Sampo Life specialises in life and pension insurance, with operations in Finland, Sweden, Norway, Estonia, Latvia and Lithuania. Sampo employs approximately 370 people in its life and pension insurance businesses.
In 2005, If substantially expanded its product portfolio by launching a set of new health insurance policies in all Nordic countries. The Norwegian parliament recently passed legislation that requires companies to complement their employees’ statutory pension cover with unit-linked group pension plans from the beginning of 2006. In our P&C operation we have an efficient distribution channel for this product, and If will therefore start offering Sampo Life’s OTP-pension product to its Norwegian corporate customers. To support these products and services, Sampo Life has established a Swedish subsidiary, If Livförsäkring, and is considering a similar arrangement in Norway.
In both Finland and Estonia the end of the year was marked by a public debate on the risks associated with the fast growth in housing loans. It was suggested that, in granting new mortgages with longer maturities and lower margins, banks may have forgotten the lessons of the banking crisis of more than a decade ago. To me it seems that some of the critics may themselves have chosen to disregard what I believe were the real reasons behind the crisis; failed monetary policies and unsecured corporate lending run out of control, not housing loans. Historically low debt service costs have now made owning your own home possible to ever increasing numbers of Finns – and without government intervention. The indebtedness of Finnish households still remains well below the Eurozone average. Despite strong growth and competition, Sampo Bank does not compromise on its lending criteria. We plan on sustaining growth in the coming years, but without compromising profitability or credit quality.
A good year for investments A substantial part of last year’s result was due to good investment income. Sampo Group’s investment assets of EUR 16 billion yielded EUR 1.3 billion (about 8%). EUR 1.1 billion of these returns were recognised in the consolidated income statement, while the rest, EUR 0.2 billion, were added to the fair value reserve. The equity weighting in our investment portfolio was about 16 per cent at the end of the year.
I wish to thank our customers and shareholders, and particularly our staff, for the past year. It is your determination and commitment that have made our year an outstanding one. Your role will continue to be crucial in building Sampo’s future. I trust that you all – in whichever of our businesses you are employed – will join me in taking Sampo further forward.
P&C insurance In the P&C insurance business, If ’s strategy is to benefit from the economies of scale offered by its Nordic organisation. These occur mainly in back office functions, IT and standardised work processes. With an efficient organisation If can achieve underwriting excellence, i.e. optimal pricing and risk selection. By introducing standardised work processes throughout the Nordic area, If can maintain a lower cost level than its competitors.
Sampo’s growth on the long-term savings market stems from the desire and ability of customers to save more actively than ever before. This trend is supported by the ageing of the population, the public discussion on the sufficiency of pension cover and currently modest proportion of Finland’s household savings that are invested in fund and life insurance products. Sampo aims to achieve a rate of growth on the banking and long-term savings markets that is higher than the average growth of these markets.
Investment activity Customers and shareholders have entrusted their assets to Sampo for investment in many ways. Sampo exercises prudence in its investments, but is nevertheless return-oriented. Prudence means that no unconscious risks are taken which, if realised, might significantly affect the returns of either shareholders or customers. Return-orientation means that, in the long term, the goal is to provide both shareholders and customers with a better than risk-free return and a better return than the market average.
Sampo Group’s strategy is to be the most innovative, cost-efficient and customer-oriented bank and insurance company in the Nordic and Baltic countries. Sampo Group’s core business areas are P&C insurance (marketed under the If brand in the Nordic and Baltic countries), banking and long-term savings (marketed under the Sampo Bank and Sampo Life brands in Finland, Estonia, Lithuania and Latvia), and the efficient investment needed to support them. In Finland, Sampo Group also operates under brand names such as Arvo Asset Managemnet, Volvia, Mandatum and Realty World (Kiinteistömaailma ).
Banking and Long-term savings in Finland • Growth market in long-term savings • Stable revenues
Pressreleseases 20 January, 2005 Local management further empowered. Sampo Bank transfers housing loan decision-making to local branches 25 January, 2005 Sampo Group Executive Committee is expanded
9 september, 2005 The Banker magazine awards Sampo Bank as Finland’s Bank of the Year 1� september, 2005 Sampo Housing Loan Bank plc issues first Nordic jumbo covered bond 21 september, 2005 Arvo Asset Management starts as an investment services firm 10 october, 2005 Sampo Group transfers investment services firms to Sampo Bank (Concluded on 31 December). The organisation and executive titles are streamlined 7 November, 2005 Petri Ekman is appointed Deputy CEO of If P&C Insurance Company 9 November, 2005 Sampo sells Mandatum Private Equity Funds Ltd 15 November, 2005 If P&C Insurance Ltd’s Baltic subsidiaries are transferred to If Skadeförsäkring Holding Ab 21 December, 2005 Sampo Life to concentrate all its Baltic subsidiaries in one legal company 22 December, 2005 Ricard Wennerklint is appointed Managing Director of If Skadeförsäkring AB
In 2005, Sampo Group continued to streamline its structure. At the end of 2005, Sampo Group’s businesses were divided into three legal entities, namely If P&C Insurance Holding AB (publ), Sampo Bank plc and Sampo Life Insurance Company Limited.
