Sampo Group Review 2006 01 Sampo Group 02 Chief Executive Officer’s Review 04 Strategy 04 Sampo Group’s Return Targets 05 Main Legal Structure 06 Year 2006 in brief 08 History 09 Corporate Governance 13 Organisation 14 Board of Directors 16 Group Executive Committee 18 Group Staff 19 Corporate Responsibility 20 Shares and shareholders
If P&C Insurance 2006 01 If in brief 02 President’s Review 04 Business mission, strategy and selective growth 05 Market and competitors 06 Business area PRIVATE 08 Business area COMMERCIAL 10 Business area INDUSTRIAL 12 Business area BALTIC COUNTRIES 14 HR report 15 Social Responsibility 16 Risks and risk management 17 Five year summary 19 Cash flow statements 20 Income statement 21 Balance sheet 22 Glossary and definitions
Sampo Life 2006 01 Sampo Life 02 President’s Review 04 Operating environment 06 Sampo Life’s year 2006
Sampo Bank 2006 01 Sampo Bank in 2006 02 President’s Review 04 Retail Customers 06 Corporate and institutional customers 08 Sampo Bank’s subsidiaries 10 Sampo Bank in the Baltic countries 11 Staff 12 Corporate Responsibility
Insurance 2006 Sam po Life 2006 Sam po B ank 2006
The contact information for Group subsidiaries is available on the Internet at the address www.sampo.com/contacts.
Sampo is an insurance services group comprising l If, the leading P&C insurer in the Nordic countries, with over 3 million customers in Finland, Sweden, Norway, Denmark, Estonia, Latvia and Lithuania l Sampo Life, an expert in life and pension insurance products, with operations in Finland, Sweden, Estonia, Latvia and Lithuania
Shareholder value at the core of Sampo’s strategy Time and again we have stated that we lack a traditional business strategy. Our individual operating divisions have clearly stated goals and strategies but, as a group, we refuse to limit the scope of our investments through the adoption of a strategy. The sale of Sampo Bank must finally have proved to those shareholders, analysts or media representatives who may still have doubted this pronouncement, that the decisions of our Board of Directors and Executive Management are guided by shareholder value alone.
Only a little more than two years had passed since Sampo’s previous transformation. Nevertheless, Danske Bank’s offer for Sampo Bank was simply too attractive to turn down without strongly compromising the interests of our shareholders. In terms
During the year, If entered into a number of significant cooperation agreements in both Norway and Sweden. In Norway, the agreement with Handelbanken Liv allowed If to expand its portfolio in the local statutory employment pension system (the OTP system), supplementing its offering with disability and child pensions. In Sweden If signed an agreement with SBAB, the Swedish National Housing Finance Corporation, providing SBAB clients with easy access to If:s insurance products.
Sampo as a major Nordic investor The third and increasingly important pillar of Sampo Group’s operations is its role as one of the largest investors in the Nordic area. Following the sale of the bank, our investment assets exceed 20 billion euros. As an investor, we are conservative, in that our goal is to ensure a good return with prudent, but innovative investment polices, focused on the region and the businesses that we are familiar with.
Over the past six years, after selling out the sizeable holding in Nokia, which had so strongly contributed to the growth of Sampo’s assets in the 1990’s, we have succeeded in achieving good and reasonably stable returns by carefully analyzing potential investments and concentrating them in businesses that we know well. As we are not required to match asset durations with those of our insurance liabilities, we have also been able to avoid the problems associated with a long bond portfolio in times of rising interest rates.
Nevertheless, I think it needs pointing out that, in line with our firm commitment to shareholder value, we will not be in a hurry to spend our capital, but will instead ask our shareholders for some patience. We will not be bidding for overpriced companies that might “fit our business portfolio” but, as before, keep our eyes on valuations.
Sampo Group’s goal is to create value for its shareholders. The Group has no strictly defined strategy, and it aims to flexibly utilise opportunities that arise in the market to create shareholder value through transactions such as mergers and acquisitions.
P&C insurance is carried on under the If brand. If is the largest Nordic P&C insurer, with a market share exceeding 20 per cent. Operations are focused on raising profitability, rather than defending market share. The company also commands a strong position in the rapidly growing Baltic markets. If uses the competitive advantages offered by its market position and size in
Strategy all its operations. These are reflected in cost efficiency, superior risk selection and diversification benefits.
Management of the Group’s investment activities has been concentrated in the parent company, Sampo plc. With investment assets in excess of EUR 20 billion, Sampo is one of the most significant investors in the Nordic countries.
** Sampo Bank owns the central unit of the Realty World real estate agency chain. The sales outlets are limited liability companies owned by independent entrepreneurs.
On 9 November 2006, Sampo plc announced the divestment of the Sampo Bank Group to Danske Bank A/S of Denmark. The transaction was completed upon the receipt of all necessary official approvals on 1 February 2007.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 16 January Aivar Rehe is appointed as Managing Director of AS Sampo Pank, the Estonian subsidiary of Sampo Bank plc.
1 February Andres Sooniste is appointed as Managing Director of AS If Eesti Kindlustus, the Estonian subsidiary of If P&C Insurance Holding Ltd.
28 April Sampo Bank announces its expansion to St. Petersburg, Russia by acquiring Profibank. The necessary official permits were received on 17 August 2006.
2 May Petri Ekman is appointed Managing Director of If P&C Insurance Company Ltd, a Finnish subsidiary of If P&C Insurance Holding Ltd.
11 May If announces it is planning to establish a P&C insurance company in Russia. The licence for commencing P&C insurance activities was received at the end of the year.
roup R eview 28 June Sampo Bank securitizes approximately EUR 1 billion of the exposure of corporate loans in its balance sheet.
27 September Sampo launches the “Oma Numero” (Own Number) service for retirement financal planning.
9 October If expands its product range in Norway’s OTP pension system; Sampo Life sells its OTP business.
28 November If’s Safety Agreement in co-operation with Anticimex, a new product for Norwegian home owners looking for security against water and mould damage, fire and burglary, has aroused widespread interest.
Sampo announces the divestment of Sampo Bank to Danske Bank of Denmark. The transaction was completed upon the receipt of all necessary official approvals on 1 February 2007. Following the transaction, Sampo’s business areas are P&C insurance and life insurance.
If becomes entirely owned by Sampo. Following the share transaction, Sampo has three core businesses: P&C insurance, banking and long-term savings.
Mandatum Bank joins the group, and the group’s name is shortened to Sampo.
The Board of Directors has appointed the Sampo Group’s Executive Committee and a Group MD Committee to the Group Executive Committee, which supports the CEO in preparing matters to be handled by the Executive Committee.
The Sampo Group’s Executive Committee supports the CEO in the preparation of strategic issues relating to the Sampo Group, in the handling of operating matters that are significant or involve questions of principle, and in ensuring a good internal flow of information.
The Executive Committee addresses especially the following: the Sampo Group’s strategy, budget, large purchases and projects, the Group’s structure and organisation, as well as key strategic issues pertaining to administration and personnel.
The composition of the Group’s Executive Committee is as follows: Björn Wahlroos, Group CEO Kari Stadigh, Group Deputy CEO Ilona Ervasti-Vaintola, Group Chief Counsel, Principal Attorney
Sampo complies with the Corporate Governance Recommendation for Listed Companies issued by HEX Plc, the Central Chamber of Commerce of Finland and the Confederation of Finnish Industry and Employers which entered into effect on 1 July 2004. Sampo’s Board of Directors has also approved internal rules concerning corporate governance, internal control and reporting in the Sampo Group.
Sampo’s Board of Directors is responsible for the management of the company in compliance with the law, the regulations of the authorities, Sampo’s Articles of Association and the decisions of the Shareholders’ Meeting. 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 the Sampo Group’s business strategy, approves the budget and the principles governing the Group’s risk management and internal control, and is responsible for the proper management of the Group’s operations. The Board also decides, within the limits of the company’s field of activities, on exceptional and far-reaching matters with respect to the scope and nature of the Sampo Group.
In addition, the Board regularly evaluates its own activities and cooperation with the Group’s management.
The Board elects the CEO and executives of the Sampo Group, releases them from their duties, and decides on the terms and conditions of their employment and on other compensation. In addition, the Board confirms the Group’s staff planning targets and monitors their fulfilment, determines the grounds for the
In 2006, the Executive Committee convened regularly, once a month, at the request of the CEO. The Group MD Committee to the Group Executive Committee, which assists the Executive Committee, normally met once a week, except when the Executive Committee convened in its entirety.
As authorised by the Board of Directors, the Committee also decides on the compensation of the members of the Executive Committee, excluding the Group’s CEO and Deputy CEO, as well as on the appointment, employment conditions and other salaries of the Sampo Group’s Head of Internal Audit, and on the principles by which the Sampo Group’s staff are to be compensated. In addition, the Committee is responsible for preparing proposals for the Board on issues relating to the development of good corporate governance and confirming criteria and processes used for the Board’s self-evaluation.
The Nomination and Compensation Committee is composed of the Chairman of the Board (who acts as the Committee’s Chairman), the Vice Chairman of the Board and one member elected from among the members of the Board. The Nomination and Compensation Committee comprises Georg Ehrnrooth, Matti Vuoria and Christoffer Taxell and met seven times in 2006.
The Risk Control Committee comprises the Chairman of the Board and two or three members elected from among the independent members of the Board. The Chairman of the Board acts as the Chairman of the Risk Control Committee. Also participating in the meetings of the Committee are the CEO, the respective chairmen of the Group’s Asset and Liability Committee, Investment Committee and Credit Committee, the member of the Group’s Executive Committee responsible for risk control, the Head of Risk Control and any other people elected at the discretion of the Board. Until 15 January 2007, the Risk Control Committee comprised Georg Ehrnrooth (Chairman), Tom Berglund and Jukka Pekkarinen. In addition, Björn Wahlroos,
The Asset and Liability Committee is responsible for preparing the Group’s balance sheet risk policy for approval by the Board, for preparing the banking book and trading limits and authorisations for the Boards of Group companies, and for monitoring the use of limits and authorisations and the Group’s consolidated liquidity. In 2006 the Asset and Liability Committee comprised Patrick Lapveteläinen (Chairman), Martti Porkka, Kai Brander, Aki Palo, Markku Pehkonen, Risto Tornivaara, Pekka Kainulainen and Petri Viertiö, the last two being expert members.
Chief Executive Officer The company has a Managing Director who is simultaneously the CEO of the Sampo Group. The Board of Directors elects and releases the CEO, and decides on the terms of employment and other compensation. The Managing Director of the company and the CEO of the Sampo Group is Björn Wahlroos.
According to Sampo’s Articles of Association, the Annual General Meeting decides on the compensation of the members of the Board of Directors.
In addition to receiving monthly salaries, executives who are members of the Group’s Executive Committee are participants in the Group’s profit bonus system which is decided upon separately each year. The criteria used in determining the profit bonus are the Group’s result, the business area’s result and the individual performance of the person in question. The maximum profit bonus that can be paid for 2006 to executives who are members of the Executive Committee is an amount corresponding to nine months’ salary.
With the exception of the Group CEO, the members of the Group Executive Committee are also participants in the longterm incentive systems for Sampo plc’s executive management for the years 2003, 2004 I, 2004 II, 2005 I, 2005 II, 2006 I and 2006 II. The members of the Group Executive Committee, including Sampo’s CEO, are also participants in the long-term share incentive system for the Sampo Group’s key management. The terms of the incentive systems are available on Sampo’s web pages at www.sampo.com.
All the options of the year 2000 Sampo option programme were subject to trading in the Helsinki Stock Exchange from 2 January 2004. Trading in the options ended on 24 January 2007.
Responsible auditor Tomi Englund, APA The total fees paid to the auditor for services rendered and invoiced were EUR 2,530,867. In addition, Ernst & Young Oy were paid fees for non-audit services rendered and invoiced totalling EUR 938,129.
Insider Administration Sampo’s Board of Directors has approved the Sampo Group’s Guidelines for Insiders. These comply with the Guidelines for Insiders issued by the Helsinki Stock Exchange, the Guidelines for Trading of the Finnish Association of Securities Dealers and the Finnish Association of Mutual Funds, the Insider Guidelines for Investment Activities issued by the Federation of Finnish Insurance Companies and the Standards of the Financial Supervision Authority. The Sampo Group’s Guidelines for Insiders are stricter than the above-mentioned norms on matters that concern the Group Executive Committee, other corporate executives and other specifically-named persons, as these persons must ask for separate written permission in advance for each share-related securities transaction they make.
The following companies (members of the Sampo Group in 2006) kept their own insider registers: Sampo plc, Sampo Bank plc, Mandatum Asset Management Ltd, Sampo Fund Management Ltd, Mandatum Securities Ltd, Mandatum & Co Ltd, 3C Asset Management Ltd and Arvo Asset Management Ltd.
Sampo plc’s insider guidelines and insider register may be viewed on the Internet at www.sampo.com/english, see Investor Relations/Share Information/Insiders.
After transfer of the Sampo Bank Group to Danske Bank on 1 February 2007, the Sampo Group’s new organisation was confirmed. It can be viewed on the Internet at www.sampo.com.
Matti Vuoria, born 1951 CEO, President of Varma Mutual Pension Insurance Company Positions of Trust: Danisco A/S, Denmark, Board Member Finnish Road Administration, Chairman of the Board Finnish-Russian Chamber of Commerce, Chairman Winwind Oy, Chairman of the Board The Finnish Pension Alliance TELA, Chairman of the Board Federation of Finnish Insurance Companies, Board Member (until 31 December 2006) Federation of Finnish Financial Services, Board Member (from 1 January 2007) Stora Enso Oyj, Board Member
Wärtsilä Corporation, Board Member He was appointed to the Board of Directors of Sampo plc on 7 April, 2004. He holds 26,501 Sampo plc shares directly or through a controlled company.
Tom Berglund, born 1951 Professor, Swedish School of Economics and Business Administration (Helsinki) Positions of Trust: Scientific Council in Economics at the Ministry of Finance (Finland), Member Emerging Markets Review (Elsevier), Member of the Associate Editorial Board The European Shadow Financial Regulatory Committee, Member He was appointed to the Board of Directors of Sampo plc on 25 May, 2000.
Anne Brunila, born 1957 President, Finnish Forest Industries Federation Positions of Trust: Finnish National Opera Foundation, Board Member Confederation of European Paper Industries CEPI, Member of the Association Directors’ Group International Chamber of Commerce, Board Member of the Finnish Department Finnish Marine Administration, Chairman of the Board Economic Information Office, Board Member WWF, Member of the Supervisory Board She was appointed to the Board of Directors of Sampo plc on 9 April, 2003.
Jukka Pekkarinen, born 1947 Director General, Ministry of Finance Positions of Trust: European Union, Economic Policy Committee, Member Incomes Policy Information Committee, Chairman Advisory Board to the Government Institute for Economic Research, Chairman The Local Government Pensions Institution, Investments Advisory Board, Chairman He was appointed to the Board of Directors of Sampo plc on 5 April, 2006. He holds 1,235 Sampo plc shares directly or through a controlled company.
Björn Wahlroos, born 1952 Group CEO, Managing Director of Sampo plc Positions of Trust: Sampo Bank plc, Chairman of the Board (until 31 January 2007) Varma Mutual Pension Insurance Company, Board Member Finnish Business and Policy Forum EVA, Board Member He was appointed to the Board of Directors of Sampo plc on 5 April, 2001. He holds 11,839,890 Sampo plc shares directly or through a controlled company.
