Sampo-Leonia Insurance Company plc, registered domicile and address Turku, Yliopistonkatu 27, FIN-20075 SAMPO-LEONIA, Finland, Trade reg. no. 46.425
Operating Environment 8 Long-term Savings 10 Service Network and Banking 12 Investment Banking 14 Non-life Insurance 16
Board of Directors’ Report 18 Consolidated Profit and Loss Account 30 Consolidated Balance Sheet 34 Parent Company Profit and Loss Account 38 Parent Company Balance Sheet 40 Parent Company Cash Flow Statement 42
Corporate Governance 113 Staff 118 Environmental Issues 120 Shareholder Information 122 Investment Analyses 126 Contact Information 127
The euro-denominated figures in this Annual Report have been calculated by using the conversion coefficient EUR 1 = FIM 5.94573.
Leonia Bank plc was renamed Sampo Bank plc on 21 February, 2001. The former name of the bank has been used in the financial statements pertaining to financial periods 2000 and 1999.
Life and Leonia Life Insurance approved the plan to merge the two companies as a part of the formation of Sampo-Leonia.
Leonia, stating that Leonia plc would merge into Sampo Insurance Company plc on 31 December 2000.
Leonia sold their holdings of more than 11 million shares in the Pohjola
June • Sampo Finance bought 57.9 per cent of the share capital of Optiva Bank of
In addition, Sampo Finance acquired 11.8 per cent of the bank’s shares through a public purchase offer which ended in August.
PTE NU and the life insurance company NU Life from Norwich Union
• Sampo Finance sold its 93.5 per cent holding in Optiva Bank to Sampo.
December • The Boards of Directors of Sampo and Mandatum Bank signed an agreement to combine the business operations of the two companies.
• Sampo and Leonia merged and the full-service financial group Sampo-
Other discretionary assets under management 5,191 2,683 93.5 Net income from financial operations 437 400 9.3 Life insurance premiums written 769 686 12.1 Non-life insurance premiums written 1,023 881 16.1
The growth in Finland is accelerated by the change in the savings behaviour of individuals and the opportunities for cross-selling. The Group’s efficiency is improved by the synergy benefits especially within distribution, administration and IT received in the merger between Sampo and
Sampo-Leonia was created on 31 December 2000 when Finland’s leading insurance group Sampo and the second largest banking group Leonia merged. In February 2001 Mandatum Bank Plc joined the Group.
Leonia, as well as the rapid growth in the use of web services by the Group’s customers.
The Board of Directors of Sampo-Leonia has proposed to the Annual General Meeting scheduled for 5 April 2001 that the parent company be renamed Sampo plc. At the same time a decision has been taken to use the Sampo brand in the Group’s retail banking and insurance business. The investment bank and the private bank will operate under the Mandatum brand. Re-branding also affects some of the names of Group companies. Leonia Bank plc was renamed Sampo Bank plc on 21 February 2001.
Sampo- Sampo Industrial Sampo Baltic Rim Sampo Leonia Enterprise Insurance Industrial non-life Life *)
Claims incurred –247 –196 –227 –49 –15 –450 Operating expenses –103 –39 –41 –20 –9 –38
Profit/loss for the financial year 651 50 370 –19 2 168
Total on balance sheet 24,369 276 45 1,107 Loans and advances to customers 13,988 109 32 341
Average number of staff 4,594 130 36 229 *) Group level figures. Sampo Life incl. Leonia Life Insurance, Leonia Bank incl. Leonia Corporate Bank. Figures of Sampo Pank (Estonia) only for the period 1 - 31 Dec. 2000 when it was a member of the Group. Sampo bankas (Lithuania) became a Group company on 28 Dec. 2000.
**) Excl. exceptional items ***) Not part of the Sampo-Leonia Group in 2000
Apart from the change of name, the Board of Directors made significant proposals for a revision of corporate strategy, defining long-term saving, retail and private banking and investment banking as growth areas.
In future, non-life insurance will focus on the domestic market and on improving the profitability of these operations. At the same time we will look into the possibilities for reorganising the non-life business. The aim of this restructuring is to maintain the domestic non-life services while reducing the amount of capital tied up in non-life insurance. In the international non-life sector, Sampo
This management concept will help us to achieve greater integration, which is essential for creating the high quality, cost-effective customer service that a full-service financial house must provide.
The year 2000 was a successful one for the Group, mainly as a result of strong investment income. Operatively the year was one of great change. On the last day of the year, Sampo and Leonia merged to form Finland’s first full-service financial house. For the greater part of the year, however, the two companies operated separately, and the full financial service concept did not yet come into effect.
The acquisition of Mandatum Bank will serve to reinforce the Group’s expertise, especially in the growth areas.
However, it is difficult to compare this figure with earlier years as the financial statements include both nonrecurring investment income and one-off expenditure items, such as restructuring costs for this year and next year.
At the beginning of the current year the Group’s Board of Directors approved a new dividend policy that will entail distributing approximately half of the year’s profit in the form of dividend. Up till then the dividend policy presupposed distribution of approximately one third of the annual profit to shareholders.
The Board’s dividend proposal of EUR 8 consists of an annual dividend of EUR 4 and an extra dividend of EUR 4 to reduce the overcapitalisation. The remaining distributable capital will be returned to shareholders either through payment of dividends or through share buy-backs. Otherwise it will be used to develop the Group’s operations.
Sampo’s share price trend was positive during the past year, and share liquidity also developed well. The proposal made to the Annual General Meeting for splitting the share is aimed at further improving share liquidity.
We will continue to focus on domestic operations and current business in the near future. Successful integration of these operations will lay a good foundation for cost-effective operations and growth of the new Sampo Group in our chosen business areas.
Important decisions were taken on the corporate strategy. The new Sampo is well placed to succeed in its chosen growth areas.
Although interest on bank deposits became subject to taxation at source, household deposits declined only slightly. Other forms of saving, such as individual life insurance and mutual funds, became more popular.
The trade surplus increased and the current account surplus rose to a record high. The fast growing electrotechnical sector continued as the engine for industrial growth.
Wholesale and retail sales increased, but the growth in car sales clearly declined toward the end of the year. Still, there were 3.67 million vehicles registered at the end of 2000, which is 2.9 per cent more than a year earlier. Motor vehicle insurance increased thanks to the growth in vehicle volume and the replacement of old vehicles with newer models. Domestic direct insurance premiums written by non-life insurance companies and local non-life insurance associations grew by approximately four per cent.
The Baltic Countries The favourable development of the Baltic economy supported the progress of the structural change and stabilisation of the banking system in the area during 2000. Foreign ownership increased in all banks in the
Estonia and Latvia and this manifested itself in the growth in lending and deposits in both countries. Banking service
and range of services increased considerably. An increasing number of banks provide an opportunity to the use of web and telephone bank services. The number of customers using these services has also increased rapidly.
The non-life insurance market will grow significantly in the Baltic countries over the next few years together with statutory lines of insurance. The integration of banking and insurance businesses is likely to increase in the Baltic countries, emphasising the role of the banks in the distribution of non-life insurance.
The share of motor vehicle insurance of Polish non-life insurance is more than 70 per cent. The competition in motor vehicle insurance is tough and the profitability as a general rule weak. Polish non-life insurance companies are more interested in property insurance because of its good loss ratio.
Central Europe Competition continued to tighten in the non-life insurance market in central Europe. The trend towards integration, which started in the middle of the 1990s, is expected to continue. There are over 3,000 non-life insurance companies in Europe. The most radical forecasts predict that the number will fall by 50 per cent in 5-7 years.
The new Sampo Group has considerable expertise in asset management and capital investment. The Group’s extensive clientele and distribution network together create a solid foundation for specialised retail customer services.
The life insurance investment portfolio was EUR 5.1 billion at year-end, of which shares accounted for 31 per cent, and interest-bearing instruments 57 per cent. Real estate accounted for 7 per cent.
One of Sampo Life’s main targets was to strengthen its market position in unit-linked insurance. Even though the unit-linked line showed strong growth, this target was not met, but preliminary indications are that market share remained at its previous level.
However, the mergers significantly strengthen the Group’s know-how in this area.
Mutual Funds and Asset Management Sampo-Leonia’s selection of mutual funds has become more comprehensive and diversified. At the end of the financial period, Sampo-Leonia Fund Management Ltd administered 35 funds. The fund and asset management operations of Sampo and Leonia were merged during the financial year.
Sampo-Leonia Fund Management Ltd had a market share of 11 per cent, or 14.8 per cent including Mandatum.
In addition to the Group’s own funds Sampo will continue to offer its customers high-quality mutual funds through an extensive international co-operation network.
Leonia Fund Management and the selection of funds will be developed and expanded, taking into account the needs of Finnish investors in particular. Forms of service will also become more versatile and investors will be offered increasingly comprehensive services, for instance on the
The rapid growth of customers’ assets and mutual fund assets managed by Sampo-Leonia Asset Management continued in 2000 and assets under management doubled to more than EUR 6 billion. The operations of Sampo Asset
“Retail banking strongly based on electronic and mobile services is a high priority area”
During the year approximately 250 web training events were arranged in the Sampo-Leonia offices, providing customers with basic information on the handling of banking and insurance transactions online. More than 10,000 customers have participated in the events so far.