In June, Sampo agreed to sell its subsidiaries operating in Poland – the Sampo PTE S.A. pension company and the Sampo T.U. Zycie S.A. life insurance company – to Nordea Life Holding A/S. Necessary official permits to conclude the transaction received in December.
In October, Sampo’s Board of Directors decided to transfer the investment services firms that were previously directly under Sampo plc’s ownership to the ownership of Sampo Bank plc. Simultaneously, Mika Ihamuotila, who already had overall responsibility for banking and long-term savings in Sampo, was appointed Managing Director of Sampo Bank. Ilkka Hallavo was appointed as his Deputy.
In November, the ownership of AS If Eesti Kindlustus (Estonia), AAS If Latvia and UAB If Draudimas (Lithuania), subsidiaries of If P&C Insurance Company Limited, was transferred to If P&C Insurance Holding AB (publ).
Paavo Aunola, Managing Director, Realty World sampo Life subsidiary is licensed in Sweden: Life insurance policies are rapidly gaining popularity around the Nordic countries. This solution allows Sampo Life and If to jointly offer the most comprehensive personal insurance package on the market.”
sampo Bank issues bank card with picture of Nightwish rock group: Picture cards are becoming increasingly popular, and we are expanding our range of card graphics by introducing one that reflects the personality of its user.”
Ford and if signed a freme agreement on car insurance for specific car makes: This is the largest agreement made by If this year and is an indication that customers have noticed the benefits of If’s joint Nordic solutions.”
sampo Bank recommends fixed-interest housing loans: In the current interest rate regime we’re recommending long-term fixed rates to our customers, because they represent a safe and sure solution.”
Mika Ihamuotila, President and CEO of Sampo Bank plc sampo Life is licensed in Norway: The new legislation on statutory group pension insurance that will enter into force in Norway at the beginning of 2006 presents Sampo with a great opportunity to combine If’s distribution muscle with Sampo Life’s long expertise in group pension insurance. This solution will allow If to offer its corporate customers the most comprehensive service package on the market.”
Petri Niemisvirta, Managing Director of Sampo Life Insurance Company Limited j u n E S E P t E m b E R
Sampo Mutual Insurance Corporation was founded in 1909 by industrialists from Turku. In the early 1970s, the P&C insurers, Sampo and Tarmo, merged, and the new company was called Sampo-Tarmo. Sampo was converted into a limited liability company in 1987, and its shares were listed on the Helsinki Stock Exchange.
The merger of Sampo and Leonia into a new financial services group resulted from a decision made by the owners of Sampo Insurance Company and the Finnish government at the end of 2000. Mandatum, established in August 1998 as the result of a merger between Interbank Ltd and Mandatum & Co Ltd, was merged into the Sampo Group in 2001.
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, and is responsible for the proper management of the Group’s operations. The Board also decides, within the limits of the company’s field of activities, on exceptional and far-reaching matters with respect to the scope and nature of Sampo Group.
Election and terms of office of Board members According to Sampo’s Articles of Association, the company’s Board of Directors comprises no fewer than three and no more than ten members elected by shareholders at the Annual General Meeting. The Annual General Meeting of 2005 decided to elect eight members to the Board until the close of the Annual General Meeting to be held in 2006. The term of office of the Board members is one year. The members of the Board annually elect a Chairman and Vice Chairman from among their members, at their first meeting following the Annual General Meeting.
The composition of the Board of Directors of Sampo plc is as follows: Olli-Pekka Kallasvuo, Chairman Jyrki Juusela, Vice Chairman Tom Berglund, Member Anne Brunila, Member Georg Ehrnrooth, Member Christoffer Taxell, Member Matti Vuoria, Member Björn Wahlroos, Member
The Board may appoint committees, executive committees and other permanent or fixed-term bodies for duties assigned by the Board. The Board confirms the Charter of Sampo’s committees and Executive Committee, and also the guidelines and authorisations given to other bodies appointed by the Board.
