A life insurance company operating in Finland and the Baltic countries.
Sampo Group has two business areas – P&C insurance and life insurance. In addition the parent company Sampo plc has an associated company Nordea Bank AB.
The parent company owns and administers the insurance subsidiaries and is the largest shareholder in the leading Nordic bank, Nordea Bank AB, with approximately 20 per cent of the shares.
Sampo Group’s Annual Report and the Financial Statements of the Group’s subsidiaries If P&C and Mandatum Life are available at www.sampo.com/annualreport.
Responsibility 24 Legal Structure 25 Organisation 26 Board of Directors 28 Group Executive Committee 30 BOARD’S REPORT
S t r at e g y “Sampo Group aims to create value for its shareholders.”
C e O ’ S r e v i e w “Sampo is now stronger than ever.”
Editorial team: Sampo’s IR & Group Communications, Group Accounts, Legal Affairs, Risk Management and HR Design and Production: Miltton Oy Graphic design: Liisa Sandholm, Miltton Oy
We bought If P&C Insurance at the beginning of the last decade, at a time when no other industry player believed in the profitability and future of property and casualty insurance. Within just a few years, If became the leading company in the industry, proving that we had made the correct decision.
In our February 2009 outlook we reflected on a challenging operating environment. We forecast that the macroeconomic situation would have a slightly negative impact on premium growth in P&C insurance and that under current capital market conditions Mandatum Life Group was not expected to achieve the same exceptionally high profits as previous years.
Looking at Nordea’s key figures has strengthened our belief that we chose the right option based on the many alternatives available. Despite the economic downturn, for the third year running Nordea continued to show a solid profit performance in 2009. In addition, the banking group reported lower than expected credit losses as a result of very competent risk management.
Sampo Group’s mark-to-market result was the best ever in our history.
I would also like to thank our customers. We assure you that we shall strive to continue to improve our product range and customer service so that we can serve you even better in the future.
Last but not least, I would like to express my thanks to our shareholders for the faith they place in Sampo. Sampo has traditionally been one of the best dividend payers in the industry, and this year will be no exception. As a sign of Sampo’s strong performance, we are increasing the dividend from last year’s EUR 0.80 to EUR 1.00 per share.
I believe that 2010 will bring many new opportunities to Sampo Group. Sampo is now stronger than ever and once the economic activity recovers, we have a very good basis for success thanks to our strong balance sheet, solid equity position and excellent market position.
Challenging Start 2009 was my first year as Group CEO and President of Sampo Group. Due to the prevailing market situation, it was no easy beginning. Indeed, I must admit that the market recovery from March 2009 onwards was a relief to me. The recovery created a positive atmosphere during my first months at the helm of the Group.
Sampo differs from its competitors in the financial industry in one remarkable respect: If P&C, Mandatum Life and Nordea were not inherited by the current management. We have created our current business operations ourselves through mergers and/or acquisitions. Therefore, I am naturally very proud of the solid performance of If P&C, Mandatum Life and Nordea during the financial crisis.
Consequently, I would like to express my thanks to all of those persons concerned: the Chairman of the Board, the Members of the Board, the Group Executive Committee and all employees. We would not have achieved these results without all of your expertise, good judgement and discipline.
Sampo's monthly trading volume 2005-2009 Sampo’s monthly share price performance 2005-2009 euro million shares
If ’s long term priorities to ensure a strong and stable profitability development are based on a sound operating platform, leading cost position, most satisfied customers, leading edge insurance expertise and an investment strategy based on balanced risk. The following four areas constitute the key elements in If ’s strategic direction: Customer value - If will exceed customer expectations through superior insurance solutions, fast and accurate claims management and sympathetic behavior
Focused Insurance Expertise - If will purposefully strengthen the organisation’s skills in developing, pricing and distributing insurance products, as well as in the areas of liability loss prevention and claims management
Mandatum Life – from an Insurance Factory to a Company of Excellent Services
Mandatum Life aims to be the leading life insurance provider in Finland and the Baltics. The company has during 2008 and 2009 made substantial investments in the development of sales
Strategy Sampo Group aims to create value for its shareholders. Value is created through efficient and highly profitable operating units and by investing in situations offering significant upside potential with manageable downside risk. Shareholders benefit from the value creation through a high and stable dividend yield.
PerfOrMaNCe * Based on the Board’s proposal of 11 February 2010 and the closing price of Sampo share on 31 December 2009 and customer service. Mandatum Life’s core product areas will continue to be unit linked policies, risk products and voluntary corporate pension schemes.
Mandatum Life started its own wealth management and investment solutions activities in 2008 and the operation got properly off the ground in 2009. The focus is on wealthy private individuals and institutions.
Sampo plc, the listed parent company of Sampo Group, is a good dividend payer. For the past four years the company has pursued a policy based on dividend yield with the aim to distribute a dividend of 4 – 6 per cent. The Board proposes to the AGM a dividend of EUR 1.00 per share for the year 2009. The proposed dividend corresponds to a yield of 5.9 per cent (based on closing price on 31 December 2009).
On 11 February 2010 the Board decided to reformulate the dividend policy. Going forward Sampo aims to pay at least 50 per cent of its net profit as dividend. As before share buy-backs can be used to complement the dividend.
Sampo Insurance Company and Leonia Bank merge into SampoLeonia financial group. The main business areas of the group are longterm savings, banking, investment banking and P&C insurance.
first-line leaders, together with personnel in distribution and claims, in all countries and all business areas. As the Academy matures its scope will widen to include other personnel groups.
New Recommendations from Authorities Regarding Variable Compensation in Companies in the Financial Sector
During 2009, Financial Supervisory Authorities started developing new rules and general guidelines regarding compensation practices in the finance sector. These new rules will especially focus on variable compensation. The rules are still under development in many countries.
We know that we owe current and future success largely to the quality and high ambition level of our staff. Consequently - people issues such as performance and competence development, leadership, employment relations, compensation and health management are focus areas within the group.
One example of how we continuously strengthen our ambitions within the people management field is the HR-code decided upon by the Board of the If P&C during 2009. This code is an easily accessible document describing the divisions’ people values and serves as an anchor point for other HR-policies.
The If Academy - established in 2007 continues to develop. The Academy has expanded and its main focus groups are new and
Personnel Sampo competes with brainpower, passion and creativity. This statement becomes ever more true as intangible assets grow yearly in importance as drivers of value creation. Intangible assets, also known as organizational capabilities, reside within our staff and in the culture they jointly create.
Over 80 per cent of Mandatum Life employees have participated in Investment Management training in order to ensure that all company employees have basic level knowledge of investment issues. In a strategy day 100 leaders and senior specialist gathered to discuss Mandatum Life services, in order to find the best solutions to serve clients.
insurance the number of staff decreased mostly in the Baltic and russian operations. in life insurance, the number of staff decreased slightly both in finland and the Baltics.
approximately 93 per cent of the staff worked in P&C insurance, 6 per cent in life insurance and 1 per cent in the holding company. geographically, 31 per cent worked in finland, 27 per cent in Sweden, 22 per cent in Norway and 20 per cent in the Baltic countries and russia, denmark and other countries. the average number of employees during 2009 was 7,311 compared with 7,145 during 2008.
Acting in compliance with Recommendation 2 of the Corporate Governance Code, Sampo has published a separate Corporate Governance Statement on its website at www.sampo.
Board Of directors' duties Sampo’s Board of Directors is responsible for the management of the company in compliance with the law, the regulations of the authorities, Sampo’s Articles of Association and the decisions of Shareholders’ Meetings. The operating procedures and main duties of the Board of Directors have been defined in the Board’s Charter.
The Board of Directors decides on Sampo Group’s business strategy, approves the budget and the principles governing the Group’s risk management and internal control, takes responsibility for the proper organisation of the Group’s operations, and decides, within the framework of the company ’s business area, on other exceptional and far-reaching matters with respect to the scope and nature of Sampo Group.
The Board elects the Group CEO and President, the members of the Group Executive Committee and the Group Chief Audit Executive, and releases them from their duties. The Board also decides on the terms and conditions of their employment and on other compensation. In addition, the Board confirms the Group’s staff planning targets and monitors their fulfilment, determines the grounds for the Group’s compensation system and decides on other far-reaching matters concerning the staff.
Following persons served on Sampo plc’s Board of Directors in 2009: Georg Ehrnrooth, • Chairman (until 7 April 2009) Björn Wahlroos, • member (until 7 April 2009), Chairman (from 7 April 2009) Matti Vuoria, • Vice Chairman Tom Berglund, • member Anne Brunila, • member Lýdur Gudmundsson, • member (until 7 April 2009) Veli-Matti Mattila, • member (from 7 April 2009) Eira Palin-Lehtinen, • member Jukka Pekkarinen, • member Christoffer Taxell, • member
Governance Structure O r d e r O f e l e C t i O N
Nomination and Compensation Committee The Nomination and Compensation Committee is entrusted to prepare proposals for Sampo’s Annual General Meeting on the composition of the Board, the compensation of Board members and the principles on which this compensation is determined.
The Committee consults the largest shareholders in these matters. The Committee is also responsible for preparing proposals for Sampo’s Board on the composition and chairmen of the Board’s committees and the composition of the Group MD Committee, on the appointment of Sampo Group CEO and President and the composition of Sampo Group’s Executive Committee, and on the principles by which the members of the Executive Committee are to be compensated and their compensation. As authorised by the Board of Directors, the Committee also decides on the compensation of the members of the Executive Committee, excluding the Group CEO and Deputy CEO. Furthermore, the Committee prepares a proposal for the Board on the appointment, employment conditions and other compensation of Sampo Group’s Chief Audit Executive, and on the principles by which 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 the criteria and processes used for the Board’s self-evaluation.
The Nomination and Compensation Committee is entrusted to prepare proposals for Sampo's Annual General Meeting on the composition of the Board, the compensation of Board Members and the principles on which this compensation is determined.
Sampo group executive Committee The Board of Directors has appointed the Sampo Group Executive Committee and a Group MD Committee to the Group Executive Committee, which supports the Group CEO in preparing matters to be handled by the Executive Committee.
The Group MD Committee comprised Björn Wahlroos, Chairman (until 7 April 2009), Kari Stadigh, Chairman (from 8 April 2009), Ilona Ervasti-Vaintola (from 8 April 2009), Peter Johansson (from 8 April 2009), Patrick Lapveteläinen, Torbjörn Magnusson, Petri Niemisvirta (from 8 April 2009), and Ricard Wennerklint (from 8 April 2009).
In 2009, the Executive Committee convened four times at the request of Group CEO and President. The Group MD Committee, which assists the Executive Committee, met 15 times.
The Group CEO of Sampo Group is in charge of the daily management of Sampo, subject to the instructions and control of the Board of Directors. The Group CEO is empowered to take extraordinary and broad-ranging actions, taking into account the scope and nature of Sampo’s operations, only upon authorisation by the Board of Directors. The Group CEO ensures the legal compliance of Sampo’s accounting and the trustworthy organisation of asset management.
Compensation of the Members of the Board of directors According to Sampo’s Articles of Association, the Annual General Meeting decides on the compensation of the members of the Board of Directors.
Principles of the Compensation System In addition to receiving monthly salaries, executives who are members of the Group Executive Committee are participants in the Group’s profit bonus system which is decided upon separately each year. The profit bonus is determined on the basis of the Group result, the business area result and individual performance. The maximum profit bonus that can be paid for 2009 to executives who are members of the Executive Committee is an amount corresponding to nine months’ salary.
The members of the Group Executive Committee are also participants in the long-term incentive systems 2006 II, 2008 I, 2008 II and 2009 I for Sampo’s management and in the long-term share-based incentive scheme ‘Sampo 2006’ for the Group’s key management. The terms of the incentive systems are available on Sampo’s website at www.sampo.com/cg.
Based on his employment contract, the Group CEO will be paid a fixed monthly salary and a yearly performance bonus, which may be no more than an amount corresponding to nine months’ pay. The Group CEO is also a participant in the longterm incentive systems 2008 I and 2009 I for Sampo’s management and in the long-term share-based incentive scheme ‘Sampo 2006’ for the Group’s key management.
Kari Stadigh was paid for period 8.4. - 31.12.2009 EUR 474,953 in fixed salary and EUR 417,000 in profit and incentive bonuses, altogether totaling EUR 891,953.
More detailed information on compensation in Sampo Group during 2009 is available at the Salary and remuneration report published by Sampo.
The Audit Committee of Sampo’s Board of Directors annually approves the Internal Audit’s operating plan. The Internal Audit reports on the audits performed to the Group CEO and the Audit Committee. Company-specific audit observations are reported to the respective companies’ governing bodies and management.
Info Sampo plc’s insider guidelines and insider register may be viewed on the Internet at www.sampo.com/cg.
This does not, however, mean that these issues would not be on the agenda in the Group. If P&C, the largest P&C insurer in the Nordic countries, represents 93 per cent of the Group’s personnel and almost 80 per cent of pre-tax profit in 2009. It is a natural focal point for CSR activities in Sampo Group.
If ’s operations are based on promoting a society in which everyone can live a safe and secure life. Property & casualty insurers, together with the police, fire and rescue services and the judicial system, play a key role in ensuring safety and security in everyday life. In 2009 alone, If handled 1.4 million insurance claims, including everything from private customers injured in traffic accidents to companies forced to shut-down production because of an accident. In total, If paid out or reserved for future claims payments more than EUR 2.5 billion 2009.
As the leading insurer in the Nordic countries, If takes a broader social responsibility than that resulting from its business operations alone. If makes use of its unique knowledge to handle risks in order to promote safety in the areas in which it operates,
this influences how If makes supplier decisions and concerns matters such as transportation, materials, methods, emissions and waste. Every year, If redeems more than 300,000 damaged cars and orders repairs to homes and commercial property worth millions of euros.
In addition, If actively helps its customers to prevent accidents. This ranges from offering affordable safety products to private customers to assisting corporate clients with systematic risk analyses.
vention services in order to help our customers to act in a more environmentally friendly manner.
risks and participate actively in the public debate concerning the climate.
–Wahlroos holds 11,854,301 Sampo plc shares directly or through a controlled company.
–Member of the Board of Directors of Sampo plc since 25 May 2000.