Sampo Bank plc, Chairman of the Board (until 31 January 2007) Varma Mutual Pension Insurance Company, Board Member Finnish Business and Policy Forum EVA, Board Member He holds 11,839,890 Sampo plc shares directly or through controlled company
Stockholm Stock Exchange Ltd, Board Member Fiskars Corporation, Board Member Finnish Literature Society, Board Member The Panel on Takeovers and Mergers at the Central Chamber of Commerce of Finland, Member She holds 305,822 Sampo plc shares directly or through controlled companies
Ilkka Hallavo, born 1956 (member of the Group Executive Committee until 31 January 2007) Group Executive Vice President, Head of Corporate Banking; Deputy CEO, Sampo Bank plc (CEO, Sampo Bank plc from 1 February 2007)
If P&C Insurance Holding Ltd, Board Member Sampo Life Insurance Company Limited, Board Member Sampo Bank plc, Vice Chairman of the Board (until 31 January 2007) Mandatum Securities Ltd, Chairman of the Board (until 31 January 2007) He holds 203,761 Sampo plc shares directly or through controlled companies
If P&C Insurance Company Ltd (Finland), Board Member FNH Norway (Norwegian Financial Services Association), Member of the Executive committee of P&C Insurance He holds no Sampo Plc shares
Sampo Fund Management Ltd, Board Member (until 31 January 2007) AS Sampo Pank (Estonia), Board Member (until 31 January 2007) AB Sampo Bankas (Lithuania), Board Member (until 31 January 2007) AS Sampo Banka (Latvia), Board Member (until 31 January 2007) If Livförsäkring AB (Sweden), Board Member Amanda Capital Plc, Board Member Consumers’ Insurance Office, Board Member Nordben Life and Pension Insurance Co. Limited, Guernsey, Board Member He holds 26,205 Sampo plc shares directly or through controlled companies.
Group Executive Vice President, Head of Retail and Private Banking (Deputy CEO, Sampo Bank plc from 1 February 2007) Sampo Bank plc, Board Member
Breakdown of staff by country Finland Holding company: 435 If P&C Insurance and subsidiaries: 1,831 Sampo Life and subsidiaries: 249 Sampo Bank and subsidiaries: 3,383
Sampo’s responsible way of operating Sampo seeks ways of doing business that take the interests of all stakeholders into account without compromising those of the owners. Corporate responsibility is implemented and monitored in its economic, social and environmental dimensions. Sampo maintains its operations at a high level of ethicality, as is evidenced by the principles of corporate governance applied to insider administration, for example, which are more stringent than the corresponding official requirements.
If ’s Safety Fund aims to advance safety in the customers’ immediate environment by granting financial support to measures and projects promoting safety. Donations are granted monthly in all the Nordic countries. Support can be applied for by private persons and various organisations, with funds being granted during the year to a women’s clinic in Sundsvall, Sweden, for example, to improve the living conditions of the children of physically abused women during their stay at the clinic. In 2006, Sampo Bank donated money for projects promoting creativity among children and youth and for the Nyyti Society, which develops and provides mental well-being services for university students.
Staff wellbeing received much attention in Sampo in 2006. The purpose of wellbeing activities is to promote and maintain staff wellbeing and working capacity at all career stages. These activities support choices that promote staff health and wellbeing at work and at leisure. Sampo encourages those staff members that smoke to quit the habit. A “Smoke-free Sampo” campaign was adopted in 2006 throughout the Sampo Group in Finland.
Sampo’s Board of Directors reviewed the sustainable development policy in early 2006. The policy acknowledges the significance of the company’s stakeholders and profitable operation as the basis for sustainable development. The key values of corporate responsibility (ethicality, loyalty, transparency and enterprise) and the policy of sustainability relate to the entire Sampo Group, but their application has varied depending on business and regional circumstances. The planning, communications and practical work related to corporate responsibility were co-ordinated in 2006 by the Corporate Responsibility Steering Group, consisting of responsible persons in the various business areas and service units. Due to the divestment of the Sampo Bank Group, the Corporate Responsibility Steering Group’s new procedures, divisions of responsibility and action plan will be determined during the first half of 2007.
Corporate responsibility is discussed more extensively in a separate corporate responsibility report and on our Internet pages at www.sampo.com.
As a stock exchange listed company, Sampo plc has a duty to act in the best interests of its shareholders, in compliance with legislation and in accordance with sound business practices. The Sampo Group’s core businesses are all activities that require the trust of customers.
Shares and votes According to Sampo plc’s Articles of Association, the share capital can be at minimum EUR 30,105,638.84 and at maximum EUR 120,422,555.30. On 31 December, 2006, the company’s share capital was EUR 95,466,518.81, divided into 567,618,145 shares, of which 566,418,145 were A shares and 1,200,000 were B shares. The shares have no nominal value. The counter book value of the shares is EUR 0.17 (not an exact value). Each A share has 1 vote and each B share has 5 votes at General Meetings.
Sampo’s A shares have been quoted on the Helsinki Stock Exchange since 1988. All the B shares are owned by the Kaleva Mutual Insurance Company. B shares can be converted into A shares upon the demand of their holder. In addition, Sampo’s year 2000 options were quoted on the Helsinki Stock Exchange in the year under review. The subscription period for Sampo’s year 2000 options ended on 31 January, 2007, and their quotation on the Helsinki Stock Exchange ended on 24 January, 2007.
At the end of the financial year, Sampo plc held 4,827,500 of its own shares. Other Group companies did not hold any shares in the parent company, but Satura Ltd, a wholly owned subsidiary of Sampo plc, held 1,030,250 of the year 2000 options.
“Sampo Uudet” share category Because the Sampo A shares subscribed for on the basis of Sampo’s year 2000 options after 31 December, 2006 will entitle their holders to dividends only after the dividend distribution decided upon for 2006, a new share category called Sampo Uudet (Sampo New) was listed on the main list of the Helsinki Stock Exchange on 2 January, 2007. The Sampo Uudet share category will be combined with the Sampo A share after the dividend distribution for 2006.
During the year under review, Sampo’s Board of Directors approved the 17,982,470 A shares subscribed with options from Sampo’s year 2000 option programme, the combined counter book value of which was EUR 3,024,434.34. The new shares were admitted for trading on the Helsinki Stock Exchange following the entry of each lot in the Trade Register. Of these new shares, 3,299,830 were entered in the Trade Register in 2006. The remaining 14,682,640 shares were entered in the Trade Register in January 2007.
The subscription period for the year 2000 option programme ended on 31 January, 2007. The subscriptions received in January 2007, which increased the number of A shares by 1,057,605, will entitle their holders to dividends for the year 2007. After the shares were entered in the Trade Register on 12 February, 2007, Sampo plc’s total number of shares, including the 1,200,000 B shares, increased to 583,358,390.
Authorisations granted to the Board and their use The Annual General Meeting of 5 April 2006 granted the Board of Directors authorisation, valid until 5 April 2007, to buy back Sampo shares. The maximum amount of A shares that can be bought back is five per cent of the company’s share capital or of
On 10 August, 2006, the Board decided that derivatives may also be used in buying back Sampo shares. However, no derivatives were used in buying back Sampo shares in 2006.
Year 2000 option programme On 29 September, 2000, an Extraordinary General Meeting of Sampo decided to offer options, without consideration and in deviation from the pre-emptive subscription rights of shareholders, to the management, middle management and other key personnel of Sampo and its subsidiaries, and to a wholly-owned subsidiary specified by the company’s Board of Directors.
A total of 5,200,000 options were issued, of which 2,600,000 were designated as A options and 2,600,000 as B options. Each option entitles its holder to subscribe for five Sampo A shares. The share subscription period with the options ended on 31 January, 2007 and the share subscription price after the dividends distributed for 2005 was EUR 6.14.
During the year under review, Sampo received the following notifications of changes in holdings pursuant to Chapter 2, Section 9 of the Securities Markets Act (percentage of voting rights indicated in brackets): – Varma Mutual Pension Insurance Company’s total holding of
Sampo A shares decreased to under 10 per cent and was 8.64 per cent (8.57) on 16 February, 2006.
– The holding of Sampo A shares by Barclays plc and funds managed by it exceeded 5 per cent and was 5.14 per cent (5.10) on 24 April, 2006. According to an announcement received on 27 April, 2006, the holding had again fallen under 5 per cent and was 4.63 per cent (4.59).
To be entitled to participate in the AGM, shareholders and nominee-registered shareholders must register by 4 p.m. on 4 April, 2007 at Sampo Share Issues.
Dividends and distribution policy The Board of Sampo plc adopted a distribution policy on 9 November 2006 according to which the company aims to distribute to the shareholders an annual dividend corresponding to a dividend yield of 4 – 6 per cent. However, the dividend shall not exceed the reported profit after taxes for the calendar year for which the dividend is payable. Share buy-backs can be used to complement dividends.
The Board proposes to distribute to shareholders a dividend of EUR 1.20 per share on 577,473,285 shares, i.e. a total of EUR 692,967,942. The figure also includes 14,682,640 shares subscribed
Financial information in 2007 The official financial statements for 2006 can be inspected in full at Sampo Legal Affairs, Unioninkatu 22, Helsinki, Finland.
Local Government Pension Institution 1,139,986 0.2 0.2 Sampo Suomi Osake Mutual Fund 1,092,375 0.19 0.19 OP-Finland Value Fund 958,000 0.17 0.17 Special Mutual Fund OMX Helsinki 25 Index Share Fund 848,616 0.15 0.15 Finnish National Fund for Research and Development 829,145 0.15 0.14 Nordea Fennia Mutual Fund 737,250 0.13 0.13 SEB Gyllenberg Finlandia Fund 700,000 0.12 0.12 Nordea Nordia Fund 683,892 0.12 0.12 *) 4,927,855 A shares and 1,200,000 B shares.
Sampo Group’s profit before taxes for 2006 amounted to EUR 1,353 million (1,295). Earnings per share rose to EUR 1.73 (1.68) and at market value earnings per share were EUR 1.89 (1.97). Net asset value per share rose to EUR 9.21 (7.67). The RoE target of 19 per cent was surpassed with a return on equity for the Group of 22.6 per cent for 2006 (28.4). The Board proposes to the AGM a dividend of EUR 1.20 per share and an authorisation to repurchase Sampo shares.
Insurance technical result for P&C insurance improved further and the combined ratio decreased to 89.9 per cent for the full year 2006 (90.5). Net investment income amounted to EUR 358 million (460). RoE exceeded the target of 17.5 per cent and was 22.0 per cent (24.1).
Life insurance reported profit before taxes of EUR 295 million (234). The fair value reserve increased in 2006 by EUR 68 million and was EUR 464 million (after tax) on 31 December 2006 (396). RoE surpassed clearly the target of 17.5 per cent and was 30.0 per cent (39.0).
Administration The Annual General Meeting held on 5 April 2006 re-elected the following members to the company’s Board of Directors: Tom
Berglund, Anne Brunila, Georg Ehrnrooth, Christoffer Taxell, Matti Vuoria and Björn Wahlroos. The Annual General Meeting elected Jussi Pesonen and Jukka Pekkarinen as new members. At its organisational meeting, the Board elected Georg Ehrnrooth as the Chairman and Matti Vuoria as the Vice Chairman.
The Annual General Meeting decided that the fees payable to the members of the Board of Directors until the close of the 2007 Annual General Meeting will be as follows: the Chairman will be paid EUR 120,000 per year, the Vice Chairman EUR 85,000 per year, and the other members EUR 70,000 per year. In a departure from earlier practice, no separate meeting fee is proposed to be paid to members of Sampo Group’s Board of Directors. The Annual General Meeting decided that Sampo plc’s A shares will be purchased for the members of the Board of Directors with 30 per cent of the Board members’ annual compensation. Board members employed by the company will not be paid a separate fee for Board work.
After the closing of Sampo Bank transaction on 1 February 2007 Bank’s managing director Mika Ihamuotila resigned from his position. He continues as a member of Sampo Group’s Executive Board. Deputy managing directors Ilkka Hallavo and Maarit Näkyvä resigned from Sampo Group’s Executive Board on the same day with immediate effect.
Sampo Group follows the recommendation issued by a working group of HEX plc, Chamber of Commerce and the Federation of Finnish Employers in December 2003 on corporate governance. A more detailed description of the Group’s governance systems is available in the 2006 Annual Report and on the Group’s homepage www.sampo.com.
The subscription period for the 2000 option programme ended on 31 January 2007. On 31 December 2006 1,242,456 warrants were outstanding, of which Satura, a fully-owned subsidiary of Sampo plc, held 1,030,250 warrants. In January 2007 1,057,605 shares were subscribed for increasing the share capital to EUR 98.1 million and the number of A shares to 582,158,390 shares. Together with 1,200,000 B shares the total amount of Sampo shares on 12 February 2007 was 583,358,390.
To facilitate the payment of year 2006 dividends, a new share category called Sampo Uudet (Sampo New) was taken on the main list of the Helsinki Stock Exchange as of 2 January 2007. The Sampo A shares subscribed for with warrants from the 2000 option programme after 31 December 2006 are entitled to dividends for 2007.
On 16 February 2006 Sampo received disclosure under chapter 2, section 9 of the Securities Markets Act, according to which the total number of Sampo A shares held by Varma Mutual Pension Insurance Company had decreased to 8.64 per cent of the total amount of shares and 8.57 per cent of votes.
At 24 April 2006 Sampo received a disclosure according to which the total number of Sampo A shares held by Barclays and the funds managed by it had risen to 5.14 per cent of the total amount of shares and 5.10 per cent of votes. On 27 April 2006 Sampo received a disclosure that the holding of Sampo by Barclays and the funds managed by it had decreased to 4.63 per cent of the total amount of shares and 4.59 per cent of votes.
Sampo Bank plc EUR 75 million If P&C Insurance Holding Ltd EUR 1,031 million (SEK 9,495 million) Sampo Life Insurance Ltd EUR 300 million
Corporate Responsibility As a listed company Sampo is obliged to act in the best interests of its shareholders, in compliance with legislation, and in accordance with sound business practices. All Sampo Group’s business areas are dependent on building and maintaining the trust of customers. However, the scope of corporate responsibility extends beyond shareholders and customers. Sampo seeks ways of doing business that take the interests of all stakeholders into account without compromising those of the owners. The economic, social and environmental dimensions are taken into consideration when implementing and monitoring corporate responsibility.
Management incentive schemes The payout on Sampo Group’s long-term management incentive schemes is dependent on Sampo’s financial and share price performance.
“Sampo 2006” share-based incentive scheme applies to the managers of Sampo or its subsidiaries and Sampo’s President and CEO as decided by Sampo’s Board of Directors. The aim of this scheme is to ensure continuity, taking into account previous incentive schemes, their termination, and the persons’ current long-term incentive schemes. The share-based incentive scheme will be valid from 2006 to 2010, and the first part of the incentive will be paid, if applicable, in December 2008. A maximum of 1,500,000 of Sampo’s A shares may be distributed as incentives under the share-based incentive scheme. The share-based incentive scheme increased staff costs in 2006 by EUR 5 million
On 3 April 2006 Moody’s upgraded AS Sampo Pank’s (Estonia) Financial Strength Rating (FSR) from D to D+ with stable outlook.
On 18 May 2006 Moody’s assigned a positive outlook to the financial strength ratings and subordinated debt/capital contribution securities ratings of If P&C Insurance Company Ltd and Sampo plc.
Business areas 2006 P&C insurance If is the leading property and casualty insurance company in the Nordic region, with insurance operations that also encompass the Baltic countries. If P&C Insurance Holding Ltd, headquartered in Sweden, is the parent company for property and casualty insurance within the Sampo Group. In December 2006 the transformation of the former representative office in St. Petersburg to an insurance company was completed as a licence to conduct insurance business in Russia was received.
If had a strong year 2006 and the company achieved all its targets. Despite some competitors market share driven actions, If has continued its strategy to be best in risk and focused on underwriting. If ’s record insurance technical result and stable volume development prove the success of the chosen strategy. If has also managed to further improve its cost efficiency.
Customer satisfaction improved during year 2006. An independent Pan-Nordic customer satisfaction report (EPSI) was published in November, and showed a significant increase in If ’s ranking from previous year against the competitors in most markets and business segments.
Profit before taxes of the P&C insurance operation was EUR 730 million (800). The technical result rose to EUR 554 million (516). Business area Private accounted for 54 per cent, Commercial for 29 per cent, Industrial for 13 per cent and the Baltic countries for 2 per cent of the technical result. EUR 65 million was released from technical reserves relating to prior year claims (39).
The insurance margin – technical result in relation to net premiums earned – increased to 14.7 per cent (13.9). The target RoE of 17.5 per cent was clearly achieved with RoE of 22.0 per cent (25.3).
The combined ratio for the full year 2006 improved further to 89.9 per cent (90.5). Profitability remained good in all business areas. In geographic terms the biggest combined ratio improvement occurred in Finland.
Cost efficiency continued to improve and the cost ratio decreased to 24.0 per cent for full year 2006 (24.3). Nominal costs amounted to EUR 936 million (931). As stated in January–September 2006 interim report, there was variability in costs between quarters due to some IT investments and marketing campaigns being delayed until the fourth quarter. Consequently, the cost ratio was exceptionally low in the third quarter and high in the fourth quarter.