The Board has a Nomination and Compensation Committee, an Audit Committee, and a Risk Control Committee, whose members it appoints from its midst in accordance with the charters of the respective committees. In addition the Board has appointed an Asset and Liability Committee (to monitor the Group’s balance sheet risks), a Credit Committee (to monitor credit risks) and an Investment Committee (to monitor investment risks). The Board has also appointed the members of these committees.
Sampo Group’s Executive Committee supports the CEO in the preparation of strategic issues relating to Sampo Group, in the handling of operating matters that are significant or involve questions of principle, and in ensuring a good internal flow of information.
The composition of the Group’s Executive Committee is as follows: Björn Wahlroos, Group CEO Kari Stadigh, Group Deputy CEO Ilona Ervasti-Vaintola, Group Chief Counsel, Principal Attorney Ilkka Hallavo, Executive Vice President, Head of Corporate Banking, Deputy Managing Director of Sampo Bank plc Line Hestvik, Head of Private business area, If P&C Mika Ihamuotila, President and CEO of Sampo Bank plc Peter Johansson, Group CFO Patrick Lapveteläinen, Group CIO Torbjörn Magnusson, CEO of If P&C Insurance Holding Ltd (publ) Ivar Martinsen, Head of Commercial business area, If P&C Petri Niemisvirta, Managing Director of Sampo Life Insurance Company Limited Maarit Näkyvä, Executive Vice President, Head of Retail and Private Banking, Sampo Bank plc Ricard Wennerklint, CFO, If P&C
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, on the appointment of a Sampo Group´s CEO and the members 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’s CEO and Deputy CEO, as well as on the appointment, employment conditions and other salaries of Sampo Group’s Head of Internal Audit, 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
Ceo group mC Committee order of election shareholders annual general meeting
Chairman of the Board acts as the Chairman of the Risk Control Committee. Also participating in the meetings of the Committee are the CEO, the respective chairmen of the Group’s Asset and Liability Committee, Investment Committee and Credit Committee, the member of the Group’s Executive Committee responsible for risk control, the Head of Risk Control and any other people elected at the discretion of the Board. The Risk Control Committee comprises Olli-Pekka Kallasvuo (Chairman), Tom Berglund, Anne Brunila and Matti Vuoria. Also participating in the meetings are Björn Wahlroos, Kari Stadigh, Ilkka Hallavo, Mika Ihamuotila, Peter Johansson, Patrick Lapveteläinen and Petri Viertiö. The Risk Control Committee met four times in 2005.
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.
The Chairman, the Vice Chairman and the other members of the Board will be paid the following fees monthly until the close of the Annual General Meeting in 2006: the Chairman EUR 4,800, the Vice Chairman EUR 3,850, and the other members of the Board EUR 2,900. In addition, all members of the Board will be paid EUR 480 for each meeting of the full Board or one of its committees. Members of the Board will be paid a daily travel allowance corresponding to the maximum, valid, tax-exempt travel allowance permitted by the tax authorities and will be reimbursed for accommodation and travel expenses. Board members employed by the company do not receive separate compensation for Board work.
Members of the Board of Directors were paid a total of EUR 298 810 for their work on the Board and its committees in 2005. The members of the Board did not receive any other benefits and did not participate in Sampo’s option programmes.
Compensation of the Managing Director and other Executives The Board of Directors decides on the terms of employment and compensation of the CEO and other executives on Sampo Group’s Executive Committee on the basis of a proposal made by the Nomination and Compensation Committee. However, the Nomination and Compensation Committee can decide, upon authorisation by the Board of Directors, on the salaries of the members of the Group Executive Committee, excluding the Group CEO and Deputy CEO.
Principles of compensation system In addition to receiving monthly salaries, executives who are members of the Group’s Executive Committee are participants in the Group’s profit bonus system which is decided upon separately each year. The criteria used in determining the profit bonus are the Group’s result, the business area’s result and the individual performance of the person in question. The maximum profit bonus that can be paid for 2005 to executives who are members of the Executive Committee is an amount corresponding to nine-months’ salary.
The Group’s Chief Executive Officer will be paid long-term compensation based on his employment contract, the payment of which the Board will decide separately in compliance, as applicable, with the principles of the long-term in-
The total fees paid to the auditor for services rendered and invoiced were EUR 1,908,391. In addition, Ernst & Young Oy were paid fees for non-audit services rendered and invoiced totalling EUR 368,662.
The Audit Committee of Sampo’s Board annually approves the Internal Audit’s operating plan. The Internal Audit reports on the audits performed to the CEO, the Audit Committee and the Group Executive Committee. Companyspecific audit observations are reported to the respective companies’ executive bodies and management.
