The environment of the banking and insurance sector should be stable and any changes that might occur should be easy to foresee. However, in 2011 this was not the case: instead, economic turbulence and changing regulation seriously altered the operational environment.
The true nature and size of the sovereign debt crisis in Europe was brought to the public attention at the beginning of the year. This combined with the inability of politicians in Southern Europe to restore confidence, gave rise to general uncertainty in the investment markets. As a result, stock prices fell and the eurozone interest rate declined to a record low.
In addition to the volatility in the investment markets, the financial sector was heavily engaged with new regulation: Solvency II and Basel
In spite of the difficult operational environment, our results were good; in some areas even excellent. Our P&C insurance operations withstood the turbulence well. Insurance technical result of our subsidiary If P&C
was good and once again we clearly beat our combined ratio target
Furthermore, the overall positive mark-to-market investment result can be regarded as a good achievement given the prevailing circumstances. In May 2011, we increased our holding in Denmark's second largest P&C insurer, Topdanmark. Our share of the ownership now stands at over 20 per cent, and Topdanmark is now booked as an associated company.
During the past year, Sampo's share of Nordea's net profit was
EUR 534 million compared to EUR 523 million a year earlier. In spring 2011, Sampo received EUR 250 million as dividends from Nordea.
Geographical diversification and strong capitalization as core strengths If P&C and Nordea are headquartered in Stockholm, Sweden and
Share Main Facts All the B shares are held by Kaleva Mutual Insurance Company. B shares can be converted into A shares at the request of the holder.
In Finland, Mandatum Life relies on three sales channels: in-house corporate sales teams, wealth management focusing on HNWIs and
Sampo Bank’s network is Mandatum Life’s main channel in the private segment. Sampo Bank's clientele has got a lot of potential also in the corporate customer segment, which is expected to lead to an increase in the sales of life insurance products to corporations. Due to changes in legislation related to pension insurance, Mandatum Life decided a year ago not to continue sales of its pension insurances for private individuals.
Sampo Group is engaged in P&C insurance and life insurance through its fully owned subsidiaries If P&C Insurance Holding Ltd and Mandatum Life Insurance Company, respectively. In addition the parent company Sampo plc owned on 31 December 2011 approximately 21.3 per cent of Nordea Bank AB, the largest bank in the Nordic region. As of 31 December 2009 Nordea has been accounted for as an associated company.
If P&C Insurance If P&C Insurance is the leading property and casualty insurer in the
Nordic region, with operations in Finland, Sweden, Norway, Denmark, the Baltic countries and Russia.
Copenhagen. In Sampo Group’s reporting Nordea is included in the segment Holding.
If P&C Insurance In 2011 If P&C’s operations developed favorably and the group delivered another year with a stable and solid result. Like last year, 2011 was marked by several events related to severe weather conditions. In the
Denmark in July and the year ended with winter storms sweeping over especially Norway and Finland.
These events affect If like the rest of the industry. But again If’s size, focus and benefit of being well diversified across regions and segments show the strength and capability to manage these events both from customer and financial perspectives.
The European financial crisis deepened at the end of the year, and after a positive beginning of the year the economic growth pace started to slow down also in the Nordics. Interest rates remained in low levels throughout 2011 and financial markets showed high volatility. From insurance industry perspective, this has increased the focus on underwriting result even further in all markets.
30 per cent during 2011. Also other e-business solutions like e-policy and use of on-line services grew significantly. The amount of claims reported online grew 10 per cent in 2011, and almost one third of private claims are now reported in the internet. A new business system, part of the largest IT system investment made in Business
II) is well underway. If’s strong commitment to this effort and overall
Nordea will continue with a more focused relationship strategy and strive for great customer experiences, to deepen its relationship with each customer. In each phase of the financial crisis, Nordea has proactively adjusted the direction to ensure our ability to reach increasing customer satisfaction, continuous income increase and stable profitability despite the crisis.
All measures taken in this phase of Nordea’s relationship strategy have only one purpose: to ensure long-term great customer experiences also under the new requirements. By taking swift action to increase efficiency, Nordea aims at ensuring its capacity to continue increase business volumes and income. Nordea has also decided to replace its previous financial targets with one, reflecting our ambition to stay in the top league of European banks: to reach a return on equity of 15% in a normalised macroeconomic environment.
In November, Standard & Poor’s affirmed Nordea’s AA-rating with a stable outlook, stating that the bank has a strong business position with adequate capital and earnings. Few banks in Europe have as high a rating as Nordea, and it reflects that Nordea’s repayment ability is perceived to be very good. Standard & Poor’s also states that the funding and liquidity profile is seen as adequate and that Nordea is less vulnerable to market turbulence than other banks due to its welldiversified business model.
Another proof of the financial markets’ strong confidence in Nordea was the announcement stating that Nordea, as the only Nordic bank, is one of the 29 most important banks for the global economy. The definition was conceived by The Financial Stability Board, a regulatory unit within the G20 group. Hence Nordea became a so-called Global SIB
(Systemically Important Bank). This is a further sign of Nordea now being perceived as a truly global player.
Nordea will safeguard a continued high rating and thus strong liquidity and funding position, since it is vital to ensure the right products and services at the right price to each customer.
Premiums written lagged behind targets and the 2010 figures. Despite the below target level, premiums written were the second highest ever in the company's history, which, taking market conditions into account, proves that the chosen sales strategy is working. Positive signs included the increase in risk insurance volumes and the premiums written of policies sold through Sampo Bank’s network, which remained at last year’s good level.
Return on investments dropped after two excellent years and was negative. The company’s investment result was weakened especially by the weak trend in share prices, but was partly compensated by the good return on the company’s bonds. During the year, the company did not have investments in debt instruments of countries in crisis. The reserves set up in 2010 to lower the discount rate, made it easier to achieve results in 2011. As low-risk interest rates remain at low levels, the reserves to lower the discount rate were supplemented for 2012.
Progress has been made in the cooperation between the distribution channels and the cooperation is expected to intensify in the coming year.
In wealth management building on philosophy of absolute return, portfolios were actively protected particularly in the latter part of the year. This significantly helped reduce losses in portfolio value.
Pension Services Ltd). The new services offered by Innova will further diversify Mandatum Life’s corporate product offering.
P&C insurance is Sampo Group's largest business area and in 2011 it employed approximately 92 per cent of the personnel, while life insurance had 8 per cent of the work force. Less than one per cent worked for the parent company, Sampo plc.
The BI Process has benefited If by helping individual employee see how their improvement ideas concretely contribute to If P&C’s customer promise ‘Relax we’ll help you’.
Initiatives’ theme, a top management training program has been launched in cooperation with London Business School. It is aimed at
If P&C’s top 100 executives and key specialists from all Business Areas and countries.
If Academy delivering over 76,000 training activities in total. This equals approximately to 10 training activities per employee during 2011.
During the year, approximately 200 management development activities were delivered, which means that on average each If manager attended approximately 1.5 development activities.
Partners, which were operating on a Nordic level, were replaced by country based HR Operation Units.
Sampo Group's companies follow the common values of ethicality, loyalty, transparency and enterprise in their business operations and contacts with all stakeholders. Insurance is a business where responsibility and trust are inherent in daily customer contacts. Social responsibility is high on the agenda both in If P&C, the largest P&C insurer in the Nordic countries, and Mandatum Life, the leading life insurance company in Finland and in the Baltic region.
Corporate responsibility in If P&C The guiding principle of If’s operations is to contribute to a society in which everyone is able to live safely and securely. P&C insurance companies, together with public authorities such as the police, rescue services and judiciary, form some of society's most important contributors in creating everyday security. In 2011 alone, If dealt with 1.5 million insurance claims, which covered everything from private customers’ motor claims to corporate claims caused by an interruption in production processes of the company or a supplier. This was the case for example in Japan and Thailand during the year. In total, If paid out close to EUR 2.8 billion in claims over the past year.
If uses its unique knowledge of risk management to help build a safe environment. The goal is to always act in ways that meet, or preferably exceed, the ethical, legal, and commercial requirements placed upon the company.
Sampo Group / Annual Report 2011 Sampo Group / Corporate Responsibility
strict environmental policy. The fundamental thought behind the policy is that If should always seek out the most environmentally viable solution for the company itself, its customers, suppliers and partners. A series of concrete actions have been taken in 2011: • If, which handles more than 300,000 damaged cars every year and places orders for repairs to homes and commercial premises for millions of euros, continues to specify environmental requirements for suppliers in their choice of transport, work materials, working methods etc. The results can be discerned in the statistics: For example, in 2011 If was responsible for almost half of all repairs carried out on damaged plastic car components in Sweden. In addition, If sends more than a thousand cars for dismantling every year. The work releases close to 70,000 spare parts, which are then used for repairs in car repair shops. Apart from saving on raw materials, recycling leads to reduced CO2 emissions.
• An ambitious in-house environmental program has been ongoing for a number of years in If. During the year 2011, If has e.g. carried out a major project aimed at reducing energy use at the larger If offices.
• If has become climate neutral during 2011, in compliance with the
UN's Clean Development Mechanisms (CDM) program, to which If has affiliated itself. That has been accomplished by If investing in an electricity power station in India to reduce emissions there, as compensation for If's own emissions.
• If's climate-change work obtained an excellent score when it was assessed in compliance with the so called ClimateWise Principles.
ClimateWise is an international climate-change initiative introduced by the insurance industry.
‘and ‘Eldsjälspriset’ scholarships are awarded once a year to a young person working to support other young people in vulnerable positions, or an organization or a private individual whose activities contribute to a better society. In Norway, If has a collaborative relationship nationally with Direktoratet for samfunnssikkerhet og beredskap (The
Additionally, If puts great effort into helping customers prevent accidents on their own. This is done on a smaller scale by offering safety-increasing products to consumers, and on a larger scale by supporting commercial customers through systematic risk analyses.
The number of reported claims on the web increases, which both improves the customer service, and is good for the environment due to decreased paper consumption.
Corporate responsibility in Mandatum Life Mandatum Life’s corporate responsibility is based on the cornerstones of its operations: increasing and securing its customers’ economic welfare and its safeguarding against risks.
Enabling voluntary complementing of pensions is also important for entrepreneurs, because the small size of statutory pension could mean that the entrepreneur’s level of income during retirement would fall even below the subsistence-level. Mandatum Life offers entrepreneurs better possibilities to concentrate on running their business and cope in the event of personal risks. The offered solutions also have favorable effects both on the entrepreneur’s sphere of influence as on the development of entrepreneurship in general.
• Brunila holds 7,287 Sampo plc shares directly or through a controlled company
Positions of Trust: 3 Scandinavia, Sweden, Advisor and Executive Board Member; NASDAQ OMX, Sweden, Chairman of the Swedish Listing Committee; Sobi (Swedish Orphan Biovitrum), Sweden, Board Member and
Positions of Trust: The Finnish Fair Association, Member of the Supervisory Board; Confederation of Finnish Industries EK, Member of Representative
• Member of the Board of Directors of Sampo plc since 7 April 2009.
Funds, Nordea I Sicav), Luxembourg, Board Member; Svenska konstsamfundet, Member of Investment Committee; Sibelius Academy Foundation, Board Member; The Finnish Foundation for Share Promotion (Pörssisäätiö), Board
• Palin-Lehtinen holds 5,308 Sampo plc shares directly or through a controlled company.
