derived only from the asset side of the balance sheet. Exposures in fixed income and equity instruments are presented by Sectors, Asset Classes and Rating in below table that also include counterparty risk exposures relating to reinsurance and derivative transactions. Counterparty default risks are described in more detail in section Counterparty Default Risks. Due to differences in the reporting treatment of derivatives, the figures in the table are not fully comparable with other tables in this annual report.
In general to maintain the ALM risk within the overall risk appetite, the cash flows of insurance liabilities are matched by investing in fixed income instruments denominated in same currencies as liabilities or in case assets with healthy risk return ratios are not available in liability's currency derivatives are used. During the current low interest rate environment the liquidity of assets has been special focus of investment strategy.
In the financial accounts most of the technical provisions are nominal, while a significant part, namely the annuity and annuity IBNR reserves, are discounted using interest rates in accordance with regulatory rules. Thereby If P&C is, from a financial accounting perspective, mainly exposed to changes in inflation and the regulatory discount rates. From an economic perspective, in which the cash flows of insurance liabilities are discounted with prevailing interest rates, If P&C is exposed to changes both in inflation and nominal interest rates. For more information see the table Sensitivities of Technical Provisions, If P&C, 2017 in the Non-life Underwriting Risks section.
If P&C writes insurance policies that are mostly denominated in the Scandinavian currencies and in euro. In If P&C, the FXtransaction risk is reduced by matching technical provisions with investment assets in the corresponding currencies or by using currency derivatives. Hence, the so called structural FX risk is first mitigated as a rule after which If P&C can open short or long FX positions (active FX risk) within its FX risk limits. The transaction risk positions of If P&C against SEK are shown in the table Transaction Risk Position, If P&C 31 December 2017. The table shows the net transaction risk exposures and the changes in the value of positions given a 10 per cent decrease in the value of the base currency.
BrBreakeakdodown of Liswn of Listted Eed Equity Inquity Invvesestments btments by Geogry Geographical Raphical Regionsegions If P&C, 31 December 2017 and 31 December 2016
TTotal trotal transaction risk, net position, Ifansaction risk, net position, If
In If P&C the major three sources of counterparty risk are reinsurance, financial derivatives and other receivables.
accounting for 39 per cent of the total non-captive reinsurance recoverables.
As shown in the below figure Breakdown of Gross Written Premiums by Business Area, Country and Line of Business, Topdanmark’s insurance portfolio is diversified across Business Areas and Lines of Business.
The main underwriting risk that influence the performance is catastrophe events. However, Topdanmark Forsikring has a very comprehensive reinsurance programme in place contributing to the low level of underwriting risk. The largest retention level of DKK 100 million plus reinstatement for each event is on storm events. The maximum retention on fire events is DKK 25 million and in workers' compensation up to DKK 1 billion is covered with a retention of DKK 50 million.
With certain restrictions, terror is covered by the reinsurance contracts. A national guarantee scheme of DKK 15 billion covering terror claims including an element of NBCR (nuclear, biological, chemical, radiological) has been established. In January 2017, the market retention was DKK 9.9 billion. To cover this market retention the Danish non-life companies have established a NBCR terror pool. In this pool for 2017, reinsurance cover was DKK 4.5 billion after DKK 0.5 billion.
• Reinsurance cover that reduces the risk especially for disaster damage
• Ongoing follow-up on the risk picture and reinsurance coverage in the Risk Committee.
The historical profitability of major SME customers with individual insurance schemes is monitored using customer assessment systems.
In addition to the above described analysis Topdanmark continuously improves its administration systems to achieve more detailed data which in turn enables it to identify the claims trends at an earlier point in time and compile information on the constituent parts of the various types of claims.
The reserve risk is calculated using Topdanmark’s partial internal model for insurance risk.