Insider Administration Sampo’s Board of Directors has approved Sampo Group’s Guidelines for Insiders. These comply with the Guidelines for Insiders issued by the Helsinki Stock Exchange, the Guidelines for Trading of the Finnish Association of Securities Dealers and the Finnish Association of Mutual Funds, the Insider Guidelines for Investment Activities issued by the Federation of Finnish Insurance Companies and the Standards of the Financial Supervision Authority. Sampo Group’s Guidelines for Insiders are stricter than the abovementioned norms on matters that concern the Group Executive Committee, other corporate executives and other specifically -named persons, as these persons must ask for separate written permission in advance for each share-related securities transaction they make.
group Treasury Martti Porkka rating Knut-Arne Alsaker priority investments investor relations Jarmo Salonen
Communications Hannu Vuola internal audit Pentti Mattila group Deputy Ceo Kari Stadigh
Long-term savings p&C insurance Torbjörn Magnusson retail and private Banking Maarit Näkyvä
President and COO, Nokia Corporation Member of the Board of EMC Corporation He was appointed to the Board of Directors of Sampo plc and became Chairman on 5 April, 2001 He holds 30,000 Sampo plc shares directly or through a controlled company
Chairman of Varma Mutual Pension Insurance Company, Chairman of the Foundation of Technology (until 31 December, 2005) and member of the Boards of the Millennium Price Foundation, Inmet Mining Corporation, the Technology Industries of Finland and the Technology Industries of Finland Centennial Foundation He transferred to the Board of Directors of Sampo plc from the Supervisory Board on 25 May, 2000 He holds 10,905 Sampo plc shares directly or through a controlled company
Tom Berglund, born 1951 Professor, Swedish School of Economics and Business Administration (Helsinki) He was appointed to the Board of Directors of Sampo plc on 25 May, 2000 He holds no Sampo plc shares
Georg Ehrnrooth, born 1940 Chairman of Assa Abloy AB (publ), Vice Chairman of Rautaruukki Corporation, and member of the Boards of Nokia Corporation, Karl Fazer Oy Ab and Sandvik AB (publ) He was appointed to the Board of Directors of Sampo plc on 26 June, 1992 He holds 19,600 Sampo plc shares directly or through a controlled company
Björn Wahlroos, born 1952 Group CEO, Managing Director of Sampo plc Member of the Board of Varma Mutual Pension Insurance Company He was appointed to the Board of Directors of Sampo plc on 5 April, 2001 He holds 11,839,890 Sampo plc shares directly or through a controlled company
The CVs of members of the Board of Directors can be viewed on the Internet at www.sampo. com, see Sampo Group/Corporate Governance.
Björn, Kari, Ilona, Patrick 1� Sampo Group | Sampo Group Review 2005
Kari Stadigh, born 1955 Group Deputy CEO, Chairman of the Boards of If P&C Insurance Holding Ltd (publ) and Sampo Life Insurance Company Limited Chairman of the Boards of Kaleva Mutual Insurance Company, Aspo Plc and Alma Media Corporation He holds 105,328 Sampo plc shares directly or through controlled company
Ilona Ervasti-Vaintola, born 1951 Group Chief Counsel Member of the Boards of OMX Exchanges Ltd, Stockholmsbörsen AB, Fiskars Corporation and the Finnish Literature Society, Chairman of the Legal Committee of the Central Chamber of Commerce of Finland and the Delegation of the Investors’ Compensation Fund, Vice Chairman of the Security Fund of Commercial Banks and Postipankki Ltd and Member of the Delegation of the Deposit Guarantee Fund She holds 301,019 Sampo plc shares directly or through controlled company Options (2000 programme): 30,000
Peter Johansson, born 1957 Group CFO Member of the Boards of Meridea Financial Software Oy and the Deposit Insurance Fund of the Commercial Banks and Postipankki Oy He holds 11,370 Sampo plc shares directly or through controlled company Options (2000 programme): 30,000
Patrick Lapveteläinen, born 1966 Group CIO Member of the Board of Bravida ASA He holds 98,855 Sampo plc shares directly or through controlled company Options (2000 programme): 38,000
The Group staff was divided as follows: banking and investment services (4,201 employees), life insurance (370 employees), P&C insurance (6,592 employees ) and the holding company (567 employees).
Estonia: 8% of total employees Banking and investment services: 500 Life insurance: 37 P&C insurance: 452
Lithuania: 4% of total employees Banking and investment services: 295 Life insurance: 32 P&C insurance: 148
Staff numbers are presented in FTE (fulltime equivalent) figures. In other words, the number of part-time employees has been converted, taking their working hours into account, to correspond with a certain number of full-time employees.