Positions of Trust: Stiftelsen för Åbo Akademi, Chairman of the Board; Stockmann plc, Chairman of the Board; Föreningen Konstsamfundet, Chairman of the Board; Society of Swedish Literature in Finland, Member of Investment
Following current Board members are independent of the company and its major shareholders: Adine Grate Axén, Veli-Matti Mattila, Eira Palin-Lehtinen, Jukka Pekkarinen and Christoffer Taxell. In addition,
Anne Brunila became independent of the company as of 1 November 2011.
Information as of 31 December 2011. The entire CVs of members of the
Board Of Directors' Duties The operating procedures and main duties of the Board of Directors have been defined in the Board's Charter.
The Board of Directors decides on Sampo Group's business strategy, approves the budget and the principles governing the Group's risk management and internal control, takes responsibility for the proper organisation of the Group's operations, and 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
In order to secure the proper running of operations, Sampo's Board of
The Annual General Meeting of 2011 decided that the Board would consist of eight members until the close of the Annual General
Chairman from among their members at their first meeting following the Annual General Meeting.
The Board convened 10 times in 2011. The average attendance of Board members at meetings was 93.8 per cent.
Furthermore, the Audit Committee is responsible for evaluating the auditors' and auditing firm's professional competence and independence and particularly their provision of related services to
Committee also oversees the actions of the auditors under the laws of
Corporate Governance Statement. The Committee also evaluates the compliance with laws and regulations in Sampo Group and executes any other duties that may be bestowed upon it by the Board.
The Committee comprises at least three members elected from among those Board members who do not hold executive positions in Sampo and are independent of the company. Also participating in the meetings of the Committee are the Responsible Auditor, Group CEO,
In 2011, the Chairman of the Audit Committee was Christoffer Taxell, and the other members were Adine Grate Axén (as of 14 April 2011)
The Audit Committee convened five times in 2011, with one member absenting from one meeting.
Sampo Group's Chief Audit Executive, and on the principles by which
Committee is responsible for preparing proposals for the Board on issues relating to the development of good corporate governance and confirming the criteria and processes used for the Board's selfevaluation.
Chairman of the Board (who acted as the Committee's Chairman), the
The Committee convened seven times in 2011. The average attendance of members at meetings was 91.4 per cent.
Sampo Group / Annual Report 2011 Corporate Governance / Board-Appointed Committees
Positions of Trust: The organisation for the Financial Sector in Norway (FNO), Board
Committee, which supports the Group CEO in preparing matters to be handled by the Group Executive Committee.
The following persons served on the Group Executive Committee in 2011: Sampo Group / Annual Report 2011 Corporate Governance / Group Executive Committee
Positions of trust: If P&C Insurance Ltd, Sweden, Chairman of the Board; If P&C Insurance Company Ltd, Finland, Chairman of the Board; Swedish Insurance Federation, Chairman of the Board; Swedish Insurance Employer Association (FAO), Board Member; AcadeMedia Aktiebolag, Board Member; Urzus A/S, Chairman of the Board
Positions of Trust: CJSC If Insurance, Russia, Chairman of the Board; Forsikring & Pension, Denmark, Board Member
Positions of Trust: If P&C Insurance AS, Baltic, Chairman of the Board; CJSC If Insurance, Russia, Board Member; Mandatum Life Insurance Baltic SE, Board Member
Secretary of the Board of Directors of Sampo plc from 2001 to October 2011. Retired on 31 October 2011.
Information as of 31 December 2011. The entire CVs of the members of
Group Executive Committee's Duties Sampo Group Executive Committee supports the Group CEO in the preparation of strategic issues relating to Sampo Group, in the handling of operative matters that are significant or involve questions of principle, and in ensuring a good internal flow of information.
In 2011, the Group Executive Committee convened four times at the request of Group CEO. The Group MD Committee, which assists the
The Board of Directors elects and releases the Group CEO, and decides on the terms of employment and other compensation. The Managing
The Group CEO is in charge of the daily management of Sampo, subject to the instructions and control of the Board of Directors. The Group
CEO is empowered to take extraordinary and broad-ranging actions, taking into account the scope and nature of Sampo's operations, only upon authorization by the Board of Directors. The Group CEO ensures the legal compliance of Sampo's accounting and the trustworthy organization of asset management.
Compensation Fair and incentivizing compensation to all employees is an important factor in Sampo Group’s ability to enhance shareholder value in a competitive business environment. Compensation is an equally important determinant of success in the competition for talent.
Sampo's compensation strategy is responsible both towards the employees and the shareholders and, consequently, long-term financial stability and value creation of the Group guides the design of compensation schemes.
In accordance with the decision of the Annual General Meeting in 2011, the following annual fees will be paid to the members of the Board of
Sampo Group / Annual Report 2011 Corporate Governance / Group CEO and President
Board of Directors, on the salaries of the members of the Group
Principles of the Compensation System In addition to receiving monthly salaries, executives who are members of the Group Executive Committee are participants in the Group's short-term variable compensation system, which is decided upon separately each year. The short-term variable compensation is determined on the basis of the Group result, the business area result and individual performance. The maximum amount that can be paid for 2011 to members of the Executive Committee is an amount corresponding to nine months' fixed salary.
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.
Internal Audit Charter approved by Sampo's Board of Directors, the international professional standards approved by the IIA (the Institute of Internal Auditors).
Insider Administration Given the nature of Sampo's business areas, especially bearing in mind their extensive investment activities, Sampo's Board of Directors has approved a separate Group Guideline for Insiders. These comply, as required by the Corporate Governance Code, with NASDAQ OMX
Helsinki Ltd's Guidelines for Insiders and the Standards of the Financial
Committee, other corporate executives and other specifically named persons, as these 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 (currently Nordea AB (publ.) and Topdanmark A/
Board of Directors' Report/ Sampo Group in 2011 Sampo Group in 2011 Sampo Group’s profit before taxes for 2011 amounted to EUR 1,228 million (1,320). Total comprehensive income for the period, taking changes in the market value of assets into account, decreased to EUR
Earnings per share were EUR 1.85 (1.97). Mark-to-market earnings per share amounted to EUR 1.22 (3.22) and return on equity for the Group decreased to 7.7 per cent for 2011 (21.8).
The Board proposes to the Annual General Meeting to be held on 12
636 million (707). Combined ratio improved to 92.0 per cent for the full year 2011 (92.8). Return on equity was 12.4 per cent (39.8) and fair value reserve decreased to EUR 139 million (315).
(523). In segment reporting the share of Nordea’s profit is included in the segment ‘Holding’.
Sampo Group’s total investment assets at the end of 2011 amounted to EUR 17.6 billion (18.3), of which 80 per cent was invested in fixed income instruments (78), 15 per cent in equities (18) and 5 per cent in other assets (4). Mark-to-market investment return remained positive despite the sharp fall in the equity markets. Reported investment income decreased to EUR 260 million (1,148).
The Group’s equity as at 31 December 2011 amounted to EUR 8,920 million (8,886). Equity was strengthened mainly by the comprehensive result for the year of EUR 686 million and reduced by the EUR 645 million of dividends paid.
Sampo Group’s own funds exceeded the minimum solvency requirements at the end of 2011 by EUR 1,892 million (3,038) and solvency ratio stood at 138.6 per cent (167.1).
Sampo Group / Annual Report 2011 Board of Directors' Report / Sampo Group in 2011
If P&C is the leading property and casualty insurance company in the Nordic region, with insurance operations that also encompass the Baltic countries and Russia. The P&C insurance group’s parent company, If P&C Insurance Holding Ltd, is located in Sweden, and the If subsidiaries provide insurance solutions and services in Finland, Sweden, Norway, Denmark, the Baltic countries and Russia. If’s operations are divided into four business areas: Private, Commercial, Industrial and Baltic & Russia.
Profit before taxes for P&C insurance decreased to EUR 636 million
Year 2011 was also characterized by demanding weather conditions throughout the year. However, despite the higher than normalized weather-related claims, both risk ratio and combined ratio improved to 68.4 per cent (69.1) and 92.0 per cent (92.8), respectively. EUR 135 million (113) was released from technical reserves relating to prior year gains, out of which EUR 85 in business area Industrial.
If P&C’s holding in the Danish insurance company Topdanmark exceeded 20 per cent on 16 May 2011. With the holding exceeding 20 per cent Topdanmark became an associated company to If.
In business area Industrial large claims were EUR 53 million above normalized level as especially Norway and Sweden were affected by several major property claims. Despite this, risk ratio improved in
Gross written premiums increased 5 per cent to EUR 4,414 million
(4,189). Adjusted for currency, premiums increased a record 4.0 per cent. All business areas and countries had positive growth. In Private gross written premiums adjusted for currency increased by 4.5 per cent. In Commercial the growth was 3.4 per cent, in Industrial 2.6 per cent and in Baltic & Russia 1.5 per cent.
Cost ratio improved to 23.5 per cent (23.7). Adjusted for currency the nominal costs increased 2.1 per cent.
Investment return mark-to-market for the year 2011 was 1.8 per cent
Duration for interest bearing assets was 1.2 years (1.7) and average maturity 2.5 years. Fixed income running yield was 4.1 per cent (3.9).
Lending volumes increased 7 per cent and deposit volumes 8 per cent.
Net loan losses decreased 16 per to EUR 735 million, compared to last year, corresponding to a loan loss ratio of 23 basis points (31 basis points last year).
amendment, new risk types under the internal approach have been introduced. For Nordea this includes additional capital charge for stressed VaR, incremental and comprehensive risk. The total CRD III
The core tier 1 ratio excluding transition rules under Basel II was 11.2 per cent. The capital base of EUR 24.8 billion exceeds the capital requirements including transition rules by EUR 6.9 billion and excluding transition rules by EUR 10.0 billion. The tier 1 capital of EUR
22.6 billion exceeds the Pillar 1 capital requirements (excluding transitions rules) by EUR 7.8 billion.
Change in liabilities for inv. and ins. contracts 348 -678 -
December 2011 duration of fixed income assets was 1.8 years (2.7) and average maturity 2.3 years. Fixed income running yield was 5.4 per cent (5.2).
Mandatum Life contain bonuses of EUR 6.3 million (1.4) for the year 2011.
Majority of Mandatum Life’s traditional policies carry a guaranteed interest of 3.5 per cent. Individual policies sold in Finland before 1999 carry a guaranteed interest of 4.5 per cent. The discount rate for these policies has been lowered to 3.5 per cent and subsequently technical reserves have been supplemented with EUR 79 million (86). In addition, EUR 29 million has been reserved to lower the interest rate of all with-profit liabilities to 2.75 per cent in 2012. This supplement decreases the minimum requirement for investment yield to 2.75 per cent for 2012. All in all, Mandatum Life has increased its technical reserves with EUR 108 million (147) due to low level of interest rates.
EUR 849 million (1,111). Premiums in the main focus area of unit-linked insurance decreased to EUR 649 million (843). The share of unit-linked premiums remained at 76 per cent (76) of total premiums. Premium income from the Baltic countries was EUR 41 million (60).
Mandatum Life’s overall market share in Finland rose to 24.9 per cent
As a consequence Mandatum Life can continue to invest into new product solutions for the bank channel. First results were launched already during the autumn 2011.