Sampo-Leonia’s corporate network handles the sales of the Group’s entire product range to approximately 170,000 corporate customers and associations. Major corporate cus-
Sampo-Leonia’s service network experienced the largest changes in its history in the year 2000. The joint venture between
Leonia service networks began. Customers increasingly used online services for their banking and insurance business.
EUR 0.7 billion. This was due to the transfer of assets from deposit accounts to other types of investment, the termination of the tax exemption applied to deposits, and the loss of customers resulting from the termination of the agreement with the post office.
Sampo-Leonia’s payment transfer service increased to 373 million transactions. Electronic account transactions accounted for 98 per cent of the payment transfers of companies and associations and the corresponding figure for retail customers was 83 per cent. The most significant growth - an increase of almost 15 per cent - was seen in the number of electronic payment transactions made by retail customers. The use of traditional payment and teller services decreased accordingly by as much as a third.
Retail banking strongly based on modern electronic and mobile services is one of the high priority areas in Sampo’s business strategy. Customers increasingly use online services for their banking and insurance business.
Mandatum effected a record number of mergers and acquisitions in 2000. In the early part of the year in particular, the capital market was dominated by new technology companies IPOs and Mandatum’s position as a manager of IPOs gained strength during the year.
Corporate Finance operations to a separate subsidiary company at the turn of the year 2000-2001. The new company will continue Mandatum Bank Plc’s Corporate Finance operations under the name Mandatum & Co Oy. The purpose of forming a separate company is to strengthen the management of the business and to improve monitoring of the operations’ results. Furthermore, it will enable the key employees to become more committed to the company through shareholding.
After the combination of Mandatum Bank Plc’s business operations with Sampo-Leonia in February 2001,
Mandatum’s investment bank was used as a basis for the formation of Sampo’s investment bank. All Corporate
Mandatum is expected to retain its leading position in corporate mergers and acquisitions thanks to the company’s extensive experience in corporate acquisitions and longterm customer relationships. The combination provides new opportunities for capital market transaction business as a result of the larger customer base and improved distribution.
“Combined insurance and banking expertise creates financial products for the benefit of the customer”
Non-life insurance operations will be upgraded with the aim of improving profitability so as to achieve a combined ratio of 106 per cent.
Insurance will merge into the parent company on 31 March 2001 as a part of the development of the Sampo-Leonia
Insurance Company Ltd. The former will be given the retail and corporate customers’ portfolio, and the latter the major customers’ portfolio.
The market share of domestic direct insurance was unchanged at 34 per cent. Sampo insures approximately one third of all Finnish households. Retail customers number slightly more than a million, small and medium-sized corporate customers approximately 100,000 and major customers more than 200.
The profitability of domestic direct insurance and of the business specialising in large corporations remained at the previous year’s level, but the bases for technical provisions of liability insurance were adjusted, leading to a one-off reduction in insurance profits.
Profitability remained good in the Baltic Rim. In Central Europe there were several major losses and profitability was unsatisfactory.
Small and Medium-sized Companies and Public Corporations New products and services were introduced during the financial year. These include a risk management and insurance product for electronic commerce (SafeShop). The number of corporate customers using the electronic
Major Customers The Sambox-system developed for major customers offers access to all the customer’s information on the Internet.
The system will be available to all Finnish customers during 2001.
Operations in the Baltic Rim The non-life insurance market expanded in the Baltic Rim area. Sampo now has a 39 per cent market share in Estonia.
The formation of Sampo-Leonia creates a basis for combining expertise in insurance and banking and for a better understanding of customers’ overall financial positions. Products and services from the Group’s various business areas will be brought together for the benefit of the customer.
* Preliminary information, excl. credit insurance by banks and Garantia, incl. insurance associations
In order to create a common sales and service network in Estonia, co-operation was initiated with the local Sampo
Pank. In Lithuania the service network was expanded by establishing new branches.
Outlook Non-life insurance continues to focus on improving profitability and on building financial service products for households and companies. The aim is also to maintain
Sampo’s position at the forefront of the web-based economy in its area of business.
In the area of non-life insurance we are focusing on improving profitability and on building up our financial service products for households and companies. The aim is also to maintain the company’s position at the forefront of the web-based economy in its area of business.
The pooling method was applied to the merger of Leonia and Sampo. As a result, the profit and loss accounts of the
Consolidated Balance Sheet. The comparative figures have been adjusted to reflect the changes.
Group will adopt a holding company structure and the parent company will become a holding company on 31
Mutual Insurance Company in May 2000. The goodwill from these acquisitions totalled EUR 97 million. Following the merger of Leonia Life Insurance Company Ltd with
Group’s holding in Sampo Life rose to 79.9 per cent, and the holding in Varma-Sampo was 20.1 per cent.
Insurance Company plc as part of the merger procedure in a manner to be decided by the Council of State. To address the question of the increase in share capital, Sampo issued 44,720,000 Sampo class A shares (43 per cent of the new total number of Sampo shares) as merger consideration to the Finnish government as Leonia’s shareholder. The government can dispose of its shareholding in the new financial group in such a manner that the government’s direct or indirect shareholding will be at least 20 per cent.
The Boards of Directors of Sampo and Leonia signed the draft terms of the merger, which were approved by Annual
Following approval by the relevant authorities, the merger was able to be implemented according to the target plan on 31 December 2000, when the implementation of the merger was entered in the Finnish Trade Register.
• the holders of Sampo B shares are entitled to convert their B shares to A shares
• a stipulation on the redemption obligation of a shareholder whose holding of all shares or of all votes of the company reaches or exceeds 33 1/3 per cent or 50 per cent was added to the Articles of Association. A shareholder reaching these limits is obliged to acquire the shares of the other shareholders if they so wish.
Insurance Company Ltd, be transferred to Sampo’s whollyowned subsidiaries, Sampo Insurance Company Ltd and
Supervision Authority, the portfolio transfers relating to the business transfers mentioned above require the approval of the regulatory authorities of all those EEA countries in which the companies concerned have insurance contracts based on the so-called ‘freedom to provide services’. These approvals were not received until February 2001, postponing the final completion of the holding company structure until 31 March 2001.
The Boards of Sampo and Leonia took certain technical measures to safeguard the parent company’s ability to pay a dividend. Sampo Enterprise and Industrial Insurance booked a total of EUR 286 million in interim dividends to their parent company Sampo, and Leonia Bank EUR 118 million to its parent company Leonia plc. Sampo Finance
Other Structural Reorganisations As a part of the formation of Sampo-Leonia there were several other structural reorganisations within the Group, of which the most important were: • The merger of Leonia Life Insurance Company Limited into Sampo Life Insurance Company Limited.
Sampo and Leonia was agreed, with the purpose of creating a platform for negotiations on Pohjola joining the new
Group. The shares were sold on 13 June 2000 to Mutual
Life Assurance Company. The Sampo Group companies received a total of EUR 363 million, including avoir fiscal tax credit, as dividends and sales profit, Leonia received EUR
Profits rose to EUR 124 million (EUR 3 million), of which the Sampo Group’s share was 50 per cent.
Sampo Finance Ltd sold its stake in the Estonian bank A.S.
Sampo Pank at the end of 2000. Sampo Pank is the third largest bank in Estonia.
Furthermore, Sampo Insurance Company plc acquired the share capital of Lietuvos Vystymo bankas (Lithuanian
In November 2000 Sampo Insurance Company plc acquired the entire share capital of the pension fund company Powszechne Towarzystwo Emerytalne Norwich
The consideration for PTE NU was EUR 177.3 million, and for NU Life EUR 47.5 million. If agreed targets on the number of customers are not met, these considerations will be reduced at the end of May 2001.
At the end of the year under review these Polish companies had a total of approximately 500,000 customers.
Depreciation and write-down of tangible and intangible assets –42 –48 6
Balance on technical account before the change in the equalisation provision –117 –91 –26
The Sampo-Leonia Group results, balance sheet and solvency figures are given by business sector: • banking and investment services
Claims paid, net operating expenses and investment charges –19 Accelerated depreciation on IT systems
Share of associated undertakings’ profit 63 Share of profit from the return of Pohjola shares received by Sampo Finance
Investment income 222 Sales profits, dividends and avoir fiscal tax credit from Pohjola shares
Net income from financial operations increased by 9 per cent to EUR 426 million. This was mainly due to the rise in interest rates and growth in lending. The interest margin between loans and deposits increased by 0.6 percentage points on average. On the other hand, net income from financial operations was weakened by the increase in funding costs as a result of falling deposits. The drop in deposits was caused by the switch to taxation at source and the ending of the co-operation with Finland Post.
EUR 11 million, but as a result of one-off items incurred in the previous year the total amount of net fees and commissions was EUR 13 million lower than in 1999.
EUR 24 million. During the year under review, a bad debt provision charged by customer group of EUR 27 million was made for possible bad debts in the future. Releases of provisions made in previous years totalled EUR 7 million. Nonperforming and other non-interest earning loans totalled
Capital Adequacy of Banking and Investment Services The capital adequacy ratio was 11.4 per cent (9.9%) at the end of 2000, while the Tier 1 capital to the risk-weighted assets ratio was 9.5 per cent (7.5%).
Insurance Company plc. Despite the merger on 31 December 2000, Leonia plc has been accounted for in the capital adequacy calculation for banking.
Loans and advances to customers grew to EUR 14.1 billion (EUR 13.9 billion). The share from the Group’s foreign banking and investment services companies was EUR 0.1 billion. Loans and advances grew by 2 per cent (7%). Loans to households increased by EUR 0.3 billion. Loans to domestic corporate customers increased slightly, but loans to foreign corporate customers and institutions declined.