Anne Brunila (b. 1957) Executive Vice President of Fortum Corporation Positions of Trust: Kone Corporation, Member of the Board, The Research Institute of the Finnish Economy ETLA, Member of the Board, Finnish Business and Policy Forum EVA, Member of the Board, Varma Mutual Pension Insurance Company, Deputy of the Board, Aalto University Foundation, Member of the Board, Aaltoyliopistokiinteistöt Oy, Member of the Board
Jukka Pekkarinen (b. 1947) Director General of Ministry of Finance Positions of Trust: European Union, Economic Policy Committee, Vice Chairman, Incomes Policy Information Committee, Chairman, Advisory Board to the Government Institute for Economic Research, Chairman –Member of the Board of Directors of Sampo plc since 5 April 2006.
Christoffer Taxell (b. 1948) Positions of Trust: Stiftelsen för Åbo Akademi, Chairman of the Board, Åbo Akademi University, Chancellor (2004-2009), Finnair plc, Chairman of the Board, Stockmann plc, Chairman of the Board, Föreningen Konstsamfundet, Chairman of the Board, Society of Swedish Literature in Finland, Member of Investment Committee, Nordkalk Corporation, Member of the Board, Luvata Oy, Member of the Board
–Taxell holds 5,848 Sampo plc shares directly or through a controlled company.
Veli-Matti Mattila (b. 1961) President and CEO of Elisa Corporation Positions of Trust: Confederation of Telecommunications and Information Technology FiCom ry, Member of the Board (1999-2009), Central Chamber of Commerce, Member of the Board, The Finnish Fair Association, Member of the Supervisory Board, Confederation of Finnish Industries EK, Member of Representative Assembly
–Palin-Lehtinen holds 3,409 Sampo plc shares directly or through a controlled company.
Information as on 31 December 2009. The CVs of members of the Board of Directors can be viewed on the Internet at www.sampo.com/board.Info
The Sampo Group Executive Committee supports the CEO in the preparation of strategic issues relating to Sampo Group.
Kari Stadigh (b. 1955) Group CEO and President, MD of Sampo plc (from 8 April 2009) Positions of Trust: If P&C Insurance Holding Ltd (publ), Sweden, Chairman of the Board, Mandatum Life Insurance Company Limited, Chairman of the Board, Kaleva Mutual Insurance Company, Chairman of the Board, Alma Media Corporation, Chairman of the Board, The Federation of Finnish Financial Services, Member of the Board, Varma Mutual Pension Insurance Company, Member of the Board
–Stadigh holds 231,465 Sampo plc shares directly or through controlled companies.
Ilona Ervasti-Vaintola (b. 1951) Group Chief Counsel, Principal Attorney, Sampo plc Positions of Trust: Fortum Corporation, Member of the Board, Fiskars Corporation, Member of the Board, Central Chamber of Commerce of Finland, Legal Committee, Chairman, Finnish Literature Society, Board Member
–Ervasti-Vaintola holds 276,301 Sampo plc shares directly or through controlled companies.
Line Hestvik (b. 1969) Group Executive Vice President, Head of BA Private, If P&C Insurance Positions of Trust: FNH Norway (the organisation for the Financial Sector in Norway), Member of the Board
–Hestvik holds 14,496 Sampo plc shares directly or through controlled companies.
–Johansson holds 45,037 Sampo plc shares directly or through controlled companies.
Patrick Lapveteläinen (b. 1966) Group CIO, Sampo plc Positions of Trust: If P&C Holding AB (publ), Sweden, Member of the Board, Mandatum Life Insurance Company Limited, Member of the Board
–Lapveteläinen holds 220,240 Sampo plc shares directly or through controlled companies or persons closely associated with the Insider.
–Magnusson holds 23,318 Sampo plc shares directly or through controlled companies.
–Thorsrud holds 10,588 Sampo plc shares directly or through controlled companies.
Timo Vuorinen (b. 1964) Group Executive Vice President, Head of BA Baltic and Russia, If P&C Insurance, Managing Director of If P&C Insurance Company Ltd Positions of Trust: If P&C Insurance AS, Estonia, Chairman of the Board, CJSC If Insurance, Russia, Chairman of the Board, IPSC Region, Russia, Chairman of the Board
–Wennerklint holds 14,328 Sampo plc shares directly or through controlled companies.
Shares, Share Capital and Shareholders 37 Shares and Share Capital 37 Authorisations Granted to the Board 37 Shareholders 38 Financial Standing 40 Internal Dividends 40 Ratings 40 Sampo Group Solvency 40 Debt Financing 40 Outlook for 2010 41 The Most Significant Risks to Operations 41 Dividend Proposal 41 New Dividend Policy 41 Key Figures 42 Calculation of the Key Figures 44
We run a very disciplined operation and we target stable as well as predictable earnings.”
Sampo Group’s profit before taxes for 2009 amounted to EUR 825 million (870). Total comprehensive income for the period, taking changes in the market value of assets into account, surged to EUR 3,423 million (-2,254). Earnings per share amounted to EUR 1.14 (1.18). Earnings per share, including the change in the fair value reserve, rose to EUR 5.88 per share (-3.52). The return on equity for the Group was 53.7 per cent for 2009 (-32.4).
The Board proposes to the Annual General Meeting to be held on 13 April 2010 a dividend of EUR 1.00 per share (0.80) and an authorization to repurchase a maximum of 50 million Sampo A shares.
Reported profit before taxes for Mandatum Life, Sampo Group’s life insurance operation, decreased slightly to EUR 121 million (140) but the mark-to-market result was the highest ever at EUR 658 million (-511). The fair value reserve increased to EUR 210 million as at 31 December 2009 (-192). Meanwhile, return on equity at market value was 97.6 per cent (-68.8).
Sampo Group’s total investment assets at the end of the reporting period amounted to EUR 17 billion (16), of which 82 per cent was invested in fixed income instruments (80), 14 per cent in equities (18)and 3 per cent in other assets (2). Reported investment income rose to EUR 1,155 million (275) and investment income mark-to-market reached EUR 4,415 mil-
The Group’s equity as at 31 December 2009 amounted to EUR 7,613 million (4,631). Equity was strengthened by the change in the fair value reserve of EUR 2,662 million and a profit of EUR 641 million. It was reduced by the dividends of EUR 449 million.
As at 11 February 2010 Sampo plc held 809,429,180 Nordea shares corresponding to a holding of 20.1 per cent. With Sampo’s holding exceeding 20 per cent Nordea is accounted as an associated company in Sampo Group’s accounts as of 31 December 2009.
In connection with this the carrying value of the Nordea shares held by Sampo and valued at fair value, was on 31 December 2009 reinstated at acquisition cost of EUR 5,168 million. The ensuing reduction of the fair value reserve decreased Sampo Group’s equity by EUR 588 million. The equity accounting of Nordea has, however, no effect on Sampo Group’s net asset value because in the NAV calculation Nordea is valued at fair value.
Sampo Group’s solvency capital on 31 December 2009 includes the proportion of Nordea’s solvency capital corresponding to Sampo’s shareholding.
Business Areas in 2009 p&c insurance If P&C is the leading property and casualty insurance company in the Nordic region, with insurance operations that also encompass the Baltic countries and Russia. The P&C insurance group’s parent company, If P&C Insurance Holding Ltd, is located in Sweden, and the If subsidiaries provide insurance solutions and services in Finland, Sweden, Norway, Denmark, the Baltic countries and Russia. If ’s operations are divided into four business areas: Private, Commercial, Industrial and Baltic & Russia.
Net income from investments 394 268 47 other operating income 23 26 -13 change in insurance liabilities -33 -14 145 profit (loss) before taxes 644 549 17 change average number of staff (fte) 6,807 6,655 152
Profit before taxes for P&C insurance for the 2009 calendar year rose to EUR 644 million (549). The technical result was EUR 488 million (548), of which the Private business area accounted for 50 per cent, Commercial 29 per cent, Industrial 15 per cent and Baltic and Russia 5 per cent. The decrease in the technical result was due to the smaller allocation of investment income in the result caused by lower interest rates.
Insurance margin (technical result in relation to net premiums earned) decreased from the previous year to 13.4 (14.3).
Gross written premiums decreased by 4 per cent to EUR 3,888 million (4,057). However, adjusted for currency the premiums were flat for the whole If Group and increased 2.2 per cent in the Private business area.
Claims incurred decreased to EUR 2,477 million (2,592) and risk ratio improved to 68.0 per cent (68.1). EUR 87 million (90) was released from the technical reserves, which related to prior year claims. Reserve ratio was 170 per cent (177) of net premiums written and 238 per cent (250) of claims paid.
Investment markets improved clearly from the year before and net income from investments amounted to EUR 394 million (268). Net income from investments contains impairment losses of EUR 86 million. As at 31 December 2009, total investment assets amounted to EUR 10.7 billion (9.0) of which 89 per cent (95) was invested in fixed income instruments and 11 per cent (5) in equities. Investment return for 2009 was 12.3 per cent (-3.1). Duration for interest bearing assets was 2.5 years (3.1).
As at 31 December 2009 If P&C had a solvency ratio (solvency capital in relation to net premiums written) of 77 per cent (66). Despite the EUR 488 million paid to Sampo plc in dividends during 2009, the solvency capital amounted to EUR 2,943 million (2,221) in comparison to the regulatory minimum capital requirement of EUR 634 million.
Life insurance Mandatum Life Group consists of Mandatum Life, a wholly-owned subsidiary of Sampo plc, operating in Finland, and its subsidiary Sampo Life Insurance Baltic SE, which has the form of a European company and is headquartered in Estonia. It operates in the other Baltic countries through branches.
Excluding the assets of EUR 2.4 billion (1.6) covering unitlinked liabilities, Mandatum Life Group’s investment assets amounted to EUR 5.4 billion (4.7) at market values as at 31 December 2009. Fixed income represented 68 per cent (78), equity 23 per cent (12), private equity 4 per cent (5), real estate 3 per cent (3) and other assets 2 per cent (2) of the total assets.
Mandatum Life’s overall market share in Finland measured by premium income rose to 24.8 per cent (19.3) and market share in unit-linked business was 27.8 per cent (21.5). Unit-linked market share in the Baltic countries amounted to 26.6 per cent (17.9).
Holding Sampo plc controls its subsidiaries engaged in P&C and life insurance. In addition Sampo plc held on 31 December 2009 approximately 20 per cent of the share capital of Nordea, the largest bank in the Nordic countries. Nordea is an associated company to Sampo plc.
Net investment income 109 232 -53 other operating income 13 8 52 other operating expenses -17 -13 36 profit before taxes 36 180 -80 average number of staff (fte) 54 53 2
The assets on Sampo plc’s balance sheet as at 31 December 2008 included holdings in subsidiaries for EUR 2.4 billion (2.4).
The AGM re-elected Tom Berglund, Anne Brunila, Eira Palin -Lehtinen, Jukka Pekkarinen, Christoffer Taxell, Matti Vuoria and Björn Wahlroos to the Board of Directors. Veli-Matti Mattila was elected as new Board member. Georg Ehrnrooth, Chairman of the Board, had already at the AGM of 2008 announced that he will leave Sampo’s Board of Directors at the end of the AGM of 2009.
Total comprehensive income for the period, net of tax -102 1,624 1,959 -59 -1,512
(Chairman), Tom Berglund (Vice Chairman), Jukka Pekkarinen and Veli-Matti Mattila were elected to the Audit Committee.
The Board of Directors assessed on 7 April 2009 the independence of its members based on the Finnish Corporate Governance Code and concluded that Berglund, Brunila, Mattila, Palin-Lehtinen, Pekkarinen and Taxell were non-executive members independent of the company and its major shareholders. Based on the Board’s assessment, Wahlroos and Vuoria were not independent of the company.
Governance Kari Stadigh started as Group CEO and President of Sampo Group on 8 April 2009 in accordance with the nomination by Sampo’s Board of Directors on 5 November 2008. Stadigh’s predecessor Björn Wahlroos was elected Sampo’s Chairman of the Board at the Annual General Meeting of 7 April 2009.
On 27 August 2009 Sampo’s Board of Directors nominated Timo Vuorinen as a member of Group Executive Committee starting from 1 September 2009. Vuorinen is responsible for business area Baltic and Russia in If P&C Insurance and Managing Director of If P&C Insurance Company Ltd (Finland).
corporate responsibility As a listed company, Sampo plc has the responsibility of acting in the best interests of its shareholders, in compliance with legislation and in accordance with sound business practices. Sampo Group shares the values of ethicality, loyalty, openness and entrepreneurship and aims at following these values in all of its business operations and with all of its stakeholders.
The management of Sampo Group is based on healthy and sound business principles. It aims at anticipating changes in society and the capital market, and adapting its operations accordingly to these changes. Sampo Group also aims at providing a nondiscriminative, pleasant and open work environment. Through its services, Sampo Group aims to contribute towards the wellbeing and safety of society. Sampo Group is aware of its corporate responsibility and is committed to developing its operations to further economic, social and environmental sustainability.
Management incentive schemes The management incentive schemes of Sampo Group are of two types; long-term management incentive schemes based on share appreciation rights and one share-based incentive scheme.
No payments based on the long-term management incentive schemes were made during 2009 and EUR 2 million was paid out based on the share-based incentive scheme.
risk Management Sampo considers that a high quality risk management process is a prerequisite for business operations. The key objectives of risk management are: to ensure that risks affecting our profitability and other ma-• terial risks are identified, assessed and analyzed; to ensure that risk buffers – in the form of capital and fore-• seeable profitability of businesses – are adequate in terms of current risks inherent in business activities and existing business environment; to ensure that risk bearing capacity is allocated into different • business-areas according to chosen strategies and that risks are properly priced; to limit and mitigate fluctuations in the economic values of • group companies; and to ensure the overall efficiency, security and continuity of • operations.
A more detailed description of Sampo Group’s Risk Management organization and activities is available in the Risk Management section of the 2009 Annual Report.
Shares, Share Capital and Shareholders shares and share capital As at 31 December 2009, Sampo plc had 561,372,390 shares, which were divided into 560,172,390 A shares and 1,200,000 B shares. According to the company’s Articles of Association, A Shares must number at least 179,000,000 and no more than 711,200,000. Meanwhile, B shares must number at least zero and no more than 4,800,000. Each A share entitles the holder to one vote and each B share entitles the holder to five votes at the General Meeting of Shareholders.
At the end of the financial year, Sampo plc held 90,000 of its own A shares. The other Group companies held no shares in the parent company.
authorizations Granted to the Board The Annual General Meeting authorized the Board to acquire in one or several lots a maximum of 50,000,000 Sampo A shares. Shares can be repurchased in other proportion than the
Based on the above authorization, Sampo plc’s Board of Directors decided on 11 December 2009 to repurchase Sampo’s A shares with distributable capital and reserves. The maximum amount to be repurchased is 5,000,000 A shares, corresponding to approximately 0.9 per cent of the total number of shares. Repurchases shall decrease the distributable capital and reserves.