Sampo plc owns and controls its subsidiaries engaged in P&C and life insurance. In addition Sampo plc held on 31 December 2011 approximately 21.3 per cent of the share capital of Nordea, the largest bank in the Nordic countries. Nordea is an associated company to Sampo plc.
The segment’s profit before taxes amounted to EUR 457 million (474), of which EUR 534 million (523) relates to Sampo’s share of Nordea’s 2011 profit. Segment’s profit without Nordea was EUR -77 million
To balance the risks on the Group level Sampo plc‘s debt is mainly tied to short term interest rates and issued in euro or Swedish krona. The debt positions are managed with interest rate swaps and cross currency interest rate swaps. These derivatives are valued at fair value in the profit and loss account although economically they match the underlying bonds. As a result Sampo plc maintains the flexibility to adjust derivative position if needed but this comes at the cost of increased volatility in the Holding segment’s finance costs.
Sampo plc’s holding in Nordea Bank was booked in the consolidated balance sheet at EUR 6.3 billion. The market value of the holding was
As of 16 May 2011 Sampo’s share of Topdanmark’s net profit has been shown on the face of Sampo Group’s profit and loss account on the line
Sampo Group / Annual Report 2011 Board of Directors' Report / Changes in Group Structure
The Annual General Meeting adopted the financial accounts for 2010 and discharged the Board of Directors and the Group CEO and
Chairman and Matti Vuoria as Vice Chairman. The following members were elected to the Nomination and Compensation Committee: Veli-
General Meeting: the Chairman of the Board will be paid EUR 160,000 per year, the Vice Chairman EUR 100,000 per year and the other members EUR 80,000 per year. After deduction of taxes and similar payments, approximately 50 per cent of the Board members’ annual compensation will be paid in Sampo A shares and the rest in cash.
Ernst & Young Oy was elected as Auditor. The Auditor will be paid a fee determined by a reasonable invoice. Heikki Ilkka, APA, was nominated by Ernst & Young Oy as the principally responsible auditor.
March 2012. The report is drawn up in accordance with section 7
Personnel in 2011 The number of full-time equivalent staff decreased to 6,810 employees (6,844) as at 31 December 2011. In P&C insurance, the number of staff mainly decreased in Sweden and the Baltic and
Russian operation. In life insurance, the number of staff increased in
During 2011, approximately 92 per cent of the staff worked in P&C
During 2011, If P&C’s personnel strategy continued to be influenced by the theme of the corporate strategy ‘Skills and Initiatives’ launched in 2010. The aim of this initiative is to bolster If’s value creation by increasing the company’s focus on intangible assets such as customer orientation, competence creation and the ability to innovate.
Mandatum Life’s HR policies focused during 2011 on the development of customer focused culture, internal cooperation and high standard personnel management processes.
Risk Management Principles. The Compensation Principles apply to all companies within the Sampo Group and are available at www.sampo.com/corporate-governance/compensation.
Variable compensation consists of short-term incentives, profit sharing programs and discretionary rewards.
Sampo Group. Also qualitative criteria shall be taken into account in the assessment.
According to the new scheme, incentive rewards to be paid are based on the price of Sampo plc's A share on the NASDAQ OMX Helsinki Ltd and the payments shall be made on condition that the insurance margin and return on capital at risk, determined in the terms and conditions of the scheme, exceed specified threshold values. A deferral rule applies to incentive rewards paid to key employees defined as risk takers (Sweden, Norway and Denmark) and key employees receiving significant variable compensation (Finland). According to the deferral rule 60 per cent of the net incentive rewards will be paid in shares and 40 per cent in cash. These shares will be subject to disposal restrictions for three years from the date when the installment was paid.
In 2011 EUR 7 million (10) was paid out based on the long-term management incentive scheme 2009:1. The outcome of the long-term management incentive scheme is determined by Sampo’s share price development over a period of approximately three years starting from the issue of the respective program. The program is subject to thresholds on share price development and company profitability, as well as ceilings for maximum bonuses. Furthermore, the program is subject to rules requiring part of the paid bonus to be used to acquire
Risk Management in 2011 Sampo considers that a high quality risk management process is a prerequisite for business operations. The key objectives of risk management are: • to ensure that risks affecting our profitability and other material risks are identified, assessed and analyzed; • to ensure that capitalization – in the form of capital and foreseeable profitability of businesses – is adequate in terms of current risks inherent in business activities and existing business environment; • to ensure that risk bearing capacity is allocated into different business areas according to chosen strategies and that risks are properly priced; • to limit and mitigate fluctuations in the economic values of group companies; and
The main market risks of Sampo Group during 2011 were equity risk, interest rate risk and credit risk. Equity risk arises from the Group’s equity portfolio amounting to EUR 2.6 billion (3.4). Interest rate risk is related to the Group’s fixed income investments and insurance liabilities. In the short run, rising interest rates would decrease the valuation of fixed income assets. However, over a long period the risk that interest rates fall and remain at a low level is economically more significant, because Group´s liabilities have as an average longer duration than assets. Fixed income investments also expose the Group to credit risks. The amount of the Group's fixed income investments decreased to EUR 14.1 billion (14.2) during 2011.
Currency risk is the risk that Sampo Group will incur losses due to changes in foreign currency exchange rates. If P&C and Mandatum Life are mainly exposed to currency risk via their net currency exposures stemming from business activities. In Sampo plc transaction risk relates mainly to dividends paid by If P&C. At Group level changes in foreign currency exchange rates can change group equity mainly through ‘Other comprehensive income’.
Operational risks, such as failures in internal processes and systems are inherent throughout all business areas. General business risks, related to changes in the economic environment or business cycle, have increased significantly during 2011, because of the sovereign debt crisis.
A more detailed description of Sampo Group’s risk management organization and activities is available in the Risk Management section of the 2011 Annual Report.
Sampo Group / Annual Report 2011 Board of Directors' Report / Administration
OMX Helsinki since 1988 and all of the B shares are held by Kaleva
Mutual Insurance Company. B shares can be converted into A shares at the request of the holder.
Sampo Group / Annual Report 2011 Board of Directors' Report / Shares, Share Capital and Shareholders
Authorizations Granted to the Board The Annual General Meeting of 2011 authorized the Board to acquire in one or several lots a maximum of 50,000,000 Sampo A shares. Shares can be repurchased in other proportion than the shareholders’
proportional shareholdings (private repurchase). The share price will be no higher than the highest price paid for Sampo shares in public trading at the time of purchase. The authorization is valid until the close of the next Annual General Meeting, nevertheless not more than 18 months after AGM’s decision. The shares are to be acquired through public trading on the NASDAQ OMX Helsinki at the market price prevailing at the time of repurchase.
During the third quarter of 2011 Sampo plc acquired 1,282,390 of its own A shares, which corresponds to 0.2 per cent of all shares and related votes. An average EUR 18.94 was paid per share and a total of
In accordance with the authorization by the Annual General Meeting the Board of Sampo plc cancelled on 13 December 2011 the Sampo A
shares repurchased in the third quarter of 2011. The cancellation reduced the number of Sampo A shares with the corresponding amount. After the cancellation the number of Sampo plc's A shares totals 558,800,000. Total number of shares of the company, including 1,200,000 B shares, is 560,000,000 shares.
Shareholders As at 31 December 2011, Sampo plc had 84,930 shareholders, representing a decrease of close to 2 per cent from the previous year.
A shares representing 0.1 per cent of the share capital and related votes.
During 2011, Sampo did not receive any notifications of change in holdings pursuant to Chapter 2, Section 9 of the Securities Markets
Shareholders by sector, Sampo plc, 31 December 2011 (A and B shares)
Year A shares B shares Total Change during year Reason for change
Shareholders by number of shares owned, Sampo plc, 31 December 2011
Number of shares Shareholders, number Shareholders, % Shares, number Shares, % Votes, number Votes, %
Internal dividends In 2011 Sampo plc received a total of EUR 506 million in dividends from its subsidiaries – If P&C paid a dividend of EUR 406 million (SEK 3,700 million) in the fourth quarter and Mandatum Life paid a dividend of
Ratings All the main ratings for Sampo Group companies remained unchanged in 2011.
December 2009 Sampo Group became a financial and insurance conglomerate according to the Act on the Supervision of Financial and
(2004/699). The Act is based on Directive 2002/87/EC of the European
Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment.
Group solvency ratio (Own funds % of minimum requirements) 138.6 167.1
Topdanmark holding, the reduction of the amount of Tier2 loans in
Sampo Group / Annual Report 2011 Board of Directors' Report / Financial Standing
As at 31 December 2011 financial liabilities in Sampo plc’s balance sheet consisted of issued senior bonds and notes of EUR 1,677 million and
EUR 652 million of outstanding CPs issued. During 2011 Sampo plc focused on diversifying the maturity structure of its outstanding debt by three smaller issues maturing in 2013, 2014 and 2016, respectively.
Outlook The major risks and uncertainties to the Group in the near term The major risks Sampo Group is exposed to in its normal business activities are credit risk, market risks and insurance risks. Their contributions to Group’s Economic Capital requirement are currently within normal boundaries at levels 38 per cent, 36 per cent and 14 per cent, respectively.
P&C insurance operations are expected to reach their long-term combined ratio target of below 95 per cent in 2012. Nordea’s contribution to the Group’s profit is expected to be significant.
Dividend Proposal According to Sampo Group’s dividend policy, total annual dividends paid shall be higher than 50 per cent of Group’s net profit for the year
1.20 per share to company’s 560,000,000 shares. The dividends to be paid are EUR 672,000,000.00 in total. Rest of funds are left in the equity capital.
Return on equity (at fair values) % 12.4 39.8 53.2 -0.8 19.2
Combined ratio excl. unwinding of discount % 92.0 92.8 92.1 91.8 90.6 *) Based on the financial statements of If Group.
% of technical provisions (IFRS) EURm 20.9 25.7 18.5 7.8 16.4
Capital and reserves per share EUR 15.93 15.83 13.56 8.25 13.47
Average adjusted number of shares 5) 1,000 560,863 561,321 561,370 569,442 577,802
Average adjusted number of shares 5) 1,000 559,663 560,121 560,170 568,242 576,602
Average adjusted number of shares 1,000 1,200 1,200 1,200 1,200 1,200 1) Sampo plc's sales gain (EURm 2,830) arising from the disposal of the share stock of Sampo Bank plc to Danske Bank A/S is included in the Group key figures for the year 2007. The comparison average numbers of staff between the year 2006 include the average staff number of the Banking and investment services (discontinued operations).
2) On 31 Dec. 2009 Nordea was consolidated as an associate to Sampo and Sampo became a financial and insurance conglomerate, in accordance with the Act on
3) Key figures for P&C Insurance are based on activity based costs and cannot, therefore, be calculated directly from the consolidated income statement.
5) In calculating the per share key figures, the treasury shares (1,282,390 shares) held by Sampo pcl during the financial year have been taken into account. The number of shares used at the balance sheet date was 560,000,000 and the average number of shares 560,862,572.
In calculating the key figures the tax corresponding to the result for the accounting period has been taken into account. The valuation differences, adjusted with deferred tax liability, on investment property and held-to-maturity debt securities have been taken into account in return on assets, return on equity, equity/assets ratio and net asset value per share. Additionally, other comprehensive income have been taken into account in return on assets and return on equity. In net asset value per share, the Group valuation difference on associate Nordea has also been taken into account.