Leonia Group’s domestic market share of loans and advances to customers was 19.2 per cent at the end of September (19.5%).
Customer liabilities fell from the high levels at the end of 1999. Deposits decreased by a total of EUR 0.9 billion.
0.7 billion as customers switched to other types of longterm savings. Financial Supervision Authority figures show that Sampo-Leonia’s market share of customer deposits was 14.3 per cent at the end of September (15.7%).
The amount from derivative contracts decreased in the review year. Calculated in accordance with the requirements of the Finnish capital adequacy standards, the credit equivalent value of the derivative contracts at the end of the year was EUR 0.8 billion or EUR 0.2 billion on a risk-weighted basis. A year earlier, the corresponding figures were EUR 1.1 billion and EUR 0.3 billion. Off-balance sheet items fell by
EUR 1,023 million (EUR 881 million). Domestic direct insurance premiums written totalled EUR 782 million (EUR
Foreign direct insurance premiums written almost doubled to EUR 209 million (EUR 108 million). Reinsurance premiums written totalled EUR 32 million (EUR 31 million).
(109.6%). The profitability of motor third party liability insurance improved noticeably thanks to growth in premiums written and a decrease in claims. However, the profitability of statutory workers’ compensation insurance and fire and other property non-life insurance declined slightly. The technical provisions in liability insurance were strengthened by EUR 6 million.
The international non-life insurance results fell owing to several large claims. The Group received 26 claims of over EUR 2 million each, of which 22 concerned loss or damage occurred overseas. The gross amount of large claims totalled EUR 193 million (EUR 147 million) during the review period, of which a total of EUR 46 million (EUR
Sampo-Leonia, of which EUR 13 million is allocated to the non-life insurance business. These costs are expected to be realised within approximately two years.
EUR 522 million was booked from the sale of Nokia shares.
(84.8%) and the total return on investment portfolio (excluding shares under fixed assets) was 4.3 per cent (75.4%).
The market value of the non-life insurance investment portfolio was EUR 4.6 billion (EUR 5.3 billion). The share of equity investments fell to 59 per cent, the share of investments in interest-bearing instruments was 28 per cent, and the share of investments in real estate 13 per cent. Total foreign investments rose to 19 per cent and investments outside the euro area to 11 per cent of the investment portfolio.
The solvency capital of non-life insurance was EUR 2.1 billion (EUR 3.5 billion) and the solvency ratio 261 per cent
Limited, which merged into Sampo Life on 31 December 2000, improves the diversity of the Group’s life insurance sales and product know-how significantly. The expertise in the banking distribution channel is an important advantage in particular in the retail customer segment, which is a focal point of operations.
Successful investments improved life insurance results. Life insurance savings increased further.
Claims paid rose by 26 per cent and totalled EUR 296 million. Claims paid included EUR 124 million (EUR 92 million) in surrenders, of which approximately two-thirds related to capital redemption policies.
Technical provisions for life insurance totalled EUR 4.3 billion at the year-end, of which the share received in the merger from Leonia Life Insurance Company was EUR 0.5 billion. Unit-linked insurance’s share of technical provisions was EUR 0.3 billion.
Life insurance solvency capital amounted to 21.9 per cent (29.4%) of technical provisions on 31 December 2000.
Life Insurance Investments Overall results from investment operations based on current market values were good, despite the plunge in stock exchange prices that began in March 2000. The return on assets was 6.3 per cent.
Market capitalisation of the investment portfolio stood at EUR 5.1 billion (EUR 4.6 billion).
The Group employed a total of 10,207 people (9,135) at the year-end, of which 49 per cent were employed in banking and investment services, 41 per cent in non-life insurance and 10 per cent in life insurance. The Group employed 8,162 people (8,089) in Finland. The number of overseas staff doubled to more than 2,000 employees. The growth was largely attributable to the acquisition of a Polish life insurance company, although the more than 1,900 part-time agents of the company in question are excluded from the total number of staff.
Juusela stepped down from the Supervisory Board, where he had been acting as Chairman.
Kari O. Sohlberg and Jouko K. Leskinen stepped down from the Board of Directors of Sampo.
Thus the composition of the Sampo Board of Directors is as follows: Jukka Härmälä, Chairman, Martti Hetemäki,
Christoffer Taxell. These Board members will also continue as the members of Sampo-Leonia’s Board of Directors from the beginning of 2001.
The Annual General Meeting decided on 12 April 2000 to cancel these shares and to reduce the share capital by 7,600,000 Finnish markka, i.e. EUR 1,278,228, which is the total nominal value of the shares purchased. Share capital was reduced to FIM 302.4 million, i.e. EUR 50.9 million and the number of shares to 59,280,000.
At the end of the review period the total number of shares was 104 million, of which 103,760,000 were
The first stage of Sampo-Leonia banking’s euro project was completed at the end of 1998. Following this, all banking services are also available to customers in euro. The second stage of the project mainly concerns conversion of the domestic customer accounts and loans from the Finnish markka to the euro, and the conversion of cash at the beginning of 2002.
Corporate clients have received euro-denominated insurance services on request since the beginning of 1999.
The estimated total workload of the euro projects is approximately 340 man-years. The Group’s euro project was estimated to be approximately 65 per cent complete at the beginning of 2001. The euro project will be finished in time in 2001.
Mandatum shareholders of new Sampo-Leonia A shares to be issued for Mandatum shares. Mandatum shareholders were offered one (1) Sampo-Leonia A share for five and a half (5 1/2) Mandatum A or B shares.
The exchange offer period began on 1 February 2001 and ended on 16 February 2001. After the expiry period of the offer Sampo-Leonia held 99.02 per cent of Mandatum shares and 99.58 per cent of the total votes (including shares previously owned by the Group).
Those Mandatum shareholders who had accepted the exchange offer were issued a total of 7,116,993 new Sampo-
Leonia A shares, after which the company’s total number of shares is 111,116,993 and the share capital EUR
On 27 February 2001 Sampo-Leonia made a redemption offer for the Mandatum shares and securities entitling to the shares.
New Organisation Sampo-Leonia’s Board of Directors announced the Group’s new organisation and made key management appointments on 23 January 2001. From 1 February 2001, the planned matrix organisation was replaced by a line management organisation.
Director and Deputy CEO. Pentti Hakkarainen was appointed Executive Vice President (Head of Distribution and
Banking), Mika Ihamuotila Executive Vice President (Head of Long-Term Savings), Hannu Kokkonen Executive Vice
Other Recent Events Sampo-Leonia sold 10.1 million Nokia shares at an average price of EUR 34.70 during the first two months, which generated a sales profit of EUR 341 million. As a result of the drop in share prices, Sampo-Leonia’s net asset value per share, less full deferred tax, has fallen by approximately
(life insurance, asset management and mutual funds), retail and private banking, and investment banking. In the first part of 2001 the main focus of operations will be on the integration of Sampo, Leonia, and Mandatum.
The proposal for dividend is EUR 8 per share, of which the share of extra dividend proposed is EUR 4.
The investment market has been very unstable in the first part of the year. Stabilisation of the investment portfolio will continue at an increasingly rapid rate.
Sampo-Leonia aims to distribute approximately half of its annual profits to the shareholders. A new authorisation to buy back shares will be proposed to the Annual General
1,273,455,557.64. The Board of Directors proposes that an ordinary dividend of EUR 4 per share be paid to the company’s 111,116,993 shares. The
Interest payable 1 –868 –703 Net income from financial operations 426 392
Change in the gross provision for unearned premiums Total change –57 –25 Portfolio transfer 35 3
Claims incurred 9 Claims paid –908 –730 Reinsurers’ share 198 129
Change in the provision for outstanding claims Total change –137 –107 Portfolio transfer 74 0
Balance on technical account before the change in equalisation provision –117 –91
Change in premium reserve Change in premium reserve –564 –620 Reinsurers’ share –1 0
Other charges Depreciation on consolidation difference –41 –5 Depreciation on goodwill –11 –3 Other –17 –1
Elimination items 21 –4 –1 Profit before extraordinary items 985 418
Income taxes Tax for the financial year –438 –265 Tax from previous periods 1 –1
Cash and balances at central banks 841 1,804 Treasury bills and other eligible bills 22, 29, 61, 62
Loans and advances to credit institutions 23, 27, 61, 62 Repayable on demand 69 20
Loans and advances to customers 24, 27, 61, 62 14,130 13,894
Tangible assets 31, 33 Property and shares in property companies 329 313 Other tangible assets 25 21
Land and buildings 821 732 Loans to Group undertakings 3 2
Arising out of reinsurance operations 109 110 Other debtors 207 311 Deferred tax 30 9
CAPITAL AND RESERVES 51 Subscribed capital 87 90 Premium reserve 902 900 Revaluation reserve 52 – 28 Legal reserve 369 369 Currency conversion differences 14 14
Debt securities in issue 55, 56, 61, 62 Bonds and notes 4,753 5,259
Deferred tax liabilities 63 28 19 Elimination items 78 –323 –405
Provision for unearned premiums, non-life insurance 318 260 Reinsurers’ share –47 –25
Creditors Arising out of direct insurance operations 2 1 Arising out of reinsurance operations 91 102 Bond with warrants 1 1 Amounts owed to credit institutions 1 209 Other creditors 257 62 Deferred tax 40 11
Commitments Other than sale and option to resell transactions 3,993 3,715
Investment charges 18 –91 –35 Revaluation adjustments on investments –1 –1
Appropriations Change in depreciation difference 4 –2 Change in untaxed reserves
Income taxes Tax for the financial year –269 –78 Tax from previous periods 0 –1 Deferred tax 2 –1
Land and buildings 241 266 Loans to group undertakings 26 12
Arising out of reinsurance operations 5 19 Convertible bonds 1 1 Other creditors 141 30
Buy-back of own shares –57 – Loan repayments – –33 Dividend paid / other profit distribution –145 –49
Risk Management Principles The Board of Directors of Sampo-Leonia plc is responsible for ensuring that there is effective risk management and internal control. The Board sets the principles for risk management and internal control systems in the business operations. The Board has a duty to monitor the risk management process.