At the end of 2009, the members of Sampo plc’s Board of Directors either directly or indirectly owned 11,911,001 Sampo A shares. Their combined holdings constituted 2.1 per cent of the share capital and related votes.
shareholders on 31 december 2009 a and B shares Number of shares % of share capital % of votes
Varma Mutual pension insurance company 47,709,421 8.50 8.43 ilmarinen Mutual pension insurance company 16,007,445 2.85 2.83 Wahlroos Björn 11,754,301 2.09 2.08 Kaleva Mutual insurance company* 6,127,855 1.09 1.93 the state pension fund 5,560,000 0.99 0.98 op-delta fund 3,710,782 0.66 0.66
Wärtsilä oyj abp 1,901,000 0.34 0.34 etera Mutual pension insurance company 1,846,610 0.33 0.33 the Local Government pensions institution 1,609,805 0.29 0.28 odin Norden c/o odin forvaltning as 1,599,351 0.28 0.28 Mutual insurance company pension-fennia 1,575,000 0.28 0.28 Nordea Norden fund 1,395,603 0.25 0.25 Nordea fennia fund 1,380,000 0.25 0.24 society of swedish Literature in finland 1,224,600 0.22 0.22 op focus Non-Ucits fund 1,073,749 0.19 0.19 seB Gyllenberg finlandia fund 1,007,000 0.18 0.18 oMX Helsinki 25 exchange traded fund 998,634 0.18 0.18 alfred Berg Mutual funds 968,016 0.17 0.17
Mode of increase/decrease subscription period/ registration terms of subscription or subscriber or reason for decrease Number of new shares
Bond with Warrants, 1998 a shares one conversions in 2005 Warrant conversion 2,018,850 562,562,415
Bond with Warrants, 2000 a shares one conversion in 2006 Warrant conversion 382,200 570,500,515 decrease in share capital 15 april 2006 cancellation of shares bought back (7,000,000 a shares)
Bond with Warrants, 2000 a share five conversions in 2006 Warrant conversation 2,917,630 566,418,145
Bond with Warrants, 2000 a share three conversions in 2007 Warrant conversation 15,740,245 582,158,390 decrease in share capital 23 february 2007 cancellation of shares bought back (4,827,500 a shares) -4,827,500 577,330,890 decrease in share capital 16 May 2008 cancellation of shares bought back (6,715,000 a shares -6,715,000 570,615,890 decrease in share capital 10 November 2008 cancellation of shares bought back (10,443,500 a shares -10,443,500 560,172,390
Financial Standing internal dividends In 2009, Sampo plc received a total of EUR 488 million (SEK 5.1 billion) in dividends from If P&C Insurance Holding AB. Mandatum Life paid no dividends to Sampo plc during 2009.
Group solvency has in 2009 been calculated according to Chapter 3 of the Act on the Supervision of Financial and Insurance Conglomerates (2004/699). The Act is based on Directive 2002/87/EC of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment.
Group capital 7,613 4,631 sectoral items 1,545 391 intangibles and other deductibles -2,314 -1,571 dividends for the current period -561 -
Group solvency ratio (own funds % of minimum requirements) 158.3 433.6
The Group’s solvency ratio (own funds in relation to minimum requirements for own funds) was 158.3 per cent (433.6) as at 31 December 2009. The decrease is due to the treatment of Nordea as an associated company in the solvency calculation for 2009. The part of Nordea’s capital requirement corresponding to Sampo’s holding in Nordea is taken into account in the Group’s capital requirement.
debt financing As at 31 December 2008 Sampo plc’s debt financing included a subordinated note with face value of EUR 600 million. At the same time Sampo plc had interest bearing assets of EUR 1,184 million. As at 31 December 2009 Sampo Plc´s debt financing was EUR 1,595 million and interest bearing assets were of EUR 525 million. During the year the net debt increased by EUR 1,653 million to EUR 1,069 (-584). Main reason for the change of the net debt position was the increase in Nordea holding. Gross debt to Sampo plc’s equity was 24 per cent (11).
During the year the Euro Medium Term Note Programme of EUR 2,000,000,000 was established in order to enable the issuance of bonds in the capital markets. Sampo undertook a senior bond issue under the Euro Medium Term Note Programme and announced a debt exchange offer in respect of the earlier mentioned subordinated note which was to be exchanged for new Euro Denominated Senior Fixed Rate Notes. Concurrently, Sampo issued additional notes for cash which will be fungible with the new notes.
In connection with the Exchange Offer, the following terms were announced: aggregate amount of New Notes: eUr 750,000,000
(i) aggregate amount of New Notes created in exchange for existing Notes: eUr 562,181,000 (ii) aggregate amount of additional New Notes: eUr 187,819,000 outstanding amount of existing Notes after completed exchange offer: eUr 36,597,000
Markets have once again proved their resilience and the clouds of systemic collapse have evaporated from the financial market. In early 2010 expectations of economic recovery have risen significantly and confidence has largely been restored in the capital markets. Equities are expected to continue to perform well with current low interest rates and the short end of the yield curve is not expected to move upwards any time soon.
Sampo Group is expected to report a good result for 2010 on the back of stable insurance technical results supported by solid investment performance and the profit contribution of the associated company Nordea Bank.
As of 1 January 2010 Sampo will consolidate its share of Nordea’s profit with equity method. Nordea’s contribution to the Group profit is expected to be significant.
As a diverse financial institution, Sampo is exposed to a variety of different risks, both financial and non-financial. The major risks associated with Sampo Group’s activities during 2009 were insurance risks arising from P&C and Life insurance business areas, as well as market and credit risks emanating from the Group’s investment portfolios and the debt financing of Sampo plc.
The amount of the Group’s fixed income investments increased to EUR 13.5 billion (13.2) during 2009.
The dividend will be paid to shareholders registered in the Register of Shareholders held by Euroclear Finland Ltd as at the record date of 16 April 2010. The Board proposes that the dividend be paid on 23 April 2010.
Loss ratio excl. unwinding of discount 3 % 74.6 74.4 73.4 72.5 72.7 combined ratio excl. unwinding of discount % 92.1 91.8 90.6 89.9 90.5 * Based on the financial statements of if Group.
Weighted average number of shares, incl. dilutive potential shares 6 1,000 560,170 568,242 576,602 575,141 574,068 Weighted average share price eUr 13.84 15.96 21.43 16.78 11.97 adjusted share price, high eUr 17.72 19.30 24.79 20.74 14.95 adjusted share price, low eUr 8.63 11.42 17.95 13.58 9.83 share trading volume during accounting period 1,000 452,367 650,816 750,748 592,839 663,491
2 on 31 dec. 2009, Nordea was consolidated as an associate to sampo and sampo became a financial and insurance conglomerate, in accordance with the act on supervision on financial and insurance conglomerates (2004/699). in 2009, the group solvency was calculated according to chapter 3. in 2007 and 2008 the group solvency was based on adjusted solvency calculations for insurance groups according to the decree of the Ministry of social affairs and Health (1106/2000). the adjusted solvency was determined on the basis of the Group financial statements as permitted by the financial supervisory authority (former insurance supervisory authority). in 2005 and 2006, the solvency was calculated according to the consolidation method defined in chapter 3 of the act on the supervision of financial and insurance conglomerates.
4 the comparison average numbers of staff for the years 2005 – 2006 include the staff of primasoft oy, then consolidated as a subsidiary.
5 the Board of director’s proposal to the annual General Meeting for the accounting period 2009.
6 in calculzating the per share key figures, the number of shares used at the balance sheet date was 561,282,390 and the average number of shares 561,369,678. the 90,000 treasury shares acquired by sampo plc have been taken into account in both numbers of shares.
Property & Casualty and Life Insurance + insurance premiums written + net income from investments + other operating income − claims incurred − change in liabilities for investment and insurance contracts − staff costs − other operating expenses − finance costs ± share of associates’ profit/loss
Holding + net income from investments + other operating income − staff costs − other operating expenses − finance costs ± share of associates’ profit/loss return on equity (at fair values), % + profit before taxes ± change in fair value reserve ± change in valuation differences on investments − tax (incl. change in deferred tax relating to valuation differences on investments)
+ total equity ± valuation differences on investments less deferred tax (average of values on 1 Jan. and 31 dec.)
equity/assets ratio (at fair values), % + total equity ± valuation differences on investments less deferred tax
Group solvency ratio, % own funds minimum requirements for own funds average number of staff average of month-end figures, adjusted for part-time staff
Property & Casualty insurance key figures profit before taxes formula shown above in connection with the Group key figures.
combined ratio, % Loss ratio + expense ratio combined ratio excl. unwinding of discount, % Loss ratio before unwinding of discount + expense ratio solvency capital (ifrs) + equity after proposed profit distribution ± valuation differences on investment - intangible assets + subordinated loans - deferred tax liability probably realised in near future ± other required items (Ministry of finance decree)
+ liabilities for insurance and investment contracts - reinsurers’ share of insurance liabilities solvency ratio (ifrs), % solvency capital premiums earned from 12 months
+ liabilities for insurance and investment contracts - reinsurers’ share of insurance liabilities - 75% x technical provisions relating to unit-linked insurance
Per share key figures earnings per share profit for the financial period attributable to the parent company’s equity holders adjusted average number of shares earnings per share, incl. change in fair value reserve profit for the financial period attributable to the parent company’s equity holders ± change in fair value reserve adjusted average number of shares equity per share equity attributable to the parent company‘s equity holders adjusted number of shares at balance sheet date
Net asset value per share + equity attributable to the parent company’s equity holders ± valuation differences on investments ± deferred tax related to valuation differences on investments adjusted number of shares at balance sheet date dividend per share, % dividend for the accounting period adjusted number of shares at balance sheet date dividend per earnings, % dividend per share earnings per share effective dividend yield, % dividend per share adjusted closing share price at 31 dec.
relative share trading volume, % number of shares traded through the Helsinki exchanges adjusted average number of shares
Earnings Logic and Risks 50 Development of Sampo Group’s Risk Exposures and Solvency Position in 2009 50
Market and ALM risks 66 Market Risk Management and Control in Sampo Group 66 ALM Risks in Sampo Group 68 Market Risks Related to the Investments in Sampo Group 68
Credit Risks 74 Credit Risk Management and Control in Sampo Group 74 Credit Risks Related to the Investments 75 Credit Risks Related to Reinsurance Counterparties 75 Concentration of Market and Credit Risks 76
Operational Risk Management and Control in P&C Insurance 77 Operational Risk Management and Control in Life Insurance 78
Sampo Group has two business areas: P&C insurance (If P&C) and life insurance (Mandatum Life), wholly owned by the holding company (Sampo plc). In addition to the insurance subsidiaries, Sampo plc also holds 20.1 per cent in Nordea AB (publ) at December 31, 2009. Nordea´s risk management is not covered in Sampo Group´s annual report.
Investment result is the main source of profitability in life insurance. The basis for Mandatum Life’s investment operations is the structure of technical reserves and solvency. The life insurance policies usually have long maturity and the predictability of the cash flows allows the company to aim for returns exceeding the risk-free rate. This will naturally lead to higher volatility of investment returns in the short-term, which is considered in the company’s internal capitalisation.
In addition to the risks discussed above, Sampo Group is exposed to operational risks and business risks, such as failures in internal processes or changes in the economic environment. These risks are inherent in all business areas.
Sampo Group’s main risks are illustrated in Figure 1. The classification of risks is based on the major risk factors that affect Sampo Group. Moreover, certain risks such as ALM risk (Asset and Liability Management) related to the value and earnings potential of the whole balance sheet, as well as concentration risk and reputation risk are dependent simultaneously on various risk factors.
Investment Operations The challenging economic circumstances created investment opportunities especially in the credit products and equities for companies with strong solvency. The proportion of these investments has actively been increased in Sampo Group’s investment portfolios. The values of Sampo Group’s investment portfolios have increased during the year due to the recovery in equity prices and strong returns from credit investment products. The recovery took place mainly during the second half of the year. The development of the investment portfolios are shown in Figure 2.
Sampo Group’s investment returns were very strong during 2009, compensating the exceptionally bad investment year 2008. The average results of the years 2008 and 2009 are in line with the long-term returns in both business areas. Figure 3 shows the investment returns of If P&C and Mandatum Life during 2000 – 2009.
At year end, Sampo plc’s investments (at book values) consisted of subordinated loans issued by its subsidiaries amounting to EUR 122 million, short-term money market instruments amounting to EUR 404 million and other investments amounting to EUR 42 million. The amount invested in liquid, lowrisk money market investments was unusually high due to the dividends paid by If P&C in December 2009. During the year, Sampo plc´s net debt changed considerably from EUR -584 million as of 31 December 2008 to EUR 1,069 million as of 31 December 2009. The main risk of Sampo plc is thus interest rate risk that arises from the net debt position.
Average return of If P&C: 3.9% Average return of Mandatum Life: 6.5%
vency capital in Mandatum Life Group increased to EUR 926 million (EUR 379 million) while the regulatory capital requirement was EUR 226 million (EUR 224 million). Also Sampo Group’s consolidated capital position was very strong. The Group solvency ratio was 158 per cent (434 per cent). The Group’s adjusted solvency capital was EUR 7,076 million (EUR 4,023 million) while the economic capital calculated with a confidence level of 99.5 per cent was EUR 3,783 million (1,895 million).
risk Management principles Risk is an essential and inherent element of Sampo Group´s business activities and operating environment. A high quality risk management process is a prerequisite for running the business. The core competence in Sampo Group’s businesses is the pricing of risks and the proper management of the arising risk exposures.
In Sampo Group the key objectives for risk management are to: ensure that risks affecting profitability as well as other material • risks are identified, assessed and analysed; ensure that risks are properly priced and that risk bearing • capacity is correctly allocated into different business areas; ensure that risk buffers – in the form of capital and foreseeable • profitability of businesses – are adequate in relation to the current risks inherent in business activities and existing environment; limit and mitigate fluctuations in the economic values of • group companies; and ensure the overall efficiency, security and continuity of • operations.
risk Governance This chapter describes Sampo Group’s governance framework regarding risk control. Sampo Group’s overall corporate governance and system of internal control is described in the Corporate Governance section of this Annual Report.
The reporting of Sampo Group is divided into three segments, which are P&C insurance, life insurance and holding. These segments correspond to the legal entities of If P&C, Mandatum Life and Sampo plc respectively.
The roles and responsibilities of different governing bodies in Sampo Group and individual subsidiaries are described in more detail below.