+ holding business profit before taxes + Group elimination items with result impact
Sampo Group / Annual Report 2011 Board of Directors' Report / Calculation of the Key Figures
Per Share Key Figures Earnings per share profit for the financial period attributable to the parent company's equity holders
Earnings per share, incl. change in fair value reserve total comprehensive income for the financial period attributable to the parent company's equity holders
Equity per share equity attributable to the parent company ‘s equity holders
dividend for the accounting period adjusted number of shares at balance sheet date
number of shares traded through the Helsinki Exchanges adjusted average number of shares
103 Operational Risk Management in Mandatum Life 104 Group Level Considerations 109 Capitalization 1 1 1 Internal Capitalization Assessment 113 Sensitivity Analysis of the Capital Position 114 Capitalization by Regulatory Criteria 116 Capitalization by Rating Agency Criteria 117 Risk Management Outlook
Earnings Logic and Risks Sampo Group is involved in three business areas: P&C insurance and life insurance are conducted by subsidiaries If P&C Insurance Holding
Sampo plc as a parent company does not have any business operations of its own except the management of its capital structure and liquidity buffers. Sampo plc guides the activities of subsidiaries by setting financial and capitalization targets for the subsidiaries and defining the group level principles for instance in the areas of risk management, compensation and compliance. The subsidiaries organize their operations taking into account the special characteristics that arise from the company specific earnings logic and risks, in addition to targets and principles set by the parent company.
Reinsurance is used to reduce exposure to low frequency, but high impact events. A critical success factor is also the companies' ability to optimize the balance between the expected returns and risks in investment portfolios while taking simultaneously into account the features of insurance liabilities, solvency, regulatory asset coverage rules and rating requirements. The core competencies in subsidiary companies are the pricing of insurance risks, evaluation of investment risks, the proper management of the arising risk exposures and the ability to manage adequate balance between risks and capitalization.
The parent company Sampo plc aims to ensure that the activities of the subsidiaries will not lead to unwanted risk concentrations and hence, for extra need of capital at group level. Firstly, the concentrations are pro-actively prevented by careful division of risktaking between subsidiaries, and secondly the risk profiles of subsidiaries are adjusted if needed.
Reserve risk results from fluctuations in the timing and amount of claim settlements.
Catastrophe risk is not defined as a separate risk, but it can be seen as an extreme case of premium risk.
Operational risk: Operational risk refers to the risk of loss resulting from inadequate or failed processes or systems, from personnel and systems or from external events. This definition includes legal risk but excludes risks resulting from strategic decisions. Compliance risk is the risk of legal or regulatory sanctions, material financial loss or loss of reputation an undertaking may suffer as a result of not complying with laws, regulations and administrative provisions as applicable to its activities. A compliance risk is often the consequence of a legal or operational risk and hence it can be seen as a part of operational risk.
General business risk: General business risk is the risk of losses due to changes in the competitive environment or internal flexibility. Unexpected changes in general business environment can cause bigger than expected fluctuations in financial results. Such changes include the general economic development, changes in the institutional environment, technological innovations and competitive factors such as new competitors and changes in margins and volumes.
ALM risk: The company is exposed to ALM risk when changes in different market risk variables (e.g. interest rates, inflation, foreign exchange rates, equity prices) cause a change in the value of investment assets that is of different size than the respective change in the economic value of insurance liabilities. In addition, the cash flows of technical provisions are modeled estimates and therefore uncertain in relation to both their timing and amount. ALM risk also includes this component of uncertainty.
Sampo Group / Annual Report 2011 Risk Management / Earnings Logic and Risks
• to ensure that all the risks affecting the profitability and other material risks are identified, assessed and analyzed; • to ensure that capitalization – in the form of capital and foreseeable profitability of businesses – is adequate in terms of current risks inherent in business activities and existing business environment; • to ensure that risk bearing capacity is allocated into different business areas according to chosen strategies and that risks are properly priced; • to limit and mitigate fluctuations in the economic values of Group companies; and
To meet these objectives Sampo Group’s risk management process includes following tasks depicted in the 'Risk management process'
• Clients get reliable service from a reputable institution with an effective risk management.
• Risk premium required by investors will be smaller when risks are transparent and the risk management process is clearly described and communicated.
Risk Governance Framework This section describes Sampo Group’s risk governance framework.
Sampo Group’s overall corporate governance and system of internal control is described in the Corporate Governance section.
If P&C and Mandatum Life organize their activities autonomously but in accordance with the Group level risk management principles. The
Board of Directors of the parent company defines return and capitalization targets of the subsidiaries. The risk exposure and capitalization reports of the subsidiaries are consolidated on Group level on a quarterly basis and reported to the Board and Audit
The reporting lines of different governing bodies at Sampo Group level are described in figure 'Risk management governance framework in
The Board of Directors of Sampo plc is responsible for ensuring that the Group’s risks are properly managed and controlled.
The Group Chief Risk Officer (CRO) is responsible for the appropriateness of risk management on Sampo 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 Boards of Directors in each insurance subsidiary have the overall responsibility for the risk management process and they are the ultimate decision making bodies in If P&C and Mandatum Life respectively. The Boards ensure that the management and monitoring of the risks are satisfactory, and approves the risk management plan.
The reporting lines of different governing bodies in If P&C are described in figure 'Risk management governance framework in
The If P&C Risk Control Committee (IRCC) assists the CEO of If P&C
Board of Directors. The Risk Control unit is, on behalf of the Chief Risk
Officer, responsible for coordinating and analyzing the information reported to the IRCC.
• The Chairman of the Underwriting Committee (UWC) is responsible for approving and giving opinion on proposed deviations from the Underwriting Policy.
• The Chairman of the Actuarial Committee (AC) is responsible for reporting on reserve risk and monitoring the technical provisions and the inherent provision risk.
• The Chairman of the Reinsurance Committee (RC) is responsible for approving and reporting deviations from the Reinsurance
• The Chairman of the Reinsurance Security Committee (RSC) is responsible for approving and reporting deviations from the
• The Chairman of the Operational Risk Committee (ORC) is responsible for reporting on the operational risk status of If P&C
The Managing Director of Mandatum Life has the overall responsibility for the risk management according to Board of Directors’ instructions.
Mandatum Life’s Asset and Liability Committee (ALCO) controls that the investment activities are conducted within the limits defined in the Investment Policy approved by the Board and monitors the adequacy of capital in relation to the market risks in the balance sheet.
Underwriting Policy and monitoring the functioning of the risk selection and claims processes. The Committee also reports all deviations from the Underwriting Policy to RMC. The Insurance Risk
Legal and Compliance Unit is taking care of compliance matters and
Head of the Unit is a member of Risk Management Committee.
Committee and to the Board of Directors quarterly. ORC is also responsible for maintaining and updating the continuity and preparedness plans.
Risk and Capital Management In Sampo Group, risk and capital management is about ensuring the adequacy of the available capital in relation to risks arising from the company’s activities and business environment. Risk and capital management activities are conducted continuously in various parts of the organization. Figure 'Illustrative figure of risk and capital management process in Sampo Group' depicts the risk and capital management actions in Sampo Group on a general level.
Sampo Group also uses internal performance, risk and capital measures, which are based on fair values of assets and liabilities. Also the risk and capitalization opinions published by rating agencies are followed closely by Sampo Group.
Sampo Group / Annual Report 2011 Risk Management / Risk and Capital Management
Economic capital accounts for market, credit, insurance and operational risks, as well as the diversification effect between these risks. Economic capital is calculated using a set of calculation methods, which have been developed for the specific needs of each business area. When assessing the economic capital need arising from Nordea, Sampo plc uses the economic capital calculated by
The economic capital and adjusted solvency capital as well as the regulatory capital measures are disclosed quarterly.
Underwriting Risks The book value (technical provisions) and economic value of insurance liabilities is dependent (i) on the size and timing of future claims payments including expenses and (ii) the interest rates used to discount these claims payments to current date. In this section the focus is mainly on the first component and hence on the underwriting risk. Discount rate risk and its effect on technical provisions are also described in this section. The interest rate risk affecting the economic value of liabilities is covered later in ALM risk section under Market
In the figure 'Illustrative figure of P&C insurance risk concepts' risk sources at left are original sources for policyholders’ losses and variations in them affect claims frequency and claims sizes. Risk sources in the middle may later change original estimates of claims payments.
In P&C insurance business the management of underwriting risk is traditionally organized into premium and reserve risk management.
Given the inherent uncertainty of P&C insurance there is a risk that the future claims are unexpectedly frequent and/or high. Examples include large fires, natural catastrophes such as severe windstorms and unforeseen increases in the frequency or the average size of small and medium-sized claims. Such deviations can be purely random, i.e. an effect of the inherent uncertainty of the claims cost. The deviations can also be the result of more systematic and permanent changes in e.g. inflation, legislation or exposures. Random deviations are significant in the Industrial insurance business, where claims could potentially be very large, e.g. a fire in a large factory. Systematic deviations to a larger degree affect the Private business area, which is characterized by a large number of small claims and consequently a lower degree of random variation.
The UW Policy is supplemented with guidelines outlining in greater detail how to conduct underwriting within each business area. These guidelines cover, such areas as, tariff and rating models for pricing, guidelines in respect of standard conditions and manuscript wordings, as well as authorities and limits, such as sums insured and risks that are not acceptable to undertake. The Underwriting Committee (UWC)
The pricing within the Private business area and smaller risks within the Commercial business area are set through fixed tariffs. The underwriting of risks in the Industrial business area and more complex risks within Commercial business area are based to a greater extent on general principles and individual underwriting than strict tariffs. In general, pricing is based on statistical analyses of historical claims data and assessments of the future development of claims frequency and claims inflation.
Given the large number of customers in P&C insurance and the fact that business is underwritten in different geographical areas and across several classes of insurance, the portfolio and respective premiums are well-diversified. The degree of diversification is shown in the figure 'Breakdown of gross written premiums by business area, country and line of business, If P&C, 31 December 2011' and in the table
'Technical provisions per line of business and country, If P&C, 31 December 2011'.
Despite the inherently well diversified insurance portfolio, risk concentrations may still arise through, for example, exposures to natural disasters, such as windstorms and floods. The geographical areas most exposed to such disasters are Denmark, Norway and
Sweden. In addition, since single large claims can potentially have a major impact on the result, the risk of severe outcomes is mitigated using reinsurance.
and the cost of reinsurance must be favorable compared to the cost of capital.
• catastrophe models, in which catastrophes are simulated on the basis of historical meteorological data. Subsequently, insurance losses can be calculated, taking into account vulnerability, exposure and terms of the policy.
A Nordic-wide reinsurance program has been in place in If P&C since 2003. In 2011, retention levels were between SEK 100 million
Conversely, technical provisions is a statutory concept and it is the value of insurance liabilities in bookkeeping. Technical provisions are discounted with statutory rates. In this section we focus on technical provisions.