Credit risk is the risk that a customer or a counterparty will be unable or unwilling to meet a commitment that it has entered into with a member of the Group.
The Group guidelines define uniform principles for credit risk taking, while the amount and allocation of the risk are defined in the credit risk policy. The authority to make credit decisions within limits of creditworthiness categories and amounts of exposure is delegated to credit committees, which in turn delegate it to authorised credit officers. The Group has a joint rating committee. The use of the credit decision-making authority is controlled by applying country, customer group, customer and product limits and by reporting requirements.
The basis of credit risk management for corporate customers is that each customer has a customer account officer who is familiar with the customer’s business, and monitors its development. The Group has an internal 12-stage creditworthiness rating system. This internal rating system covers more than 98 per cent of loans and other exposures to corporate and institutional customers. The Group also uses the ratings of approved rating agencies, which are converted to the Bank’s internal rating scale. For example,
Sampo-Leonia’s internal rating categories correspond with those of Standard & Poor’s roughly as follows: Notes to the accounts
Collateral is divided into four quality categories. Each type of collateral, e.g. securities by issuer, is given a valuation percentage, according to which the share of the collateral pledged to the Bank is placed, at its fair value, in a quality category.
Category I - full recovery is highly probable; Category II - recovery is probable; Category III - recovery is fairly probable; Category IV - collateral is recoverable only in part and only after deductions for delay, the costs of realisation and the price risk of normal business fluctuations are deducted.
The figures in the tables show Leonia Bank Group customers ’ outstanding exposure. The balance sheet totals for
Asia for 0.7 per cent. Exposure to Russia stood at EUR 38 million at the end of the year, a substantial proportion of which was secured by collateral in western countries.
In total, exposure to domestic corporate customers increased but decreased to foreign corporate customers.
About one fifth of exposure to corporate customers is secured by category I and II collateral.
Most of the retail loan portfolio and new lending to retail customers was used to finance the purchase of housing.
42 per cent of lending and 50 per cent of its growth was in areas with net in-migration of population and 2 per cent of lending was in areas with net out-migration. More than 80 per cent of lending to retail customers was secured by category I and II collateral.
Market risks in trading arise from foreign exchange dealing with customers and risk and liquidity management services related to customer business. A further source of risk is the small-scale proprietary trading which supports the Bank’s ability to serve customers. Very little liquidity risk arises from trading.
The risk for the Bank is a fall in interest rates, and especially a situation in which low rates prevail for a long period. In such an environment, the interest paid on customer accounts falls at a slower rate than interest received on loans, with the result that margins become slimmer. In 2000, this risk was managed by using hedging derivatives.
L4 exposures by size of exposure 2000 Number of 1999 Number of Size of exposure EUR m customers EUR m customers
Market risks in trading of Sampo-Leonia banking 1998-2000 1 per cent VaR figures in EUR thousands
Earnings volatility arising from changes in funding costs is managed by maintaining a sufficient level of market-based liquidity from alternative sources in relation to the business. Customer accounts and loans as well as their forecast development form the basis for planning the funding structure. Surplus liquidity is mainly kept in fixed income instruments that can easily be converted into cash if necessary.
As a key aspect of liquidity management is accurate and up-to-date information about all short-term cash flows, monitoring and forecasting of cash resources and the execution of daily market operations are concentrated in the trading function. The Bank’s liquidity position was adequate throughout 2000.
A fall in the technical result is usually attributable to an increase in claims incurred. This risk is limited through careful risk selection, pricing to reflect the risk, and reinsurance. Reinsurance hedging is used to limit the compensation paid for a single loss on the basis of one insurance contract, and the so-called catastrophe accumulation, where compensation for a single loss, e.g. from a storm, is paid on the basis of several insurance contracts.
Financial statements mum amount of compensation for its own account, i.e. retention in the various insurance classes. The efficiency of the reinsurance hedging depends to a great extent on the solvency of the reinsurance companies chosen. More than 70 per cent of reinsurance placed by the Group was allocated to companies whose Standard & Poor’s rating is AAA,
A future focal point for the insurance business is the definition of optimal retention levels together with the optimisation of capital and reserves allocated to the operations.
EUR million 0-1 months 1-12 months 1-2 years 2-5 years over 5 years Total
Net of euro denominated items –7,911 976 1,042 2,606 4,250 962
Assets denominated in other currencies 1,177 1,581 738 1,257 796 5,549
Net of items denominated in other currencies –950 –545 –8 905 –451 –1,048
Arising from movements in exchange rates, assets and liabilities in different currencies are unbalanced, because the table does not include derivative instruments. In addition, short-term deposits and customer accounts are included in the shortest maturity, although the account balances as a whole have behaved as long-term funding.
The Boards of Directors of the Group’s insurance companies confirm the companies’ investment plans defining target portfolios, limits by instrument, the organisation of investment activities, and authorities and powers annually.
The management of operational risk is the responsibility of Sampo-Leonia’s various business areas. The management of operational risk in internal processes is a question of continuous quality improvement. Preparations are made for unexpected external events by drawing up contingency plans, especially for the most important and vulnerable processes, such as information technology. Unexpected external events are naturally also managed through insurance.
The extremely rapid development in the IT sector will bring to development projects a greater number of risks related to the particular technologies selected. The risks of development work have been met by emphasising expertise in both content and technology and by improving management methods.
Particular attention has been paid to the testing stage in order to eliminate even the smallest malfunctions in the production stage. A constantly updated special description of the internal control of the e&m business is also an essential part of risk management.
Group. The service keys are a tool for electronic identification and electronic signatures. The bank uses these to identify the customer, while the customer identifies the bank by means of a one-time-use security code corresponding to the key code of the Sampo security card. In addition, Sampo is developing its own quality certifiers (PKI), the introduction of which will further increase the safety and reliability of electronic transactions.
Sampo Bank has conducted a survey in which all the legal risks related to the essential characteristics of e&m business have been surveyed, analysed and risk scored. The legal risks are under control and they are monitored continuously as a part of product and portal development and the auditing of internal operations.
The Sampo-Leonia Group was born on 31 December 2000 when Leonia Group’s parent company Leonia plc which is in the field of banking and investment services was merged into Sampo Group’s parent company Sampo Insurance
1263) on an insurance company’s financial accounts and consolidated financial accounts issued by the Ministry of
Social Affairs and Health as well as instructions and regulations of the Ministry of Social Affairs and Health and the
Insurance Supervision Authority. Furthermore, provisions of the Accounting Act and the Companies Act are observed in accordance with the said provisions and instructions.
The decisions, instructions and regulations of the Ministry of Social Affairs and Health and the Insurance Supervision Authority of December 1999 have been applied in the insurance operations as of the beginning of year 2000. The most significant change resulting from these is the including of deferred tax liabilities in the final accounts. The corresponding change of accounting practice in the banking business was implemented in 1999. The change has been described in more detail under Appropriations and Treatment of Deferred Tax.
Subsidiaries acquired during the financial year are consolidated as from the date of acquisition, and subsidiaries sold until the date of assignment.
Intra-group transactions, amounts due to or from group companies, internal gains and losses as well as profit distri-
bution are eliminated. Transactions between the lines of business and eliminations of amounts due to or from group companies are however not presented line by line, but are shown on the line elimination items as the last item of linespecific calculations in the Profit and Loss Account and in line-specific assets and liabilities in the Balance Sheet.
The consolidated accounts do not include companies the impact of which on group results and non-restricted capital and reserves is not essential, Leonia Bank plc’s associated undertakings of which the balance sheet total is less than
Currency-denominated assets and liabilities of banking and investment services, currency-denominated receivables, investments in the nature of receivables and liabilities of insurance operations and all off-balance sheet items and the accounts of foreign subsidiaries have been translated to
Currency conversion differences on receivables and investments of insurance operations are presented under investments, under the items Other income and Charges arising from other investments.
Assets and liabilities of the banking and investment services which are hedged by a currency swap are stated at the rate of the original currency. Exchange rate differences arising from valuation are included in Net income from foreign exchange dealing.
relating to insurance business are derived as the difference of foreign reinsurance figures calculated at changing and fixed rates. Currency conversion differences have been calculated from premiums and claims including changes in the provisions for outstanding claims and unearned premiums, and from reinsurance commissions and deposit interests. They are presented separately under Net investment income. The impact of currency exchange rates on the change in technical provisions is also separately presented in the Notes to the Accounts.