The Audit Committee (AC) is responsible, on behalf of the Board of Directors, for the preparation of Sampo Group’s risk management principles and other related guidelines. The AC shall ensure that the operations are in compliance with these, control Sampo Group’s risks and risk concentrations as well as control the quality and scope of risk management in each company. The committee shall also monitor the implementation of risk policies, capitalisation and the development of risks and profit. At least three members of the AC should be elected from those members of the Board, who do not hold management positions in Sampo Group and are independent of the company. The AC meets on a quarterly basis.
The Boards of Directors in each insurance subsidiary have the overall responsibility for the risk management process and they are the ultimate decision making bodies at If P&C and Mandatum Life respectively. The respective Board ensures that the management and monitoring of the risks are satisfactory, and approves the risk management plan. The Boards of Directors of If P&C and Mandatum Life appoint the individual risk management committees within each legal entity and are also responsible for identifying needs for changing policies, guidelines and instructions related to risk management.
Risk Governance in If P&C If ’s Risk Control Committee (IRCC) assists the CEO and the Board of Directors of If P&C in fulfilling their responsibilities relating to the risk management process. IRCC monitors reports from the relevant committees and functions as well as the risk position of If P&C in relation to restrictions and limits given by the Board and in comparison to the capital position. The Risk Management department is the responsible function for coordinating the risk management work on behalf of the IRCC.
Risk Governance in Mandatum Life In Mandatum Life the Board of Directors is responsible for risk management and adequacy of internal controls. The Board annually approves the risk management plan, investment strategy and other risk management and internal control instructions.
The Managing Director has the overall responsibility for the risk management according to Board of Directors’ instructions.
The Risk Management Committee (RMC) coordinates and monitors all risks in Mandatum Life. The Committee is chaired by the Managing Director. Risks are divided into main groups which are insurance risks, market risks, operational risks, legal and compliance as well as business and reputation risks. Risks related to the Baltic subsidiary are also included. Each risk area has a responsible person in the Committee.
The actuarial department is responsible for the risk management of insurance risks. The actuarial department ensures that tariffs and prices are adequate and reports to the Board if changes to the tariffs are needed. The Board approves the tariffs and prices, defines the maximum amount of risk to be retained on the company’s own account and approves the reinsurance policy annually. The actuarial department monitors on a continuous basis that technical provisions are adequate and reports to the Board if changes in the calculation basis are needed. Any changes to calculation basis of technical provisions are approved by the Board.
Operational Risk Committee (ORC) analyses and handles operational risks, e.g. in relation to new products and services, changes in processes and risks as well as realised operational risk incidents. These are reported to the Risk Management Committee and to the Board of Directors quarterly. ORC is also responsible for maintaining and updating the continuity and preparedness plan.
The Baltic subsidiary has its own risk management system. All major incidents are also reported to Mandatum Life’s Risk Management Committee.
Although the new regulatory framework under development, Solvency II, will recognise different risks more accurately than the current regulations, Sampo Group still considers that there is a need for internal assessments of capitalisation because regulatory and rating agency models cannot take the specific features of different companies accurately enough into account.
Economic Capital as a Basis for Capital Required Sampo Group uses economic capital as an internal measure of capital required for risks the Group is exposed to. Sampo Group defines economic capital as the amount of capital required to protect the solvency over a one year time horizon with a probability of 99.5 per cent.
Adjusted Solvency Capital as an Internal Measure for Capital Available Different stakeholders have different views when assessing the available capital. Regulators have defined which items can be included into the solvency capital and rating agencies have their own definitions for capital. As an internal measure of available capital, Sampo Group uses adjusted solvency capital. The basis for adjusted solvency capital is capital items included in regulatory solvency capital. On top of those, other loss absorbing items such as the difference between the book value and market value (including a risk margin) of technical provisions are added.
The economic capital and adjusted solvency capital as well as the regulatory capital measures are disclosed quarterly. Rating agency capital measures are also calculated regularly, but they are not disclosed.
• Adjusted targets • Capital allocation, limit structures • Amount and quality of capital • Amount and structure of risk capitaL MaNaGeMeNt actioNs
• Regulatory capitalisation • Internal capitalisation (economic capital) • Rating agency capitalisation eXterNaL staKeHoLders
Capital Planning When assessing the future capital requirement, the views of the management and different stakeholders – regulators and supervisors, rating agencies, debt investors, policyholders and shareholders – are considered.
Regulatory capital requirement with profitability targets, they facilitate business and investment units to take well considered risks. The limits reflect the capital adequacy targets and risk appetite in general.
The development of capitalisation in Sampo Group within the internal and regulatory perspectives during the year 2009 is shown below in Figure 7.
in Table 1. The amount of adjusted solvency capital on the Group level exceeded the economic capital by EUR 3,294 million (EUR 1,438 million in 2008). On the basis of the calculations presented in Table 1, Sampo Group’s capitalisation is strong.
Regulatory Capital Measures Sampo Group reports its group solvency quarterly to the Finnish supervisory authorities monitoring Sampo Group. Subsidiaries ’ solvency is reported to the local supervisors.
The calculation of group solvency is broken down in Table 3. The group solvency ratio on 31 December 2009 was 158 per cent (434 per cent).
Rating Agency Capital Measures If P&C Insurance Ltd. (publ) (Sweden) and If P&C Insurance Company Ltd. (Finland) are rated by Moody’s and Standard & Poor’s and Sampo plc by Moody’s. The Group’s main rating objective is to retain at least a single A rating for If P&C. The S&P rating model in If P&C is updated regularly. Sampo Group has a continuous dialogue with the rating agencies.
and to the change in investment allocations. Investment allocations changed due to the increase of the values of equity and credit risk investments and due to the active investment decisions. The most important factor during the year was the sale of Sampo plc’s short-term money market instruments to purchase Nordea shares.
Finally, the economic capital of Nordea has been used as the basis for economic capital calculation as from the fourth quarter instead of treating Nordea as an equity investment.
Although this has increased economic capital, the volatility of economic capital and adjusted solvency capital will be lower going forward.
Adjusted solvency capital is compared with economic capital. The economic capital and adjusted solvency capital are presented
Mandatum Life, EUR 930 million economic capital and adjusted solvency capital on 31 december 2009 and 2008 eUrm If P&C Mandatum
Life the official terminology for regulatory capital requirements differs between countries and companies. in the table, generic terms are used for simplicity.
p&c insurance P&C insurance risk can be assessed from two perspectives: Underwriting Risk• is the risk that the claims cost for future claims exceeds the premium charged. Underwriting risk occurs due to unexpected deviations in the frequency of claims (i.e. the number of claims incurred during the period being higher than expected) and / or in the size of claims (i.e. claims when they occur being larger than anticipated). Such deviations can be purely random, i.e. an effect of the inherent volatility of the claims results. The deviations can also be the result of more systematic and permanent changes in e.g. inflation, legislation or exposures. Random deviations are typical in the Industrial insurance business, with claims which could potentially be very large, e.g. a fire in a large factory. Systematic deviations to a larger degree affect the Private business line, which is characterised by a large number of small claims and consequently a lower degree of random variation. Reserve Risk • is the risk that technical provisions are not sufficient to cover the claims cost for already written business. Reserve risk is closely linked to underwriting risk and driven by the same types of underlying factors.
P&C insurance activities are subject to If P&C´s main underwriting principle; the company should always have the necessary knowledge, expertise and statistical data to understand and
Group solvency ratio (solvency capital % of minimum requirement) 158% 434%
Sensitivity of profit and hence underwriting risk is presented by changes in certain key figures in Table 4.
Underwriting Risk Governance The Underwriting Committee is responsible for the monitoring of compliance of the underwriting principles as defined by the Underwriting policy (UW policy). The UW policy is the principal document for underwriting activities. It sets general principles, restrictions, limits and directions for the underwriting activities. The Board of Directors of If P&C approves the UW policy at least annually.
Given the large number of customers in P&C insurance and the fact that business is underwritten in different geographical areas and across several classes of insurance, the portfolio is well diversified. The geographical distribution of premium income is shown in Figure 10.
Regardless of the diversification, underwriting risk concentrations may still arise through for example exposures to natural disasters, such as winter storms and floods. The most exposed geographical areas to such disasters are Denmark, Norway and Sweden. In addition, single large claims can potentially have a big impact on the result. The risk of severe outcomes is therefore mitigated by purchasing reinsurance. Since 2003, a Nordic-wide reinsurance program has been in place in If P&C. In 2009 the retentions levels for different classes of insurance were between SEK 100 million (approximately EUR 9.8 million) and SEK 200 million (approximately EUR 19.5 million) per risk and SEK 200 million per event.
Reserve Risk in P&C Insurance Technical provisions in P&C insurance always include an element of uncertainty as the size of claim payments and the frequency of unreported claims are not known. Claims are usually reported to If P&C with some delay and in many cases it takes additional time to determine the final indemnity.
Effect on pretax profit, EURm combined ratio, business area private 92.4% +/- 1 percentage point +/- 20 +/- 20 combined ratio, business area commercial 92.6% +/- 1 percentage point +/- 11 +/- 12 combined ratio, business area industrial 90.4% +/- 1 percentage point +/- 4 +/- 5 combined ratio, business area Baltics 91.7% +/- 1 percentage point +/- 2 +/- 2 premium level 3,646 +/- 1 per cent +/- 36 +/- 38 claims frequency 2,716 +/- 1 per cent +/- 27 +/- 28 ceded reinsurance premium 216 +/- 10 per cent +/- 22 +/- 24
The expected durations of technical provisions for different products are shown in Figure 11 and the amount of technical provisions broken down by product and country is shown in Table 5.
If P&C’s technical provisions are further analysed by claims year in the claims cost trend tables before and after redurations of technical provisions per product and country (book value), if p&c, 31 december 2009
Reserve Risk Governance The Board of Directors of If P&C approves guidelines governing the calculation of technical provisions. If P&C’s Chief Actuary is responsible for developing and presenting guidelines on the calculation of technical provisions and for assessing whether the overall level of provisions are sufficient. The Chief Actuary issues a report on the adequacy of technical provisions at least quarterly, which is submitted to the Board of Directors, If ’s Risk Control Committee and If P&C’s CEO.
The Actuarial Committee is a preparatory and advisory board for If P&C’s Chief Actuary. The committee makes recommendations on policies and guidelines for technical calculations. It also monitors technical provisions and gives advice to If P&C’s Chief Actuary regarding their adequacy.
Risk Management and Control Analyses of the adequacy of technical provisions are made by If P&C’s actuaries. The actuaries monitor the levels of technical provisions on a continuous basis in order to ensure that they comply with the established guidelines. The actuaries also develop methods and systems to support these processes.
decrease in discount rate decrease by 1%-point sweden 48.1 denmark 7.9 finland 163.9 annuities decrease in mortality Life expectancy increase by 1 year sweden 8.3 denmark 0.3 finland 17.1
ture of the insured and the future mortality trend among the relatively old insured. In the individual pension portfolio the longevity risk is less significant because most individual pension policies are fixed term annuities including death cover compensating the longevity risk.
The insurance risk result of other biometric risks has been profitable in total, although the different risk results differ considerably. Disability and morbidity risks are mitigated by the company’s right to raise insurance premiums for existing policies in case the claims experience deteriorates.
The insurance portfolio of Mandatum Life is well-diversified and does not include major concentration risks. To further mitigate the effects of possible risk concentrations, Mandatum Life has the catastrophe reinsurance in place.
In addition to the biometric risks described above, Mandatum Life is exposed to other risks such as discount rate risk, lapse risk and surrender risk which are described below.
The provisions related to each product type and guaranteed interest rates are shown in Table 8. The table also shows the change in each category during 2009.
Liabilities arising from insurance and investment contracts of Mandatum Life Group*
SUBSIDIARY SE SAMPO LIFE INSURANCE BALTIC 77 43 -16 -3 1 0 17 119 2%
* Before reinsurers’ share ** investment contracts *** operating expenses not included
Risk Management and Control Biometric risks are managed by careful risk selection, by pricing to reflect the risks and costs, by setting upper limits for the protection granted and by reinsurance.
SUBSIDIARY SE SAMPO LIFE INSURANCE BALTIC 36 16 30 25 10 5 8 * Before reinsurers’ share ** investment contracts
In this section, the general principles for market risk management are presented, the Group’s ALM risks are described and finally the market risks from a pure investment portfolio perspective are described.
Investment allocations and limits are defined in If P&C’s Investment Policy. When the investment allocation and limits are decided, the above described replicating investment allocation and the investment allocation for surplus capital as well as the capitalisation and strategic market view are taken into account. Within the limits set in the Investment Policy, investments are managed actively by utilising market views.
Market Risk Management and Control in Life Insurance In Mandatum Life, the approach to market risk management is also based on an ALM-analysis of technical provisions. A common feature for all with-profit liabilities is the guaranteed rate and bonuses based on principle of fairness. The cash flows of Mandatum Life´s liabilities are relatively well predictable because in most of the company’s with-profit products, surrenders and extra-investments are not possible. The company’s liabilities are not exposed to inflation risk. Inflation risk in Mandatum Life is related to administrative expenses only.
Sampo plc’s investment organisation makes the day-to-day investment decisions based on principles set in Mandatum Life’s Investment Policy. The ALCO regularly controls that limits and principles defined in the Investment Policy are followed.
ALM Risk in If P&C Most of the technical provisions in P&C insurance are stated in the balance sheet in nominal terms. For annuities in Finland, Sweden and Denmark, the reserves are discounted, and potential changes in the discount rates will affect the level of technical provisions in the company’s balance sheet. The discount rates vary between countries mainly due to differences in legislation but they are at least indirectly impacted by the prevailing market interest rate environment. Hence, from an accounting perspective, the company is mainly exposed to changes in expected future claims inflation and in the regulatory discount rate.
ALM Risk in Mandatum Life The most significant interest rate risk in the life insurance business is that fixed income investments will not over a long period of time generate a return at least equal to the guaranteed interest rate of technical provisions. The probability of this risk increases when market interest rates fall and remain at a low level. This risk is managed through constant monitoring and management of the duration gap between liabilities and fixed income investments in Life insurance.
The weighted average duration of Mandatum Life’s insurance liabilities (excluding unit-linked liabilities) was 7.9 years (7.9 years in 2008). The duration of fixed income investments was 2.6 years at year end (3.6 years in 2008).