As a listed company, Sampo plc has the responsibility to act in the best interests of its shareholders, in compliance with legislation, and in accordance with sound business practices. Sampo Group’s core businesses – P&C insurance, banking and long-term savings – are all activities that are dependent on building and maintaining the trust of customers.
Corporate responsibility reviews for Sampo Group businesses are contained in the Banking and Long-Term Savings and If P&C reports for 2005.
B shares can be converted into A shares upon the demand of their holder.
At the end of the financial year, Sampo plc held 7,000,000 of its own shares. Other Group companies did not hold any shares in the parent company, but Satura Oy, a wholly owned subsidiary of Sampo plc, held 1,030,250 of the 2000 options.
“Sampo Uudet” share category Because the Sampo A shares subscribed for on the basis of Sampo plc’s warrants or options after 31 December 2004 entitled their holders to dividends only after the dividend distribution decided upon for 2004, a new share category called Sampo Uudet (Sampo New) was listed on the main list of the Helsinki Stock Exchange. The Sampo Uudet share category was combined with the Sampo A share after the dividend distribution in April 2005.
Authorisations granted to the Board and their use The Annual General Meeting of 11 April 2005 granted the Board of Directors authorisation, valid until 11 April 2006, to buy back Sampo shares. The maximum amount of A shares that can be bought back is five per cent of the company’s share capital or of the number of votes carried by all shares. Shares can be bought back either by an offer made to all holders of A shares in proportion to their holdings and on equal terms determined by the Board, or through public trading on the Helsinki Stock Exchange, in which case the shares will not be bought in proportion to the shareholders’ holdings. Shares can only be bought back to be cancelled.
1998 bond with warrants On 22 May, 1998, Sampo issued a bond with warrants valued at approximately EUR 1.1 million. The bond, which did not pay interest, was repaid on 22 May, 2001. All the staff permanently employed by Sampo Group and the Kaleva Mutual Insurance Company were entitled to subscribe, and around 72 per cent of those employed at the time utilised this right. The warrants, whose subscription period ended on 31 May, 2005, could each be exercised to subscribe for five Sampo A shares.
increases and decreases in share capital 2001–2005 share capital subscription Terms of subscription Number after increase/ mode of increase/ period/ or subscriber of new decrease decrease registration or reason for decrease shares eur million *)
Exchange offer consideration 23 February, 2001 Mandatum shareholders 2,362,738 93.44 A shares
Bond with Warrants, 1998, 28 November, 2001 Warrant conversion 38,550 93.45 A shares
Decrease in share capital 11 April, 2003 Cancellation of shares bought back -2,434,400 93.15 (2,434,400 A shares)
Bond with Warrants, 1998, Three conversions Warrant conversion 66,100 93.16 A shares in 2003
Bond with Warrants, 1998, One conversion Warrant conversion 281,250 93.21 A shares in 2004
Bond with Warrants, 1998 Seven conversions Warrant and Option 9,561,200 94.82 and Options 2000, A shares in 2004 conversion
Bond with Warrants, 1998 Six conversions Warrant and Option 7,555,900 96.09 and Options 2000, A shares in 2005 conversion
During the year under review, Sampo received the following notifications of changes in holdings pursuant to Chapter 2, Section 9 of the Securities Markets Act (proportion of voting rights indicated in parentheses): - The Finnish Government’s total holding of Sampo A shares decreased to 14.01 (13.89) per cent on 18 February, 2005. At the same time, the Finnish Government agreed not to sell its remaining Sampo shares during the 90 days that followed the disclosure.
- Varma Mutual Pension Insurance Company’s total holding of Sampo A shares decreased to 14.95 (14.83) per cent on 5 July, 2005.
Annual General Meeting Sampo plc’s Annual General Meeting will be held on Wednesday 5 April, 2006 at 4 p.m., at Kulttuuritalo, address Sturenkatu 4, 00510 Helsinki. The listing of persons who have registered for the meeting will commence at 2.30 p.m.
Shareholders whose shares have not been transferred to the book-entry securities system are also entitled to attend the AGM, provided they were registered in Sampo’s share register before 12 September, 1997.In this case, the shareholder must present at the AGM a share certificate or other proof that ownership of the shares has not been transferred to a bookentry account.
In previous years, dividends have been distributed as follows (figures are split-corrected): *) Board proposal to the AGM
Shareholders who have not transferred their share certificates to the bookentry securities system by the dividend record date will be paid their dividends after the shares have been transferred to the book-entry system.
The Annual Report is published on Sampo’s Internet pages at the address www.sampo.com/annualreport Printed Annual Reports can be ordered at the above Internet address, by mail from Sampo Communications, P.O.Box 1026, FI-00075 SAMPO, FINLAND or by calling +358 010 516 0042.