Real estate shares are entered in the Balance Sheet at the lower of acquisition cost or current value. Buildings and structures are presented at the lower of acquisition cost less planned depreciation or current value. In banking and investment services value adjustments on all real estate investments, and in insurance operations value adjustments on real estate investments in the nature of fixed assets, are entered on the basis of their significance and permanency.
In insurance operations certain book values of real estate and real estate shares include revaluations made in the previous years.
Assets and liabilities Loans and advances, as well as liabilities, are stated in the
Balance Sheet at the value paid or received on them at the time of acquisition, adjusted for the amortisation or premiums and discounts arising on acquisition. In the
The items Other assets and Prepayments and accrued income, and Other liabilities and Accruals and deferred income in the Balance Sheet are stated at their nominal value.
Lease assets Lease assets are stated in the Balance Sheet at cost less depreciation according to plan. The depreciation is stated at the amount of recovered capital from lease rentals.
In the Profit and Loss Account, the lease rentals less depreciation according to plan is included in Interest receivable. The additional depreciation, which is actually writedowns of lease assets, is included in Provisions for bad and doubtful debts. Other income from and expenses on lease assets are included in the item corresponding to their nature.
Securities Securities are classified as securities held for trading purposes and those held as financial fixed assets.
Securities held for trading purposes Securities held for trading purposes consist of treasury bills and other eligible bills, debt securities and equity shares which are included in the trading book, and of other securities which are held for trading.
The permanent diminution in value of these securities is shown separately in the profit and loss account under the heading Write-offs in respect of securities held as financial fixed assets. The item also includes the value re-adjustments of fixed assets.
Value adjustments which have been made earlier are re-adjusted up to the original acquisition cost if the current value increases.
The consolidation difference of EUR 171.5 million arising from the acquisition of shares in the Polish pension fund company Powszechne Towarzystwo Emerytalne Norwich Union S.A (PTE NU) and the consolidation difference
of EUR 32 million of life insurance company Norwich Union Towarzystwo Ubezpieczen na Zycie S.A:n (NU Life) will be written off over a period of 20 years as return expectations are far in the future.
Authority/Insurance Supervision Authority. Both in-house and outside experts assist in the assessment. Each site is assessed separately, allowing for the net income earned, location and market situation. The values of properties occupied for the own activities of the banking and investment services are assessed on the basis of rentals which can potentially be received, assuming that a property is used for similar purposes. Properties, and shares and participations in property companies, are classified as those occupied for the Group’s own activities and those for other activities. If only a part is occupied for the Group’s activities, the classification is made in relation to the square metres occupied.
Valuation differences in the current value of shares in a domestic life insurance company which is a subsidiary, have been taken into account in accordance with the agreed interpretation of the Principle of Fairness. Shares in other group companies are valued at net asset value. With respect to shares in associated undertakings, net asset value, a value based on the equity method, or the remaining acquisition cost is used as their current value.
As the current value of other shares and debt securities is used e.g. a value based on net asset value, the undepreciated portion of acquisition cost or the lower of estimated market price. In banking and investment services, the estimated market value of debt securities is considered the net present value of future cash flows discounted at the current market rate.
Social security payments pertaining to options released in 2000 from the bond loan with warrants offered to the staff of Sampo Insurance Company plc in 1998 are included in operating expenses.
A specific provision can be made against a certain group of loans pooled by customers or against an individual loan.
A provision is made against a certain group of loans pooled by customers when a bad debt is expected but the provision
Non-performing and other non-interest earning loans In banking and investment services, loans are regarded as non-performing if either the principal or the interest on a loan become overdue by 90 days. Loans to companies declared bankrupt are classified as non-performing on the date that the bankruptcy is declared. Bank guarantees are treated as non-performing when the bank has made a payment on the basis of a guarantee.
Unpaid interest on loans recorded as non-performing is not accrued, except for loans to public sector customers or loans which are secured by a public body.
Avoir fiscal tax credit on dividend earned is entered in dividends, under Investment Income. Dividends, guarantee capital interests and avoir fiscal tax credit are entered in the accounting period during which the decision on the distribution of profit was made. However, avoir fiscal tax credit sums exceeding the amount of income tax for the year will not be entered, if it is not probable that the credit left unused can be used in setting off the income tax of future periods, with particular regard to the expectations for the financial year immediately following.
The avoir fiscal tax credit relating to dividends received from subsidiaries and associated undertakings is transferred in the Consolidated Profit and Loss Account as a deduction from the taxes for the year.
Account. The deferred tax is calculated on the basis of the tax base applied in the state of location. In Finland it is 29 per cent.
2000; from non-life insurance valuation differences were deducted the entire tax liabilities and the deferred tax which is estimated to be realised during the next few years. This tax liability constitutes 18.6 per cent of the valuation differences of non-life insurance. The tax liability has not been deducted from the key figures of previous years. In the calculation of return on equity, equity/assets ratio and solvency of insurance operations, tax liabilities of 18.6 per cent are deducted from the non-life insurance valuation differences.
The return on equity in percentages and the return on assets in percentages are calculated and presented as annual income.
As obligatory provisions in the Balance Sheet are entered those future expenses which can be specified and which are likely or certain to arise, but the amount of which and point of time are still uncertain.
Technical provisions are annually revised on the basis of assumptions and new data received.
Non-life insurance The provision for unearned premiums is calculated by use of the pro rata rule or by insurance contract.
In addition to the calculation of the provision for outstanding claims pertaining to annuities, discounting is applied to a part of Patria Reinsurance Company Ltd’s provision for outstanding claims in foreign reinsurance. Patria’s discounted technical provisions are mainly used in USD
Discounting interest for technical provisions follows the rules described in article 18 of the Third Life Directive given by the European Union. In discounting the technical provisions, the interest applied has been the same as or lower than the interest applied in the calculation of the premium.
A major part of the business has been discounted by use of an interest of 3.5 per cent. The highest interest used has been 4.0 per cent.
In calculating the technical provisions of direct insurance, discounting is applied only in connection with the technical provisions of pensions the payment of which has commenced. The technical provisions of assumed reinsurance are based on the disclosure of the ceding company and on an estimate of claims which have not yet been settled.
Sampo Life aims at giving a total return before charges and taxes on policyholders’ with-profit insurance savings, which is at least the yield of a Finnish treasury bond. The total return consists of the guaranteed interest and bonuses determined annually on the basis of the company’s performance. As for the level of the total return, continuity is pursued.
sion on the interpretation of the Principle of Fairness in life insurance. As a consequence of the principle and the bonus policy, a prominent part of the company’s solvency capital is required for ensuring the benefits insured. The restricted and non-restricted capital and reserves are considered to belong to the shareholders. Of the valuation differences which are not needed for ensuring solvency in the long run, 80 per cent are considered to belong to the shareholders. On the basis of the solvency status of Sampo Life as per 31 December 2000, 35 per cent of the valuation differences is calculated to the shareholders of the company. This calculatory distribution of valuation differences does not entitle individual shareholders or policyholders to these valuation differences.
In the Note on Net income from securities transactions, item Net income from transactions in debt securities includes also the profits and losses on interest rate contracts.
Profits and losses on equity contracts are included in Net income from transactions in equity shares. Profits and losses on exchange rate contracts are included in Net income from foreign exchange dealing.
Insurance operations Derivative contracts are valued at their current value on the date of closing the accounts. The difference between the current value of a hedging derivative contract and a lower book value/contract rate is entered as income. However, the maximum amount entered is that which corresponds to the amount of the hedged balance sheet item entered as an expense. If the book value/contract rate exceeds the current value, the loss is entered at its full amount.
The difference between the current value of derivative contracts not concluded for hedging purposes and a higher book value/contract rate is entered as an expense, and the possible valuation gain is not entered. Currency-linked derivatives are not treated as hedging in the accounting, but valuation losses related to them are entered as expenses.
PENSION SCHEMES A basic and additional pension insurance cover in the
Pension insurance premiums are entered in the Profit and Loss Account on the accrual basis.
+ net income from transactions in securities and foreign exchange dealing
± valuation differences on investments after deduction of deferred tax x 100% + balance sheet total
BANKING AND INVESTMENT SERVICES KEY FIGURES: Turnover The formula has been presented above in connection with the calculation of the Group key figures.
The formulae have been presented above in connection with the calculation of the Group turnover.
Solvency capital, % of technical provisions (non-life insurance) + solvency capital x 100% + technical provisions
Market capitalisation number of shares at 31 Dec. x closing share price at 31 Dec.
** The solvency capital of the subgroup of Sampo Life has been separated from the solvency capital of insurance business as belonging to life insurance, and the difference is disclosed as the solvency capital of non-life insurance.
** In calculating return on equity, return on assets, solvency-related key figures and net asset value per share, the same “other items prescribed in the decree” of insurance business have been deducted from valuation differences as in calculating solvency margin.
Cost to income ratio % 52.3 69.9 Capital adequacy ratio % 11.4 9.9 Average number of staff 4,693 4,684
Premiums written before reinsurers’ share EUR m 1,023 881 881 871 782 756
Adjusted average number of shares ‘000 104,507 – 60,800 60,800 60,800 60,800 Number of shares at 31 Dec. ‘000 104,000 – 60,800 60,800 60,800 15,200 Adjusted number of shares at 31 Dec. ‘000 104,000 – 60,800 60,800 60,800 60,800 Countervalue of shares at 31 Dec. EUR 0.84 – 0.84 0.84 0.84 0.84
**) Proposal by the Board to the Annual General Meeting concerning the financial year 2000.
In calculating the net asset value per share and the return on equity, an interpretation of the Principle of Fairness in life insurance has been taken into account, according to which 35% of the valuation differences pertaining to the end of 2000 is allocated to the shareholders, in addition to the capital and reserves of life insurance. The percentage value calculated to the shareholders in accordance with the solvency status at 31 December 1999 was 60%.