The sensitivity of financial assets and liabilities to changes in foreign exchange rates is assessed on business area level because the base currencies are different. In P&C insurance, 10 percentage point depreciation of all other currencies against SEK would have resulted in an effect recognised in profit/loss of EUR 3 million and in an effect recognised directly in equity of EUR 6 million. In life insurance, 10 percentage point depreciation of all other currencies against EUR would have resulted in an effect recognised in profit/loss of EUR 28 million and in an effect recognised directly in equity of EUR -49 million. In holding, 10 percentage point depreciation of all other currencies against EUR would have resulted in an effect recognised in profit/loss of EUR -43 million and in an effect recognised directly in equity of EUR -3 million.
The sensitivity of capitalisation to changes in foreign exchange rates is assessed on business area level. In P&C insurance 10 percentage point depreciation of all other currencies against the base currency SEK would have resulted in a EUR 9 million increase in equity. In life insurance and holding, 10 percentage point depreciation of all other currencies against the base currency EUR would have resulted in a EUR 21 million and a EUR 46 million decrease in equity, respectively.
The investments of Mandatum Life’s Baltic subsidiary are included in Mandatum Life’s investment assets as an equity,
Total effect on equity 312 -307 -474 -117 change in liability side adjustment -879 575 16 6
The investment return of Mandatum Life in 2009 was 16.8 per cent (-7.8 per cent in 2008). The amount of investment assets was EUR 5,449 million (4,728 million in 2008). The proportion of equities in the investment portfolio increased from 12.3 per cent to 22.7 per cent during the year, while the proportion of fixed income investments decreased from 77.7 per cent to 68.7 per cent. The proportion of other investments was 8.6 per cent (10.0 per cent in 2008).
At the beginning of the year 2009, Sampo plc had a substantial amount of short-term money market investments that were used for purchases of Nordea shares during the year.
Table 12 investment allocation according to asset classes, industry sectors and fixed income investments according to rating, sampo Group, if p&c and Mandatum Life, 31 december 2009 allocation of fixed income and equity investments to sectors, fixed income investments broken down by rating, sampo Group eUrm aaa aa+ −
allocation of fixed income and equity investments to sectors, fixed income investments broken down by rating, if p&c eUrm aaa aa+ −
(counterparty risk) total allocation of fixed income and equity investments to sectors, fixed income investments broken down by rating, Mandatum Life eUrm aaa aa+ −
Market value of fixed income investments by type of instrument, sampo Group, if p&c and Mandatum Life, 31 december 2009
Sampo Group, EUR 13,642 million j i h g f e d c b a
If P&C, EUR 9,458 million h g f e d c b a
Money market securities and cash 14.2% Government bonds 9.6% Covered bonds 21.9% Investment grade bonds 26.7% High yield bonds 13.6% Asset backed securities 0.1% Sub-ordinated loans 7.6% Interest rate derivatives 0.7% Policy loans 0.2% Swedish index-linked bonds 5.5%
Money market securities and cash 23.3% Government bonds 0.8% Covered bonds 3.6% Investment grade bonds 40.0% High yield bonds 17.3% Asset backed securities 0.4% Sub-ordinated loans 12.1% Interest rate derivatives 1.8% Policy loans 0.7%
Fixed income investments Figure 13 presents the breakdown of fixed income investments of Sampo Group by type of instruments. During 2009, the proportion of money market securities and cash decreased from 22 per cent to 14 per cent. The proportion of high yield bonds increased to 14 per cent (11 per cent in 2008).
The interest rate sensitivity, i.e. duration, of fixed income investments of Sampo Group is shown in Table 13. The duration of fixed income investments in If P&C was 2.5 years (3.1 years in 2008). The duration of fixed income investments in Mandatum Life was 2.6 years (3.6 years in 2008).
In order to mitigate the interest rate risk of the balance sheet, Mandatum Life has interest rate swap agreements with nominal amounts of EUR 1.1 billion at the end of 2009. For these swaps, Mandatum Life pays short-term floating rate and receives fixed interest rate (average 4.7 per cent). The fair value of these swaps was EUR 60 million at year-end and they have a maturity that range between 2 months and 4 years.
duration of fixed income investments if p&c and Mandatum Life, 31 december 2009 if p&c Mandatum Life eUrm duration eUrm duration
If P&C, EUR 1,136 million h g f e d c b a
Mandatum Life, EUR 1,235 million h g f e d c b a
Scandinavia 67% Finland 0% Western Europe 7% East Europe 0% North America 11% Latin America 2% Far East 8% Japan 4%
Mandatum Life’s equity portfolio is actively managed. At year-end the exposure was EUR 1,235 million (583 million in 2008). The risks in equity portfolio and related derivatives may not exceed the limits set in the Investment policy. The Nordic equity portfolio is managed by Sampo Group’s Investment Management unit while the equity investments outside the Nordic area are mainly managed through funds or external asset managers.
The sector allocation of direct equity investments in Sampo Group is shown in Table 12. The largest sectors are capital goods, consumer products, insurance and basic industry. Equity investments that were invested through investment funds accounted for 42 per cent of the entire equity portfolio.
Currency position In Sampo Group, the open currency positions are considered and measured as a separate asset class. The position in each currency is the net of assets, liabilities and transactions denominated in the particular currency.
The currency positions of the Group’s companies against their home currency are shown in Table 14. The table shows the
net currency exposures (net assets) after the effect of derivatives has been taken into account.
Private equity and hedge funds are managed by external asset managers. The private equity portfolio is diversified both according to fund type and geographical areas. Hedge fund investments are diversified between funds and investment styles. The real estate portfolio in Mandatum Life is managed by Sampo Group’s real estate management unit. The portfolio includes direct investments in properties as well as real estate funds and shares and debt instruments in real estate companies. The main risks related to property investments are limited by diversifying holdings both geographically and by type of property.
currency risks by segment on 31 december 2009 currency risk open position Base currency eUr seK NoK dKK eeK LVL LtL GBp Usd Jpy other
Credit risk exposure towards policyholders is very limited, because non-payment of premiums generally results in cancellation of the insurance policies.
credit risk Management and control in sampo Group Credit risk is managed by specific limits given in the Investment Policies of If P&C and Mandatum Life. Limits and restrictions are assigned to maximum exposures towards single issuers and derivative counterparties that are mainly based on rating class.
Before an investment in a new security or a transaction with a new counterparty, the credit standing of the issuer or counterparty is thoroughly assessed. Credit ratings mainly from Standard & Poor’s, Moody’s and Fitch, are used to support the assessment of the creditworthiness of issuers and counterparties. The portfolio development and the counterparties’ credit standings are monitored continuously.
Credit risks are monitored at business area level and reported to the Investment Control Committee of If P&C and to the ALCO of Mandatum Life. The decision making in each business area shall follow the limits defined in the respective Investment Policy. Credit risk reporting is based primarily on the ratings of the issuer and instrument and on the industry sectors of issuers and counterparties.
Mandatum Life and If P&C use ISDA agreements to manage the counterparty risk of derivatives. In Mandatum Life Credit Support Annexes are used as well.
credit risks related to reinsurance counterparties The distribution of reinsurance receivables and reinsurers’ portion of outstanding claims in If P&C on 31 December 2009 per rating category is presented in Table 15. In the table, EUR 120 million (128 million in 2008) are excluded, which mainly relates to captives and statutory pool solutions.
The rating distribution of Sampo Group’s credit investments is not substantially different from last year. The proportion of the portfolio related to AAA issuers amounted to 36 per cent on Group-level (38 per cent in 2008). The proportion of issuers rated AA+ - BBB- was 49 per cent (50 per cent in 2008). The proportion of bonds rated below this was 7 per cent (6 per cent in 2008). The proportion of investments with no external rating was 8 per cent (6 per cent in 2008).
Liquidity risk is the risk that insurance undertakings are unable to settle their financial obligations when they fall due. Liquidity risk can arise from refinancing risk of debt or market liquidity risk of investments.
Sampo Group has a relatively low amount of financial liabilities and thus the Group’s refinancing risk is minor. In P&C insurance, premiums are collected in advance and large claims payments are usually known a long time before they fall due. In life insurance, only a relatively small part of liabilities can be surrendered and it is therefore possible to forecast short-term cash flows related to claims payments to a very large extent.
The maturities of technical provisions and financial assets and liabilities are presented in Table 18. In the table, financial assets and liabilities are divided into contracts that have an exact contractual maturity profile, and other contracts. Only the carrying amount is shown for the other contracts. In addition, the table shows expected cash flows for net technical provisions, which by nature, are associated with a certain degree of uncertainty.
Concentrations of investment risks in If P&C and Mandatum Life are monitored and controlled by the ICC in If P&C and ALCO in Mandatum Life. The total Group exposures are monitored and controlled by Sampo’s Chief Investment Officer, Sampo’s Chief Risk Officer and Sampo’s Audit Committee.
cash flows according to contractual maturity (expected future payments of technical provisions, no eliminations)
carrying amount total cash flows eUrm carrying amount total carrying amount without maturity carrying amount with contractual
P&C Insurance of which interest rate swaps 20 0 20 16 3 2 0 0 0 0 of which interest rate swaps 0 0 0 -1 -1 -1 0 0 0 0
Life Insurance of which interest rate swaps 52 0 52 39 18 4 2 0 0 0 of which interest rate swaps 0 0 0 0 0 0 0 0 0 0
Holding of which interest rate swaps 7 0 7 12 3 20 0 0 0 0 of which interest rate swaps 0 0 0 0 0 0 0 0 0 0 in the investment assets of life insurance, the investments of the Baltic subsidiary are included in the carrying amount but excluded from the cash flows.
Operational risk is the risk of loss arising from inadequate or failed internal processes, from personnel and systems, or from external events. The definition includes legal risk, but excludes reputation, strategic and business risk. Operational risks, unlike strategic and business risks, are often event based and their effects can be traced back to a single place and point in time.
The business areas have the responsibility for identifying, assessing, monitoring and managing operational risks within different units.
Identification and Management In If P&C, operational risk is categorised as follows: Process execution failures, Business disruptions and system failures, Customer, product and business practices, Employment practices, and Internal and external fraud.
Environmental and macro analysis• is conducted by the Corporate Strategy unit on an annual basis, where the key trends affecting the insurance industry are identified and their im-
plications to If P&C are assessed. On this basis, the main opportunities and threats are identified and prioritised. These assessments outline the most important external operational and business risks. Operational risk assessment• (ORA) is a quarterly process where operational risks are identified and assessed in the different business units through interviews and workshops. After quarterly ORA follow-up meetings, the operational risks are reported to ORC. In addition, legal risks and some business risks are captured in the ORA process. The quarterly reporting is used as a basis for an overall risk assessment of an annual cycle, where the identified risks are analysed and prioritised in all of If P&C’s business areas and corporate functions as a part of the annual business planning process. Incident reporting• and analysis is arranged in different ways depending on the type of the incident. Some incidents are collected through a separate incident database and others are collected through controls and investigations.
Governance Operational Risk Committee (ORC) monitors and coordinates risk management issues regarding operational risks within Mandatum Life, such as policies and recommendations concerning operational risk management, and gives opinions and advice in those issues to the Mandatum Life Management Team. The committee also analyses deviations from operational risk management policies and monitors operational risks identified in the self-assessments as well as the occurred incidents. The committee meets at least four times a year. Reports on operational risks are submitted to the Risk Management Committee and Board of Directors on a quarterly basis.
The most significant operational risks for Mandatum Life identified in the operational risk self-assessment process include the following: changes in the external operating environment, IT, especially ageing IT systems, manual phases in processes, loss of key personnel, miss-selling and false information to customers.
Internal control system in processes prevents negative incidents. However, would there be an operational risk event or near miss, this must be reported to ORC.
Planned Developments in Risk Management Sampo Group continuously develops its risk management framework and systems. In 2010, the Group’s economic capital framework, additional stress tests and scenario analysis methods will be further developed. Liquidity risk management and liquidity planning will be enhanced in If P&C. In Mandatum Life, the focus will be on finalising the risk management reform that was started in 2009 as well as further developing ALM for Solvency II and internal purposes. The biggest development issues throughout the Group relate to the development of various modelling and reporting capabilities in preparation for Solvency II compliance.
Preparation for Solvency II After intensive negotiations between the Commission, the European Parliament and the European Council, the Solvency II Framework Directive was adopted by the European Parliament in April 2009. The introduction of a new economic risk based solvency regime aims to deepen the integration of the insurance and reinsurance market, enhance the protection of policyholders and beneficiaries, to improve international competitiveness of EU insurers and reinsures and to promote a better regulation. The objective relating to the regulatory capital requirements in Solvency II is that they will more closely reflect the specific risk profile of each company in contrast to the existing Solvency I regulation. If the objective is met, it will encourage companies to focus on sound risk management and internal control procedures and thus embed risk awareness throughout the organisation.
Technical preparedness for Solvency II has been built in the Group during the last few years and the anticipated Solvency II requirements for risk management have been taken into account in the risk management development activities of Group companies. These actions have been initiated to secure full compliance with Solvency II by 2012.
We are going to act as a shepherd and guard the interest of all shareholders carefully.”
Consolidated Comprehensive Income Statement EURm Note 1 – 12/2009 1 – 12/2008
Change in liabilities for insurance and investment contracts 4 -633 667
Other comprehensive income for the period 23, 24 Exchange differences 123 -248 Available-for-sale financial assets 2,989 -3,029 Cash flow hedges -3 15 Income tax relating to components of other comprehensive income -326 333 Other comprehensive income for the period, net of tax 2,782 -2,928
Total comprehensive income attributable to Owners of the parent 3,423 -2,254 Non-controlling interests 0 0
Profit before taxes 825 870 Adjustments: Depreciation and amortisation 26 28 Unrealised gains and losses arising from valuation 51 393 Realised gains and losses on investments -215 92 Change in liabilities for insurance and investment contracts 859 -35 Other adjustments -14 585
Financing activities Acquisition of own shares -1 -167 Dividends paid -444 -678 Issue of debt securities 2,002 Repayments of debt securities in issue -1,008 -
Cash and cash equivalents at 1 January 471 946 Effects of exchange rate changes 28 25 Cash and cash equivalents at 31 December 761 499 Net increase in cash and cash equivalents 262 -472
Additional information to the statement of cash flows: Interest income received 551 652 Interest expense paid -136 -90 Dividend income received 123 431 * Investments include investment property, financial assets and investments related to unit-linked insurance contracts.