P&C’s Chief Actuary. The Committee makes recommendations concerning guidelines for technical calculations. The Committee also monitors technical provisions and provides advice to If P&C’s Chief
The actuarial estimates are based on historical claims data and exposures that are available at the closing date. Factors that are monitored include loss development trends, the level of unpaid claims, legislative amendments, legal cases and economic conditions. When setting provisions, the Chain Ladder and Bornhuetter-Fergusson methods are generally used, combined with projections of the number of claims and the average claim costs.
For such insurance lines as MTPL and WC, legislation and hence the product features and risks differ significantly between countries. For instance, some of the Finnish, Swedish and Danish provisions for these lines include annuities that are sensitive to changes in mortality assumptions and discount rates. The proportion of technical provisions that are related to motor and WC is 68 per cent.
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 MTPL and WC. This 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 evaluation of cost increases for various types of claims cost.
If P&C’s technical provisions are further analyzed by claims year before and after reinsurance in the claims cost trend tables. These are disclosed in the Note 27 to the Financial Statements.
Sensitivity of underwriting result and hence underwriting risk is presented by changes in certain key figures in the table 'Sensitivity test of underwriting result, If P&C, 31 December 2011 and 31 December 2010'.
Sensitivity test of underwriting result, If P&C, 31 December 2011 and 31 December 2010
Claims frequency 3,059 +/- 1 per cent +/- 31 +/- 29
Biometric Risks Biometric risks in life insurance refer mainly to the risk that the company has to pay more mortality, disability or morbidity benefits than expected or the company has to keep paying pension payments to the pension policyholders for a longer time (longevity risk) than expected when pricing the policies. The specific case in which a single event of major magnitude leads to a significant deviation in actual benefits and payments from the total expected payments is called catastrophe risk. In life insurance catastrophe events include single events, or series of events, usually over a short period and longer lasting events.
Long duration of policies and restriction of Mandatum Life’s right to increase tariffs increases biometric risks. If the premiums turn out to be inaccurate and pricing cannot be changed afterwards, technical provisions have to be supplemented with an amount corresponding to the expected losses.
The annual longevity risk result and longevity trend is analyzed regularly. The assumed life expectancy related to the technical provisions for group pensions was revised in 2002 and additional changes were made in 2007. The longevity risk result has been positive since these revisions. The longevity risk result of group pension for the year 2011 was EUR 2.7 million (EUR 3.9 million in 2010).
The insurance portfolio of Mandatum Life is relatively well-diversified and does not include major concentration risks. To further mitigate the effects of possible risk concentrations, Mandatum Life has the catastrophe reinsurance in place.
Policyholder Behavior and Expense Risks Uncertainty related to the behavior of the policyholders is a major risk as well. The policyholders have the right to cease paying premiums
The company is also exposed to expense risk, which is a risk that the future operating expenses exceed the level that was anticipated when pricing the insurances. Policy terms and tariffs cannot usually be changed materially during the lifetime of the insurance, which increases the expense risk. The main challenge is to keep the expenses related to insurance administrative processes and complex ITinfrastructure at an efficient level. In year 2011 expense result was
EUR 9.8 million (EUR 7.8 million). Mandatum Life does not defer insurance acquisition costs.
Sampo Group / Annual Report 2011 Risk Management / Underwriting Risks
Discount Rate Risk in Technical Provisions Discount rate risk in technical provisions is the main risk affecting the adequacy of technical provisions. The guaranteed interest rate in policies is fixed for the whole policy period. Thus, if market interest rates and expected investment returns fall, technical provisions may have to be supplemented.
(EUR 86 million in 2010). In addition, EUR 29 million has been reserved to lower the interest rate of with-profit liabilities to 2.75 per cent in 2012. So due to low market interest rates, Mandatum Life has increased liabilities in total by EUR 108 million.
With-profit and others total 4,391 202 -453 -37 153 6 -34 4,229 58%
Reserve for decreased discount rate 147 0 0 0 0 0 -40 108 1%
Life’s new sales focus area for years even though almost 60 per cent of technical provisions still constitute with-profit liabilities. Trend of with-profit technical provisions is downward because premium income is decreasing and claims, especially pensions paid, trend is upward.
Average guaranteed rate for policyholders' savings, excluding the effect of discount rate reserve, is 3.7 per cent, which is gradually decreasing because policies with 4.5 per cent guarantees mature sooner than policies with lower guarantees. The trend of unit-linked technical provisions is upward, except in years like 2008 and 2011 when investment losses of unit-linked savings have exceeded the net subscriptions.
With-profit and others total 9.3 1,018 855 1,621 1,138 815 569 905
Reinsurance is used to limit the amount of individual mortality and disability risks. The Board of Directors annually determines the maximum amount of risk to be retained on the company’s own account, which for Mandatum Life is EUR 1.5 million per insured. To mitigate the effects of possible catastrophes, Mandatum Life participates in the catastrophe reinsurance bought jointly by Finnish life insurance companies.
Risk selection is part of the day-to-day business routines in Mandatum
Life. Mandatum Life’s Underwriting Policy sets principles for risk selection and limits for sums insured. Compliance with the principles and limits set in the Underwriting Policy are monitored continuously.
for each product line and each type of risk and comparing it to the claims expenditure assumed in insurance premiums of every risk cover.
Technical provisions are analyzed and the possible supplement needs are assessed regularly. Assumptions related to technical provisions are reviewed annually. Adequacy of technical provisions is tested quarterly.
Tariffs for new policies are set, the Underwriting Policy and assumption used in calculating technical provisions are updated based on adequacy tests and risk result analysis. Tariffs and prices, as well as the reinsurance principles and reserving principles are reviewed and approved annually by the Board of Directors of Mandatum Life.
Market Risks Market risks refer to fluctuations in the financial results and capital caused by changes in market values of financial assets and liabilities as well as value of insurance liabilities. In Sampo Group, market risks are examined both from an ALM and an investment portfolio risks’
perspective and both angles are taken into account when risks are managed within the investment portfolio management framework.
ALM Risks The company is exposed to ALM risk when changes in different market risk variables (e.g. interest rates, inflation, foreign exchange rates and equity prices) cause a change in the value of investment assets that is of different size than the respective change in the economic value of insurance liabilities. ALM risk also includes the uncertainty stemming from the fact that the future cash flows of insurance policies are modeled estimates and therefore uncertain in relation to both their timing and amount.
In Sampo Group, ALM risks are managed as a part of managing the investment portfolios. ALM risks are analyzed regularly and these analyses together with actual capitalization, regulatory requirements and rating targets are taken into account when defining the Group companies’ investment policies.
The asset and liability management process applied in Sampo Group companies is illustrated in the figure 'Asset and liability management principles in Sampo Group'.
their asset and liability management which are based on the specific characteristics of their businesses.
The structure of the companies’ technical provisions, risk-bearing capacities, regulatory requirements, rating targets and risk tolerance are taken into account when defining asset allocations and limits and when setting return and liquidity targets. The Investment Policy also defines mandates and authorizations and sets guidelines on the use of derivatives.
Most of the technical provisions in If P&C are stated in the balance sheet in nominal terms. The provisions for annuities are discounted, and potential changes in the discount rates will affect the level of technical provisions in the company’s balance sheet. The discount rates vary between countries mainly due to differences in legislation but they are at least indirectly impacted by the prevailing market interest rate environment. Hence, from an accounting perspective, the company is mainly exposed to changes in expected future claims inflation and in the regulatory discount rate. However, from an economic perspective the value of all technical provisions are exposed to changes in market interest rates.
The asset and liability management is taken into account through the risk appetite framework and in order to comply with the overall risk appetite the liability cash flows may be matched through investments in fixed income instruments denominated in the same currency as the corresponding liability. FX swaps or other currency risk mitigating derivatives are used to eliminate currency risk if investments are made in instruments not denominated in the same currency as the liability.
In the long run the most significant risk is that fixed income investments will not generate a return at least equal to the guaranteed interest rate of technical provisions.
Investment Policy also includes measures and limits for maximum acceptable market risk. These measures and limits are based on both
Solvency I and Solvency II type of approaches. When it comes to the
Solvency I type of approach, limits are set above Solvency I
Group. ALCO reports limit breaches to the Board which makes the decisions related to the capitalization and the market risks in the balance sheet. The general objective is to maintain the required solvency and to ensure that investments are sufficient and eligible for covering technical provisions.
Sampo plc’s investment organization makes the day-to-day investment decisions based on principles set in Mandatum Life’s
Investment Portfolio Risks Investments are managed according to the subsidiaries’ investment policies. The most significant risks are equity, interest rate, credit spread and currency risks. Market risks also arise from private equity and hedge fund investments as well as real estate and commodity investments.
Sampo Group’s Chief Investment Officer is responsible for managing investments within the limitations of Investment Policies prepared by the company and approved by the company’s board. The insurance subsidiaries and the parent company have a common Group-wide infrastructure for investment management as well as performance and risk reporting. Sampo Group considers that it has a thorough understanding of Nordic markets and issuers and consequently Sampo
When investing in non-Nordic securities, funds or other third party managed investments are mainly used. These investments are primarily used as a tool in tactical asset allocation when seeking return and secondarily in order to increase diversification.
Middle Office functions measure risks and performance and control limits set in investment policies on a daily basis. Market risks and limits are controlled by the ICC in If P&C and ALCO in Mandatum Life at least on a monthly basis. These committees are responsible for the control of investment activities within the respective legal entity. The aggregated market risks and concentrations on Sampo Group level are controlled by the Group’s Audit Committee at least quarterly.
Life and Sampo plc at year end and in comparison to year end 2010 is shown in figure 'Development of investment portfolios, If P&C,
Most of Sampo plc’s debt is tied to short-term reference rates. This mitigates the Group level interest rate risk because, while lower interest rates would reduce subsidiaries’ investment returns in the long-term, the interest expense in Sampo plc would be lower.
Sampo plc and Sampo Group are presented in the figure 'Investment allocation, If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2011'.
Mandatum Life, 2002-2011' present the historical development of investment returns. Mandatum Life has had on average higher return with higher volatility.
portfolios (including Sampo plc) in 2011 was 1.0 per cent (8.7 per cent in 2010).
Sampo Group, 31 December 2011' presents the amount and average maturity of fixed income investments of Sampo Group by type of instrument. Sampo Group has a considerable amount of credit risk investments and is exposed to credit spread risk that is measured and managed as a part of the investment portfolio management. The limit setting is described in detail in the Credit risk chapter.
During 2011, the proportion of money market securities and cash was 13 per cent of the total investment portfolio. The proportion of high yield bonds was respectively 12 per cent. The proportion of public sector bonds was 5 per cent of the total investment portfolio.
At the end of year 2011 the equity exposure of If P&C was
EUR 1,149 million (EUR 1,648 million in 2010). The proportion of equities in If P&C’s investment portfolio was 10.3 per cent. During 2011
Sampo Group’s largest equity holdings are disclosed in the Notes to the Financial Statements (note 40).
Scandinavian currencies and in euro. The currency risk is reduced by matching technical provisions with investment assets in the corresponding currencies or by using currency derivatives.
In Mandatum Life, currency transaction risk mainly arises from investments in other currencies than euro because the company’s technical provisions are almost completely denominated in euro.
Mandatum Life’s currency strategy is based on active management of the currency position. The objective is to achieve positive return relative to a situation where the currency risk exposure is fully hedged.
Sampo plc's transaction risk position is related to SEK-denominated dividends paid by If P&C and to debt instruments issued in other currencies than euro.