Life insurance capital and reserves, which includes a share of optional reserves and accumulated depreciation difference, is considered to belong entirely to the owners.
The deferred tax of valuation differences has not been deducted from non-life and life insurance key figures.
Insurance business assets 36 Changes in intangible and tangible assets 37 Current value and valuation difference on investments
(non-life and life insurance) 38 Current value and valuation difference on investments 39 Parent company: Current value and valuation difference on investments 40 Changes in investments in land and buildings 41 Parent company: Changes in investments in land and buildings
Insurance business assets 44 Other shares and participations 45 Parent company’s other shares and participations 46 Investments in Group undertakings and associated undertakings 47 Other loans by security 48 Loans to executives (Insurance Companies’ Act,
Chapter 12, Section 5) 49 Investments covering unit-linked insurances 50 Debtors and creditors, Group undertakings and associated undertakings Capital and reserves 51 Consolidated statement of changes in capital and reserves and of distributable profit 52 Revaluation reserve 53 Preferred capital notes 54 Parent company statement of changes in capital and reserves and of distributable profit Banking and investment services liabilities 55 Unamortised discounts and premiums on liabilities 56 Debt securities in issue 57 Other liabilities 58 Accruals and deferred income 59 Provisions for liabilities and charges 60 Subordinated liabilities 61 Maturity analysis of assets and liabilities, by remaining maturity 62 Assets and liabilities denominated in foreign currencies 63 Deferred tax 64 Assets pledged as collateral security and secured liabilities as well as other assets pledged on behalf of the company and other Group undertakings 65 Pension liability 66 Lease commitments 67 Off-balance sheet items 68 Derivative contracts 69 Staff numbers 70 Emoluments of members of administrative and supervisory bodies 71 Loans and advances to and guarantees on behalf of members of administrative and supervisory bodies 72 Asset management services
Insurance business liabilities 73 Technical provisions 74 Obligatory provisions 75 Long-term liabilities (5 years or longer) 76 Deferred tax 77 Contingent liabilities, pledged assets and derivatives
Liabilities to credit institutions and central banks 190 115 Liabilities to customers 206 151 Debt securities in issue 385 418 Subordinated liabilities 39 38 Preferred capital notes 1 1 Other interest payable 48 –21 2 NET INCOME FROM TRANSACTIONS IN SECURITIES
Rental expenses 14 11 Expenses on properties and property companies 10 13 Loss on disposal of properties and property companies 0 3 Other expenses 13 9 4 DEPRECIATION AND WRITE-DOWNS OF TANGIBLE AND INTANGIBLE ASSETS
Loans and advances to credit institutions 0 1 0 0 Loans and advances to customers 40 22 11 14 Lease assets 0 – 0 – Guarantees and other contingent liabilities and commitments 0 1 1 0
Amount of write-offs in respect of debt securities held as financial fixed assets 0 –
9 NON-LIFE INSURANCE BALANCE ON TECHNICAL ACCOUNT BY GROUP OF INSURANCE CLASS
Change in the collective guarantee item 2000 –1 1999 –1 1998 –1
Balance on technical account 2000 –134 1999 –100 1998 –90 *) Calculated at fixed rates the combined ratio of 1998 was 115.9% and the balance on technical account EUR 13 million weaker than calculated at changing rates. The impact of exchange rates has not been transferred to the figures of investments.
Provision for unearned premiums, 1 Jan. 2000 260 –25 236 2,587 –4 2,583 Provision for unearned premiums, 31 Dec. 2000 318 –47 271 3,154 –3 3,151
Impact of exchange rate differences 0 0 0 2 0 2 Change in the provision for unearned premiums –22 2 –21 –564 –1 –565
Provision for outstanding claims, 1 Jan. 2000 1,803 –184 1,618 948 –2 946 Provision for outstanding claims, 31 Dec. 2000 1,949 –269 1,680 1,106 –3 1,103
IMPACT OF EXCHANGE RATE DIFFERENCES ON THE CHANGE IN THE PROVISION FOR UNEARNED PREMIUMS AND IN THE PROVISION FOR OUTSTANDING CLAIMS IN THE PARENT COMPANY
Life insurance Unit-linked life insurance 142 92 Capital redemption policy 70 156 Other life insurance 143 143 Employees’ group life insurance 2 2 Other group life insurance 2 2
Pension insurance Unit-linked individual pension insurance 21 11 Other individual pension insurance 94 102 Group pension insurance 287 167
Premiums from non-profit policies 5 4 Premiums from with-profit policies 586 566 Premiums from unit-linked insurance 168 106
Commissions on reinsurance assumed and profit participations 7 6 1 1 Other policy acquisition costs 57 49 32 29
Policy management expenses 10 7 Administrative expenses 9 6 Commissions on reinsurance ceded and profit participations (-) 0 –1
Value readjustments 9 6 Gains on realisation of investments 678 318
Value adjustments and depreciations Value adjustments on investments –108 –137 Planned depreciation on buildings –9 –6
Interest income 0 0 – – Dividend income – – 714 219
Interest income from associated undertakings 0 – – – Interest income from Group undertakings – – 1 1 Other income from Group undertakings – – 3 2 Other income from other than Group undertakings 57 56 12 14
INVESTMENT CHARGES Charges arising from investments in land and buildings –21 –22 –10 –9 Charges arising from other investments –217 –195 –9 –3 Interest and other expenses on liabilities to Group undertakings 0 0 0 0 Interest and other expenses on liabilities to other than Group undertakings –4 –3 –1 0 Total –242 –220 –19 –13
Arising from appropriations 0 14 Arising from the merger 0 0 Included in the balance sheets of Group undertakings 9 1 21 ELIMINATION ITEMS OF CONSOLIDATED PROFIT AND LOSS ACCOUNT
Interest receivable 0 0 Interest payable 8 2 Net income from financial operations 8 2
Provisions at beginning of year 45 60 + New provisions for year 41 7 – Releases of provisions –14 –6 – Provisions written off –8 –24 Provisions at end of year 64 36
Non- Other Non- Other performing non-interest performing non-interest EUR million loans earning loans Total loans earning loans Total
Financial and insurance institutions 0 – 0 – – 0 *) Leonia Bank plc’s non-performing loans to households include loans which are subject to debt restructing programmes, in which customers follow confirmed repayment schedules. (Under Finnish regulations, loans which are subject to debt restructing programmes, in which customers follow confirmed schedules, should not be classified as non-performing loans.)
Loans and advances to credit institutions – – Loans and advances to customers 92 86 Debt securities 139 120
Debt securities 1,916 3,025 Treasury bills and other eligible bills 3,625 3,111
Treasury bills – 21 Local authority bills 70 3 Commercial paper 51 62 Certificates of deposit 745 841 Convertible bonds 0 3 Other bonds and notes 4,660 5,207
31 MOVEMENTS IN SHARES AND PARTICIPATIONS HELD AS FINANCIAL FIXED ASSETS AND IN TANGIBLE ASSETS
Book value at end of year 22 329 25 32 INTANGIBLE ASSETS
Other intangible assets *) 51 46 *) Incl. intra-group items arising from IT systems
Banking and investment services 33 PROPERTIES AND SHARES IN PROPERTY COMPANIES
Total 297 1) The capital employed is the depreciated cost of an asset, which, in case of shares in property companies, is added by Group’s share of liabilities relating to equity shares in these companies and/or share of debts of these companies.