Gross written premiums grew by 1.5 per cent to EUR 4,019 million (3,961).
Premium growth was again strongest in the Baltics with 16 per cent. Premiums grew by 2 per cent in the business areas Commercial and Industrial. Premium income was flat in business area Private.
Sampo Group’s life operations reported a profit before taxes of EUR 295 million (234). Marked-to-market result was EUR 386 million (464) as the fair value reserve grew by EUR 91 million (pre-tax) in 2006. Net investment income, excluding the return on investments covering unit-linked contracts, amounted to EUR 454 million (430). Net income from unit-linked investments grew to EUR 139 million (156). The yield on investments at market value was 9.7 per cent (11.5) supported by favourable equity market development.
The official expense ratio of Sampo Life Group increased to 101.9 per cent (93.4). The ratio, however, does not take into account all fees intended to cover the operating expenses. This discrepancy increases as the share of unit-linked reserves grows. If all fees are taken into account, the ratio decreases to 81.3 per cent (83.5). Sampo Life Group does not defer acquisition costs.
Technical reserves on own account amounted to EUR 6.4 billion (6.0), of which unit-linked insurance reserves were EUR 1.8 billion (1.3). The share of unit-linked reserves of total technical reserves grew to 27 per cent (21). Sampo Life’s with-profit policyholders received a bonus of 0 – 2.25 per cent depending on the guaranteed rate of their policies. Total bonuses for 2006 amounted to EUR 26.7 million (15.7). Reserve for future customer bonuses was increased by EUR 35.2 million and the reserve amounted to 35.6 million (13.7) at end of 2006.
Sampo Life Group’s gross premium income in 2006 amounted to EUR 665 million (655). Direct premiums on own account grew by approximately 2 per cent to EUR 660 million (649). The comparison figure contains two single premium with-profit contracts transferring the liabilities of two pension funds to Sampo Life and totalling close to EUR 100 million in premiums.
Baltic life markets continued their strong growth. Sampo Life’s premiums from the Baltic companies grew by 81 per cent to EUR 38 million (21). Sampo has a 15 per cent market share in the Baltics. Year 2006 was the first full operating year for If Livförsäkring AB, the Swedish subsidiary of Sampo Life. The company’s premium income amounted to EUR 3 million. In October 2006 Sampo Life sold its portfolio of Norwegian OTP pension policies to Handelsbanken Liv.
Other The operations of Sampo plc (the holding company) and Primasoft were reported in this segment in 2006. Sampo plc’s main function in 2006 was to own and control the subsidiaries engaged in insurance, banking and investment services. Primasoft provided IT services for various companies in Sampo Group.
The segment’s loss before taxes amounted to EUR 27 million (-49).
Primasoft had a negligible impact on the profit or loss of the Other segment.
Banking and investment services performed well and profit before taxes for the year 2006 increased 12 per cent to EUR 355 million (316). Return on equity amounted to 23.8 per cent (23.1), clearly above the target RoE of 20 per cent.
Net interest income rose to EUR 374 million (346). Net fee and commission income grew to EUR 260 million (221) driven by strong growth in asset management fees.
Total operating costs amounted to EUR 459 million (425). Growth in costs derives largely from provisions for performancerelated management incentive schemes and strong growth in the Baltic operations. Costs in the fourth quarter include EUR 18 million in various bonus and incentive scheme costs, largely due to the sale of Sampo Bank. Cost-to-income-ratio continued to improve and was 56.3 per cent (57.3).
At the end of the year loans to private customers represented 59 per cent and loans to corporate customers 41 per cent of the total loan portfolio. Corporate lending increased to EUR 8,743 million (8,130).
Geographically the Baltic countries continued to provide the fastest growth in both lending and deposits. The Baltic loan stock rose to 2.4 billion euros (1.4).
In July Sampo Bank plc securitized approximately one billion euros of the corporate loans in its balance sheet. A special company, Sea Fort Securities plc, was established for the transaction. The transaction released capital for future growth and adjusted the Bank’s credit risk profile.
Events after the end of the accounting year On 8 February 2007 Sampo received disclosure under chapter 2, section 9 of the Securities Markets Act, according to which Exista
Net interest income –42 –39 –8 Net income from financial transactions –5 0 –
hf. has entered into agreements which when implemented result in the total number of Sampo A shares and related voting rights held by Exista Group to rise to 15.48 per cent of Sampo plc’s entire stock and 15.35 per cent of voting rights.
Sampo Group is strongly capitalised and can therefore withstand significant investment market volatility. A severe downturn in equity markets or a sharp rise in interest rates would cause shortterm losses in investment income. However, higher bond yields would compensate for the losses in a relative short time as the Group has a fairly short duration in its fixed income portfolios.
Board’s dividend proposal Parent company’s distributable capital and reserves totalled EUR 1,842,371,518.67, of which profit for the financial year was EUR 1,391,100,144.87.
Rest of the funds are left in the equity capital. No significant changes have taken place in the company’s financial position since the end of the financial year. The company ’s liquidity position is good and the proposed distribution does not, in the Board’s view, jeopardize the company’s ability to fulfil its obligations.
Return on assets (at fair values) % 4.0 4.4 4.0 3.3 0.8
Premiums written before reinsurers’ share EURm 662 655 528 528 613
Banking and investment services (discontinued operations) Revenue EURm 1,423 1,105 989 1,119 1,261
Options diluted earnings per share 5) € 1.69 1.65 1.44 0.64 0.62
Net asset value per share € 9.21 7.67 6.16 5.64 5.26
Adjusted number of shares at 31 Dec. 7) 1,000 562,791 564,701 563,762 553,920 553,853
Weighted average number of shares, incl. dilutive potential shares 7) 1,000 575,141 574,068 562,562 555,200 556,603
Sampo plc – Board of Director’s report 2006 1) Group solvency for years 2004 – 2006 is calculated according to the consolidation method defined in Chapter 3 of the Act on the
Supervision of Financial and Insurance Conglomerates entered into force on 1 January 2005. Solvency ratio is defined as the ratio of own funds to the sum of minimum requirements calculated under sectoral rules. Previously Group’s Capital adequacy ratio has been calculated according to the Act on Credit Insitutions, Chapter 9.72 – 81§.
3) The income of other business includes the income from If Group, accounted for by the equity method, for the first quarter of 2004.
4) 2003 and 2002 comparison figures are net income from financial operations calculated in accordance with the decree no 1259/2000 issued by the Ministry of Finance.
7) Own shares held by Sampo Plc have been deducted from the number of shares at 31 December, 2006 (4,827,500 shares) and from the average number of shares (2,198,801 shares).
Revenue + property & casualty insurance revenue + life insurance revenue + other business revenue + banking and investment services revenue ± Group elimination items with result impact
Banking and investment services and other business + interest income + net income from investments excl. profit/loss from associates + fee and commission income + net income from financial transactions + other operating income
The key figures for the banking and investment services and for the other business have been calculated according to the standard 3.1 of the Financial Supervision.
Banking and investment services and other business + net interest income + net income from financial transactions + net fee and commission income ± impairment losses on loans and receivables + net income from investments + other operating income – staff costs – other operating expenses
+ balance sheet total – technical provisions relating to unit-linked insurance ± valuation differences on investments
Risk ratio, % + claims incurred – claims settlement expenses insurance premiums
Cost ratio, % + operating expenses + claims settlement expenses insurance premiums
+ liabilities for insurance and investment contracts – reinsurers’ share of insurance liabilities
Return on equity (at fair values), % Formula shown above in connection with the calculation of Group key figures.
(incl. deferred tax from fair value reserve and profit) ± other required items (Ministry of Finance decree)
+ liabilities for insurance and investment contracts – reinsurers’ share of insurance liabilities – 75% × technical provisions relating to unit-linked insurance
Earnings per share, incl. change in fair value reserve profit for the financial period attributable to the parent company’s equityholders adjusted average number of shares
Dividend per share, % dividend for the accounting period adjusted number of shares at balance sheet date
Relative share trading volume, % number of shares traded through the Helsinki Exchanges adjusted average number of shares × 100
Net income from financial transactions 4 –5 89 –11 73 0 65 6 71
Net fee and commission income 5 –1 260 –20 238 –1 221 –17 203
Change in liabilities for insurance and investment contracts 10 –345 –345 –390 –390
Other operating expenses 12 –606 –240 82 –764 –578 –224 100 –702
Equity holders of parent company 714 263 977 719 230 949
Non-current assets classified as held for sale 1, 29 26,585 –
Cash flow hedges: – recognised in equity during the financial year 3 3 3
Transfer to non-current assets classified as held for sale –2 2 0
Total income and expenses recognised for the period 94 1,049 –4 1,138 15 1,153
Cash and cash equivalents include cash at bank and in hand EURm 206 (318), balances with central banks EURm 1,682 (1,253), loans and advances to credit institutions repayable on demand EURm 93 (122) and short-term deposits EURm 35 (94).
The net cash flows of banking and investment services (discontinued operations) 2006 2005
Sampo Plc sold during 2005 its Polish subsidiaries, Sampo PTE S.A. engaged in investment services and life insurance company Sampo
T.U. Zycie S.A., as well as Mandatum Private Equity Funds Ltd engaged in investment services in Finland.
Notes to the Consolidated Financial Statements page Summary of significant accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Sampo Group has prepared the consolidated financial statements for 2006 in compliance with the International Financial Reporting Standards (IFRSs) as adopted by the EU. In preparing the financial statements, Sampo has applied all the new or amended standards and interpretations relating to its business and effective at 31 December 2006. In preparing the notes to the consolidated financial statements, attention has also been paid to Finnish accounting and company legislation and applicable regulatory requirements. The introduction of the new or revised standards and interpretations in the 2006 financial year had no substantial effect on Sampo’s accounting principles or the information presented in the financial statements.
Investments in associates are included in the balance sheet item ‘Investments’ and the Group’s share of the results of associates in ‘Net income from investments’ in the income statement.
IFRS Financial Statements: Notes to the accounts at the balance sheet date. The resulting translation differences are included in equity. When a subsidiary is divested entirely or partially, the cumulative translation differences are included in the income statement under sales gains or losses.
Translation differences that existed at the Group’s IFRS transition date, 1 January 2004, are deemed to be zero, in accordance with the exemption permitted by IFRS 1.
The following exchange rates have been applied in the consolidated financial statements: 1 euro (EUR) = Balance sheet date exchange rate
Segment reporting The Group’s primary segmentation is based on business areas whose risks and performance bases as well as regulatory environment differ from each other. The control and management of business and management reporting is organised in accordance with the business segments. The Group’s business segments are Banking and Investment services, P&C insurance, life insurance and other operations. Other operations comprise the operations of the holding company and the Primasoft Oy information technology firm.
On 9 November 2006, Sampo plc signed an agreement on the divestment of Sampo Bank plc’s entire stock to Danske Bank A/S. Based on the above-mentioned agreement, Banking and Investment services are presented in segment reporting as discontinued operations.
Inter-segment pricing is based on market prices. Inter-segment transactions, assets and liabilities are eliminated in the consolidated financial statements on a line-by-line basis.
Interest and dividends Interest income and expenses are recognised in the income statement using the effective interest rate method. This method recognises income and expenses on the instrument evenly in proportion to the amount outstanding over the period to maturity. The calculation of effective interest includes all the fees and points received or paid between parties to the contract that are an integral part of the effective interest rate, all the transaction costs and all other premiums or discounts.
Financial assets and liabilities Based on the measurement practice, financial assets and liabilities are classified in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, financial liabilities at fair value through profit or loss, and other liabilities.
Purchases and sales of financial assets at fair value through profit or loss, held-to-maturity investments and available-for-sale financial assets are recognised and derecognised on the trade date, which is the date on which the Group commits to purchase or sell the asset. Loans and receivables are recognised when cash is advanced to the borrower.
Trading assets and liabilities and financial derivatives held for trading are initially recognised at cost, which is the fair value of the consideration paid or given. Derivative instruments are carried as assets when the fair value is positive, and as liabilities when the fair value is negative. Trading assets and liabilities and derivative instruments are recognised at fair value, and gains and losses arising from changes in fair value or realised on disposal, together with related interest income and expenses and dividends, are recognised in the income statement.
According to the Group risk management policy, investments are managed at fair value in order to have the most realistic and realtime picture of investments, and they are reported to the Group key management personnel at fair value. In the P&C Insurance business, financial investments are primarily designated as financial assets at fair value through profit or loss. Investments comprise debt and equity securities. In the Life Insurance business, financial assets designated as at fair value through profit or loss are investments related to unit-linked insurance, which are presented separately in the balance sheet. The corresponding liabilities are also presented separately. In addition, in the Life Insurance business, investments classified as the financial assets of foreign subsidiaries, and financial instruments in which embedded derivatives have not been separated from the host contract have mostly been designated as at fair value through profit or loss. In Banking and Investment Services, financial assets designated as at fair value through profit or loss are debt securities used in managing the collateral and liquidity portfolio.
In the Life Insurance business, IFRS 4 ‘Insurance Contracts’ provides that insurance contracts with a discretionary participation feature are measured in accordance with national valuation principles (except for the equalisation reserve) rather than at fair
IFRS Financial Statements: Notes to the accounts value. These contracts and investments made to cover shareholders’ equity are managed in their entirety and are classified as availablefor -sale financial assets.
Other financial liabilities Other financial liabilities comprise deposits and other liabilities to credit institutions and customers, debt securities in issue, and other financial liabilities.
When a default occurs, the impairment of a loan is assessed. The amount of the loss is measured as the difference between the loan’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred), discounted at the loan’s original effective interest rate, less the collateral’s fair value. The difference is recognised as an impairment loss in profit or loss. The costs of obtaining and selling collateral are included in the calculation of the cash flows of a collateralised loan. The impairment of loans is assessed individually. The carrying amount of loans that are individually significant is reduced directly, whereas that of other loans is reduced through the use of an allowance account. Amounts recognised into the allowance account are written off against the carrying amount of an impaired loan, when the recovery has ceased to be probable, at the latest.
Loans that would be overdue or impaired unless their terms were renegotiated will be subject to a ‘forced concession’, and an impairment loss will be recognised to the extent that the fair value of the collateral does not cover the estimated future cash flows discounted at the loan’s original effective interest rate.
The impairment of available-for-sale financial assets is monitored through an investment plan. The credit risk limits by issuer have been determined in the investment plan and the plan is followed daily. The objective evidence of an impairment of available-for-sale financial assets is based on a separate assessment, which is done if the credit rating of an issuer has declined or the entity is placed on
27IFRS Financial Statements: Notes to the accounts watchlist, or there is a significant or prolonged decline in the fair value of an equity instrument below its cost. When the observable data indicates that an impairment has occurred, the cumulative loss recognised directly in equity is removed from equity and recognised in profit or loss.
Derivative financial instruments and hedge accounting Derivative financial instruments are classified as those held for trading and those held for hedging, including interest rate derivatives, foreign exchange derivatives, equity derivatives, commodity derivatives and credit derivatives. Derivative instruments are measured initially at fair value. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
Derivative instruments that are not designated as hedges and embedded derivatives separated from a host contract are treated as held for trading. They are measured at fair value and the change in fair value, together with realised gains and losses and interest income and expenses, is recognised in profit or loss. If derivatives are used for hedging, but they do not qualify for hedge accounting as required by IAS 39, they are treated as held for trading.
The Sampo Group hedges its operations against interest rate risks, currency risks and price risks through fair value hedging and cash flow hedging. Fair value hedging is used to protect against changes in the fair value of recognised assets or liabilities, while cash flow hedging is used to protect against the variability of the cash flows of recognised assets or liabilities which are attributable to a particular risk and could affect profit or loss.
When a hedging instrument expires, is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting, the cumulative change in fair value remains in equity until the hedged cash flows affect profit or loss.
Sale and repurchase agreements and securities lending Securities sold subject to irrevocable repurchase agreements (’repos’) are retained in the balance sheet as financial assets. The sale is recognised as a liability and included in ’Amounts owed to credit institutions and customers’ in the balance sheet. Securities purchased under irrevocable agreements to resell (’reverse repos’) are recorded as loans to credit institutions and customers and included in ’Loans and receivables’ in the balance sheet. The difference between the sales and repurchase prices is treated as interest and accrued over the life of the agreements using the effective interest rate method.