In addition to transaction risk, Sampo Group and its insurance subsidiaries are also exposed to translation risk. Sampo Group's consolidated financial statements are denominated in euro.
Translation risk arises when entities with another base currency are consolidated into the Group financial statements. The effect of changes in foreign exchange rates result in translation differences which are recognized in the consolidated comprehensive income statement. Translation risks arise also within If P&C and to a lesser extent within Mandatum Life from their subsidiaries whose base currency is different from that of the respective parent company.
Policies set limits for maximum allocations into these markets and products. On 31 December 2011, the combined share of the above mentioned investments was 5.0 per cent of the total investment portfolio. In If P&C the proportion was 1.2 per cent and in Mandatum
Sampo Group / Annual Report 2011 Risk Management / Market Risks
Credit Risks Credit risks in Sampo Group mainly consist of the issuer risk related to investment assets, and counterparty risk related to derivatives and reinsurance transactions. The essential difference in terms of risk is that in the case of issuer risk, the entire market value of the instrument is at risk, whereas in the case of counterparty risk, it is only the possible positive market value of the contract that is at risk. Credit risk related to reinsurers arises through reinsurance receivables and through the reinsurers’ portion of outstanding claims. Credit risk related to reinsurance mainly concerns If P&C, as the use of reinsurance in Mandatum Life is relatively limited.
Also the credit risk exposures arising from other receivables related to commercial transactions are minor in Sampo Group.
the tables ´Credit exposures by sectors, asset classes and rating, If
Credit exposures by sectors, asset classes and rating, Mandatum Life, 31 December 2011
The figure for counterparty risk for reinsurance activities has been included in the counterparty risk in 2011. The comparative figure for the year 2010 has been changed accordingly.
Reinsurance receivables and reinsurers' portion of outstanding claims per rating category, If P&C, 31 December 2011 and 31 December 2010
Before an investment in a new security or a transaction with a new counterparty, the credit standing of the issuer or counterparty is thoroughly assessed. Credit ratings mainly from Standard & Poor’s,
Moody’s and Fitch are used to support the assessment of the creditworthiness of issuers and counterparties. The portfolio development and the counterparties’ credit standings are monitored continuously.
Investment Control Committee of If P&C and to the ALCO of
Mandatum Life. The decision-making in each business area shall follow the limits defined in the respective Investment Policy. Credit exposures are reported by ratings, instruments and the industry sectors of issuers and counterparties.
Liquidity Risks Liquidity risk is the risk that insurance undertakings are unable to conduct their regular business activities in accordance with the defined strategy, or in extreme cases, are unable to settle their financial obligations when they fall due. Major sources of liquidity risk in Sampo
Group are market illiquidity risk of investments, non-renewal of insurance policies and refinancing risk of debt. Also the availability and price of refinance and financial derivatives affect the company´s ability to conduct regular business.
Liquidity risk is relatively immaterial in Sampo Group’s businesses. The market illiquidity risk is rather limited because a major share of the investment assets are in tradable investment grade securities and in short-term money market instruments.
Sampo Group has a relatively low amount of financial liabilities and thus the Group’s respective refinancing risk is relatively minor. During the year Sampo plc issued several bonds and the maturities were selected carefully to have a well-diversified maturity profile.
In Sampo Group, liquidity risks are managed by the legal entities, which are responsible for liquidity planning. Liquidity risk is monitored based on the expected cash flows resulting from assets, liabilities and other business. At year end, the liquidity position in each legal entity was in accordance with internal requirements.
Cash flows according to contractual maturity, If P&C, Mandatum Life and Sampo plc, 31 December 2011
Sampo plc of which interest rate swaps of which interest rate swaps
In the table, financial assets and liabilities are divided into contracts that have an exact contractual maturity profile, and other contracts. Only the carrying amount is shown for the other contracts. In addition, the table shows expected cash flows for net technical provisions, which by nature, are associated with a certain degree of uncertainty. In the investment assets of Mandatum Life insurance, the investments of the Baltic subsidiary are included in the carrying amount but excluded from the cash flows.
Sampo Group / Annual Report 2011 Risk Management / Liquidity Risks
• internal misconduct; • external misconduct; • insufficient human resources management; • insufficiencies in operating policies as far as customers, products or business activities are concerned; • damage to physical property; • interruption of activities and system failures; and
Operational risk may materialize as additional expenses, compensations for caused damages, non-compliance with rules and regulations, loss of reputation, false information on risk position and consecutive losses, and interruption of business activities.
Each company is responsible for arranging its operational risk management to align with above goals, taking also into account the specific features of its business activities.
Operational Risk Management in If P&C The continuity of operational risk management is secured through the
attention required immediately. The most severe risks with control status yellow or red are reported to If P&C’s Operational Risk
Incident reporting and analysis is managed differently depending on type of incident. Some types of incidents are reported via a separate web based incident reporting routine, and others are identified through controls and investigations.
Sampo Group / Annual Report 2011 Risk Management / Operational Risks
different parts of the organization. These documents are reviewed and updated at least annually.
• Self-assessment process is used to map and evaluate the major operational risks and their probabilities and significance, including an evaluation of internal controls and sufficiency of instructions.
Each business unit is responsible for ensuring that the occurred incidents and near misses are reported to the ORC.
The most significant operational risks for Mandatum Life identified in the operational risk self-assessment process include the following: changes in the external operating environment, IT and especially aging
IT systems, manual phases in processes, loss of key personnel, missselling and false information to customers.
Deviations against different policies are followed up independently in each business unit and reported to ORC.
Group Level Risk Considerations As a general principle, the subsidiaries are managed independently from each other. However, it has been deemed pertinent to assess certain risk issues also on the Group level, i.e. concentration risks arising from exposures, correlations of profitability and capital positions, liquidity management and Group structure.
Mandatum Life are operating mostly in different lines of business and hence their underwriting risks are different. The most material common risk factor is life expectancy in Finland that is affecting both companies’ technical provisions. It is difficult to see material risk concentrations under normal conditions and, consequently, business lines as such are contributing diversification benefits rather than concentration risks. On the other hand, both subsidiaries have significant investment portfolios and, thus, are potentially threatened with investment related concentration risks (for example large combined exposures).
On the Group level, eventual large exposures are monitored and managed in several ways. Firstly, concentration risk is mitigated through effective differentiation in asset allocation. Mandatum Life’s direct investments are mainly denominated in euro and in companies geographically located in Finland, whereas If P&C has the majority of its direct investments in Scandinavian currencies and in the respective countries. Investments managed by external asset managers, on their behalf, are selected for both companies by the same investment team.
On the subsidiary level, investment risk concentrations are monitored and controlled by the ICC in If P&C and ALCO in Mandatum Life, which have been established as independent parties from investment operations. Total group exposures are monitored and controlled by
Conversely, the significance of public sector bonds is minor and Sampo
Sampo Group, 31 December 2011' and 'Fixed income investments in public sector, Sampo Group, 31 December 2011'. When it comes to the financial sector most of the investments are in Nordic countries, and product wise covered bonds and short-term money market investments have a major emphasis. The public sector figures include government bonds, government guaranteed bonds and other public sector investments.
Fixed income investments in public sector, Sampo Group, 31 December 2011
The largest exposures by individual counterparties are presented in table 'Largest individual exposures by asset class, Sampo Group, 31 December 2011'.
Largest individual exposures by asset class, Sampo Group, 31 December 2011
'Ten largest direct equity investments, Sampo Group, 31 December 2011' and 'Ten largest direct high-yield and non-rated fixed income investments, Sampo Group, 31 December 2011'.
Fixed income investments in UPM-Kymmene decreased by EUR 78 million in January 2012 when a bond matured.
Capitalization This chapter presents the capitalization of Sampo Group in 2011 and the changes that took place during the year. Risks and the respective capital requirements in Sampo Group are assessed internally, as well as according to the methods defined by the regulators and rating agencies. The amount of adjusted solvency capital is compared to economic capital and regulatory solvency capital is compared to the regulatory capital requirement. Furthermore, rating agency capital targets for different ratings are compared to the respective rating agency measures of available capital.
assumptions used for calculating the economic capital. Thus, the economic capital figures may not be fully comparable between years.
In early 2011, If P&C entered into a so-called pre-application process with the aim of having a partial internal model approved for calculating the capital requirements under the new Solvency II regulation. As a
Sampo Group's economic capital increased during the year and amounted to EUR 4,374 million at the end of 2011 (EUR 4,281 million in 2010).
capital in 2011 were credit risk and market risk. Only minor changes occurred during the year. Insurance risk increased by EUR 115 million and market risk decreased by EUR 162 million.
The split of economic capital by risk type and the adjusted solvency capital in If P&C and Mandatum Life is depicted in the figures
(EUR 1,381 million at the end of 2010) meanwhile in Mandatum Life, economic capital decreased to EUR 1,046 million (EUR 1,119 million at the end of 2010).
Topdanmark’s regulatory solvency requirement of EUR 98 million as at the end of year 2011 is included in the economic capital.
Mandatum Life although it has decreased in both companies compared to the year 2010. Insurance risk increased in If P&C during the year to EUR 677 million (EUR 583 million at the end of 2010) and in
EUR 925 million (EUR 1,589 million in the end of 2010). In both companies paid dividends were affecting capitalization together with decreases in fair value reserves and interest rate levels.
Group's equity. On the other hand, the effect on adjusted solvency capital would be positive due to the fact that value of technical provisions would fall as a result of applying a higher discount rate.
Capitalization by Regulatory Criteria Sampo Group reports its Group solvency quarterly to the Finnish supervisory authorities monitoring Sampo Group. Subsidiaries’
(EUR 1,324 million in 2010) while the regulatory capital requirement was EUR 226 million (EUR 231 million in 2010). Also Sampo Group’s consolidated capital position was strong. The Group solvency ratio was 139 per cent (167 per cent in 2010).
Supervision of Financial and Insurance Conglomerates (1193/2004) is broken down in table 'Group solvency, 31 December 2011 and 31 December 2010'.
Capitalization by Rating Agency Criteria If P&C Insurance Ltd. (publ) (Sweden) and If P&C Insurance Company
II requirements. The new Solvency II regulation is expected to be implemented by 2014.
In If P&C a separate program was introduced in 2007 to prepare If P&C
In the beginning of 2011 If P&C entered a so-called pre-application process with the Swedish and Finnish Financial Supervisory
Sampo Group / Annual Report 2011 Risk Management / Risk Management Outlook
Change in liabilities for insurance and investment contracts 4 241 -769
Other comprehensive income for the period, net of tax -352 703
Dividend income received 102 64 *) Investments include investment property, financial assets and investments related to unit-linked insurance contracts.
Summary of Significant Accounting Policies Sampo Group has prepared the consolidated financial statements for 2011 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, 2011.
During the financial year, Sampo adopted the following new or amended standards or interpretations relating to its business. The changes had no effect on the financial statements reporting.
Classification of Rights Issues addressed the accounting for rights, options or warrants that are denominated in a currency other than the functional currency of the issuer.
Amended IFRIC 14 Prepayments of a Minimum Funding Requirement permitted an entity to treat the benefit of certain early payments as assets.
Improvements to IFRSs 2010 – various minor changes made to different standards at the same time. The changes were not material to Sampo’s financial statements reporting.