Notes to the Income Statement Insurance Premiums Written 106 Net Income from Investments 107 Claims Incurred 110 Change in Liabilities for Insurance and Investment Contracts 113 Staff Costs 114 Other Operating Expenses 115 Result Analysis of P&C Insurance 116 Performance Analysis per Class of P&C Insurance 117 Earnings per Share 117 Financial Assets and Liabilities 118
Notes to the Balance Sheet Property, Plant and Equipment 119 Investment Property 120 Intangible Assets 123 Investments in Associates 125 Financial Assets 126 Fair Values 132 Determination and Hierarchy of Fair Values 133
Comprehensive Income 137 Other Assets 137 Cash and Cash Equivalents 138 Liabilities from Insurance and Investment Contracts 139 Liabilities from Unit-Linked Insurance and Investment Contracts 143 Financial Liabilities 143 Provisions 144 Employee Benefits 145 Other Liabilities 147 Contingent Liabilities and Commitments 148 Equity and Reserves 150 Related Party Disclosures 151 Incentive Schemes 152 37 Auditors’ Fees 154 38 Legal Proceedings 154 39 Investments in Subsidiaries 154 40 Investments in Shares and Paticipations
Other than Subsidiaries and Associates 155 41 Events After the Balance Sheet Date 159
Sampo Group has prepared the consolidated financial statements for 2009 in compliance with the International Financial Reporting Standards (IFRSs). In preparing the financial statements, Sampo has applied all the standards and interpretations relating to its business, adopted by the commission of the EU and effective at 31 December, 2009.
The amendments to IFRS 2 Share-based payments – Vesting conditions and cancellations state that all non-vesting conditions must be taken into account when estimating the fair value of equity instruments granted. The amendment also clarifies the accounting treatment of cancellations. The adoption of the amendment has not had any material effect on Sampo’s financial statements reporting.
The amendments in IFRS 7 Financial Instruments: Disclosures – Improving disclosures about financial instruments were issued in March 2009 as a result of the global financial crisis. The changes require a three-level fair value disclosure hierarchy of financial instruments. The standard also requires new disclosures on the determination of fair values, so that their relative reliability could be more easily assessed. In addition, disclosure requirements on liquidity risk are enhanced. The amendments will thus increase the number of disclosures in Sampo’s financial statements.
IFRS 8 Operating Segments changed the segment reporting by requiring the reported segment information to be based on the information reported to the chief operating decision maker and to comply with those accounting principles. The adoption of the standard did not have a material effect on Sampo’s segment reporting, as the segment information published before has already been based on the Group’s internal reporting structure.
The changes in IAS 1 Presentation of Financial Statements and IAS 32 Financial instruments: Presentation (Puttable Financial Instruments and Obligations Arising on Liquidation) require some financial instruments puttable at fair value to be classified as equity, instead of financial liabilities. The adoption of the amendment did not have any material effect on Sampo’s financial statements reporting.
IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction clarifies how to assess the limit on the amount of the surplus that can be recognised as an asset, and how the pension asset or liability may be affected when there is a statutory or contractual mini-
mum funding requirement. The adoption of the interpretation did not have any material effect on Sampo’s financial statements reporting.
Improvements to IFRSs 2008 – various minor changes made to different standards at the same time. The Group does not consider these changes material to Sampo’s financial statements reporting.
Subsidiaries The consolidated financial statements combine the financial statements of Sampo plc and all its subsidiaries. Entities qualify as subsidiaries if the Group has the controlling power. The Group exercises control if its shareholding is more than 50 per cent of the voting rights or it otherwise has the power to exercise control over the financial and operating policies of the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group, and cease to be consolidated from the date that control ceases.
The consolidated financial statements are presented in euro, which is the functional and reporting currency of the Group and the parent company. Items included in the financial statements of each of the Group entities are measured using their functional currency, being the currency of the primary economic environment in which the entity operates. Foreign currency transactions are translated into the appropriate functional currency using the exchange rates prevailing at the dates of transactions or the average rate for a month. Monetary balance sheet items denominated in foreign currencies are translated into the functional currency at the rate prevailing at the balance sheet date. Non-monetary balance sheet items measured at historical cost are presented in the balance sheet using the historical rate existing at the date of the transaction.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as if they were assets and liabilities of the foreign entity. Exchange differences resulting from the translation of these items at the exchange rate of the balance sheet date are included in equity, and their change in other comprehensive income
Geographical information has been given on income from external customers and non-current assets. The reported segments are Finland, Sweden, Norway, Denmark, the Baltic countries and other countries.
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 fees and commissions paid for investment activities are included in ‘Net income from investments’.
Based on the measurement practice, financial assets and liabilities are classified in the following categories upon the initial recognition: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, availablefor -sale financial assets, financial liabilities at fair value through profit or loss, and other liabilities.
In the P&C insurance, the fair value option permitted by IAS 39 has been applied in the earlier years. The remaining
assets acquired before the year 2008 are still measured at fair value through p/l. Furthermore, the fair value option is applied in some minor P&C companies.
In the life insurance business, IFRS 4 Insurance Contracts provides that insurance contracts with a discretionary participation feature are measured in accordance with national valuation principles (except for the equalisation reserve) rather than at fair value. These contracts and investments made to cover shareholders ’ equity are managed in their entirety and are classified mainly as available-for-sale financial assets.
Purchases and sales of financial assets at fair value through profit or loss, held-to-maturity investments and available-forsale 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..
In some limited circumstances, the amendments permit reclassifications of certain financial assets measured at fair value, after the initial recognition.
Financial Assets and Financial Liabilities at Fair Value Through Profit or Loss In Sampo Group, financial assets and liabilities at fair value through profit of loss comprise derivatives held for trading, and financial assets designated as at fair value through profit or loss.
Available-for-sale financial assets are initially recognised at cost, which is the fair value of the consideration given, including direct and incremental transaction costs. They are subsequently remeasured at fair value, and the changes in fair value are recorded in other comprehensive income and presented in the fair value reserve, taking the tax effect into account. Interest income and dividends are recognised in profit or loss. When the available-for-sale assets are sold, the cumulative change in the fair value is transferred from equity and recognised together with realised gains or losses in profit or loss. The cumulative change in the fair value is also transferred to profit or loss when the assets are impaired and the impairment loss is recognised. Exchange differences due to available-for-sale monetary balance sheet items are always recognised directly in profit or loss.
Fair Value The fair value of financial instruments is determined primarily by using quoted prices in active markets. Financial assets are measured at the bid price and financial liabilities at the asking price. If the financial instrument has a counter-item that will offset its market risk, the mid-price may be used to that extent. If a published price quotation does not exist for a financial instrument in its entirety, but active markets exist for its component parts, the fair value is determined on the basis of the relevant market prices of the component parts.
Financial Assets Carried at Amortised Cost There is objective evidence of impairment, if an issuer or debtor e.g. encounters significant financial difficulties that will lead to insolvency and to estimation that the customer will probably not be able to meet the obligations to the Group.
Available-for-Sale Financial Assets Whether there is objective evidence of an impairment of available -for-sale financial assets, is evaluated in a separate assessment, which is done if the credit rating of an issuer has declined or the entity is placed on watchlist, or there is a significant or prolonged decline in the fair value of an equity instrument below its original acquisition cost.
Derivative financial instruments are classified as those held for trading and those held for hedging, including interest rate derivatives, foreign exchange derivatives, equity derivatives and commodity derivatives. Derivative instruments are measured initially at fair value. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
Derivatives Held for Trading 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.
During the financial year, fair value hedged have been used in P&C insurance. Both fair value and cash flow hedging have been applied in life insurance.
Cash Flow Hedging Cash flow hedging is used to hedge the interest cash flows of individual floating rate debt securities or other floating rate assets or liabilities. The hedging instruments used include interest rate swaps, interest rate and cross currency swaps and interest rate options. Derivative instruments which are designated as hedges and are effective as such are measured at fair value. The effective part of the change in fair value is recognised in other comprehensive income. The remaining ineffective part is recognised in profit or loss.
Securities lent to counterparties are retained in the balance sheet. Conversely, securities borrowed are not recognised in the balance sheet, unless these are sold to third parties, in which case the purchase is recorded as a trading asset and the obligation to return the securities as a trading liability at fair value through profit or loss.
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.
Goodwill Goodwill represents the excess of the cost of an acquisition (made after 1 January 2004) over the fair value of the Group’s share of the net identifiable assets, liabilities and contingent liabilities of the acquired entity at the date of acquisition. Goodwill on acquisitions before 1 January 2004 is accounted for in accordance with the previous accounting standards and the carrying amount is used as the deemed cost in accordance with the IFRS.
Intangible assets with finite useful lives are measured at historical cost less accumulated amortisation and impairment losses. Intangible assets are amortised on a straight-line basis over the estimated useful life of the asset. The estimated useful lives by asset class are as follows: IT software 4 – 10 years Other intangible assets 3 – 10 years
on the square metres in use. If the proportion of a property in Sampo’s use is no more than 10 per cent, the property is classified as an investment property.
Sampo treats the liabilities arising from contracts in the first phase of the standard according to national accounting standards, except for the equalisation reserve and the provision for collective guarantee item and their changes which are reported in equity and profit or loss, in accordance with the IFRS.
The risks involved in insurance and investment contracts are widely elaborated in the Group’s financial statements’ Risk Management section.
Insurance Liabilities Insurance liabilities are the net contractual obligations which the insurer has on the basis of insurance contracts. Insurance liabilities, consisting of the provisions for unearned premiums and unexpired risks and for claims outstanding, correspond to the obligations under insurance contracts.
Provision for a Collective Guarantee The provision for a collective guarantee is regulated by Finland’s Traffic and Accident Insurance Act and must be collected by insurers. Its purpose is to guarantee the payment of claims to customers in the event that any insurers are put into liquidation or bankruptcy. The collection of funds for this provision is to guarantee 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.
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 payas -you-go contribution collected together with the insurance premium is not deemed to be premium income, and the pension index raise paid out is not deemed to be claims incurred. Because the collected index raise corresponds in amount to the paid out pension index raise, the said items are set-off in the Income Statement item ‘Other expenses from operations’. The share of a balancing figure not yet received from, or not paid by, a central organisation is presented as current receivables or liabilities in the balance sheet items ‘Other assets’ or ‘Other liabilities’.
Classification of Insurance Contracts Policies issued by the life insurance business are classified as either insurance contracts or investment contracts. Insurance contracts are contracts that carry significant insurance risk or contracts in which the policyholder has the right to change the contract by increasing the risk. As capital redemption contracts do not carry insurance risk, these contracts are classified as investment contracts.
Insurance and Investment Contract Liabilities and Reinsurance Assets Liabilities arising from insurance and investment contracts consist of provisions for unearned premiums and outstanding claims. In the life insurance business, various methods are applied in calculating liabilities which involve assumptions on matters such as mortality, morbidity, the yield level of investments, future operating expenses and the settlement of claims.
The interest rate used in discounting liabilities is, at most, the maximum rate accepted by the authorities in each country. The guaranteed interest used in the direct insurance premium basis varies on the basis of the starting date of the insurance from zero to 4.5 per cent. The interest rate used in discounting liabilities is the same or lower than that used in premium calculation. Most of the liabilities of the accrued benefits of pension business with DPF are discounted by an interest rate of 3.5 per cent, also being the highest discount rate used. The highest discount rate used for accrued benefits is 3.5 per cent.
Due to the difference in the discount rate of liabilities and the guaranteed interest of 4.5 per cent, supplementary provisions for guaranteed interest have been added to technical provisions. In the subsidiary, SE Sampo Life Insurance Baltic, the discount rate varies by country between 2.38 – 3.5 per cent and the average guaranteed interest rate between 3.5 – 3.8 per cent.
Mortality assumptions have an essential effect on the amount of liability, particularly in group pension insurance, the liability of which accounts for about 40 per cent of the technical provisions of the Finnish life company. A so-called cohort mortality model is 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.
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 (the ‘IBNR’ provision). The provision for claims outstanding includes claim payments plus all costs of claim settlements.
The Group’s financial statements’ Risk Management section elaborates on the change of technical provisions and their forecast annual maturities.
Liability Adequacy Test A liability adequacy test is applied to all portfolios, company by company, and the need for augmentation is checked, company by company, on the basis of the adequacy of the whole technical provisions. The test includes all the expected contractual cash flows for non-unit-linked liabilities. The expected contractual cash flows include expected premiums, claims, bonuses and expenses. The claims have been estimated including surrenders and other insurance transactions based on historical data.
Mandatum Life aims at giving a total return before charges and taxes on policyholders’ savings in contracts with DPF that is at least the yield of a Finnish government long-term bond. The total return consists of the guaranteed interest rate and bonuses determined annually. Continuity is pursued in the level of bonuses. The aim is to maintain the company’s solvency status on such a level that it neither limits the giving of bonuses to policyholders nor the distribution of profit to shareholders. The principle is explained in detail on the company’s website.
In defined contribution plans, the Group pays fixed contributions to a pension insurance company and has no legal or constructive obligation to pay further contributions. The obligations arising from a defined contribution plan are recognised as an expense in the period that the obligation relates to.
Defined benefit plans are both funded and unfunded. The amounts reported as pension costs during a financial year con-
sist of 1) the actuarially calculated earnings of old-age pensions during the year, calculated straight-line, based on pensionable income at the time of retirement, and 2) calculated effects in the form of interest expense for crediting/appreciating the preceding years’ established pension obligations less 3) revenues from the assets covered by the plan. The calculation of pension costs during the financial year starts at the beginning of the year and is based on assumptions about such factors as salary growth and price inflation throughout the duration of the obligation and on the anticipated/expected return on the plan’s assets and the market interest rate on the obligation during the financial year.
Termination Benefits An obligation based on termination of employment is recognised as a liability when the Group is verifiably committed to terminate the employment of one or more persons before the normal retirement date or to grant benefits payable upon termination as a result of an offer to promote voluntary redundancy. As no economic benefit is expected to flow to the employer from these benefits in the future, they are recognised immediately as an expense. Obligations maturing more than 12 months later than the balance sheet date are discounted. The benefits payable upon termination at Sampo are the monetary and pension packages related to redundancy.
Accounting Policies Requiring Management Judgement and Key Sources of Estimation Uncertainties
Determination of Fair Value 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’.
Applications in 2010 In 2010, the Group will apply the following new or amended standards and interpretations related to the Group’s business, published by the IASB in 2008, if approved by the EU. If not stated otherwise, the following standards or interpretations or their amendments have already been approved by the EU at the balance sheet date.
The revised IFRS 3 Business combinations includes various significant changed regarding the accounting treatment of business combinations. The revised standard allows the entity to measure non-controlling interest, in accordance with the prevailing principle, at its proportionate interest in the acquiree’s net assets or at its fair value. The choice is acquisition-specific and affects the amounts of recognised goodwill and non-controlling interest. Other significant changes in the standard regard acquisition-related costs that should be expensed through p/l, the accounting of step acquisitions, and the treatment of contingent consideration. In accordance with the transition rules, the standard does not need to be applied retrospectively.