Non-current assets held for sale and discontinued operations Non-current assets and the assets and liabilities related to discontinued operations are classified as held for sale, if their carrying amount will be recovered principally through sales transactions
IFRS Financial Statements: Notes to the accounts rather than from continuing use. For this to be the case, the sale must be highly probable, the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups), the management must be committed to a plan to sell the asset (or disposal group), and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.
A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale, and 1. represents a separate major line of business or geographical area of operations 2. is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or 3. is a subsidiary acquired exclusively with a view to resale.
Operating leases Assets in which the lessor retains substantially all the risks and rewards of ownership are classified as operating leases and they are included in the lessor’s balance sheet. Payments made on operating leases are recognised on a straight-line basis over the lease term as rental expenses in profit or loss.
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
The valuation takes into account the characteristics of the property with respect to location, condition, lease situation and comparable market information regarding rents, yield requirements and unit prices. During the financial year, the valuations were conducted by the Group’s internal resources.
Provisions A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the Group can reliably estimate the amount of the obligation. If it is expected that some or all of the expenditure required to settle the provision will be reimbursed by another party, the reimbursement will be treated as a separate asset only when it is virtually certain that the Group will receive it.
A reinsurance contract is a contract which meets the IFRS 4 requirements for insurance contracts and on the basis of which the Sampo Group (the cedant) may receive compensation from another insurer (the reinsurer), if it becomes liable for paying compensation based on other insurance contracts it has issued. Such compensation received on the basis of reinsurance contracts is included in the balance sheet under ‘Reinsurers’ share of insurance liabilities’ and ‘Other assets’. The former item includes the reinsurers’ share of the provisions for unearned premiums and claims outstanding in the Group’s reinsured insurance contracts, while the latter includes short-term receivables from reinsurers.
When the Group itself has to pay compensation to another insurer on the basis of a reinsurance contract, the liability is recognised in the item ‘Other liabilities’.
Receivables and liabilities related to reinsurance are measured uniformly with the cedant’s receivables and liabilities. Reinsurance receivables are tested annually for impairment. Impairment losses are recognised through profit or loss, if there is objective evidence indicating that the Group (as the cedant) will not receive all amounts of money it is entitled to on a contractual basis.
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 costs of claim settlements.
31IFRS Financial Statements: Notes to the accounts the payment of obligations that may arise in the future. In the Sampo Group the provision for a collective guarantee is recognised in equity, in accordance with the Framework of the IFRS, until it becomes probable that the obligation will be settled. The provision for a collective guarantee is not a part of distributable equity.
Pay-as-you-go system for P&C insurance 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 insurance companies collect a so-called expense loading along with their premiums written, which is then forwarded to the central organisation for the particular insurance line. The central organisation distributes the pay-as-you-go contributions collected so that the company undertaking the type of insurance in question receives an amount equal to the compensation falling under the pay-as-you-go system it has paid that year. The insurer’s participation in the payment is proportional to the insurer’s market share in the insurance line in question.
The pay-as-you-go system related to pension index raises is not treated as an insurance activity under IFRS 4 and does not generate any risk for the insurance company. Thus, the pay-as-yougo contribution collected together with the insurance premium is not deemed to be premium income, and the pension index raise paid out is not deemed to be claims incurred. Because the collected index raise corresponds in amount to the paid out pension index raise, the said items are set-off in the Income Statement item ‘Other expenses from operations’. The share of a balancing figure not yet received from, or not paid by, a central organisation is presented as current receivables or liabilities in the balance sheet items ‘Other assets’ or ‘Other liabilities’.
Mortality assumptions have an essential effect on the amount of liability, particularly in group pension insurance, the liability of which accounts for about 37 per cent of the technical provisions of
IFRS Financial Statements: Notes to the accounts the Finnish life company. A so-called cohort mortality model has been used in calculating the group pension insurance liability since 2002, incorporating the insured person’s birth year in addition to his or her age and sex. The cohort mortality model assumes that life expectancy increases by one year over a ten-year period.
Principle of fairness According to Chapter 13, Section 3 of the Finnish Insurance Companies’ Act, the Principle of Fairness must be observed in life insurance and investment contracts with a discretionary participation feature. If the solvency requirements do not prevent it, a reasonable part of the surplus has to be returned to these policies as bonuses.
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 legislation of Estonia, Latvia and Lithuania respectively does not contain provisions corresponding to the Principle of Fairness. The insurance business undertaken by the Swedish company is not entitled to distribute profit.
Post-employment benefits include pensions and life insurance. 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 Act (TEL) in Finland.
The Group also has certain voluntary defined benefit plans. These are intra-Group, included in the insurance liabilities of Sampo Life and have no material significance.
The fair value of incentives payable in equity instruments has been determined using the Black-Scholes-pricing model. The fair value of the market-based part of the incentive takes into consideration the model’s forecast concerning the number of shares to be paid as an incentive. The effects of non-market based terms are not included in the fair value of the incentive; instead, they are taken into account in the number of those share options that are expected to be exercised during the vesting period. In this respect, the Group will update the assumption on the estimated final number of shares at every interim or annual balance sheet date.
In adopting the IFRS on 1 January 2004, Sampo did not apply IFRS 2 ‘Share-based payment’ to the year 2000 option programme, in accordance with the exemption permitted by IFRS 1.
Share capital The incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business, are included in equity as a deduction, net of tax, from the proceeds.
Sampo’s main assumptions concerning the future and the key uncertainties related to balance sheet estimates are related, for example, to assumptions used in actuarial calculations, determination of fair values of non-quoted financial assets and liabilities and investment property and determination of the impairment of financial assets and intangible assets.
The fair value of any non-quoted financial assets is determined using valuation methods that are generally accepted in the market. These methods are discussed in more detail above under ‘Fair value’.
In testing loans and other receivables for impairment, the carrying amount is compared with the present value of recoverable future cash flows. Recoverable future cash flows are estimated for each contract by utilising assumptions based on historical data.
35IFRS Financial Statements: Risk management 1. Risk management overview Risk is an essential part of Sampo’s operating environment and business activities. Clearly defined strategies and responsibilities, together with strong commitment to the risk management process, are our tools to manage risks.
Credit risks in P&C insurance liabilities . . . . . . . . . . . . . . . . . 43
Credit risks of corporate customers . . . . . . . . . . . . . . . . . . . . 50 Credit risks of retail customers . . . . . . . . . . . . . . . . . . . . . . . . 50
IFRS Financial Statements: Risk management 2. Business Model and Risks In year 2006 Sampo Group was divided into three business areas (segments), which were banking and investment services, property & casualty insurance (P&C insurance) and life insurance. The parent company, Sampo plc, acts as the holding company. Sampo plc sold all shares in Sampo Bank plc to Danske Bank A/S on 9 November 2006. The transaction was closed on 1 February 2007. The methods and figures in this risk disclosure describe the approaches and risk position as it was on 31 December 2006.
The major risks associated with the Sampo Group’s activities are insurance risk, the credit risk arising from banking and investments, the market risks of investment portfolios, and the interest rate and liquidity risk of the banking book. Operational and business risks are inherent in all business areas.
The core of the P&C insurance business is transfer of risk from the insured clients to the insurer. P&C Insurance collects insurance premiums from a large group of policyholders and commits to compensate them if an insured event occurs. For P&C Insurance the result depends on both the underwriting result and on the return on investment assets. It is of utmost importance for the underwriting result that insurance policies are correctly priced. However, there is a risk of adverse outcomes due to the inherent uncertainty associated with the insurance business. This uncertainty is managed, for example, by reinsurance. Investment operations emphasise absolute return and risk control. Since a major portion of the insurance premium must be paid to policyholders through future claims, it has to be assured that sufficient assets are always available to cover these liabilities. The duration gap between liabilities and fixed investments is under constant monitoring and management. Surplus capital is invested in a diversified portfolio to enhance the total return.
The life insurance business is based on bearing and managing risks resulting from the randomness of the occurrence and size of casualty events and the financial risks included in assets and liabilities. The major part of the Sampo Life Group’s business risks and result comes from investment assets. Return on assets should cover, in the long run, at least the guaranteed interest, bonuses based on the principle of fairness and the cost of shareholder capital. Other elements of profit are the results of the insurance risk and expense risk. The insurance risk result is the assumed claims in premium calculations minus the actual claims. It is managed through careful risk selection and diversification, for example. The expense result is the expense charges from policies deducted by the actual expenses. It is managed by continuously monitoring expenses, by improving efficiency and by using an expense charge structure that also covers expenses after policy inception.
Sampo plc’s main holdings comprise the shares of subsidiaries, which are partly financed by debt instruments. Some holdings are in foreign currencies. Sampo plc’s earnings are therefore exposed to the profitability of its subsidiaries, interest rates, foreign currency and the return on the assets in its investment portfolio. The subsidiaries ’ business risks are managed by constantly developing the business areas to keep them competitive and profitable.
All Sampo Group companies fulfilled the regulatory minimum capital requirements during 2006.
The basis of the Group’s capitalisation is the need for economic capital. Other factors affecting the need for capital are the expected business growth, changes in the business environment, the rating target together with the regulatory minimum capital requirements, and market expectations concerning prudent capitalisation. When the capital needs have been specified, the Group Treasury prepares capital transactions for the approval of ALCO and the Companies’ Boards of Directors. The Group Treasury executes transactions on the markets.
The Value-at-Risk (VaR) figures for the investment portfolios of insurance companies and the trading services of banking are shown in Table 6. To interpret the VaR figures, on a horizon of one month, Sampo Group has a 2.5 per cent probability of losing more than EUR 103 million of its economic value due to market risk in the P&C investment portfolio.
The market risks of banking arise from the banking book and trading services. The most noteworthy of the market risks is the interest rate risk of the banking book. The interest rate risk is concentrated in Sampo Bank’s banking book. The interest rate risk does not actively affect the subsidiaries.
Sampo Bank’s operations are mostly in euros. The Baltic subsidiaries have operations in their home currencies, but later, when the Baltic countries join the EMU, Sampo Bank Group’s banking book will become almost exclusively euro-denominated. This is a major assumption when assessing market risks in spite of postponing
EURm shift down shift up 10% fall in prices 10% fall in prices
EURm shift down 1% parallel shift up 10% fall in prices 10% fall in prices
Banking and Investment Services –19 –1 –1 0 P&C Insurance, investment assets 262 –245 –106 0
5% depriciation of foreign currency against EUR, 2006 –164 –3 0 –5 –1 –4 0 1 0 –6 5% depriciation of foreign currency against EUR, 2005 –132 0 0 –4 –1 –3 –1 0 –3 –10
Sampo Life’s investment operations achieved a return of 9.7 per cent in 2006. The year was particularly good in terms of equity investments. On the fixed income side, there was an expectation of rising interest rates and therefore short-term interest-bearing instruments were heavily favoured. During the year the real estate and hedge fund allocation was diminished. Sampo Life was also a net seller of equity investments, but the equity allocation actually increased because of excellent performance. See Figures 6 to 10.
Insurance liabilities (technical provisions) can be divided into provisions for unearned premiums and unexpired risks, and provisions for claims outstanding. As per 31 December, 2006, net provisions for unearned premiums and unexpired risks amounted to EUR 1,584 million, while provisions for claims outstanding amounted to EUR 6,141 millions. Figure 11 illustrates the distribution of reserves per product. The majority of technical provisions are stated in the balance sheet in nominal terms. Hence, from an accounting perspective, the company is only exposed to changes in future inflation. However, the economic value of these reserves, i.e. the present value of future claims payments, is exposed to changes in interest rates. The duration of reserves depends on the type of insurance (Figure 12). The overall duration of all technical provisions is about 5.0 years. The duration for motor claims in Finland and Sweden and for worker’s compensation in Finland are long, which is due to the fact that claims are disbursed in the form of annuities.
The duration gap between liabilities and fixed investments is under constant monitoring and management. Most (83 per cent) of Sampo Life’s liabilities with a guaranteed return are formed from the long-term pension business with a very low surrender risk. This fact, coupled with high solvency, makes it possible for the investment strategy to look for an extra return, e.g. from the equity markets.
Allocation of investment assets, Life insurance and P&C insurance, EUR 15,966 million, 31 Dec., 2006
The liabilities related to each guaranteed interest rate are shown in Table 18. The table also shows the change in each category during 2006. Table 19 shows the maturity of each category.
Distribution of technical provision per product as of 31 Dec., 2006
The figures in Tables 7 to 10 show the exposures of customers of the Sampo Group excluding Baltic P&C insurance. The internal receivables of the Sampo Group companies have been eliminated from these figures. Exposures are primarily categorised according to customers or counterparties. However, in cases where the credit decision was based on the creditworthiness of a guarantor, they are categorised according to the guarantor. Geographical reporting is based on the country of registration of the customer or guarantor. The reporting of credit risks covers all agreements and derivative contracts, both on and off-balance sheet, with which they are associated.
The average LGD-weighted probability of default (PD) in corporate exposures at the end of the year was 2.0 per cent. The expected loss of corporate exposures remained at the 0.2 per cent level of the beginning of the year. Analysed by rating categories, the relative share of exposures belonging to at least the L2– ( BBB) category remained at the former level of 77 per cent. The total exposures included in the two lowest categories (L4,L4–) increased by EUR 76 million from the level of the beginning of the year. At the end of the year, these exposures totalled EUR 279 million and were secured by I–IV category collateral amounting to EUR 196 million. Exposures to customers in default stood as follows: Corporate and institutional customers 70 62 Retail customers 46 79
Exposure to credit risks in P&C insurance is mainly associated with exposure to reinsurers, partly through reinsurance receivables and partly through the reinsurers’ portion of outstanding claims. The exposure is very limited for premium receivables from policy-
IFRS Financial Statements: Risk management holders, because non-payment generally results in cancellation of the insurance policies.
The distribution of reinsurance receivables and reinsurers’ share of the claims provisions at December 31, 2006 per rating category is presented in Table 11. In the table reinsurance receivables and reinsurers’ portion of outstanding claims totalling EUR 152 million are excluded. The excluded portion relates mainly to captives and statutory pool solutions.
To manage its short term liquidity, the Sampo Bank Group has liquidity buffers in the form of liquid money market securities. There are also tested contingency plans in place to ensure that liquidity management is managed in a co-ordinated manner, if there are severe liquidity problems in the markets. The liquidity profile of the banking book is shown in Table 14.
S&P Rating Premiums in EURm % of total Premiums in EURm
The main insurance risks in P&C insurance operations are underwriting risks and provision risks. Underwriting risks relate to the pricing of undertaken insurance policies and to the inherent uncertainty associated with such policies. In order to ensure that the insurance premiums cover the expected future claims, an accurate assessment of the probable magnitude and frequency of insurance class is of utmost importance for profitability. However, the claims cost may deviate from the expected level since risk is an inherent
– Loans and Advances to customers 1,482 1,947 1,457 3,848 7,759 16,492
– Derivatives and other trading liabilities 506 0 0 0 0 506 *Trading – items are in shortest maturity at market value. Demand deposits are reported over maturities.
IFRS Financial Statements: Risk management part of P&C insurance, e.g. due to single large claims or natural catastrophes.
Mortality Finalized annuties Life expectancy Sweden 8 7 increased by 1 year Denmark 3 3
One concentration risk for P&C Insurance is the exposure to natural disasters, such as winter storms and floods. The most exposed geographical areas to such disasters are Denmark, Norway and Sweden. The risk is measured by analysing historical events and studying the insurance values exposed, and is managed by purchasing reinsurance. Since 2003 a Nordic-wide reinsurance program has been in use in If. In 2006 the retention levels were between SEK 100 million and SEK 200 million per risk and SEK 200 million per event.
The liabilities of Sampo’s life insurance business arise almost entirely (99 per cent) from Sampo Life’s Finnish operations. The insurance risks in Sampo’s Baltic and Swedish life insurance companies are managed using similar principles to those applied in Sampo Life.
Tables 17 to 19 show the amount of Sampo Life’s risks from different perspectives.
IFRS Financial Statements: Risk management process. Risk management consists of identifying and pricing risks, risk-taking decisions, and portfolio management. Sampo plc’s Board of Directors and the Risk Control Committee, together with the Boards of Directors of subsidiaries, the Group-level bodies and the Financial Control, share the responsibility for risk control. Line organisations are responsible for risk management.