The Board of Directors of Sampo plc accepted the financial statements for issue on 9 February 2012.
The consolidated financial statements combine the financial statements of Sampo plc and all its subsidiaries. Entities qualify as subsidiaries if the Group has the controlling power. The Group exercises control if its shareholding is more than 50 per cent of the voting rights or it otherwise has the power to exercise control over the financial and operating policies of the entity. Subsidiaries are consolidated from the date on which control is transferred to the
The acquisition method of accounting is used for the purchase of subsidiaries. The cost of an acquisition is allocated to the identifiable assets, liabilities and contingent liabilities, which are measured at the fair value of the date of the acquisition. Possible non-controlling interest of the acquired entity is measured either at fair value or at proportionate interest in the acquiree’s net assets. The acquisitionspecific choice affects both the amount of recognised goodwill and non-controlling interest. The excess of the aggregate of consideration transferred, non-controlling interest and possibly previously held equity interest in the acquiree, over the Group’s share of the fair value of the identifiable net assets acquired, is recognised as goodwill.
Associates are entities in which the Group has significant influence, but no control over the financial management and operating policy decisions. Unless otherwise demonstrated, this is generally presumed when the Group holds in excess of 20 per cent, but no more than 50 per cent, of the voting rights of an entity. Investments in associates are treated by the equity method of accounting, in which the investment is initially recorded at cost and increased (or decreased)
Unrealised gains (losses) on transactions are eliminated to the extent of the Group’s interest in the entity.
If there is any indication that the value of the investment may be impaired, the carrying amount is tested by comparing it with its recoverable amount. The recoverable amount is the higher of its value in use or its fair value less costs to sell. If the recoverable amount is less than its carrying amount, the carrying amount is reduced to its recoverable amount by recognising an impairment loss in the profit/
Foreign currency translation The consolidated financial statements are presented in euro, which is the functional and reporting currency of the Group and the parent company. Items included in the financial statements of each of the
The following exchange rate was applied in the consolidated financial statements: Balance sheet date Average exchange rate 1 euro (EUR) =
Group’s business segments are P&C insurance, life insurance and holding business.
P&C insurance contracts are primarily of short duration (1 year), so that premiums written are recognised as earned on a pro rata basis, adjusting them by a change in the provision for unearned premiums i.e. by the proportion of the insurance premium income that, based on the period covered by the insurance contract, belongs to the following financial year.
Financial assets are derecognised when the contractual rights to receive cash flows have expired or the Group has transferred substantially all the risks and rewards of ownership. Financial liabilities are derecognised when the obligation specified in the contract is discharged or cancelled or expire.
Available-for-sale financial assets are initially recognised fair value, including direct and incremental transaction costs. They are subsequently remeasured at fair value, and the changes in fair value are recorded in other comprehensive income and presented in the fair value reserve, taking the tax effect into account. Interest income and dividends are recognised in profit or loss. When the available-for-sale assets are sold, the cumulative change in the fair value is transferred from equity and recognised together with realised gains or losses in profit or loss. The cumulative change in the fair value is also transferred to profit or loss when the assets are impaired and the impairment loss is recognised. Exchange differences due to availablefor -sale monetary balance sheet items are always recognised directly in profit or loss.
The fair value of financial instruments is determined primarily by using quoted prices in active markets. Instruments are measured either at the bid price or at the last trade price, if the instrument is a share listed at NASDAQ OMX. The financial derivatives are also measured at the last trade price. If the financial instrument has a counter-item that will offset its market risk, the mid-price may be used to that extent. If a published price quotation does not exist for a financial instrument in its entirety, but active markets exist for its component parts, the fair value is determined on the basis of the relevant market prices of the component parts.
If the fair value of a financial asset cannot be determined, historical cost is deemed to be a sufficient approximation of fair value. The amount of such assets in the Group balance sheet is immaterial.
There is objective evidence of impairment, if an issuer or debtor e.g.
investments. They are measured in accordance with the generally accepted common practice, International Private Equity and Venture
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.
insurance. Both fair value and cash flow hedging have been applied in life insurance.
Leases of assets in which substantially all the risks and rewards of ownership are transferred to the Group are classified as finance leases.
‘Other liabilities’ in the balance sheet. The assets acquired under finance leases are amortised or depreciated over the shorter of the asset’s useful life and the lease term. Each lease payment is allocated between the liability and the interest expense. The interest expense is amortised over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Goodwill represents the excess of the cost of an acquisition (made after 1 January 2004) over the fair value of the Group’s share of the net identifiable assets, liabilities and contingent liabilities of the acquired entity at the date of acquisition. Goodwill on acquisitions before 1
January 2004 is accounted for in accordance with the previous accounting standards and the carrying amount is used as the deemed cost in accordance with the IFRS.
Intangible assets with finite useful lives are measured at historical cost less accumulated amortisation and impairment losses. Intangible assets are amortised on a straight-line basis over the estimated useful life of the asset. The estimated useful lives by asset class are as follows: • IT software 4-10 years
Sampo’s own activities, office equipment, fixtures and fittings, and furniture. Classification of properties as those occupied for own activities and those for investment activities is based on the square
metres in use. If the proportion of a property in Sampo’s use is no more than 10 per cent, the property is classified as an investment property.
Depreciation of property, plant or equipment will be discontinued, if the asset in question is classified as held for sale in accordance with
Impairment of intangible assets and property, plant and equipment At each reporting date the Group assesses whether there is any indication that an intangible asset or an item of property, plant or equipment may be impaired. If any such indication exists, the Group will estimate the recoverable amount of the asset. In addition, goodwill, intangible assets not yet available for use and intangible assets with an indefinite useful life will be tested for impairment annually, independent of any indication of impairment. For impairment testing the goodwill is allocated to the cash-generating units of the
Group from the date of acquisition. In the test the carrying amount of the cash-generating unit, including the goodwill, is compared with its recoverable amount.
A reinsurance contract is a contract which meets the IFRS 4 requirements for insurance contracts and on the basis of which the
'Other assets'. The former item includes the reinsurers’ share of the provisions for unearned premiums and claims outstanding in the
Group’s reinsured insurance contracts, while the latter includes shortterm receivables from reinsurers.
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 cash flow from these contracts is recognised directly in the balance sheet, without recognising it first in the income statement as premiums written and claims incurred.
Calculation of the provision for unexpired risks must also take into account instalment premiums not yet due.
The provision for claims outstanding is intended to cover the anticipated future payments of all claims incurred, including claims not yet reported to the company; i.e. the IBNR (incurred but not reported)
provision. The provision for claims outstanding includes claims payments plus all estimated costs of claim settlements.
(the IBNR provision) are calculated using statistical methods. The provision for claims outstanding is not discounted, with the exception of provisions for vested annuities, which are discounted to present value using standard actuarial methods, taking anticipated inflation and mortality into account.
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-as-you-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
All contracts, except unit-linked contracts and the assumed reinsurance, include DPF. In those unit-linked contracts which are not insurance contracts, the policyholder has the possibility to transfer the return on savings from unit-linked schemes to guaranteed interest with DPF. Thus, these contracts are also measured as contracts with
The interest rate used in discounting liabilities is, at most, the maximum rate accepted by the authorities in each country. The guaranteed interest used in the direct insurance premium basis varies on the basis of the starting date of the insurance from zero to 4.5 per cent. The interest rate used in discounting liabilities is the same or lower than that used in premium calculation. Most of the liabilities of the accrued benefits of pension business with DPF are discounted by an interest rate of 3.5 per cent, also being the highest discount rate used. In addition, Mandatum Life has for the year 2012 lowered the maximum rate to 2.75 %.
Due to the difference in the discount rate of liabilities and the guaranteed interest of 4.5 %, supplementary provisions for
guaranteed interest have been added to technical provisions. In the subsidiary, Mandatum Life Insurance Baltic, the discount rate varies by country between 2.5 - 4.0 per cent and the average guaranteed interest rate between 2.5 – 4.0 per cent.
Act, the Principle of Fairness must be observed in life insurance and investment contracts with a discretionary participation feature. If the solvency requirements do not prevent it, a reasonable part of the surplus has to be returned to these policies as bonuses.
Mandatum Life aims at giving a total return before charges and taxes on policyholders’ savings in contracts with DPF that is at least the yield of those long term bonds, which are considered to have lowest risk. At the moment we consider German government bonds to be the most risk free long term bonds available. Nevertheless, Finnish government bonds are used as target levels at the moment. The total return consists of the guaranteed interest rate and bonuses determined annually. Continuity is pursued in the level of bonuses. The aim is to maintain the company’s solvency status on such a level that it neither limits the giving of bonuses to policyholders nor the distribution of profit to shareholders. The principle is explained in detail on the company’s website.
Sampo has defined benefit plans in Sweden and Norway, and defined contribution plans in other countries. The most significant defined contribution plan is that arranged through the Employees’ Pensions
In defined benefit plans, the company still has obligations after paying the contributions for the financial period and bears their actuarial and/
or investment risk. The obligation is calculated separately for each plan using the projected unit credit method. In calculating the amount of the obligation, actuarial assumptions are used. The pension costs are recognised as an expense for the service period of employees.
When reporting defined benefit plans in the balance sheet, the socalled corridor method is used. According to this model, accrued actuarial gains and losses resulting from differences between calculated assumptions and the actual outcome are not reported in the income statement unless the accumulated difference exceeds 10 per cent of the present value of the future obligations or the fair value of the plan’s assets, whichever is higher. Accumulated differences that exceed the 10 per cent limit are accrued in the income statement as pension costs throughout the duration of the obligation. The accumulated accrued actuarial gains and losses calculated in this way that are not reported in the income statement are reported in the balance sheet as a net asset/net liability.
An obligation based on termination of employment is recognised as a liability when the Group is verifiably committed to terminate the employment of one or more persons before the normal retirement date or to grant benefits payable upon termination as a result of an offer to promote voluntary redundancy. As no economic benefit is expected to flow to the employer from these benefits in the future, they are recognised immediately as an expense. Obligations maturing more than 12 months later than the balance sheet date are discounted.
Share-based payments During the financial year, Sampo had three valid share-based incentive schemes settled in cash (the long-term incentive schemes 2008 II, 2009 I and 2011 I for executives and specialists) . Schemes have been measured at fair value at the grant date and at every reporting date thereafter.
When the parent company or other Group companies purchase the parent company’s equity shares, the consideration paid is deducted from the share capital as treasury shares until they are cancelled. If such shares are subsequently sold or reissued, any consideration received is included in equity.
Amendment to IAS 1 (effective for annual periods beginning on 7 July 2012 or after) requires the grouping of items presented in other comprehensive income based on whether they are potentially reclassifiable to profit or loss subsequently. The amendment will have an impact on the Group’s disclosures.
The amendment to IAS 19 Employee Benefits (effective for annual periods beginning on 1 Jan 2013 or after) mandates all actuarial gains and losses be recognised in other comprehensive income, thus the socalled corridor approach is eliminated and the benefit cost will be
EURm 150. These losses will reduce the opening equity for the comparison year 2012, while the subsequent changes will be recognised in other comprehensive income.
The amendment to IFRS 7 Financial Instruments: Disclosures (effective for annual periods beginning on 1 Jan 2013 or after) specifies the situations when financial assets and financial liabilities need to be offset.