Items in transit 8 1 Guarantee claims 10 10 Derivative contracts 81 451 35 PREPAYMENTS AND ACCRUED INCOME
Accumulated depreciation, 1 Jan. –7 –240 –69 –49 –364 Change in Group structure 0 – – –1 –1 Accumulated depreciation on decreases
Accumulated depreciation, 1 Jan. –4 –78 –52 –34 –168 Accumulated depreciation on decreases
Financial statements 37 CURRENT VALUE AND VALUATION DIFFERENCE ON INVESTMENTS AT 31 DECEMBER 2000
Non life insurance Life insurance Remaining Book Current Remaining Book Current acquisition value value acquisition value value
The remaining acquisition cost of debt securities comprises: That difference between the amount repayable at maturity and purchase price, which has been released to interest income (+) or charged to interest income (-) –9 18
Book value comprises Unrealised gains entered as income 45 – Other revaluations 3 8
Remaining Book Current Remaining Book Current acquisition value value acquisition value value
Real estate shares in associated undertakings 52 52 56 61 61 67
Book value comprises Unrealised gains entered as income 45 49 Other revaluations 11 36
Real estate shares in Group undertakings 43 43 49 38 38 46 Real estate shares in associated undertakings 44 44 46 51 51 56
Insurance business 40 CHANGES IN INVESTMENTS IN LAND AND BUILDINGS 2000
Value adjustments on investments, 1 Jan. –115 Change in Group structure –1 Value adjustments on decreases and appropriations 9 Value adjustments for the financial period –7
Remaining acquisition cost 129 72 Book value 147 100 Current value 189 119
Accumulated depreciation, 1 Jan. –59 Accumulated depreciation on decreases and appropriations 2 Depreciation for the financial period –4
Value adjustments on investments, 1 Jan. –52 Value adjustments on decreases and appropriations 9 Value adjustments for the financial period –3
Group company of shares and financial Domicile / holding holding in the Group reserves year
Leonia Back Office Ltd Helsinki Finland 100.00 – 1 1 0 MB Equity Partners Oy Helsinki Finland (60.00) 40.00 – 0 0 0 MB Mezzanine Fund Ky Helsinki Finland 100.00 – 23 25 2 MB Mezzanine Fund II Ky Helsinki Finland 62.50 – 30 51 3 Leonia U.S. Inc Delaware USA 100.00 – 0 0 –
Sampo-Leonia Asset Management Ltd Helsinki Finland 100.00 100.00 6 6 4 Sampo-Leonia Fund Management Ltd Helsinki Finland 100.00 100.00 6 7 2 Powszechne Towarzystwo Emeryltalne Norwich Union S.A. Warsaw Poland 100.00 100.00 179 8 –6
Sampo Holdings (UK) Ltd London UK 100.00 100.00 29 43 –1 Sampo Industrial Holding B.V. Rotterdam Holland 100.00 – 12 20 –8 Teva Holding B.V. Rotterdam Holland 100.00 – 12 20 –8 Sampo Industriförsäkring Ab Stockholm Sweden 100.00 – 1 1 0 AS Kindlustusekspert 4) Tallinn Estonia 100.00 – – – – Sampo Risk Management Company Sp.z.o.o. Warsaw Poland 100.00 – 0 0 0
Parent Book value Capital for the Group company of shares and financial
MB Equity Fund Ky Helsinki Finland 32.14 11.24 3 11 0 MB Equity Fund II Ky 2) Helsinki Finland 27.98 – 4 26 0 WD Power Management Oy 2) Helsinki Finland 21.74 – 0 0 0
SV Benefic Oy Helsinki Finland 49.00 – 0 0 0 Tampereen Kiinteistö Invest Oy Tampere Finland 25.00 – 9 37 0 Toimiraha Oy Helsinki Finland 33.00 – 2 4 0
In addition, one property company has been accounted for by the equity method in banking and investment services. By virtue of regulations for credit institutions one property company has been excluded from consolidation, the balance sheet total of which is less than EUR 10 million.
1) Appropriations less deferred tax have been included in the capital 2) Excluded from consolidation, balance sheet total less than EUR 10 million 3) Share of guarantee capital 4) Figures at group level
Addtek International Oy Ab 1,229,430 9.80 19 19 Varma-Sampo Mutual Pension Insurance Company *) 71 100.00 9 9
Leonia Korko Konvergenssi A 20,000,000 – 20 20 Leonia Osake Konvergenssi A 10,000,000 – 10 11
Sampo Euro Bond Fund B 36,694,714 – 37 38 Sampo Sectorsfund (Europe) B 8,479,825 – 9 12
Nordic Mezzanine Fund 1 Ltd 518,506 – 5 5 Sponsor Fund I Ky 4,512,572 – 8 8 The First European Fund Investments UK L.P. 658,899 – 7 7
No. of Holding value value Name of company Country shares % EUR m EUR m
Bristol Myers Squibb Co United States 109,400 0.01 5 9 Glaxo Smithlkine Plc UK 458,904 0.01 10 14 Yamanouchi Pharmaceutical Co Japan 172,000 0.05 3 8
BP Amoco Plc UK 580,000 0.00 3 5 Total Fina Elf SA France 54,374 0.01 3 9
Wong’s Circuits Holdings Ltd Hong Kong 3,744,000 2.24 3 5 Hitachi Cable Ltd. Japan 730,000 0.20 5 7
No. of Holding value value Name of company shares % EUR m EUR m
Total Fina Elf SA France 48,374 0.01 3 8 Telecommunication and Electronics
Accumulated depreciation, 1 Jan. – 0 – Accumulated depreciation on decreases and appropriations – 0 – Depreciation for the period – –1 –
48 LOANS TO EXECUTIVES (Insurance Companies’ Act, Chapter 12, Section 5) Group
Managing Directors and Deputy Managing Directors Loans (EUR m) 0.2 0.2
Members and deputy members of the Supervisory Board Loans (EUR m) 0.0 0.0
Original Current value Original Current value acquisition (=book value) acquisition (=book value)
Deposits and other investments 3 3 – – Cash at bank and in hand – – 1 1
Arising out of reinsurance operations 1 3 Other debtors 292 3
Arising out of reinsurance operations 2 3 Convertible bonds 0 0 Other creditors 4 1
Sampo-Leonia group 51 CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL AND RESERVES
Other non-restricted reserves, 1 Jan. 82 From profit brought forward 0 Decrease 0
Profit brought forward, 1 Jan. 773 For dividend distribution –563 To reserves provided for by the articles of association –80 To other non-restricted reserves 0 Increase 3
Premium reserve, 1 Jan. 0 Transfer from subscribed capital 2 Increase in subscribed capital/Leonia plc merger 900
Reserve for own shares, 1 Jan. 0 Transfer from reserves provided for by the articles of association 57 Cancellation of own shares –57
Contingency reserve, 1 Jan. 75 From profit brought forward 80 Buy-back of shares/transfer to reserve for own shares –57 Leonia plc merger 523
Profit brought forward, 1 Jan. 226 For dividend distribution –145 Transfer from reserves provided for by the articles of association –80 Transfer to other reserves 0
Profit for the financial year 651 + Reserves provided for by the articles of association 621 + Other reserves 0 + Profit brought forward 1 Distributable profit in total 1,273
The note Sampo Shares and Shareholders is presented in the Annual Report on pages 122-124.
Certificates of deposit 2,284 3,734 Bonds and notes 4,753 5,259 57 OTHER LIABILITIES
Less than 3 months 5,268 7,369 Treasury bills and other eligible bills 712 588 Loans and advances to credit institutions 1,983 3,718 Loans and advances to customers
Treasury bills and other eligible bills 836 392 Loans and advances to credit institutions 123 383 Loans and advances to customers 1,811 1,897 Debt securities 456 692
Less than 3 months 15,190 18,748 Liabilities to credit institutions and central banks 2,209 2,515 Liabilities to customers 10,088 11,773 Debt securities in issue 2,893 4,461
Treasury bills and other eligible bills 3,625 – 3,111 – Loans and advances to credit institutions 1,725 596 3,528 807 Loans and advances to customers 11,085 3,045 10,808 3,086
Items denominated in domestic currency include currencies of European Monetary Union (EMU) countries.
Deferred tax assets 29 13 Timing differences 28 13 Arising from the merger 2 –
Intra-day overdraft limit of the Bank of Finland’s settlement account 1,100 1,500
Exchange rate contracts Futures and forward exchange 76 4,873 376 3,617 Options
For the year Full-time staff 4,748 –23 4,471 318 Part-time staff 157 9 124 –16 70 EMOLUMENTS OF MEMBERS OF ADMINISTRATIVE AND SUPERVISORY BODIES
The President and members of the Board of Management of Leonia Bank plc come within the scope of the Leonia Pension Fund. In addition, their pensions have been supplemented with pension insurance.
Discounting of the provision for outstanding claims of non-life insurance Interest rate used in the Group and Parent Company in calculating the technical provisions of annuities (%) 4,00 4,00
Reinsurers’ share Before discounting 7 10 After discounting –6 –8 Amount of discounting 1 2 74 OBLIGATORY PROVISIONS
Pledges against own liabilities 18 9 – – Amount of the above liabilities 9 4 – –
Leasing liabilities To be paid during the starting financial year 3 1 – – To be paid during following years 6 4 – –
Arising from the merger 8 Included in the Group undertakings’ balance sheets 22
Deferred tax of the insurance business has been entered since the financial period 2000. Deferred tax from the non-recurring depreciation on Kansa General’s goodwill has been entered since the financial period 1998. The deferred tax assets were EUR 9.0 million in the final accounts of 1999.
Interest rate swaps underlying instrument 50 89 – – current value 0 0 – –
Futures and forwards, locked underlying instrument 27 108 – – current value 0 0 – –
current value 4 1 – – Locked underlying instrument 292 – – –
Loans and advances to customers –67 –208 Prepayments and accrued income –3 –
Assets Other –119 –263 Cash at bank and in hand –2 –5
Prepayments and accrued income Interest and rents 0 0 Other 0 –
Equalisation provision for years with large numbers of losses included in technical provisions 37 22 11 98 134
Equalisation provision to its full value (%) 14.0 7.7 3.4 29.8 37.0
Solvency ratio Solvency capital to premiums earned (%) 464.5 515.6 658.4 1,219.9 1,251.8
Director of Sampo-Leonia Insurance Company plc for the financial year 2000. The financial statements, which include the report of the Board of Directors, consolidated and parent company income statements, balance sheets and notes to the financial statements, have been prepared by the Board of Directors and the Managing
Director. Based on our audit we express an opinion on these financial statements and on the company’s administration.
The undersigned Jaakko Nyman has scrutinised the accounts for the financial year and submitted a separate report thereon.
Chairman. A quorum is constituted by the presence of more than half of the members of the Board of Directors.
Management Committee and certain other persons specifically named. The persons coming under the scope of these guidelines must ask for a separate permission for each stock purchase and sale.