The Board of Directors of Sampo plc is responsible for ensuring that the Group’s risks are properly managed and controlled. The Board sets the principles of risk management and provides guidance on the organisation of risk management and internal control in the business areas. The Board monitors the risk management process and has established a Risk Control Committee (RCC) to control the Group’s risks. The major risk-related decisions are made within the framework of the given authority in the Investment Committees, the Credit Committee and the Asset and Liability Committee (ALCO).
Changes in liabilities arising from insurance and investment contracts of Sampo Life Group *)
Reserve for decreased discount rate 46 21 34 19 11 6 7
Sampo Life parent company total 1,343 1,164 2,116 1,278 859 591 855 *) Before reinsurers’ share **) Investment contracts market risks in banking activities and formulates the main risktaking policies for the Boards of the operating companies. The market risk of the investment portfolios of the insurance companies is managed by the investment committees.
Trading operations cover Sampo’s customer-related businesses in interest rate, foreign exchange, stock, commodity and credit products and their combinations. The trading unit operates independently within the set VaR limits (see Table 6).
Market risks in trading are measured and limited by using a technique called Value-at-Risk (VaR), and are calculated within a confidence level of 99 per cent for overnight risk. The volatility and correlation parameters required by the model are calculated daily on the basis of 60-banking day historical market observations. Risks are also monitored and limited by means of stress testing and exposure limits, thus ensuring that agreed levels of risk are not exceeded in exceptional market conditions.
The Group’s guidelines lay down uniform principles for credit risk taking, with the aim of ensuring good quality in the credit process. Sampo’s Board of Directors annually approves the credit risk policy. This sets the parameters for credit risk appetite, expressed by the economic capital allocated to credit risks and the diversification of risks from different perspectives. The targeted economic capital is set at a level below the actual capital in the balance sheet. Lending is focused on customers operating in Finland and the Baltic countries. Limits are set for risk concentrations, measured by the ratio of a customer group’s nominal exposures to the Bank’s total capital, as well as by the ratio of a customer group’s economic capital, calculated by a credit risk model, to the total economic capital. The risk concentration parameters are at a clearly lower level than official norms.
Sampo Bank utilises its own data to estimate the default probabilities assigned to rating grades. A customer will be rated as defaulted, if it has interest and loan instalments over 90 days overdue, if its loan must be restructured resulting in an economic loss to the bank, or if it is forced into corporate restructuring or bankruptcy. The bank’s internal default data also forms the basis for loss given default estimates.
Loan pricing, customer profitability measurement and the target-setting of customer-responsible units are based on riskadjusted performance measures (RORAC).
Credit applications are scored with scorecards that use customer or household income, living expenses, debt repayment obligations, and other factors as influential variables in forecasting customer creditworthiness. Depending on the available information, the content of the scorecard varies by product. A behavioural scoring model suitable for the continuous updating of creditworthiness estimates for private customers was brought into use last year.
The pricing of private customer loans is risk-sensitive, using contract-level creditworthiness and loss given default estimates.
The Boards of Directors of the Group’s insurance companies annually approve the companies’ investment policies which define the target allocation of the investment portfolio, the limits by instrument, the organisation of investment activities and the authorities to make and execute decisions. In allocating assets and setting return and liquidity requirements, the structure and requirements of the companies’ technical provisions, their risk-bearing capacities, regulatory requirements, rating ambitions and risk capacity/appetite are taken into account. The investment risks are monitored by sensitivity analysis. In this case, standard deviations by types of asset, annually approved by each company’s Board of Directors, are used in calculating the long-term risk of value changes in the investment portfolio. In calculating the overall risk, all markets are assumed to lose their value by one standard deviation simultaneously. Additionally, the total risks of the investment portfolios are monitored using the Value-at-Risk technique. The investment policy also includes guidelines on the use of derivatives. The risk of using derivatives is monitored every month using the same technique.
Sampo’s Board of Directors and each insurance company’s Board of Directors appoint an Investment Committee, which is responsible for the organisation and control of investment activities. The Investment Committee ensures compliance with the principles and limits specified in the investment policy and reports to the company’s Board on investment activities. Sampo Life’s Investment Committee meets every second week and If ’s Investment Committee meets at least eight times a year. The Boards of Directors of both companies annually approve the risk management plan concerning the risks of the entire insurance company.
The Underwriting Policy is supplemented with detailed underwriting guidelines that are intended to properly secure the assessment and quantification of risks. These guidelines cover, among other things, tariff and rating models for pricing, guidelines in respect of standard conditions and manuscript wordings, as well as underwriting authorities and underwriting limits. P&C Insurance also sets requirements which its customers have to fulfil before insurance is provided.
IFRS Financial Statements: Risk management ment will take a long time. Workers’ Compensation (WC), Motor Third Part Liability (MTPL) and Personal Accident and Liability insurance are products with these characteristics.
For statutory insurance lines such as Motor Third Party Liability and Workers’ Compensation, legislation differs significantly between countries. Some of the Finnish, Swedish and Danish provisions consist of annuities which are sensitive to changes in mortality assumptions and discount rates. In particular, the Swedish technical provisions are sensitive to changes in inflation. The proportion of the technical provisions for claims related to MTPL and WC is 68 per cent of the total claims provisions.
Sampo Life analyses, at least annually, the underwriting result i.e. the actual claims expenditure and the claims expenditure assumed in insurance premiums of every risk cover. Based on these analyses, Sampo Life sets tariffs for new business, updates underwriting policy and increases the liabilities of existing business if necessary. In both disability and medical expenses policies, the company has the right to raise insurance premiums for existing policies if the claims experience deteriorates.
The administration and acquisition expenses of every product are followed annually and possible changes in tariffs and processes are made.
the test results. Decisions on changing the tariffs and the reserving principles are made by the Board.
Reinsurance principles are reviewed and approved by the Board annually. At the inception of reinsurance the accepted credit risk of the reinsurer is considered. The credit risks of reinsurance assets are followed.
Operational risks are reflected, for example, in costs, claims, loss of reputation, business disruptions or false information concerning positions, risks and results. The management of operational risks enhances the efficiency of the Group’s internal processes and decreases fluctuations in returns. The co-ordinated management of operational risks gives management an overall view of the realisation and management of risks, as well as of the changes in risk position shown by the risk indicators and analyses of the external environment.
Risk indicators have been set to depict changes in the risk position. Their validity is assessed regularly. Generally, the risk indicators are process deviations, volume changes, customer feedback and changes in the external and internal operating environment. The business units follow the indicator values systematically. The indi-
A wide variety of banking services is available in the Internet and the use of web services has increased rapidly. Maintenance of the service level of Sampo Bank’s web banking services requires that internal controls and risk management methods are systematically complied with. Risk management is evaluated regularly in the light of changes in activities and the environment. There are updated risk analyses concerning the main activities, systems, projects and processes. The development and maintenance of activities is in a specified documented form.
The regulations affecting the capital adequacy of the Sampo Group’s 2006 business areas will change in the coming years. The reform of credit institution activity is known as the Basel II reform. The corresponding reform affecting insurance companies is known as Solvency II. The new legislation concerning the capital adequacy of financial groupings came into force in Europe at the beginning of 2005.
Risk based capital requirements (“Solvency II”) for the European insurance industry is in progress. They will to a greater extent encourage and provide incentives for insurance companies to measure and manage all their risks properly and on an aggregated level. To a certain degree, the methods and rules of Solvency II will comply with Basel II. Solvency II is not expected to come into force before 2010.
The Swedish Financial Supervisory Authority has developed a new supervisory tool – the traffic light system – to measure exposure to financial risks in life insurance companies and occupational pension funds. The traffic light system was implemented in 2006. There is a proposal for an extended traffic-light model which includes quantification of financial and insurance risks for both life and non-life companies. The extended traffic-light model is proposed to come into force during 2007.
The Group’s business segments are P&C insurance, Life insurance, Other operations and Banking and investment services. Other operations comprise the operations of the holding company and the Primasoft Oy information technology firm. On 9 Nov. 2006 Sampo Plc signed a contract to sell the entire share stock of Sampo Bank Plc to Danske Bank A/S in Denmark. As a result of this sale, the segment is presented in the financial statements under discontinued operations.
The Group’s secondary segmentation is based on geographical distribution. The reported segments are Finland, Sweden, Norway,
Consolidated income statement by business segment for year ended 31 December 2006
Change in liabilities for insurance and investment contracts –345 –345 –345
Profit for the financial year 520 220 –23 717 275 –1 991
Consolidated income statement by business segment for year ended 31 December 2005
Change in liabilities for insurance and investment contracts –390 –390 –390
Total operating expenses –3,387 –1,004 –98 –4,490 –425 105 –4,809 net income between the segments 35 18 –81 –28 28
Cash and balances at central banks 230 58 1,722 –81 1,929
Amounts owed to credit institutions and customers 92 13,256 –592 12,755
Financial assets at fair value through p/l 87 46 3 2,409 –8 2,537
Banking and investment services (discontinued operations) 736 – – – 78 0 814
Banking and investment services (discontinued operations) 687 – – – 53 – 740
Assets by geographical segment EURm Finland Sweden Norway Denmark Baltic Other Elimination Total
Investments of P&C insurance have been allocated to different countries based on the claims they have on their share of investment assets managed centrally in Sweden.
Other notes 1 Non-current assets held for sale and discontinued operations
The net assets of sold entities totalled EURm 12 which was also the sales price.
61IFRS Financial Statements: Other notes 3 Net interest income Continuing operations, EURm 2006 2005
The item also includes a change in fair value of cash flow hedging instruments EURm 1 (8) transferred from the fair value reserve at the maturity of the contracts.
IFRS Financial Statements: Other notes 4 Net income from financial transactions Continuing operations, EURm 2006 2005
Change in fair value of hedging derivative instruments, net –48 –20
Fee and commission income from financial assets and liabilities EURm 125 (115) and fee and commission expense EURm 16 (10).
Reversal of impairment losses and recoveries of loan receivables previously impaired 51 39
IFRS Financial Statements: Other notes 7 Insurance premiums Continuing operations, EURm 2006 2005
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 3 (4) transferred from the fair value reserve.
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 18 (2) transferred from the fair value reserve.
The changes in the fair value reserve are disclosed in the Statement of changes in equity on page 18.
In insurance business investments are managed as a whole and so all the income and expenses arising from investments are included in
Change in provision for claims outstanding (incurred and reported losses) 666 –74 592 710 –131 579
Total claims cost attributable to prior-year operations 46 19 65 27 12 39
Total change in provision for claims outstanding –345 –23 –367 –259 –163 –422
1) 2,5 per cent has been used as a discount percentage for claims in a form of annuities for 2004 and 2005. For older annuities the percentage was 3,5. The average of these two as for 31 Dec. 2005 was 3,4. 2) Used for all years.
Contracts with discretionary participation feature (DPF) –121 –126 –3 –5 –125 –131
Contracts with discretionary participation feature (DPF) –14 –46 0 – –14 –46
IFRS Financial Statements: Other notes 11 Staff costs Continuing operations, EURm 2006 2005
75IFRS Financial Statements: Other notes 12 Other operating expenses Continuing operations, EURm 2006 2005
Item Other includes i.e. audit and supervision fees as well as insurance and membership fees.
Group, total –764 –702 13 Result analysis of P&C insurance business EURm 2006 2005
Other insurance technical income and expense (+change in collective guarantee item) 0 –2
Weighted average number of shares outstanding during the period 563 565
Profit or loss attributable to the equity holders of the parent company/continuing operations 714 719
Profit or loss attributable to the equity holders of the parent company/discontinued operations 263 230
Profit or loss for the purpose of calculating diluted earning per share 977 949
Financial assets designated as at fair value through p/l 12,208 328 215 – 31
Trading assets and derivative financial instruments 1,896 23 –41 – –
Financial assets designated as at fair value through p/l 11,491 256 400 – 27
Financial assets at fair value through p/l 1,862 1,862 2,537 2,537
Financial liablities Financial liabilities at fair value through p/l 524 524 649 649
In the table above are presented fair values and carrying amounts of financial assets and liabilities, including values of those financial assets and liabilities which are carried at fair value. The detailed measurement bases of financial assets and liabilities are disclosed in
The fair value of trading and investment securities is assessed using quoted prices in active markets. If published price quotations are not available, the fair value is assessed using discounting method. Values for the discount rates are taken from the market’s yield curve.
The private equity funds are carried at cost during the first four operating years and funds of funds during the first five operating years, following the funds’ foundation, unless they cannot be assessed to be permanently impaired.
Disclosed fair values are “clean” fair values, i.e. full fair value less interest accruals.
On 9 Nov. 2006 Sampo Plc signed a contract to sell the entire share stock of Sampo Bank Plc to Danske Bank A/S. As a result, the Banking and investment services segment has been classified as discontinued operations and the assets and liabilities related to it are presented in balance sheet items Non-current assets classified as held for sale (note 29) and Liabilities directly associated with non-current assets classified as held for sale (note 37).
Group, total 206 1,665 19 Financial assets and liabilities at fair value through p/l
Financial assets designated as at fair value through p/l 648 –
Cash and balances at central banks above equal cash and cash equivalents in the statement of cash flows for P&C and life insurance business.
Interest rate options, bought and sold 73 0 0 – – –
Currency options, bought and sold 96 0 0 – – –
OTC equity and equity index options 15 10 0 4 6 –
In Banking and investment services, interest rate and interest rate and cross currency interest rate swaps are designated as fair value hedges, using them as hedges against the changes in market interest rates. Also different kinds of index-linked options, which are used as hedges against changes in fair values of corresponding written index-linked options due to changes in market conditions, are designated as fair value hedges. These index-linked derivatives may be based on interest rate, equity or foreign exchange indices. Interest rate swaps were used as cash flow hedges against decrease in future interest payments of floating rate loans.
OTC equity and equity index options – – – 5 – 3
Equity and equity index options – – – 15 2 –
Total derivatives held for trading 1,506 16 12 5,094 46 36
Equity and equity index derivatives, bought and sold 448 53 52
Financial assets and liabilities at fair value through p/l for Banking and investment services (discontinued operations) at 31 Dec. 2006 presented in Non-current assets classified as held for sale, note 29.2.
Present value of minimum lease payments receivable not later than one year 197 later than one year and not later than five years 452 later than five years 117
Finance lease assets comprise IT and office automation equipment, cars and transport equipment, manufacturing equipment and factory, office and business property.
P&C insurance Financial assets designated as at fair value through p/l 9,732 9,535
Life insurance Financial assets designated as at fair value through p/l 75 53
Total financial assets designated as at fair value through p/l 9,732 9,535
Financial assets Financial assets designated as at fair value through p/l
Total financial assets designated as at fair value through p/l 75 53
Fair values determined by the Group based on the market evidence 42 44
Financial assets available-for-sale for life insurance include impairment losses EURm 13 (15).
Financial assets designated as at fair value through profit or loss: During the financial year, the life insurance business has net invested
Financial assets available-for-sale: The life insurance prepared for the rise in interest rates by transferring long-term debt securities issued by governments to certificates of deposits issued by banks.
Associates not accounted for by the equity method at 31 Dec., 2006
Consulting AB Lennermark & Andersson, Tapio Technologies Oy and Euro-Alarm A/S have been excluded from accounting for by the equity method because of their immaterial effect on consolidated figures.
Associates that have been accounted for by the equity method at 31 Dec., 2005
Associates not accounted for by the equity method at 31 Dec., 2005
Total financial assets designated at fair value through p/l 1,753 1,262
The intangible asset allocated to customer relations arose from the acquisition of If in 2004, when a part of the acquisition cost was allocated to insurance contracts of If Group. The item is amortised on a straight-line basis over 6 years.
Net carrying amount at 1 Jan. 153 4 157 153 3 156
Intangible assets for Banking and investment services (discontinued operations) at 31 Dec. 2006 presented in Non-current assets classified as held for sale, note 29.5.
The recoverable amounts for If and Sampo Banka AS 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 Sampo Life has been fundamentally based on the embedded value model where the cash flow estimates for existing policies are based on budgets approved by the management and on historical evidence in terms of policy surrendering, death and accident frequencies etc. The derived cash flows for If and Sampo Banka AS were discounted at the pre-tax rates of 11.1 per cent. For Sampo Life, the weighted average cost of capital of 11.1 per cent has been used, as an asset-specific rate was not directly available from the market.