The revised IAS 27 Consolidated and Separate Financial Statements requires that changes in the ownership interest of subsidiary are accounted for as equity transactions, if the control of a subsidiary is not lost. On loss of control, any retained interest will be measured at fair value through p/l. The same accounting method applies also in investments in associates (IAS 28).
Furthermore, after the revision, losses incurred by the subsidiary may be allocated to the non-controlling interest, even if the losses exceed their equity investment in the subsidiary.
IAS 39 Financial Instruments: Recognition and Measurement clarifies the hedging of one-sided risk of hedged items and inflation, in the case of financial assets or liabilities. The Group estimates that the change will have no significant influence on the Group’s financial statements reporting.
Other comprehensive income for the year Exchange differences 123 Available-for-sale financial assets 2,989 Cash flow hedges -3 Income tax relating to components of other comprehensive income -326 Other comprehensive income for the year, net of tax 2,782
Total comprehensive income attributable to Owners of the parent 3,423 Non-controlling interests 0
Norway, Denmark, the Baltic countries and other countries. Segment information has been produced in accordance with the accounting policies adopted for preparing and presenting the consolidated financial statements.The segment revenue, expense, assets and liabilities, either directly attributable or reasonably allocable, have been allocated to the segments. Inter-segment pricing is based on market prices. The transactions, assets and liabilities between the segments are eliminated in the consolidated financial statements on a line-by-line basis.
Change in liabilities for insurance and investment contracts -14 681 - - 667
Total comprehensive income attributable to Owners of the parent -2,254 Non-controlling interests 0
Equity Share capital 98 Reserves 1,530 Retained earnings 5,889 Other components of equity 96
Liabilities Liabilities for insurance and investment contracts 7,889 4,487 - - 12,375 Liabilities for unit-linked insurance and investment contracts - 1,637 - - 1,637
Geographical Segment Information EURm Finland Sweden Norway Denmark Baltic Other Total
Premiums from insurance contracts Premiums written, direct insurance 3,770 3,967 Premiums written, assumed reinsurance 118 90
Premiums written, gross 3,888 4,057 Reinsurers’ share of premiums written -211 -236
Change in unearned premium provision -28 -12 Reinsurers’ share -5 -2
Premiums from insurance contracts Premiums written, direct insurance 508 487 Premiums written, assumed reinsurance 2 2
Group, total 4,479 4,350 * The change in unearned premiums is presented in note 4 “The change in insurance and investment liabilities”.
Premiums from insurance contracts Premiums from contracts with discretionary participation feature 231 242 Premiums from unit-linked contracts 273 240 Premiums from other contracts 4 5
Net fee income Asset management -13 -13 Fee income 17 23
Other income and expenses comprise rental income, maintenance expenses and depreciation of investment property. All the income and expenses arising from investments are included in Net income from investments. Gains/losses include realised gains/losses on sales, unrealised and realised changes in fair values and exchange differences. Unrealised fair value changes for financial assets available-for-sale are recorded in other comprehensive income and presented in the fair value reserve in equity.
Equity securities Gains/losses -19 3 Impairment losses -1 -1 Dividend income 81 133
Change in provision for claims outstanding (incurred and reported losses) 703 -36 667 685 -41 644 Change in provision for claims outstanding (incurred but not reported losses, IBNR) 513 -31 482 547 -37 510
Total change in provision for claims outstanding -103 18 -85 -127 -5 -132
Insurance contracts Life insurance Contracts with discretionary participation feature (DPF) -76 -135 -2 -1 -78 -136
Investment contracts Capital redemption policies Contracts with discretionary participation feature (DPF) -27 -38 0 0 -27 -38
Insurance contracts Life insurance Surrender benefits -15 -23 Death benefits -24 -25 Maturity benefits -32 -82 Loss adjustment expenses 0 0
Pension insurance Pension payments -291 -269 Surrender benefits -9 -10 Death benefits -7 -4 Loss adjustment expenses 0 0
Pension insurance, unit-linked Pension payments -1 -1 Surrender benefits -3 -3 Death benefits -1 -1
Investment contracts Capital redemption policy, with-profit Surrender benefits -1 -13 Loss adjustment expenses -26 -25
Investment contracts Capital redemption policy, unit-linked Surrender benefits -25 -5 Loss adjustment expenses -2 -7
Insurance contracts Life-insurance Contracts with discretionary participation feature (DPF) 19 114 Other contracts -1 -1 Unit-linked contracts -138 301
Pension insurance Contracts with discretionary participation feature (DPF) 96 88 Other contracts 0 0 Unit-linked contracts -285 171
Investment contracts Capital redemption policy Contracts with discretionary participation feature (DPF) 6 42 Unit-linked contracts -299 -36
Change in liabilities for insurance and investment contracts in total, net -600 681
Staff costs Wages and salaries -23 -18 Cash-settled share-based payments -1 0 Pension costs – defined contribution plans -3 -3 Other social security costs -2 -1
IT costs -11 -12 Other staff costs -1 -1 Marketing expenses -4 -4 Depreciation and amortisation -3 -3 Rental expenses -3 -3 Direct insurance comissions -4 -9 Comissions of reinsurance assumed -2 -1 Commissions on reinsurance ceded 1 1
IT costs -1 -1 Other staff costs 0 0 Marketing expenses -1 -1 Depreciation and amortisation 0 -1 Rental expenses -3 -3
Technical result 488 548 Net investment income 423 299 Allocated investment return transferred to the technical account -261 -293 Other income and expense -6 -5
Claims-adjustment expenses (Claims paid) -239 -242 Acquisition expenses (Operating expenses) -432 -434 Joint administrative expenses for insurance business (Operating expenses) -239 -259 Administrative expenses pertaining to other technical operations (Operating expenses) -22 -22 Asset management costs (Investment expenses) -7 -12
IFRS Financial Statements: Other Notes 117 8 Performance Analysis per Class of P&C Insurance
Earnings per share Profit or loss attributable to the equity holders of the parent company 641 675 Weighted average number of shares outstanding during the period 560 569 Earnings per share (EUR per share) 1.14 1.18
Financial assets designated as at fair value through p/l 2,579 25 377 - 1
FINANCIAL LIABILITIES Financial liabilities at fair value through p/l Derivative financial instruments 127 -
IFRS Financial Statements: Other Notes 119 11 Property, Plant and Equipment
Holding Land and Land and EURm buildings Equipment Total buildings Equipment Total At 1 Jan.
Impairment losses 0 0 Reversal of impairment losses 0 10 Exchange differences 0 1
Property rented out under operating lease Non-cancellable minimum rental not later than one year 5 8 later than one year and not later than five years 7 6 later than five years 7 5
Expenses arising from investment property direct operating expenses arising from investment property generating rental income during the period -1 0 direct operating expenses arising from investment property not generating rental income during the period 0 1
Goodwill is tested for impairment in accordance with IAS 36 Impairment of assets. No impairment losses have been recognised based on these tests. For the purpose of testing goodwill for impairment, Sampo determines the recoverable amount of its cash-generating units, to which goodwill has been allocated, on the basis of value in use. Sampo has defined these cash-generating units as If Group and Mandatum Life. The recoverable amounts for If have been determined by using a discounted cash flow model. The model is based on Sampo’s management’s best estimates of both historical evidence and economic conditions such as volumes, margins, income and cost development. The value in use model for Mandatum Life has been fundamentally based on the embedded value model where the cash flow estimates for existing policies are based on budgets approved by the management and on historical evidence in terms of policy surrendering, death and accident frequencies etc. The derived cash flows for If were discounted at the pre-tax rates of 10.8 per cent. For Mandatum Life, the weighted average cost of capital of 11.8 per cent has been used for the discounting.
At 31 Dec. 2009, the carrying amount of investments in associates included goodwill EURm 866 (-) from the Nordea acquisition. The share of loss/profit does not include share of Nordea’s profit, as it was consolidated as an associate at 31 Dec. 2009.
Associates that have been accounted for by the equity method at 31 Dec. 2009 EURm Name
Associates not accounted for by the equity method at 31 Dec. 2009** EURm Name
Associates not accounted for by the equity method at 31 Dec. 2008** EURm Name
Sampo´s share (20.05 per cent) of Nordea´s balance sheet 31 December 2009 EURm
Acquired net assets 4,479 Share of Nordea’s goodwill included in the balance sheet -490
Goodwill relating to the acquisition 866 * Total net amortisation effect (10 years) 243 Annual amortisation 24
Group’s financial assets comprise investments in derivatives, financial assets designated as at fair value through p/l, held-to-maturity investments, loans and receivables, available-for-sale financial assets and investments in subsidiaries. The Holding segment includes also investments in subsidiaries.
The Group uses derivative instruments for trading and for hedging purposes. The derivatives used are foreign exchange, interest rate and equity derivatives. In P&C insurance business, fair value hedging has been applied during the financial year. In Life insurance, both fair value and cash flow hedging have been applied.
Interest rate options, bought and sold 106 0 0 - - -
Total derivatives held for trading 4,215 84 88 5,055 362 251
Derivative financial instruments 12 Loans and receivables 1 1 Financial assets available-for-sale 172 2,890 Investments in subsidiaries 2,370 2,370
Total derivatives held for trading 2,272 54 22 1,647 74 4
Total derivatives held for hedging 591 12 10 1,055 35 0
Fair value hedges Fair value hedging is used to hedge a proportion of foreign exchange risk in available-for-sale financial assets. The aim is to eliminate the risk of fluctuations in the fair values of the hedged items as a result of changes in foreign exchange rates. The interest elements of forward contracts have been excluded from hedging relationships.
Net losses from exchange derivatives designated as fair value hedges amounted to EURm 9. Net gains from hedged risks in fair value hedges of available for sale financial assets amounted to EURm 9.
At 31 Dec. 2009 the total amount of gains recognised in equity from the changes in the fair values of hedging instruments was EURm 12 (15). These gains are recognised in the income statement at the time when the hedged items affect profit or loss. The table below represents the periods when the cash flows are expected to occur and when they are expected to affect profit or loss.
Financial assets designated as at fair value through p/l Debt securities Issued by public bodies 9 12
Certificates of deposit issued by banks 21 14 Other debt securities 15 15
Total financial assets designated as at fair value through p/l 50 41
Financial assets available-for-sale Debt securities Issued by public bodies 34 105
Financial assets available-for-sale for life insurance include impairment losses EURm 183 (43).
Financial assets available-for-sale for Holding business include impairment losses EURm 2 (3).
Fair Carrying Fair Carrying EURm value amount value amount Financial assets, group
The fair value of the derivative instruments is assessed using quoted market prices in active markets, discounting method or option pricing models. The fair value of loans and other financial instruments which have no quoted price in active markets is based on discounted cash flows, using quoted market rates. The market’s yield curve is adjusted by other components of the instrument, e.g. by credit risk. The fair value for short-term non-interest-bearing receivables and payables is their carrying amount. Disclosed fair values are "clean" fair values, i.e. less interest accruals.
IFRS Financial Statements: Other Notes 133 17 Determination and Hierarchy of Fair Values A large majority of Sampo Group’s financial assets are valued at fair value. The valuation is based on either published price quotations or valuation techniques based on market observable inputs, where available. For a limited amount of assets the value needs to be determined using other techniques.
On level 1, the measurement of the instrument is based on quoted prices in active markets for identical assets or liabilities. On level 2, inputs for the measurement of the instrument include also other than quoted prices observable for the asset or liability, either directly or indirectly by using valuation techniques. In level 3, the measurement is based on other inputs rather than observable market data.
Total gains or losses included in profir or loss for the financial year 4 -32 -29 Total gains or losses included in profit and loss for assets held at the end of the financial year -1 -33 -34 18 Movements in Level 3 Financial Instruments Measured at Fair Value During the Financial Year
Total financial assests measured at fair value 559 -30 4 160 -100 147 740 -34
IFRS Financial Statements: Other Notes 135 20 Investments Related to Unit-linked Insurance Contracts
Certificates of deposit issued by banks 125 107 Other debt securities 214 13
Total financial assets designated at fair value through p/l 70 38
In P&C insurance, EURm 1 of deferred tax asset has not been recognised on unused tax losses and temporary differences.
Recognised in comprehensive income statement Recognised in equity Exchange differences 31.12.
Deferred tax liabilities Depreciation differences and untaxed reserves 359 6 1 -32 334
Tax calculated at parent company’s tax rate -214 -226 Different tax rates on overseas earnings 1 -5 Income not subject to tax 29 140 Expenses not allowable for tax purposes -4 -8 Consolidation procedures and eliminations 0 -118
Tax losses for which no deferred tax asset has been recognised -1 -3
Changes in tax rates 0 6 Tax from previous years 5 19 23 Components of Other Comprehensive Income
Gains/losses arising during the year 2,918 -3,116 Reclassification adjustments 71 87
Available-for-sale financial assets 2,989 -327 2,662 -3,029 337 -2,692 25 Other Assets
Net change in the period 13 10 Exchange differences 10 -14
Item Other comprise e.g. receivables from the employees’ group life insurance pool, pensions paid in advance and receivables from co-operations companies.
IFRS Financial Statements: Other Notes 139 27 Liabilities from Insurance and Investment Contracts
Provision for unearned premiums 1,668 1,521 Provision for claims outstanding 6,915 6,367
Reinsurers’ share Provision for unearned premiums 49 54 Provision for claims outstanding 428 377
Incurred and reported losses 268 221 Incurred but not reported losses (IBNR) 160 156
Five years later 5,221 2,259 2,219 Six years later 5,220 2,247 Seven years later
At the close of the claims year 4,157 2,301 2,293 2,372 2,420 2,498 2,613 2,621
Five years later 4,605 2,144 2,156 Six years later 4,601 2,132 Seven years later 4,633
Current estimate of total claims costs 4,633 2,132 2,156 2,214 2,373 2,461 2,581 2,621
Provision for unearned premiums 2,513 2,629 Provision for claims outstanding 1,844 1,777
Liabilities for contracts without discretionary participation feature (DPF) Provision for unearned premiums 13 13 Provision for claims outstanding 0 0
Assumed reinsurance Provision for unearned premiums 1 2 Provision for claims outstanding 2 2
Insurance contracts total Provision for unearned premiums 2,528 2,644 Provision for claims outstanding 1,846 1,779
Unit-linked insurance contracts 1,961 1,538 Unit-linked investment contracts 398 99 29 Financial Liabilities
Preferred capital note, 2001 216 215 Preferred capital note, 2002 70 70 Preferred capital note, 2005 149 149
If P&C Insurance issued in June 2005 EURm 150 preferred capital note. The loan is perpetual and pays fixed interest rate for the first ten years. The loan is listed on the Luxembourg Exchange.