Remuneration and other Benefits The Chairman, Vice Chairman and members of the Board of Directors will in 2001 be paid monthly remuneration as follows: the Chairman approximately EUR 4,200 (FIM
In the year 2000, the Managing Director was paid a salary of EUR 509,822 and shares of profit amounting to EUR
BOARD OF DIRECTORS (the year in parenthesis indicates the ending of term of office)
Swedish School of Business and Administration. Lecturer in financing theory, Helsinki School of Economics and
Chairman of the Board (retired), Leonia plc. Chairman of the Board, Finnish State Nuclear Waste Management Fund and Finland’s Sports Institute. Member of the Supervisory
Managing Director, Varma-Sampo Mutual Pension Insurance Company. Member of the Board, Wärtsilä Corporation, Partek Corporation and Stora Enso Oyj. Vice Chairman of the Supervisory Board, Alma Media Corporation.
He was appointed member of the Board of Sampo Insurance Company plc on 22 January 1999.
Group Executive Committee: In the front row, from the left: Maarit Näkyvä, Björn Wahlroos, Ilona Ervasti-Vaintola and
Kari Stadigh. In the back row, from the left: Ilkka Hallavo, Juhani Vesterinen, Kurt Lundmark, Mika Ihamuotila, Hannu
(8,089). The number of persons employed overseas doubled to slightly over 2,000 persons, of whom over half were employed in the Baltic Rim.
Long-term staff development continued to focus on offering opportunities to obtain various higher education qualifications and on upgrading the content of training programmes. A long-term approach creates confidence in the ability to learn and to meet the challenges arising from change. Opportunities for participating in degree-level training programmes will be increased even further.
Despite the demanding pace of change following the agreement to merge Sampo and Leonia, the staff’s work ability has continued at a good level and stress has not increased, according to the annual staff survey. The changes have, nevertheless, put a certain strain on the overall level of staff satisfaction and change management needs to be developed further.
In particular, the network environment was used in training related to the Sampo 2000 project, which focused on retail customer service. However, measures were taken to extend network learning to the entire organisation. A
Our tasks this year will be to determine the new Group’s environmental targets, draw up an environmental policy and set up an environmental organisation along the lines of the work done in Sampo and Leonia. The Group’s safety training programme will include an environmental module.
Finance and Environmental Risks Environmental risks are taken into consideration when assessing companies’ credit rating. Before granting project finance, we must be assured that projects observe national environmental legislation and that they meet the environmental criteria of, for example, the World Bank. In addition, the projects to be financed are examined and assessed with respect to their preparedness for predictable future environmental requirements.
Leonia the first Finnish bank to be granted a guarantee by the European Investment Fund on environmental loans.
Leonia Arvo fund. The size of the fund doubled to EUR
Environmental Risks and Losses by Corporate Customers During the year, 410 statutory environmental damage insurance policies were in force. They cover damage caused by unknown or insolvent parties. Premiums written amounted to EUR 1.78 million.
1.0 million was paid from voluntary insurance policies and third party liability motor insurance. During the year
Environmental risks were also considered in the prevention of property, personal, liability and transport losses.
A new, revised edition of ‘The Environment and Safety’ was issued for the use of corporate customers. We continued to arrange courses for corporate clients’ staff on the management of gas and chemical accidents, so that they are able to limit any environmental consequences of actual accidents.
Energy Saving in Buildings Five of Sampo’s (Sampo, Sampo Enterprise, Industrial
Insurance, Sampo Life, Kaleva and Patria) 127 buildings took part in the KRESS project aimed at compliance with the national targets of the Kyoto Convention. Their total
Heat (MWh) 14,125 13,333 12,925 18,477 5,830 5,372 5,467 4,373 kWh/employee/year
The Environmentally Friendly Office Even though the environmental impact of office work is not directly visible in the environment, Sampo-Leonia wants actively to reduce it. Our internal environmental performance is measured by performance indicators measuring the consumption of electricity, heat, water and paper. The collecting of indicators for waste and travel and calculating of carbon dioxide releases is still in an initial phase.
Environmental criteria were used in Sampo as a basis to make purchasing decisions. For instance, new furniture must not have chrome-plated parts and the most frequently used toner cartridges carry the Nordic environmental label.
In the energy saving week an electric car was test-driven for distribution traffic in Turku. It was found suitable for urban traffic but a final purchase decision was not yet made.
The number of Sampo-Leonia shares totalled 104,000,000 on 31 December 2000, of which A shares numbered 103,760,000 and B shares 240,000. The shares have no nominal value. Their book counter-value is EUR
0.84 (not an exact value). Each A share has 1 vote and each
A shares have been quoted on the Helsinki Exchanges since 1998. All B shares are owned by Kaleva Mutual Insurance
Authority of the Board of Directors In spring 1999, Sampo’s Annual General Meeting authorised the Board of Directors to buy back a maximum of three million shares. In order to develop its capital structure Sampo bought back 1,520,000 own shares at a total of EUR 57 million on the Helsinki Exchanges between 3 and 24 January 2000. The bought shares constituted 2.5 per cent of the share capital and of all votes. The Annual
Mode Subscription Term of subscription Price/ No. of new Share capital after period/ or subscriber share shares the issue/ decrease registration or reason for decrease FIM FIM m EUR m**)
New issue 11 April to 1:1 plus subscription right 62.50 12,000,000 126 21.19 A and B shares 20 May 1988 70.00
Decrease in 3 July 2000 Technical lowering – 296.4 49.85 share capital
The Bond Loan with Warrants of 1998 Sampo Insurance Company plc offered a bond loan with warrants of FIM 6,600,000 (EUR 1.1 million) on 22 May 1998. No interest is paid on the bond which will be repaid on 22 May 2001. Staff permanently employed by the Sampo Group and Kaleva Mutual Insurance Company were entitled to subscribe. Approximately 72 per cent of the staff subscribed for the bond.
Sampo A share can be subscribed in such a manner that the subscription period for warrants A is from 1 May 2000 to 31 May 2005, for warrants B from 1 May 2001 to 31 May 2005 and for warrants C from 1 May 2002 to 31 May 2005.
A options have been quoted on the Main List of the Helsinki Exchanges since 2 May 2000.
The Option Programme of 2000 Sampo’s Extraordinary Meeting of Shareholders decided on 29 September 2000 to offer, with deviation from the shareholders ’ pre-emptive right to subscription, option rights without consideration to the management, middle management and other key persons of Sampo and its subsidiaries, and to a wholly-owned subsidiary specified by the Board of
The right to subscribe for shares by virtue of the option rights arises only if the development of the trading volume weighted average price of Sampo’s A share is as good or better than on average in the control group specified in the terms and conditions.
On waiting list 0 On joint account 1,842,526 1.77 *) Each administrative register is included in this figure as one single owner.
% of share % 0f A and B shares No.of shares capital votes
Kaleva Mutual Insurance Company *) 2,798,426 2.69 3.58 Stora Enso Oyj 1,749,324 1.68 1.67
Op-Delta Sijoitusrahasto 149,000 0.14 0.14 The Finnish National Fund for Research and Development 139,890 0.13 0.13 Teollisuuden Voima Oy 122,052 0.12 0.12 Sijoitusrahasto Merita Optima 119,200 0.11 0.11
Eläkesäätiö Neliapila 103,744 0.10 0.10 Trust fund Leonia Osake 100,015 0.10 0.10 Op-Tuotto Sijoitusrahasto 93,500 0.09 0.09
In the administrative register in total **) 29,178,120 28.06 27.80 Others in total 8,779,278 8.44 8.36 *) 2,558,426 A shares and 240,000 B shares.
GE Asset Management Incorporated has on 20 October 2000 announced that it holds 3,456,695 Sampo A shares, which at that time corresponded to 5.83% of Sampo’s share capital and 5.74% of the votes. GE has not announced any changes in holding.
1 Public companies 0.13% 2 Private companies 13.61% 3 Financial inst. and insurance comp. 3.80% 4 Public corporations 48.91% 5 Non-profit corporations 0.78%
Holiday Inn), Itä-Pasila, Helsinki. The listing of the persons registered will start at 1 p.m.
Also a shareholder whose shares have not been transferred to the book-entry securities system is entitled to attend the Annual General Meeting, if he/she was registered in the Company’s shareholders’ register before 12 September 1997. In this case, the shareholder must present a share certificate or other account at the Annual General
Meeting, showing that the ownership of the shares has not been transferred to the book-entry securities account.
To be entitled to attend the Annual General Meeting, a shareholder and nominee shareholder must register with the Shareholder Services at the Head Office, by 2 April 2001.
Payment of Dividends The Board will propose to the Annual General Meeting that a total dividend of EUR 8 per share be paid for 2000, including an extra dividend of EUR 4 per share.
Shareholders who have not transferred their shares to the book-entry securities system by the matching day of dividend payment, will be paid dividend after the shares have been transferred to the book-entry securities system.
Split The Board of Directors will propose to the Annual General
Financial Information Copies of the financial statement documents can be inspected at the following Sampo Offices: Eteläesplanadi 8,
The reports will be published on 31 May, 21 August and 20 November.
Annual Reports can be ordered from the Information Department: e-mail: viestinta@sampo.fi
For Sampo Annual Report, Interim Reports and other financial information as well as other investor information, please visit www.sampo.fi.
These stockbrokers and investment analysts assess Sampo as an investment opportunity. Sampo does not answer for the assessments presented in the analyses.