Forecasts for If, approved by the management, cover years 2007–2009. The cash flows beyond that have been extrapolated using a 3%
IFRS Financial Statements: Other notes 25 Property, plant and equipment 2006 2005
– From investment properties to owner-occupied properties 0 – 0 – – –
Item Other comprise i.e. receivables from the employees’ group life insurance pool, pensions paid in advance and receivables from co-operations companies.
EURm 1 Jan. Recognised in p/l account Recognised in equity Echange rate differences 31 Dec.
Banking and investment services (discontinued operations) Non-current assets classified as held for sale
Total assets classified as held for sale in the consolidated balance sheet 26,585 29.1 Cash and balances at central banks Cash 41
Total financial assets at fair value through p/l in the consolidated balance sheet 2,346
Equity and equity index derivatives, bought and sold 1,329 91 95
Financial assets designated as at fair value through p/l EURm 2006
Present value of minimum lease payments receivable not later than one year 241 later than one year and not later than five years 577 later than five years 119
IFRS Financial Statements: Other notes 29.5 Intangible assets Other intangible assetsEURm Goodwill Total
Non-cancellable minimum rental from property rented out under operating lease 2006
Later than one year and not later than five years 15
Item Other includes i.e. sales and fee receivables and receivables from security transactions.
Amounts owed to credit institutions and customers for Banking and investment services (discontinued operations) at 31 Dec. 2006 presented in Liabilities directly associated with non-current assets classified as held for sale, note 37.1.
Sampo Life issued in 2002 EURm 100 Capital Notes. The loan is perpetual and pays floating rate interest. The interest is payable only from distributable capital. The loan is repayable only with the consent of the Insurance Supervisory Authority and at the earliest on 2012 or any interest payment date after that. The loans was 100% subscribed by Sampo Plc.
At the close of the claims year 2,361 2,361 2,483 2,529
The tables below show the cost trend for the claims between 2003–2006. 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.
The liabilities at 1 Jan. and at 31 Dec. include the future bonus reserves and the effect of the reserve for the decreased discount rate of individual insurances. The calculation is based on items before reinsurers’ share. For more detailed specification of changes in liabilities arising from insurance and investment contracts, see Risk Management.
The development of efficient administrative and claims-adjustment processes and structural changes in distribution channels result in organisational changes that affect all business areas. The provision consists mainly of funds reserved for future expenses attributable to previously implemented or planned future organisational changes.
Other liabilities Liabilities arising out of direct insurance operations 119 142
Item Other includes i.e. witholding taxes, social expenses related to Workers Compensation insurance policies and employee benefits, unpaid premium taxes and other accruals.
Item Other includes i.e. liabilities arising from withholding taxes and social security costs, liabilities to creditors and insurance premium advances.
Other liabilities for Banking and investment services (discontinued operations) at 31 Dec. 2006 presented in Liabilities directly associated with non-current assets classified as held for sale, note 37.3.
Fair value of plan assets 228 – 228 203 – 203
Expected rate of return on plan assets at start of year –12 –10
Personnel fund Members of the Sampo Group’s personnel fund comprise the staff of Sampo plc and its Finnish subsidiaries located in Finland, except for the members of the Board of Directors and the Board of Management employed by the Group companies, Managing Directors of Group companies and other management personnel or executives and experts involved in the Group long-term incentive schemes. An estimated amount of the profit-sharing bonuses to the personnel fund for 2006 is EURm 5.
Specification of change in net liability entered in the balance sheet
Later than one year and not later than five years 92 72
If P&C Holding Ltd and If P&C Insurance Ltd issued a guarantee for the benefit of Försäkringsaktiebolaget Skandia (publ.) whereby the aforementioned companies in the If Group mutually guarantee that companies in the Skandia group will be indemnified against any claims or actions due to guarantees or similar commitments made by companies in the Skandia group within the property and casualty insurance business transferred to the If Group.
Tryg-Baltica Forsikrings AS whereby Skandia and Tryg-Baltica will be indemnified against any claims attributable to guarantees issued by
Försäkringsaktiebolaget Skandia (publ.) and Vesta Forsikring AS, on behalf of Skandia Marine Insurance Company (U.K.) Ltd. in favor of the Institute of London Underwriters.
Minimum lease payments under non-cancellable operating leases not later than one year 2 2 later than one year and not later than five years 6 6 later than five years 5 7
Total of sublease payments expected to be received under non-cancellable operating sub-leases at 31 Dec 0 0
Sampo plc is involved in a case of VAT refund. If the decision of the Tax Office for Major Corporations, which is under complain, remains final, despite the appeals process, the impact on the profit for the period is estimated to be EURm 26, at the maximum. See Note 37 for the financial statements of Sampo plc.
Sampo Bank plc has entered into long-term deposit contracts called Guaranteed Investment Contracts. More information in note 37.5
Liabilities directly associated with non-current assets classified as held for sale.
Minimum lease payments under non-cancellable operating leases not later than one year 21 later than one year and not later than five years 53 later than five years 43
Total of sublease payments expected to be received under non-cancellable operating sub-leases at 31 Dec. 12
Lease and sublease payments recognised as an expense in the period – sublease payments 4
The Group had at the end of 2006 premises a total of 324,077 m2 taken as a lessee. The contracts have been made mainly for 3 to 10 years.
Total liabilities directly associated with assets classified as held for sale in the consolidated balance sheet 24,520 37.2 Amounts owed to credit institutions and customers EURm 2006
Total financial assets at fair value through p/l in the consolidated balance sheet 450
Sampo Housing Loan Bank issued in 2005 a covered bond with a principal of EURm 1,000 and a maturity of 5 years. The loan pays fixed interest rate of 2.5%, which was swapped to floating rate at 0.01% below Euribor.
Sampo Housing Loan Bank issued in September 2006 a covered bond with a principal of EURm 1,000 and a maturity of 5 years. The loan pays fixed interest rate of 3.75%, which was swapped to floating rate at 0.03% below Euribor.
Minimum lease payments under non-cancellable operating leases not later than one year 22 later than one year and not later than five years 53 later than five years 40
Total of sublease payments expected to be received under non-cancellable operating sub-leases at 31 Dec 10
EUR 120,422,555.30. On 31 December, 2006, the company’s share capital was EUR 95,466,518.81.
The number of Sampo plc’s shares at 31 December, 2006 was 567,618,145, of which 566,418,145 were A shares and 1,200,000 B shares.
131IFRS Financial Statements: Other notes 39 Dividends The Board of Directors proposes to the Annual General Meeting on 12 April 2007 that a dividend of EUR 1.20 per share, EUR 692,967,942 in total (EUR 0.60 per share, EUR 338,830,309 in total) be distributed for 2006. The dividends to be paid will be accounted for in the equity in 2007 as an appropriation of retained earnings.
Helsinki Stock Exchange during the year under review. Subscription period for the options ended 31 Jan, 2007 and the quotation on the
As Sampo’s A shares, subscribed on the basis of the option programme 2000 after 31 Dec. 2006, entitle to dividends only after the dividend distribution for 2006, a new share category was adopted in the main list of Helsinki Stock Exchange on 2 Jan. 2007. The new category
On 5 April, 2006 the AGM of Sampo plc decided to cancel the 7,000,000 Sampo A shares acquired in 2005. The cancellation decreased the number of A-shares with an equal amount. The change in the share capital of EUR 1,177,315.50 was traderegistered on 26 April 2006.
During the year under review, Sampo’s Board of Directors approved subscription for 3,299,830 A shares under the option programme 2000, with a total counter value of EUR 554,991,57. The new shares were admitted for trading on the Helsinki Stock Exchange following the entry of each lot in the Trade Register. The remaining 14,682,640 shares subscribed in 2006 (counter value 2,469,442.77 euro) were traderegistered in
Key management personnel with close family members and entities that are controlled or significantly influenced by these 25 23
Act, section 67. Also other terms of the loans equal to the terms of the staff loans confirmed in the Group. The loans are secured. The terms of the loans to the entities controlled or significantly influenced by the above mentioned persons equal to those granted to other corporate customers.
A total of 5,200,000 options were issued, of which 2,600,000 were designated as A options and 2,600,000 as B options. Each option entitles its holder to subscribe for five Sampo A shares. After the stipulated subscription requirements had been met, A and B options were combined to form A/B options, traded on the main list of Helsinki Stock Exchange. The share subscription period for all the options ended at 31 Jan, 2007.
At the end of the financial year, 1,242,456 of the 2000 A/B warrants, entitled to subscription for 6,212,280 shares, were still unexercised.
With 14,682,640 share subscriptions paid in 2006 and approved by the Board in January 2007, the share capital can increase by a maximum of EURm 3.51, which equals approximately 3.7 per cent of the share capital as of the end of 2006.
The Board of Directors for Sampo plc has decided on the long-term incentive schemes 2003 I–2006 II for the management and experts of the Sampo Group. The Board has authorised the Nomination and Compensation Committee of the Board, or the CEO, to decide who will be included in the scheme, as well as the number of calculated bonus units granted for each individual used in determining the amount of the performance-related bonus. Over 200 persons were included in the schemes at the end of year 2006.
Each plan has three performance periods and bonuses are settled in cash in three installments. When the bonus is paid, the empoloyee shall buy Sampo’s A shares at the first possible opportunity, taking into account the provisions on insiders with 20 per cent of the amount of the bonus after taxes and other comparable charges, and to keep the shares in his/her possession for two years.
A premature payment of the bonuses may occur in the event of changes in the group structure or in the case of employment termination on specifically determined bases.
End of performance period I 30% Dec–2005 Dec–2006 Dec–2006 Apr–2007 Q2–2007 Q2–2008 Q3–2008
End of performance period II 35% Q1–2006 Q4–2006 Q4–2006 Q3–2007 Q4–2007 Q4–2008 Q1–2009
End of performance period III 35% Q1–2006 Q4–2006 Q4–2006 Q4–2007 Q2–2008 Q2–2009 Q3–2009
Price of Sampo A at terms approval date, EUR 1) 6.30 9.00 8.94 11.01 12.34 16.39 20.25
Dividend-adjusted starting price at 31 Dec. 2006, EUR 5.06 7.07 8.08 10.37 12.07 15.37 20.17
Total cost for the financial period, EURm (incl. social costs) 29 1) Grant dates vary 2) Sampo A’s trade-weighted average for ten trading days from the approval of terms + 0 –15%
Payout of the total maximum reward if the minimum is achieved 20% 40% 40%
There are a number of legal proceedings against the Group companies outstanding on 31 December 2006, arising in the ordinary course of business. No provisions have been made as professional advice indicates that it is unlikely that any significant loss will arise.
IFRS Financial Statements: Other notes 44 Investments in shares and participations other than subsidiaries and associates
Listed foreign shares and participations Nordea Bank AB SE 9,225,165 0,36% 108
Net income from transactions in securities and foreign excange dealing from transactions in securities 0 0 from foreign exchange dealing 1 0
Depreciation and impairment on property, plant and equipment and intangible assets 8 –8 –7
The separate financial statements of Sampo plc for 2006 have been prepared in accordance with the provisions of Article 4 of the Act on
Credit Institutions (1607/1993), the Decree of the Ministry of Finance (1259/2000) concerning annual accounts and Group accounts of financial institutions and investment services companies, and Standard 3.1 Financial statements and Annual report issued by the Finnish
Total 1,412 3 Fee and commission income and expenses EURm 2006
Other operating income Rental income from property occupied for own activities 1
Sampo plc’s business comprise primarily dividend income from subsidiaries, reduced by interest expenses on funding the acquisition of If.
Debt securities total – 130 130 of which treasury bills and other eligible bills – – –
of which the amount of subordinated debt securities – 130 130 14 Shares and participations
Shares and participations in associates – 1 1 of which at cost – 3,159 3,159 of which in credit institutions – 787 787 15 Derivative financial instruments
EURm Less than 1 year 1-5 years Over 5 years Positive Negative
Classification between those occupied for own activities and for other activities is based on the area in Group’s use.
Carrying amount at end of year 15 13 4 19 Other assets EURm 2006
Parent Company Sampo plc’s Financial Statements 21 Deferred tax assets EURm 2006
Subordinated liabilities with a carrying amount more than 10% of the total amount of such liabilities 586
26 Maturity analysis of assets and liabilities, by remaining maturity EURm 2006
Share premium account Legal reserve Fair value reserve Other reserves Retained earnings TotalEURm
Total 1,842 30 Share capital Information on share capital is disclosed in Note 38 in the consolidated financial statements.
31 Share issues, option rights and issue of convertible bonds Information is disclosed in Note 38 in the consolidated financial statements.
Mutual Fund Nordea Nordia 683,892 0.1 0.1 20 largest shareholders in total 180,429,235 31.8 32.4
Others in total 84,795,228 14.9 14.8 1) 4,927,855 A shares and 1,200,000 B shares.
37 Other commitments Sampo plc received value added tax refunds in 2004 based on the Tax Office for Major Corporation’s final value added tax refund decisions.
Sampo plc is the entity liable to tax in a tax group of Sampo plc for the purpose of the Value Added Tax Act. The tax refund was based on a refund application made by a member of the group.
If the decisions made by the Tax Office for Major Corporations in December 2004 remain final despite the appeals process, the net effect in
Sampo Group is at most estimated to be approximately EURm 26.
Total 87 +4 39 Management’s remuneration and post-employment benefits EUR thousand 2006
Primasoft Oy, Espoo Finland 2) 20.00 (30.00) 1 1) Percentage of the voting rights held is presented in brackets, if it differs from that of the shares held. 2) Sampo Group holds 40% of the share capital and 60% of the voting rights.
Information on associates is disclosed in Note 22 to the consolidated financial statements.
We have audited the accounting records, the report of the Board of Directors, the financial statements and the administration of Sampo plc for the financial year 2006. The Board of Directors and the Managing Director have prepared the consolidated financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, as well as the report of the Board of Directors and the parent company’s financial statements, prepared in accordance with prevailing regulations in Finland, containing the parent company’s balance sheet, income statement and notes to the financial statements. Based on our audit, we express an opinion on the consolidated financial statements, as well as on the report of the Board of Directors, the parent company ’s financial statements and the administration.
In our opinion the consolidated financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view, as defined in those standards and in the Finnish Accounting Act, of the consolidated results of operations as well as of the financial position. The consolidated financial statements can be adopted.
Parent company’s financial statements, report of the Board of Directors and administration
The financial statements can be adopted and the members of the Board of Directors and the Managing Directors of the parent company can be discharged from liability for the period audited by us. The proposal by the Board of Directors regarding the disposal of distributable funds is in compliance with the Companies Act.
STOCKHOLM HELSINKI COPENHAGEN VILNIUS If If If If SE-106 80 Stockholm FIN-00025 IF 2650 Hvidovre Zalgirio Str. 88 Street address: Barks väg 15 Street address: Street address: 09303 Vilnius
PO Box 190 www.if.fi 10124 Tallin FINLAND SE-851 03 Sundsvall Telephone: +372 6 671 099 Street address: Street address: Universitetsallén 2 www.if.ee Malaya Konyushennaya 1/3, Office B 42 Telephone: +46 771-43 00 00 NORWAY 191186 St. Petersburg
RUSSIA MALMÖ OSLO LATVIA www.if-insurance.com If If Västra Varvsgatan 19 PO Box 240 RIGA SE-211 19 Malmö NO-1326 Lysaker If Telephone: +46 771-43 00 00 Street address: Lysaker Torg 35 Kronvalda bulvaris 3 www.if.se Telephone:+47 980 02400 1010 Riga www.if.no Telephone: +371 7 094 777 www.if.lv
Contents 01 If in brief 02 President’s Review 05 Market and competitors 06 Business area PRIVATE
If P&C Insurance Holding Ltd, the parent Company of the If Group, is a wholly subsidiary of Sampo Abp, a Finnish listed company. In addition to the property and casualty insurance operations conducted within If, the Sampo Group also conducts life insurance operations and bank operations until jan 2007. Ifs property and casualty insurance operations constitute an independent segment within Sampo.