Present value of estimated pension obligation 424 390 406 405 359 302 Fair value of plan assets 272 220 255 228 203 178
Net cumulative unrecognised actuarial gains/losses -67 -94 -54 -90 -75 -39
Net pension obligation recognised in the balance sheet 85 76 98 87 81 85
IAS 19 Employee benefits is applied in the accounting for the defined benefit plans from the beginning of the financial year 2005. Pension obligations, and the pension cost accrued during the fiscal period, are calculated using actuarial methods. Earned pension rights are calculated on a straight-line basis during the employment period. The calculation of pension obligations is based on anticipated future pension payments and includes assumptions regarding mortality, employee turnover and salary growth. The nominally calculated liability is discounted to present value using an interest rate based on the current market rate and adjusted to take into account the duration of the company’s pension obligations. After deducting plan assets, a net asset or liability is entered in the balance sheet. The net obligation reported in the closing balance pertained to defined-benefit pension plans for employees in Sweden and Norway. The pension benefits arising in the other countries covered by the Group’s operations have been classified as defined contribution plans.
The expected rate of return on the plan assets has been calculated based on the following division of investment assets:
Present value of estimated pension obligation 367 56 424 337 53 390 Fair value of plan assets 272 272 220 - 220
Losses or gains on curtailments and settlements 1 1 2 4 1 7 Release of obligation by payment - -2 - - Cost /return related to past service - - 4 -3 Exchange differences on foreign plans 32 -79 5 -6 5 3
Liabilities arising out of direct insurance operations 2 5 Liabilities arising out of reinsurance operations 5 5 Settlement liabilities 6 183 Other liabilities 103 26
Commitments for non-cancellable operating leases Minimum lease payments not later than one year 32 32 later than one year and not later than five years 82 89 later than five years 106 90
Lease and sublease payments recognised as an expense in the period minimum lease payments -34 -39 sublease payments 0 0
If P&C Holding Ltd and If P&C Insurance Ltd have separately entered into contracts with Försäkringsaktiebolaget Skandia (publ.) and Tryg-Baltica Forsikrings AS whereby Skandia and Tryg-Baltica will be indemnified against any claims attributable to guarantees issued by Försäkringsaktiebolaget Skandia (publ.) and Vesta Forsikring AS, on behalf of Skandia Marine Insurance Company (U.K.) Ltd. (now Marlon Insurance Company Ltd.) in favor of the Institute of London Underwriters. Marlon Insurance Company Ltd. was disposed during 2007, and the purchaser issued a guarantee in favour of If for the full amount that If may be required to pay under these guarantees.
If P&C Holding Ltd has issued a guarantee to the benefit of Svenska Handelsbanken Ab (publ) whereby If Holdings guarantees the commitments incurred by the If P&C Insurance Ltd deriving from short term credits up to an amount of EURm 49 and for commitments deriving from derivates transaction and - on behalf of - If P&C Insurance Ltd, If P&C Insurance Company Ltd and Capital Assurance Company for those companies commitments relating to Letters of Credits issued on behalf of their insurance operations. Capital Assurance Company Inc was sold during 2008, and the purchaser issued a guarantee in favor of If for the amount that If may be required to pay under the standby letters of credit pertaining to Capital Assurance Company Inc.
If P&C Insurance Ltd has according to a shareholders’ agreement between the shareholders in Hemfosa Fastigheter AB committed to up until 30 June 2014 supply the company with a subordinated loan (shareholders’ loan) up to a maximum amount of EURm 28.
Commitments for non-cancellable operating leases Minimum lease payments not later than one year 2 2 later than one year and not later than five years 7 7 later than five years 1 3
Total of sublease payments expected to be received under noncancellable operating sub-leases at 31 Dec. 0 0
The Group had at the end of 2009 premises a total of 198,727 m2 (180,872) taken as a lessee. The contracts have been made mainly for 3 to 10 years.
Equity There has been no change in the company’s share capital of EURm 98 or in the number of shares of 561,372,390 during the presented financial years. The company held 90,000 treasury shares at the end of the financial year.
Share premium reserve The reserve included investments of equity nature and the issue price of shares to an extent it was not recorded in share capital by an express decision. During the financial year, EURm 1,161 was transferred to the reserve for invested unrestricted equity from the share premium reserve.
The Annual General Meeting granted the Board of Directors authorisation to buy back Sampo’s shares, valid until the close of the next AGM, nevertheless not more than 18 months after the AGM’s decision. The maximum amount of A-shares that 50,000,000 can be bought back is shares in either one or various set. Shares may be acquired otherwise than inproportion to the shareholders’ holdings through public trading at a market price prevailing at the time of purchase.
In addition, Sampo plc’s Board of Directors decided on 11 Dec. 2009 to repurchase at maximum 5,000,000 treasury shares (approximately 0.9% of the total number of shares). Repurchases shall decrease the distributable capital and reserves.
At the balance sheet date, Sampo plc held 90,000 treasury shares. The other Group companies held no shares in the parent company.
Short-term employee benefits 8 6 Post employment benefits 3 1 Other long-term benefits 2 4
Related party loans The key management personnel does not have loans from the Group companies.
The Group’s receivables from Nordea comprise mainly long-term investments in bonds and deposits. In addition, the Group has several on-going derivative contracs related ot the Groups risk management of investments and liabilities.
End of performance period II 35% Q1 – 2009 Q3 – 2009 Q1 – 2010 Q2 – 2012 End of performance period III 35% Q3 – 2009 Q2 – 2010 Q4 – 2010 Q2 – 2013
Dividend-adjusted starting price at 31 Dec. 2009 16.97 15.26 17.64 16.49
Total debt 6 Total cost for the financial period, meur (incl. social costs) 5 * Grant dates vary ** Trade-weighted average for ten trading days from the approval of terms 36 Incentive Schemes
Performance conditions for periods Increase of dividend adjusted share price Insurance margin
There was no cost from the incentive scheme during the reporting period 2009.
There are a number of legal proceedings against the Group companies outstanding on 31 Dec. 2009, arising in the ordinary course of business. No provisions have been made as professional advice indicates that it is unlikely that any significant loss will arise.
P&C insurance If P&C Insurance Holding Ltd 100 1,886 If P&C Insurance Ltd 100 1,178 If P&C Insurance Company Ltd 100 442 If P&C Insurance AS 100 43 CJSC If Insurance 100 9 SOAO Region 100 40 If Säkerhet AB 100 0 MSK Vesta 100 0
Life insurance Mandatum Life Insurance Company Ltd 100 484 SE Sampo Life Insurance Baltic 100 11 If Livförsäkring Ab 100 7 OOO Region Life 100 2
IFRS Financial Statements: Other Notes 155 40 Investments in Shares and Participations Other than Subsidiaries and Associates
Equinox Offshore Accommodation Ltd Singapore 2,610,000 4.97% 2 CTT Systems AB Sweden 511,200 4.71% 1 Fingrid Oyj B Finland 25 0.75% 1
Aktia Säästöpankki Oyj A Finland 34,125 0.05% 0 Aktia Säästöpankki Oyj R Finland 17,062 0.03% 0 Transneft (pref) Russia 150 0.01% 0 Total listed companies 733
IShares DJ Euro Stoxx 50 ETF Ireland 672,200 20 Gartmore Latin America A Luxembourg 1,521,261 24
Danske Invest North America Enhanced Index Kasvu USD Finland 26,369,493 26 Danske Invest Japani Osake Kasvu JPY Finland 315,965,078 28 Danske Invest US Small Cap Value Kasvu USD Finland 26,386,762 32 IShares S&P 500 Index Fund ETF U.S. 595,000 46 Danske Invest Europe Enhanced Index Kasvu Finland 37,941,655 53 Danske Invest Emerging Asia Kasvu Finland 2,210,726 59 Total unit trusts 458
Life insurance Listed companies EURm Country No. of shares Holding %
ANL Kiinteistöt I Ky. Finland 20 Amanda III Eastern Private Equity Ky Finland 7 CapMan Real Estate I Ky Finland 13 Mandatum Pääomarahasto I Ky Finland 10
BenCo Insurance Holding B.V. Netherlands 389,329 10.00 7 EQT IV ISS Co-investment Limited Partnership Great Britain 872,610 12.52 9
APS Japan Growth Fund Ireland 183,278 10 Aberdeen Global Asia Pacific Equity Fund Great Britain 1,053,348 40 Brevan Howard Fund B U.S. 817,500 6 Comac Global Macro Fund U.S. 1,000,000 7 Comgest Panda Luxembourg 19,776 32 Danske Invest High Dividend A Luxembourg 1,533,834 26 GSAMI China Funds X EUR Accumulation Class Shares U.S. 700,000 8 Gartmore Latin America A Great Britain 2,475,895 40 Goldman Sachs Asset Management Liquidity Partners 2007 U.S. 512,415 21 IShares S&P 500 Index Fund ETF U.S. 1,401,690 109 Lloyd George Asia Small Companies Fund Hong Kong 233,008 16 New Russian Generation Limited Great Britain 6,360,905 8 Prosperity Cub Fund Great Britain 237,181 46 Prosperity Russia Domestic Fund Great Britain 38,836,000 14 Richelieu France France 32,410 10 The Lyxor DJ Eurostoxx 50 ETF France 3,424,853 103 The Lyxor ETF DJ Stoxx 600 Insurance France 955,257 14 The Lyxor ETF MSCI India France 977,483 10 iShares DJ US Oil Equipment and Services U.S. 455,000 14
The Board of Directors proposes to the Annual General Meeting on 13 April 2010 that a dividend of EUR 1.00 per share, or total EUR 561,282,390, be distributed for 2009. The dividends to be paid will be accounted for in the equity in 2010 as a deduction of retained earnings.
Other investment income and expense -7 3 Other interest income 39 7 Interest and other financial expense
Investments Shares in Group companies 8 2,370 2,370 Receivables from Group companies 9 122 122 Shares in participating undertakings 10 5,168 Other shares and participations 11 41 1,710
Equity 15 Share capital 98 98 Premium reserve - 1,160 Invested unrestricted equity -3 -1,759 Fair value reserve 1,527 Other reserves
Change (+/-) in liabilities of operating activities Financial liabilities 7 0 Other liabilities 2 -2 Paid interests -62 -37 Paid taxes -5 -9
Investing activities Investments in group and associated undertakings -1,759 Proceeds from the sale of group and associated undertakings - 1 Other investments - -522 Net investment in equipment and intangible assets 0 0
Financing activities Acquisition of treasury shares -1 -167 Dividends paid -444 -678 Issue of debt securities 2,002 Repayments of debt securities in issue -1,008 -
Cash and cash equivalents at 1 January 35 228 Cash and cash equivalents at 31 December 412 35
Net change in cash and cash equivalents 377 -193 * Investments include both investment property and financial assets.
Additional information to the statement of cash flows: Interest income received 17 83 Interest expense paid 62 37 Dividend income received 569 514
Income from property occupied for own activities 2 2 2 Depreciation and Impairment
Depreciation according to plan Property, plant and equipment 0 0 Intangible assets 0 0 3 Other Operating Expenses
Rental expenses -3 -3 Expense on property occupied for own activities -1 -1 Losses on disposal of property occupied for own actitivies -1
Received dividends in total 569 514 Interest income in total 58 84 Interest expense in total -90 -37 Gains on disposal in total 1 5 Losses on disposal in total -23 0 Exchange result 8 14
Cost at beginning of year 3 2 3 2 Accumulated amortisation at beginning of year -3 -1 -3 -1 of which related to disposals - - - Amortisation according to plan during the financial year 0 0 0 0
Carrying amount at end of year 1 3 3 3 8 Shares in Group Companies
Difference between current cost and carrying amount 0 0 12 Other Investment Receivables
VAT receivable - 34 Trading receivables 16 1 14 Prepayments and Accrued Income
Recognition of undrawn dividends 3 3 Financial assets available-for-sale recognised in equity -1 784 -1,784 recognised in p/l -2 -2
Acquisition of own shares -167 -167 Profit for the year 555 555
Acquisition of own shares -1 -1 Profit for the year 531 531
Deferred tax assets Losses 5 Timing differences 6 4 Fair value reserve 1 1
The basic and suplementary pension insurance of Sampo plc’s staff is handled through insurances in Varma Mutual Insurance Company and in Mandatum Life Insurance Company Limited.
Full-time staff 51 51 Part-time staff 1 1 Temporary staff 1 1 25 Management’s Remuneration and Post-employment Benefits
In 2008, Georg Ehnrooth was a member of the Board of Directors as a chairman and Lydur Gudmundsson as a member. The remuneration for the chairman was 160,000 euro and for the member 80,000 euro.
Pension liability The retirement age of the Managing Director and the Deputy Managing Director is 60 years, when the pension benefit is 60% of the pensionable salary.
Notes on shares held 26 Shares Held as of 31 Dec, 2009 Company name
Opinions based on the decision of the Annual General Meeting We support that the financial statements should be adopted. The proposal by the Board of Directors regarding the use of the profit shown in the balance sheet is in compliance with the Limited Liability Companies Act. We support that the Members of the Board of Directors and the Managing Director should be discharged from liability for the financial period audited by us.
Kari Stadigh on If P&C’s result for 2009 on 11 February 2010.
This was the 23rd quarter in a row with combined ratio below our long-term target of 95 per cent.”
Market Nasdaq OMX Helsinki List OMXH Large Caps Business Sector Financials Listed 01/14/1988 Trading Code SAMAS (OMX) Bloomberg SAMAS FH Reuters SAMAS.HE ISIN code FI0009003305 Number of Shares 560,172,390 Votes/share 1/share
Sampo plc’s Annual General Meeting will be held on Tuesday, 13 April, 2010 at 2 pm (Finnish time), at the Helsinki Fair Centre Congress wing, address Messuaukio 1, Helsinki. The listing of persons who have registered for the meeting will commence at 12.30 pm.
Each shareholder who is registered on the record date for the Annual General Meeting, 30 March, 2010, in the company ’s Shareholder Register kept by Euroclear Finland Ltd has the right to participate in the General Meeting. Shareholders whose shares are registered on their personal Finnish book-entry account are registered in the company’s Shareholder Register.
Päivi Walldén Communications Manager e-mail paivi.wallden@sampo.fi contAct InForMAtIon sHArEHoLDEr sErVIcEsInVEstor rELAtIons