Kaleva Mutual Insurance Company *) 6,993,855 1.22 2.05 Ilmarinen Mutual Pension Insurance Company 6,120,255 1.07 1.06 The State Pension Fund 3,900,000 0.68 0.68 OP-Delta Fund 3,820,300 0.67 0.66 Mutual Insurance Company Pension-Fennia 2,915,800 0.51 0.51 The Local Government Pension Institution 2,389,446 0.42 0.41
Neste Oil Pension Fund 1,748,940 0.31 0.30 OMX Helsinki 25 Exchange Traded Fund 1,425,248 0.25 0.25 Etera Mutual Pension Insurance Company 1,407,350 0.25 0.24 Sampo Finnish Equity Fund 1,355,375 0.24 0.24
Number of shares shareholders Book-entry securities votes a and B shares Number % Number % Number %
Co nc ep t, gr ap hi c de si gn a nd la yo ut
S am po p lc , r eg is te re d do m ic ile H
Banking Life If P&C Other Sampo and Insurance Insurance Group Investment Services
Sampo Bank provides banking services and services required for managing money affairs and financially securing the future for retail, corporate and institutional customers. About 1,1 million retail customers and almost 100,000 corporate and institutional customers use these banking and long-term savings services. Sampo’s banking and investment services employ about 4,200 people and are available in Finland, Sweden, Estonia, Latvia and Lithuania.
Group profit before taxes Sampo Group staff per country, per cent
Sampo Group’s business areas are banking and investment services, P&C insurance and life insurance. The Group reports according to this segmentation, and the operations of the holding company, Sampo plc, are reported together with the IT services provider Primasoft in the Other segment. Sampo plc owns 100 per cent of its main subsidiaries Sampo Bank plc, If P&C Insurance Holding Ltd (publ.) and Sampo Life Insurance Company Ltd., which in turn own other operating companies.
Sampo Bank operates in Finland and has subsidiaries in all three Baltic countries. It provides, in addition to traditional banking services, long-term savings products and investment services. If P&C Insurance is a pan-Nordic entity and has around 20 per cent of the Nordic P&C insurance market. If is also the market leader in Estonia and has subsidiaries in all Baltic countries. Sampo Life focuses on unit-linked and regular premium policies and is the market leader in corporate life insurance in Finland. It also has fastgrowing life insurance operations in Estonia, Latvia and Lithuania.
Sampo Group’s profit before taxes in 2005 amounted to EUR 1,295 million (948). Earnings per share rose to EUR 1.68 (1.46). Taking into account the change in the fair value reserve, earnings per share were EUR 1.97 (1.58). Sampo Group’s RoE target of 19 per cent was surpassed as the RoE climbed to 28.4 per cent (26.5). Net asset value per share increased to EUR 7.67 (6.16).
In December the first payout from the management’s long-term incentive schemes was made. The payout of the schemes is dependent on Sampo’s financial and share price performance. Payments under the schemes cover the financial years 2005 – 2008. At 31 December 2005 the total provision for management incentive schemes, including social security costs, was EUR 38.1 million and the impact on the year 2005 result was EUR 22 million.
In April 2005, Sampo Life Insurance Company Ltd was granted permission to pursue life insurance business in Sweden. The new company, If Livförsäkring AB, is fully owned by Sampo Life. The new company writes mainly term life insurance. Sampo Life also gained permission to expand its operations to Norway and has established a branch office there in order to offer policies under the OTP pension scheme.
Arvo Asset Management Ltd, established in May 2005 by Sampo plc, commenced operations on 21 September 2005. The new asset management company focuses on value stocks. Sampo initially owns 62 per cent and will in the future own at least 51 per cent of the company, with the remainder being held by the management. The new company enhances Sampo’s strategy in long-term savings.
Sampo Life Insurance Company Ltd decided in December 2005 to combine its subsidiaries operating in Estonia, Latvia and Lithuania into one legal company operating in all Baltic countries. The rearrangement will simplify and strengthen the structure of the Baltic life insurance operations and will improve efficiency.
Net income from financial transactions 17 25 12 21 11 Net fee and commission income 50 57 51 45 44 Impairment losses on loans and receivables –4 –1 3 4 –3
Claims incurred –710 –765 –736 –803 –635 Change in liabilities for insurance and investment contracts –186 –70 –125 –9 –135 Staff costs –201 –161 –171 –172 –169 Other operating expenses –166 –175 –173 –182 –185 Total operating expenses –1,263 –1,171 –1,204 –1,166 –1,123
Profit before taxes from continuing operations 287 374 403 230 282
AAS Sampo Dziviba, operating in Latvia, and AB Sampo gyvybes draudimas, operating in Lithuania, will be merged into the Estonian company, AS Sampo Elukindlustus, which at the same time will be converted into a European company to be named SE Sampo Life Baltic and domiciled in Tallinn. The transactions are conditional on the receipt of necessary official permits by the authorities of the respective Baltic countries.