If had another year of strong development. For the third successive year, we exceeded the ambitious goals that were set for earnings, and the operating result before tax was MSEK 6,826 (7,493). In addition, our multi-year project of systematic transformation powered successful, both in terms of strongly improved customer satisfaction and lower internal costs.
Another goal for 2006 was to improve customer satisfaction and at the same time attain very strong insurance results. Our efforts with regard to customer satisfaction permeated the entire company, and comprised all customer communications, new concepts for claims prevention and extremely prompt claims assessment – half of If ’s more than one million claims per year are assessed within 24 hours. Our unique customer benefits – deductible accounts, the comprehensive customer concept If Plus and a number of security benefits – have now been introduced across Scandinavia. Gratifyingly, we reaped immediate returns in terms of private customer satisfaction in the EPSI/quality index, an external Nordic quality survey published in November. Efforts to improve customer satisfaction also extend to corporate customers. In this connection, our tool for electronic customer support, If Login, now has 460,000 customers in the Nordic region. In addition, a new security test was developed in Finland and is used by more than 10,000 corporate customers. The test will be introduced in Scandinavia during 2007.
Insurance 2006 than today. During 2006, If ’s brand recognition developed very positively, especially in the Nordic markets.
With regard to minor claims, the Nordic countries also had an exceptionally favorable year in 2006 – in spite of a harsh winter in 2005/06, with a low claims frequency – and the leadup to the winter of 2006/07 has been uncommonly mild and free of snow. Inflation with regard to important types of claims
– for example, vehicle damage – remained low. As we cannot expect that the trend experienced during the past two years will continue, we follow developments very closely through the analytical tools we have developed during the past few years and continually assess future scenarios.
Climate change received a great deal of media coverage during 2006 and while the short-term effects for the insurance industry may be limited, we intend to cooperate with a number of community organizations to minimize the long-term problems, both for the insurance industry and for society in general.
Competition in the Nordic and Baltic insurance markets is intense. A number of competitors have introduced initiatives to strengthen their distribution power. As far as If is concerned, the main task in this regard has been the implementation of the Nordic cooperation agreement with Ford. This is the largest agreement within the area of property and casualty insurance in our part of the world and entails that anyone who buys a
If ’s vision is to be the leading casualty and property insurance company in the Nordic region with the most satisfied customers, leading-edge insurance expertise and superior profitability.
If ’s aim is to establish sustainable customer satisfaction and profitability that is superior to that of competitors.
If aims to exceed its customers’ expectations by offering the best insurance solutions, swift and correct claims handling and sympathetic reception.
If aims to create a competitive edge by utilizing economies of scale and knowledge exchange on the basis of an integrated Nordic and Baltic organization.
The Nordic insurance market is relatively consolidated. The five largest companies account for two thirds of the market and the three largest players are established in more than one Nordic country. The market share of the largest companies has risen substantially since the mid-1990s.
The premiums for reinsurance declined slightly during 2006, following more favorable international claims outcomes compared with preceding years, when the market was depressed by such events as the tsunami disaster and repeated in North America. However, the opportunities for reinsurance remain relatively limited, in part due to a certain amount of consolidation among the leading global players.
If has established a presence as one of the principal players in the growing Baltic markets. The Estonian insurance market is dominated by four major players, of which If is the market leader accounting for 36%. The Latvian and Lithuania markets are more fragmented with a large number of players. If is the fourth largest company in both of these markets, with market shares of 10% in Lithuania and 9% in Latvia.
The technical result was msek 2,760 (2,789), while the combined ratio declined somewhat to 89.6% (89.1%).
Excluding exchange-rate effects, operating costs rose by msek 60, as a result of such factors as increased investments within distribution, which in turn was due to a new distribution strategy during the first six months of 2006. Certain nonrecurring costs also influenced 2006 and the expense ratio was 24.6% (24.5%).
During 2007, the conditions for the restructuring of the Swedish motor third-party liability insurance are expected to become clearer. The idea is that the entire insurance will be handled by the insurance industry. This means new business opportunities, since total premiums valued at approximately sek 9 billion will be introduced into the market. At the same time, the educational challenge must not be underestimated. The new motor third-party liability insurance will be one of the main issues in 2007.
If is the market leader in insurance for companies with up to 500 employees in the Nordic region. The Commercial business area has operations in Sweden, Finland, Norway and Denmark with approximately 330,000 customers. About 70% of these are small companies that are offered standardized insurance solutions, while the remaining 30% require more specialized insurance solutions and counseling.
n Risk ratio % n Cost ratio % Net premiums earned MSEK
Earnings remained at the same high level as in the preceding year, as a result of further efficiency improvements and a favorable claims trend. At year-end, costs for both major claims and frequent claims were somewhat better than expected. The technical result improved to msek 1,487 (1,469) during the year. The combined ratio was 90.8 (90.6).
The strategy of If ’s commercial business area is based on three fundamental concepts: satisfied customers, internal cost efficiency and professionalism with regard to risk-selection, pricing and product development. Improvements have been made in all of these areas and work is going on to further increasing the business area’s competitiveness.
The Industrial business area is a market leader in industrial risk solutions in the Nordic region. Customers are primarily Nordic companies with sales exceeding MSEK 500, and more than 500 employees. The business area has approximately 1,500 customers.
Gross premiums written increased slightly by 2% during the year, while net premiums earned declined by 4%. The decline in net premiums earned was attributable to the reinsurance program for third-party liability risks.
Premium volume increased in Norway, but declined somewhat in Finland and Denmark. The risk ratio decreased to 71.3% (75.1%), primarily due to a favorable outcome for prior-year claims. The costs of major claims were somewhat higher than a normal year, but lower than in 2005, due mainly to the winter storms that contributed to the increased costs at the beginning of 2005.
Work on improving work processes and concepts continued, including development of the If Login, which will make contact with customers on the Internet easier and faster. During 2007, the If Login will be installed among customers worldwide, which will also increase the degree of service we offer to customers. In 2006, the business area also continued to focus strongly on matters relating to the core business, excellent risk selection and correct pricing.
The combined ratio remained low in 2006 at 93.0 (92.0). The premium volume increased by 16% compared with 2005. Growth was strongest in Latvia and Lithuania, with growth in premiums of 32% in both of these countries. The motor and property insurance product lines for both private individuals and companies showed the most growth.
The claims ratio rose compared with the preceding year, due primarily to a number of major claims events, of which the largest were a fire in a wood-products facility in Latvia and the collapse of a glass-melting furnace in Lithuania. The risk ratio increased from 59.2 to 61.1%. Increased competition for premiums also had a negative effect on the risk ratio to some extent.
Improved efficiency was attained as a consequence of continued development of work processes, improvements in IT support and coordination of joint functions in the three Baltic countries. The expense ratio declined to 31.9% (32,8).
To further strengthen the service to If ’s Nordic customers and their operations in Russia a subsidiary has been established in St. Petersburg. Permits to sell and provide insurance was obtained by the Russian authority on the 20–12–2006. During 2007 If will start to take in its first premiums from Russia and an office will be opened in Moscow.
Healthier, more competent and more customer oriented than any other company and with first-class management.
Companies and their employees are subject to stringent demands that are growing at a rapid pace. For a company to successfully assert itself in the face of the competition, its employees must know more, have more contacts, work more efficiently and be more service-oriented than before. This places considerable demands on the company’s strategies for, and work on, HR matters. If has identified a number of areas in which the motivation and performance of our employees have to be increased. Competency is the first and probably the foremost of these.
During recent years, If has devoted considerable effort to reducing work-related ill health. These efforts have been successful and all of the countries in which If is active are now showing sickness absence of between 2 and 4%. It is now time to take the next step. If has formulated the vision of becoming the healthiest insurance company in the Nordic region and the Baltic countries. With this aim in mind, the “Healthy Workplace ” project was implemented to ensure that health-related activities are integrated into daily duties. In order to achieve this vision within a couple of years, a number of tools, processes and activities were initiated during 2006 including the following: – A joint health strategy for If as a whole – Preventive healthcare – expanded focus on already decided activities and the initiation of new ones – Process for structured follow-ups of the health situation of every unit, with related to tools and processes for addressing identified problems
– Joint Nordic rehabilitation process – Forum for improved follow-up and further development of activities in this area – Introductory course for new managers, in which a “healthpromoting workplace” will be a prominent theme.
– Continued development of our management training programs, including the initiation of negotiations concerning a financially oriented consortium program for senior executives.
At the core of property and accident insurance is a promise to provide help when damage occurs. Accordingly, the insurance industry together with public authorities, such as the police, rescue services and justice system, is one of society’s principal suppliers of security to private citizens and the business community.
The Nordic and Baltic countries were affected on a number of occasions during 2006 by natural occurrences that inflicted significant damage. The dryness of the summer gave rise to a number of forest fires on a large scale, especially in northern Sweden. The storm called Per resulted in severe damage in the Scandinavian countries in early 2007.
If ’s sponsorship must actively demonstrate social responsibility, primarily in areas linked to insurance operations. If cooperates with organizations like the Fryshuset Youth Activity Center in Sweden and the Norwegian Association of Anti-drug Police Officers in an effort to increase security in society through longterm counteraction of negative phenomena such as segregation and alienation. The work of these organizations includes youth-based drug and crime prevention programs. In Finland, If cooperates with the Voluntary Rescue Service (SPEK) in connection with rescue and injury-prevention activities for young people.
authorities. The bonus is based on the outcome in relation to established targets and, to the extent possible, should be connected to value creation for the If Group. During 2005, a new incentive program was introduced for senior executives, replacing the program that ran between 2001 and 2004. The program provides the participants with an opportunity to receive bonus payments during 2007 and 2008 and is connected to the company’s financial performance and to the share-price trend for the Sampo Group during the term of the program.
n –19 n 20–29 n 30–39 n 40–49 n 50–59 n 60–69 n 70–
If receives insurance premiums when an insurance contract is signed. In this context, If makes an obligation to compensate the insured when insurance claims arise. If the number of claims or the claims cost exceeds If ’s original expectations, there is a risk that the received insurance premium will not cover disbursements and that the insurance operations will be unprofitable. Accordingly, the insurance risk in property and casualty insurance operations may be defined as the risk that insurance claims occur more frequently and/or with a larger result impact than anticipated.
Read more about If ’s risk and risk handling in the Report of the Board of Directors published at www.if-insurance.com and www.sampo.com.
Allocated investment income transferred from the non-technical account 1,602 1,537 1,816 1,935 2,332
Total shareholders’ equity, provisions and liabilities 111,751 112,879 101,472 95,532 96,283
Other assets Tangible assets 249 270 Cash and bank balances 1,483 2,331 Securities settlement claims 2,800 115
Prepayments and accrued income Accrued interest and rent 1,301 1,067 Deferred acquisition costs 871 910 Other prepayments and accrued income 375 373
Shareholders’ equity Share capital 2,726 2,726 Statutory reserve 400 400 Other restricted reserves 111 186 Profit earned forward 11,196 15,573 Net profit for the year 4,871 5,478
Technical provisions (gross) Provisions for unearned premiums and unexpired risks 14,830 15,281 Provisions for claims outstanding 59,724 58,746
Reinsurers’ share of deferred acquisition costs 21 12 Other accruals and deferred income 1,480 1,434
Cedent Direct insurance company that reinsures a part of its direct business with a reinsurer.
Combined ratio Claims incurred and operating expenses in relation to premiums earned, expressed as a percentage.
Cost of insurance operations Sum total of operating expenses and claims costs.
Direct return ratio Direct investment return as a percentage of a weighted average fair value of investment assets.
Gross business Insurance business before deduction of the portion of business that is reinsured with other companies.
IBNR-provision Provision for the estimated value of the company ’s liability for claims that have occurred but are unknown or, in view of the extent of the claim, are insufficiently known. IBNR = incurred but not reported.
Insurance margin Technical result less other technical income and expense in relation to net premiums earned, expressed as a percentage. Compare with Technical result.
Investment return Net of following income and costs: interest income/expense, dividend on shares and participations, surplus/ deficits from own properties realized and unrealized, changes in fair value of real estate, shares and participations, of interestbearing securities, and exchange-rate gains/losses.
Operating expenses in insurance operations Expenses related to the acquisition or renewal of insurance contracts plus corporate administration costs.
Premiums earned That portion of gross premiums written that pertains to the fiscal year, meaning premiums written adjusted for changes in the provision for unearned premiums.
The information in this folder is based on If P&C Insurance Holding Ltd’s annual report for 2006 and has not been examined by the Company’s auditors. If P&C Insurance Holding Ltd’s complete annual report for 2006 is available at www.sampo.com.
Reinsurance A method of distributing risks whereby an insurance company purchases coverage for a part of its liability based on insurance or reinsurance contracts, so-called ceded reinsurance. Reinsurance accepted pertains to the business one insurance company accepts from other insurance companies in the form of reinsurance.
Return on capital Calculated as a time-weighted return. This could differ from the return calculated in accordance with the guidelines established by Swedish Insurance Association’s Accounting Board. Compare with total investment return.
Risk selection The insurer’s selection of the type of risks to be included in his portfolio. Risk selection is of major importance to an insurance company, in part because it facilitates, to the extent possible, a balanced business, which normally has a favorable impact on operating results.
Run-off business The liquidation of an insurance company or portfolio of insurance business which has been transferred to a separate administrative unit.
Solvency capital Shareholders’ equity less deferred tax assets plus untaxed reserves, subordinated loans and deferred tax liability.
Solvency ratio Key ratio representing the relative size of solvency capital. The solvency ratio is calculated as solvency capital in relation to net premiums written, excluding portfolio premiums. Compare with solvency capital.
Technical result before investment return Item in the technical accounts comprising premiums earned less claims and operating costs.
Total investment return Sum total of direct return and realized and unrealized changes in value expressed as a percentage of the fair value of investment assets. The daily time weighted method has been used to calculate the return on active investments. The monthly time weighted method has been used to calculate return on properties and other investments. The return has been calculated using the calculation methods used internally by If for the evaluation of asset management.
Visiting address: Bulevardi 56, Helsinki Postal address: P.O.Box 627, 00101 HELSINKI, FINLAND Tel: +358 10 515 225 www.henki-sampo.fi
If Livförsäkring AB Visiting address: Barks väg 15, Solna Postal address: SE-10680 STOCKHOLM, SWEDEN
SE Sampo Life Insurance Baltic Kronvalda bulvaris 3, LV-1010 RIGA, LATVIA
Visiting address: Bulevardi 56, Helsinki Postal address: P.O.Box 347, 00101 HELSINKI, FINLAND
Sampo Life Insurance Company Limited is responsible for the Sampo Group’s life insurance operations.
One of our mission-inspired activities, the ‘What’s your Number’ campaign launched in 2006 in collaboration with Sampo Bank, truly struck a common chord with the general public. The campaign prompted Finns to turn ideas into action by helping them calculate their future pension and, in particular, its adequacy in terms of their expected spending levels, and by helping them put the recommended solutions into action.
In Sampo Life’s marketing for corporate customers, the focus has already for years been on problems related to our population demographics. Competition for the best resources of small age classes is intensifying, and companies need to create new kinds of incentive systems to hire and retain competent people. Various supplementary pension schemes represent a cost-effective solution to this problem, attracting young talents and older key persons alike.
Utilising operating models tested and proven in Finland, such as bank distribution, is a key success factor for the Baltic operations. To create synergies, Sampo Life will gradually introduce in the Baltic countries the products available and production systems applied in the Finnish markets. Operating through the new European company will be another way to create economies of scale.
New pressure group Structured investment products and life policies linked to housing loans are good examples of how it is possible to create attractive and beneficial solutions for customers by combining competence from different financial industries. On the other hand, many banking and insurance companies serve customers across industry borders. As a logical consequence, the banking, insurance and financing sectors joined their resources at the top level to form the Federation of Finnish Financial Services in late 2006. The new organisation will provide its member companies with a comprehensive network that will have considerably more lobbying power to promote their interests.
Employee pension reform arouses debate The effects of the 2005 employee pension reform aroused plenty of public discussion during the year under review, with respect to both the economy and pensioners. Regardless of who is talking, there is still widespread concern over the adequacy of the reforms made. An increase in employee pension contributions by a good five percentage points during the next two decades appears inevitable, even though this can hardly be afforded in the intensifying global competition.