Segment information The Group’s business segments comprise P&C insurance, Life insurance and Holding company.
Other comprehensive income for the year, net of tax -170 -222 25 15 -352
CONSOLIDATED INCOME STATEMENT BY BUSINESS SEGMENT FOR YEAR ENDED 31 DECEMBER 2010
Change in liabilities for insurance and investment contracts -91 -678 - - -769
Liabilities for unit-linked insurance and investment contracts - 3,124 - - 3,124
Premium revenue ceded to reinsurers on insurance contracts issued -5 -6
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 47 (-143) transferred from the fair value reserve.
Included in gains/losses from financial assets available-for-sale is a net gain of EURm -0 (1) transferred from the fair value reserve.
All the income and expenses arising from investments are included in Net income from investments. Gains/losses include realised gains/losses on sales, unrealised and realised changes in fair values and exchange differences. Unrealised fair value changes for financial assets available-for-sale are recorded in other comprehensive income and presented in the fair value reserve in equity.
Change in claims provision for annuities - - - -9 - -9
Total claims cost attributable to prior-year operations 169 -33 135 154 -40 113
Change in claims provision for annuities -82 - -82 3 - 3
Total change in provision for claims outstanding 9 14 23 -62 -9 -71
The provision for annuities is valued in accordance with normal actuarial principles taking anticipated inflation and mortality into consideration, and discounted to take the anticipated future investment return into account. To cover costs for the costs for the upward adjustment of annuity provisions required for the gradual reversal of such discounting, an anticipated return is added to the annuity results. Provisions for incurred but not reported losses pertaining to annuities in Finland are discounted. The provisions in 2011 amounted to EURm 274 (281). The non-discounted value was EURm 492 (472). The changes are due to foreign exchange effects, real decrease and prolonged estimated payment pattern.
Contracts with discretionary participation feature (DPF) -353 -331 -114 -64 -467 -395
Contracts with discretionary participation feature (DPF) -17 -37 - - -17 -37
Change in liabilities for insurance and investment contracts in total, gross 348 -678
Change in liabilities for insurance and investment contracts in total, net 348 -678
Technical result before investment return 1) Activity-based operating costs EURm 257 (253) have been allocated to claims incurred.
Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period - direct operating expenses arising from investment property not generating rental income during the period
The recoverable amounts for If have been determined by using a discounted cash flow model. The model is based on Sampo’s management’s best estimates of both historical evidence and economic conditions such as volumes, margins, income and cost development. The value in use model for Mandatum Life has been fundamentally based on the embedded value model where the cash flow estimates for existing policies are based on budgets approved by the management and on historical evidence in terms of policy surrendering, death and accident frequencies etc. The derived cash flows were discounted at the pre-tax rates of the weighted average cost of capital which for If was 9.8 % and for Mandatum Life 10.5 %.
Associates that have been accounted for by the equity method at 31 Dec 2011
Associates that have been accounted for by the equity method at 31 Dec 2010
Besure Forsikring Skandinavia AS - - - *) Published price quatation **) Excluded from accounting for by the equity method because of their immaterial effect on consolidated figures.
Nordea is an universal bank with positions within corporate merchant banking as well as retail banking and private banking. With approximately 1.400 branches, call centers in all Nordic countries and an e-bank, Nordea also has a large distribution network for customers in the Nordic and Baltic sea region, including more than 260 branches in five new European markets, Russia, Poland, Lithuania, Latvia and Estonia.
Group's financial assets comprise investments in derivatives, financial assets designated as at fair value through p/l, loans and receivables, available-for-sale financial assets and investments in subsidiaries. The Holding segment includes also investments in subsidiari
Financial assets designated as at fair value through p/l 51 61
Equity and equity index options 0 0 - 2 1 -
Financial assets available-for-sale for P&C insurance include impairment losses EURm 166 (179).
Total derivatives held for trading 3,248 35 25 3,151 54 12
Total derivatives held for hedging 510 2 38 582 4 14
Fair value hedges 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, as well as the share of credit risk in interest risk hedges.
Net gains from interest rate swaps designated as fair value hedges amounted to EURm -2 (1) milj. euroa. Net losses from hedged risks in fair value hedges of available for sale financial assets amounted to EURm 2 (-1).
Total financial assets designated as at fair value through p/l 51 61
Financial assets available for sale /shares and participations: Listed equity securities include EURm 635 (674) quoted shares. Unlisted equity securities include EURm 692 (551) investments in capital trusts.
Equity and euqity index options 80 13 17 95 7 10
Financial assets available-for-sale for Holding business include impairment losses EURm 0 (2).
A large majority of Sampo Group's financial assets are valued at fair value. The valuation is based on either published price quatations or valuation techniques based on market observable inputs, where available. For a limited amount of assets the value needs to be determined using other techniques.
The financial instruments measured at fair value have been classified into three hierarchy levels in the notes, depending on e.g. if the market for the instrument is active, or if the inputs used in the valuation technique are observable.
On level 1, the measurement of the instrument is based on quoted prices in active markets for identical assets or liabilities.
Total financial liabilities measured at fair value 3 108 - 110
The sensitivity analysis of the Group's fair values of financial assets and liabilities in differenct market risk scenarios is presented below. The effects represent the instantaneous effects of a one-off change in the underlying market variable on the fair values on 31 Dec 2011.
Total gains or losses included in profir or loss for the financial year 35 15 50
19 SENSITIVITY ANALYSIS OF LEVEL 3 FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
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 %. The Sampo Group bears no investment risks relatted 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 would cause descent of EURm 0 (0) for the debt instruments, and EURm 185 (144) valuation loss for other instruments in the Group's other comprehensive income. The reasonably possible effect, proportionate to the Group's equity, would thus
Tax losses for which no deferred tax asset has been recognised -17 -1
Tax from previous years 2 -3 23 COMPONENTS OF OTHER COMPREHENSIVE INCOME
Income tax relating to components of other comprehensive income 141 -156
Item Other comprise e.g. receivables from the employees' group life insurance pool, pensions paid in advance and receivables from co-operations companies.
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.
At the close of the claims year 5,046 2,583 2,526 2,689 2,703 2,768 2,920 2,929 3,049 3,131
Provision reported in the balance sheet of which established vested annuities 1,313 64 51 66 69 67 64 50 33 7 1,785
At the close of the claims year 4,435 2,462 2,453 2,542 2,592 2,667 2,796 2,808 2,897 2,958
Group, total 4,558 5,058 28 LIABILITIES FROM UNIT-LINKED INSURANCE AND INVESTMENT CONTRACTS
The loan issued in 2001 was redeemed during the financial year. The loan issued in 2002 was issued to If's previous owners in relation to their holding in If. In December 2011, an new loan was issued amounting to EURm 110. The loans was wholly subscribed by Sampo Plc.
The expected rate of return on the plan assets has been calculated based on the following division of investment assets: Sampo Group / Annual Report 2011 Financial Statements / Group's IFRS Financial Statements
Present value of estimated pension obligation 506 71 577 395 63 458
Expected rate of return on plan assets at the begninning of the year -16 -14
Actuarial gains (-) or losses (+) recognised during the financial year 1 2
Reconciliation of plan assets: At the beginning of the year 326 272
Other short-term employee benefits There are other short-term staff incentive schemes 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 profit-sharing bonuses, social security costs included, for 2011 is EURm 46.
If P&C Insurance Company Ltd has outstanding commitments to private equity funds totalling EURm 11, which is the maximum amount that the company has committed to invest in the funds. Capital will be called to these funds over several years as the funds make investments.
Minimum lease payments not later than one year 2 2 later than one year and not later than five years 5 6
Total of sublease payments expected to be received under non-cancellable operating sub-leases at 31 Dec
Minimum lease payments not later than one year 1 1 later than one year and not later than five years 3 3 later than five years 0 1
The Group had at the end of 2011 premises a total of 180 598 m2 (188,589) taken as a lessee. The contracts have been made mainly for 3 to 10 years.
The number of Sampo plc’s shares at 31 Dec. 2011 was 561,282,390, of which 560,082,390 were A-shares and 1,200,000 B-shares. Sampo plc acquired and annulled 1,282,390 treasury shares during the financial year. There was no change in the company's share capital of EURm 98 during the financial year.
At the end of the financial year 2011, the mother company or other Group companies held no shares in the parent company.
Share premium reserve The reserve included investments of equity nature and the issue price of shares to an extent it is not recorded in share capital by an express decision.
Changes in the reserves and retained earnings are presented in the Group's statement of changes in equity.
Price of Sampo A at terms approval date *) 18.02 16.74 18,10
Total cost for the financial period, meur (incl. social costs) 8 *) Grant dates vary **) Trade-weighted average for ten trading days from the approval of terms 37 AUDITORS' FEES
Holdings exceeding EURm 5 and holdings in listed companies exceeding five per cent specified. The table does not include investments related to unit-linked insurance contracts.
In the meeting of 9 Feb. 2012, the Board of Directors decided to propose at the Annual General Meeting on 12 April 2012 a dividend distribution of EUR 1.20 per share, or total EUR 672.000.000, for 2011. The dividends to be paid will be accounted for in the equity in 2012 as a deduction of retained earnings.
Additional information to the statement of cash flows: Interest income received 72 78
Summary of Significant Account Policies The presentation of Sampo Plc's financial statements together with the notes has been prepared in accordance with the Finnish Accounting Act and
Ordinance. The accounting principles applied to the separate financial statements of Sampo plc do not materially differ from those of the Group, prepared in accordance with the International Financial Reporting Standards (IFRSs). The financial assets are measured at fair value derived from the markets. See The accounting principles for the Group.
Income from property occupied for own activities 0 1 2 DEPRECIATION AND IMPAIRMENT
The basic and suplementary pension insurance of Sampo plc's staff is handled through insurances in Varma Mutual Insurance Company and in Mandatum Life Insurance Company Limited.
Responsibility of the Board of Directors and the Managing Director The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU, as well as for the preparation of financial statements and the report of the Board of Directors that give a true and fair view in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company’s accounts and finances, and the Managing Director shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner.
Opinion on the consolidated financial statements In our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting
Directors give a true and fair view of both the consolidated and the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in
Opinions based on the assignment of the Audit Committee We support that the financial statements should be adopted. The proposal by the Board of Directors regarding the use of the profit shown in the balance sheet is in compliance with the Limited Liability
Directors of the parent company and the Managing Director should be discharged from liability for the financial period audited by us.
Sampo Group / Annual Report 2011 Financial Statements / Auditor's Report
This is an user defined extract from Sampo's Online Annual Report and this kind of extract can in no circumstances be referred to as Sampo's Annual Report or an extract thereof. Sampo's entire Annual Report is available at www.sampo.com/annualreport.
Shareholder who is registered on the record date for the Annual General
Meeting. Shareholders whose shares are registered on their personal Finnish bookentry accounts are registered in the company’s Shareholder Register.
agm; • By telephone to +358 (0)10 516 0028 from Monday to Friday, 8 am–4 pm
(Finnish time); • By fax to +358 (0)10 516 0719; or
04/13/12 Ex-dividend date 04/17/12 Dividend record date 04/24/12 Dividend payment date
Sampo Group / Annual Report 2011 Financial information and Annual General Meeting 2012