Sampo plc decided in November 2005 to sell its fully-owned subsidiary Mandatum Private Equity Funds Ltd to Amanda Capital Plc. The transaction was completed on 9 December 2005 after the approval of Amanda Capital’s Extraordinary General Meeting. The consideration was EUR 4 million.
The investment services companies owned by Sampo plc were transferred to the ownership of Sampo Bank plc on 30 December 2005. The transferred companies were Mandatum & Co Ltd, Sampo Fund Management Ltd, 3C Asset Management Ltd, Mandatum Asset Management Ltd, Mandatum Stockbrokers Ltd and Arvo Asset Management Ltd.
administration The Annual General Meeting held on 11 April 2005 re-elected the earlier 8 members – Tom Berglund, Anne Brunila, Georg Ehrnrooth, Jyrki Juusela, Olli-Pekka Kallasvuo, Christoffer Taxell, Matti Vuoria and Björn Wahlroos – to the Board. At its inaugural meeting the Board re-elected Olli-Pekka Kallasvuo as Chairman and Jyrki Juusela as Vice Chairman.
- The reference in Paragraph 2 of Article 17 of the Articles of Association to the publication of a Notice of General Meeting in a newspaper published in Turku was deleted due to the above-mentioned amendment to Article 2 of the Articles of Association.
The firm of authorised public accountants, Ernst & Young Oy, was reelected Auditor.
The Annual General Meeting of Sampo Life Insurance Company Ltd held on 17 March 2005 decided to simplify the company’s administrative structure and to terminate the company’s Supervisory Board. The Articles of Association were amended accordingly.
On 25 January 2005 Sampo plc’s Board of Directors nominated three new members to the Group’s Executive Committee. They were Gunnar Rogstad, responsible for the If Private business area, Ivar Martinsen, responsible for the If Commercial business area and Ricard Wennerklint, CFO of If. At the same time the Board also appointed a Group MD Committee, consisting of Björn Wahlroos, Group CEO and President (Chairman), Kari Stadigh, Group Deputy CEO, Torbjörn Magnusson, President of If, Mika Ihamuotila, President of Banking and Patrick Lapveteläinen, CIO. Ilona Ervasti -Vaintola, Chief Counsel, was chosen as Secretary.
On 5 April 2005, Sampo plc’s Board of Directors appointed Morten Thorsrud as Head of If Industrial business area.
On 22 June 2005 the Board nominated Line Hestvik as Head of If Private business area and member of Sampo Group’s Executive Committee. Line Hestvik replaced Gunnar Rogstad as a member of the Board of If P&C Insurance Ltd in Sweden and If P&C Insurance Company Ltd in Finland and also as a member of Sampo Group’s Executive Committee.
Changes were made to Sampo Bank’s Board of Directors at 15 October 2005.
For a comprehensive review of Sampo Group’s administration and governance system, see Annual Report, section Corporate Governance.
At 31 December 2005 Sampo plc’s share capital amounted to EUR 96,088,842.74, and the number of A shares totalled 570,118,315. The total number of shares of the company, including 1,200,000 B shares, was 571,318,315.
At 5 July 2005 Varma Mutual Pension Insurance Company notified Sampo that its holding of Sampo A shares and voting rights had decreased below 15 per cent. At 1 November 2005, Sampo received a disclosure according to which the total number of Sampo A shares held 13 per cent in the Baltic countries, 4 per cent in Denmark and 1 per cent in other countries. The staff decreased in P&C insurance and Primasoft, but increased in banking due to growth in the Baltic subsidiaries. The average number of employees during 2005 was 11,730, compared with 11,898 during 2004.
Sampo plc Baa1 Not rated Sampo Bank plc A1/P–1 A/A–1 AS Sampo Pank (Estonia) A2*)/P1 Not rated If P&C Insurance Company Ltd (Finland) A2 A If P&C Insurance Ltd (Sweden) A2 A
*) Long-term bank deposit rating sampo Group solvency 3� dec. 3� dec.