For the pensioner, the employee pension reform means that, to be entitled for a pension of the current level on the basis of final earnings, the person will need to stay at work 2–3 years longer than at present. Whether this is realistic, even with all the incentives offered by the system, remains to be seen. Many influential members of society have already encouraged citizens to commence voluntary additional saving for their retirement. The debate related to the employee pension system has increased customer interest in planning their own retirement. Sampo Life and Sampo Bank have actively participated in this process with the “What’s your number” campaign.
Some change in the operating environment in 2007 Tax legislation related to the life insurance business remained mostly unchanged in 2006. Contrary to expectations, the abolition of wealth tax did not affect the popularity of insurance saving, which was already exempt from wealth tax. The next changes in the taxation of long-term savings are expected in 2007, as the new government gets down to work. Some changes are also to be expected in the Insurance Companies Act and the Insurance Contracts Act, although they should not have any material effect on Sampo Life’s operations.
Sampo Life’s unit-linked premiums written increased by about 45 per cent to almost EUR 400 million. A good two-thirds of premiums written originated from endowment policies, in which new structured investment products attracted retail and corporate customers alike. Due to the positive trend, Sampo Life’s market share of combined premiums written for unit-linked life and pension policies in Finland rose to 25 per cent, while in the corporate segment the market share exceeded 40 per cent.
This was due partly to the lowering of the upper limit of tax-deductible payments to EUR 5,000, and also partly to the targeting of younger age groups in retail sales. In group pension insurance, Sampo Life’s premiums written for the comparison year of 2005 included exceptionally large non-recurring premiums related to pension liability transfers.
Sampo Life’s market share in individual pension insurance remained at about 20 per cent and in group pension insurance at a level of 50 per cent, excluding pension liability transfers.
Return from shares Strong performance on the equity markets and rapidly increasing premium income together caused Sampo Life’s unit-linked technical provisions to increase to EUR 1.7 billion, which is over 27 per cent of total technical provisions. Sampo Life’s share of the industry’s unit-linked savings is about one-fifth. Customers investing in unitlinked products earned a solid return on their savings in 2006, about eight per cent on average.
Sampo Life’s own investments also yielded good returns of well over 9 per cent at fair values. As a result, the Sampo Life Group’s profit before taxes rose to EUR 295 million. This figure includes more than EUR 20 million in profits from the cost and risk components. Solvency remained strong, with the solvency ratio exceeding 20 per cent.
The next significant step in efficiency improvement will be integrating many separate policy and claims management systems into a single system environment. This work is already underway, and the first results will be visible in 2007. Sampo Life’s product system renewal will also greatly facilitate integration with Sampo Bank’s transformed IT environment.
In 2006, preparations were made to merge Sampo Life’s Baltic subsidiaries into a single European company. The purpose of the arrangement is to streamline and solidify the structure of the Baltic life operations and increase efficiency. The new European company, SE Sampo Life Insurance Baltic, was registered and commenced operations on 2 January 2007. The company is domiciled in Estonia, but has branches in Latvia and Lithuania.
The Baltic life companies employ approximately 120 people, more than half of whom are engaged in sales and customer service.
Risk cover in the Nordic countries If Livförsäkring AB, a Sampo Life subsidiary established in Sweden in 2005, provides term life insurance in Sweden, Norway and Denmark in collaboration with If P&C Insurance. The premiums written in the company’s first full operating year totalled about EUR 3 million. By the end of 2006, over 13,000 persons had been covered for death with an If Liv policy.
Sampo Bank specialises not only in conventional banking products such as lending, but also in savings and investments. We are interested in all matters related to our customers’ finances – whether it concerns the purchase of an apartment today or, for example, a pension savings plan for the long-term future. Likewise, we want to be the partner of choice for our corporate customers in managing the finances of both the company and entrepreneurs.
Bank Group also includes Mandatum Asset Management, Sampo Fund Management, Mandatum & Co, Mandatum Securities, Arvo Asset Management, 3C Asset Management and the central unit of Realty World.
As Sampo Bank was included in the Sampo Group for the whole of 2006, Sampo Bank’s figures are consolidated in the Sampo Group in this Annual Report.
Lots of new, increasingly satisfied customers Sampo Bank was a clear winner in the Finnish banking market in 2006. Testifying to this were the continuing increase in the bank’s market share of housing loans and the solid 33 per cent growth in the consumer credit portfolio. This growth was not sought through favourable pricing, but through an entirely new concept of creating benefit for customers. For example, we promised to issue homebuyers a loan decision within one hour. We encouraged Finns to familiarise themselves with the terms and conditions of their consumer credits and hire-purchase agreements, many of which were on the expensive side, and offered instead to consolidate them all into Sampo Bank under a product called “consumer loan with a friendly rate”.
benefit over the long term, as the number of satisfied customers keeps climbing.
Strong focus on new corporate and operating culture In 2006, we focused on a new corporate and operating culture known among our staff as “From Idea to Action”. In conjunction with this, we had a look at the bank’s products and service concepts with the aim of offering all customers benefits unlike anything they had been accustomed to in the banking world. Incredible commitment was exhibited in all of the bank’s Finnish and Baltic units in implementing the new values and operating culture. Among the matters underlined were the benefits experienced by the customer, being active, working together as a team and the will to win. The process was received with the highest enthusiasm by the staff, as I had hoped for. “From Idea to Action” is definitely a key contributor to our success in 2006. I am fully convinced that the bank’s new operating culture will serve as a foundation for creating even better results in the future.
Thanks to the winning team – our committed staff The media referred to the Danske Bank transaction as “a brilliant deal”. The truth is, however, that Danske Bank paid a price for Sampo Bank that was generally regarded as high, because the bank is exceptionally profitable and because its well-attended customer pool is growing strongly in Finland and the Baltic countries. For this, thanks are due to the bank’s staff - the winning team.
As the bank was transferred to Danske Bank’s ownership, my own six-year tenure at the helm came to an end. Ilkka Hallavo, together with Maarit Näkyvä, have assumed responsibility for leading the bank in Finland. Georg Schubiger will continue to be responsible for the Baltic banks. Knowing all these persons from years back, I am convinced that they will be successful in steering Sampo Bank irresistibly forwards as part of Danske Bank.
The winner in the intense competition for customers will be the bank that gives them the best advice on how to manage their finances. In 2006, Sampo launched a new service called “Oma Numero” (Own Number) for retirement financial planning.
Sampo Bank recommends “Boring Housing Loan” Sampo Bank reiterated its recommendation of late last year for housing loan customers to protect themselves against interest rate rises by tying part of the loan amount to a longterm fixed interest rate. With Sampo Bank’s Boring Housing Loan, the customer can choose a fixed interest rate for 10, 15 or even 20 years. Housing loan growth continued to meet its targets, and the housing loan portfolio increased in 2006 by 15 per cent, increasing the market share to 15.7 per cent. About 40 per cent of new housing loans granted by Sampo Bank were covered by a creditor life insurance policy.
The growth of consumer credit continued to be strong. Sampo Bank encouraged its customers to review the interest rate on their consumer credit and exchange any excessively priced arrangements for Sampo Bank’s highly competitive alternative “consumer loan with friendly rate”. The loan portfolio increased by 44 per cent.
Late in the spring, Finnair and Sampo Bank introduced a new benefit for Finnair’s club members: the Finnair Plus
Visa and Finnair Plus Visa Gold that allow the customer to collect Finnair Plus points.
Branch network renewal increases service outlets The former division between retail and corporate branches was given up in 2006. All Sampo Bank branches provide services for all customers. The rearrangement substantially increased the selection of service locations available for both retail and corporate customers. Additionally, the branch network was supplemented in southern Finland. At year’s end, there were altogether some 120 branches serving customers.
Likewise, the telephone services for retail and corporate customers were integrated into one phone bank, supporting the new cohesive network. The multi-channel approach was developed further by enabling customers to verify most of the agreements negotiated in the phone bank by using their own personal identifiers in the web bank. The web bank was also used in a new way in campaigns where customers were offered tailored service proposals.
The e-invoice, or a retail customer web invoice, was launched in autumn 2006. Should they so choose, retail customers will receive e-invoices instead of paper invoices directly in the web bank from invoicing parties that have made an e-invoicing agreement with Sampo Bank. This will bring substantial advantages to both parties. From the payer’s perspective, the payment transaction becomes easier, as invoice information is ready and available for viewing in the web bank, where most payments currently take place. The use of web invoicing for consumers is expected to gain popularity rapidly, because the banks have the technical solutions in place and because invoices and address information travel smoothly between consumers, invoicing parties and the banks.
Mandatum Private Bank, part of Sampo Bank, specialises in comprehensive private wealth management for affluent individuals and their families, and for institutions. Mandatum Private Bank provides customers requiring private wealth management with all the banking and financial services they need. The Private Bank’s offering also includes services for entrepreneurs and legal counselling in taxation, family and inheritance rights issues.
Corporate and institutional customers 2006 was a year of strong growth in corporate banking. Substantial progress was made, particularly in services for SMEs, by renewing the branch network and streamlining the services offered. The number of users of electronic services increased significantly.
Sampo Bank has stated that its target is to increasingly offer added value to its customers and to be by far the most active bank in terms of customer service. Substantial training resources were again devoted in 2006 to improving the competence of corporate services staff and their understanding of the needs of companies.
Customer assets and loan portfolio increased substantially 2006 was a favourable year in conventional banking. By the end of the year, Sampo Bank’s corporate customer assets had increased to almost EUR 10 billion. Customer assets invested in funds increased by 23 per cent to over EUR 4 billion, while deposits increased by 12 per cent to almost EUR 5.3 billion.
The corporate loan portfolio increased by 5 per cent during the year. Payments income also increased by almost 2 per cent
The volume of European corporate bonds almost reached the level of the peak year of 2001, due to historically low interest rates, low margins and good liquidity in the markets. Corporate bonds worth around EUR 280 billion were issued in Europe, compared with the previous year’s corresponding figure of less than EUR 200 billion.
Activity in mergers and acquisitions market continued to be very intense. Sampo Bank strengthened its position as the leading provider of acquisition debt financing in Finland and acted as the arranger for the debt financing in buy-out transactions of among others Mehiläinen, Suomen Asiakastieto, A-Katsastus and Pankakoski.
E-banking commonplace for companies The web bank and other e-banking services greatly increased their popularity in 2006. The number of contracts increased significantly, almost doubling in some services. The number of e-invoicing contracts signed by Sampo Bank’s corporate customers increased by almost 50 per cent. Customers have clearly moved on from the preparatory stage to acquiring tools and solutions to achieve tangible benefits from e-banking.
In the summer of 2006, Sampo Bank and WM-data agreed on partnership to produce an entirely new, comprehensive end-to-end e-invoicing service. The service includes handling and mediating of purchase and sales invoices, data conversions and archiving. It is well suited for corporate and institutional customers of all sizes, and is already used by the City of Helsinki, for example. The service mediates e-invoices for the corporate, institutional and retail customers of all banks and operators.
For more information on the advantages of the e-invoice (the new web-based invoice for retail customers) for both consumers and invoicing parties, see page 5.
1 Sampo Bank 9.5 2 Deutsche Bank 9.1 3 OKO Bank 9.0 4 Royal Bank of Scotland 8.1 5 Credit Suisse 5.9 8 ABN Amro 4.4 9 BNP Paribas 4.2
The year 2006 was another record breaker for Finland’s mutual fund market. More than EUR 12 billion in new investments were made in funds registered in Finland, and total mutual fund assets exceeded EUR 60 billion. Sampo Fund Management retained its strong market position in mutual funds with an 18.2 percent (19.9) market share. With fund assets totalling over EUR 11 billion (8.9), Sampo was the third-largest fund manager in Finland. Sampo Fund Management’s market share in the most recommended and developed equity funds was higher than the overall market share, at 20.8 per cent (22.1).
During the year, eight new funds were established, four of which invest in emerging equity markets, two in the Nordic countries and two in fixed income markets (also see p. 4.) Sampo Fund Management launched what is believed to be the world’s first open-ended value fund investing in Russia: Mandatum Arvo Russia Value. Sampo Fund Management made co-operation agreements with three new international asset management companies.
Mandatum Asset Management Mandatum Asset Management Ltd strengthened its position as Finland’s leading asset manager. High investment returns together with additional client assets increased assets under management. Mandatum Asset Management is Sampo Bank’s asset manager for corporate and institutional customers and manager of the Sampo and Mandatum funds.
Many new products were launched during the year, particularly in narrow specialised fields and emerging markets. The company further expanded its international network through its growing multi-management activities.
Core customer assets managed by Mandatum Asset Management increased to EUR 9.8 billion, while other customer assets, including Group assets, increased to EUR 17.5 billion. The volume of assets under management increased by EUR 3.2 billion, or about 13 per cent, compared to the previous year. The total volume of assets under management increased to a record level of over EUR 27 billion.
Mandatum Securities Strong profitability was attributable to success in securities brokerage and a substantial expansion of derivatives operations. Mandatum Securities Ltd is responsible for Sampo Bank’s securities brokerage services and investment research.
Mandatum & Co Mandatum’s operations developed favourably both in mergers and acquisitions (M&A) and initial public offerings (IPOs). Mandatum & Co Ltd is responsible for investment banking operations, which comprise M&A advisory, capital market transactions and general financial advisory services.
Realty World (Kiinteistömaailma) The chain brokered over 14,000 real estate transactions and increased its market share by one percentage point. The central unit of Realty World is owned by Sampo Bank. The chain’s real estate agencies are independently owned and operated firms.
In 2006, Realty World’s brokerage revenue increased by 7 per cent to reach EUR 57 million. The chain brokered more than 14,000 real estate transactions and increased its share of the Finnish market to almost 20 per cent. It is estimated that there were 4 per cent fewer real estate transactions in Finland in 2006 than in 2005. Yet the number of transactions was the second highest in 15 years.
Realty World was the first Finnish real estate agency chain to launch an electronic service, through which customers can monitor progress in selling their residence, create and store information related to it and make commission contracts, purchase offers and other agreements electronically with the broker. The database can be used later for reselling purposes. Realty World’s Internet portal was extended to include open blogs and community media.
As a first step, Sampo Bank will strengthen Profibank’s current operations by renewing its entire IT system, for example. Services will initially be offered mainly for Finnish and other Nordic corporate customers operating in Russia. Profibank has all the banking licenses needed for the Russian market, including a licence to take deposits. The bank will also participate in the Russian deposit protection system.
Creating a more active corporate culture – From Idea to Action
Sampo increased its appeal to young professionals by creating a new recruitment and training programme entitled the Sampo Junior Management Group. Thirteen future leaders were selected from nearly 1,500 applicants and will participate in training and challenging projects to rapidly develop their business expertise and leadership skills.
Together with its partners, Sampo created new staff development tools, including an electronic dialogue to improve the quality and results of development discussions, and a real-time presentation for a web-based learning platform that promotes learning and reduces the need for travel.
Staff satisfaction still good Staff satisfaction was monitored for the fifth consecutive year with comparable indicators. The survey was also extended to the Estonian and Lithuanian subsidiaries for the first time.
Occupational health services focused on prevention In 2006, occupational health services focused on prevention, in the form of health check-ups at recruitment and checkups by age group. During the year, 520 people – 60 per cent more than two years ago – had check-ups. All employees were also sent an electronic health and wellbeing survey, to which more than 60 per cent replied. Due to the increase in preventive work, the number of medical consultations decreased.
It was decided, within the framework of Sampo’s collective agreement, that the increase supplement reserved for renewing the remuneration system in autumn 2006 under the financial sector’s incomes policy agreement would be used entirely in Sampo Bank for an experiment with the
“pay discussion model”. In this model, personal pay rises are determined in pay discussions between the supervisor and each employee.
In May, recruiting started for the “Junior Management Group” programme, in which Sampo seeks future star players and offers them work that corresponds with their education soon after graduation. The programme’s popularity was immense. There were 1,500 applicants, of whom 13 were selected. High-quality training was also arranged for Sampo’s existing employees, as in earlier years, through the Sampo Business School.
In connection with these changes, the bank’s values were also revised.
Bank’s support mainly focused on youth In 2006, Sampo made donations for projects supporting creativity among children and youth. A donation totalling approximately EUR 200,000 was divided between 77 schools. Sampo Bank’s Christmas 2006 donation was also targeted at young people. The recipient was the Nyyti Society, which develops and provides mental well-being services for university students around Finland.