Group capital 4,348.1 3,439.8 Sectoral items 2,733.1 1,987.8 Intangibles and sectoral deductibles –2,254.5 –1,291.0 Other sectoral non-transferable items –493.8 –500.0 Group’s own funds, total 4,332.9 3,636.6 minimum requirements for own funds, total 2,209.3 2,132.2
Group solvency ratio (Own funds % of minimum requirements) 196.1% 170.6%
staff The number of full-time equivalent staff decreased in 2005 by 173 employees to 11,627 employees at 31 December. Of the staff, 37 per cent worked in banking and investment services, 56 per cent in P&C insurance, 3 per cent in life insurance, 1 per cent in the holding company and 4 per cent in Primasoft. Geographically, 52 per cent worked in Finland, 16 per cent in Sweden, 14 per cent in Norway,
For a comprehensive review of Sampo Group’s main risks and risk management activities, see Financial Statements 2005, section Risk Management.
Sampo Bank plc operates mainly in Finland and through subsidiaries in all Baltic countries. The investment services companies are Sampo Fund Management Ltd, Mandatum Asset Management Ltd, Mandatum Securities Ltd (former Mandatum Stockbrokers Ltd), Mandatum & Co Ltd, 3C Asset Management Ltd and Arvo Asset Management Ltd. Sampo Bank’s branch network also operates as a distribution channel for other products like life insurance and offers financial advisory services. Sampo Bank opened a new branch office for corporate clients in Stockholm in September. Sampo also announced a plan to launch banking operations in Russia.
Core operational performance showed a clear improvement because net interest income and fee income rose, while expenses increased to a lesser extent. The profit before taxes includes similar-size major one-off items both in 2005 and 2004. In 2005 the profit before taxes includes sales gains from private equity worth EUR 32 million, a EUR 24 million gain from disposal of the Polish operation and a EUR 2 million sales gain from Mandatum Private Equity Fund Ltd. The comparison period includes one-off income of EUR 25 million in private equity gains and EUR 23 million from a VAT refund. In addition, the comparison figure contains Sampo Credit plc which was merged into Sampo plc in September 2004. The merger reduced net interest income and its yearon -year impact was EUR 9 million.
Net fee and commission income grew to EUR 221 million (197) mainly because the growth in mutual funds and asset management continued. Lending and investment banking fees also grew strongly, partly because of strong activity in the M&A and equity market. Mutual fund assets grew by 31 per cent to EUR 8,885 million (6,783), with the biggest increases in balanced and bond funds. New equity funds investing in emerging markets were launched successfully. Assets include EUR 1.2 billion (1.3) in intra-Group investments. Sampo’s market share of the assets of mutual funds registered in Finland was 19.9 per cent (22.0) at 31 December 2005.
The growth of loans and advances was fast throughout the period and the total of EUR 18,483 million was 20 per cent higher than one year earlier. Sampo Bank’s market share of all loans granted by Finnish financial institutions was about 14.3 per cent (13.8) and its market share of lending to households in Finland was 14.1 per cent (12.9). Housing loans grew extremely strongly by 31 per cent in total and 26 per cent in Finland, exceeding the market growth of 17 per cent. Sampo Bank’s market share of Finnish housing loans rose to 15.5 per cent (14.3). Growth in housing loan market share also widens the possibilities to offer other Sampo Group’s financial services. Consumer credit rose by 18 per cent and especially credit card loans grew significantly.
Sampo Bank Group’s capital adequacy was 10.6 per cent (10.7). The tier 1 ratio was 7.6 per cent (7.3) and tier 1 capital rose to EUR 1,255 million (1,000) due
to retained profits and an issue of a EUR 125 million capital loan. Risk-weighted assets grew 20 per cent to EUR 16,466 million because of the strong growth in lending. A dividend of EUR 72 million, of which EUR 50 million came from Sampo Bank plc, is planned for distribution to the parent company, Sampo plc, in early 2006. Because of its good capital position, Sampo Bank is well-placed to continue its healthy growth.
In the first quarter of 2004 Sampo plc’s holding in If P&C was 38.05 per cent and the company was treated as an associated company. As of 1 April 2004 the company has been fully consolidated in Sampo Group’s accounts. Accordingly, the comparison figures only reflect the last three quarters of 2004.
In If ’s six year-long history, 2005 was the most profitable year so far. Profit before taxes for the P&C insurance operations rose to EUR 800 million (427). The strong result was accomplished by a sound insurance result and a good investment yield. The RoE target of 17.5 per cent was clearly exceeded with an RoE of 24.1 per cent. The technical result was EUR 516 million (490), of which the Private business area accounted for 58 per cent, Commercial for 30 per cent, Industrial for 10 per cent and the Baltics for 2 per cent. The insurance margin – technical result in relation to net premiums earned – rose to 13.9 per cent (12.9).
Large claims development in the Commercial business area was EUR 30 million better than normal, but in the Industrial business area large claims increased from 2004 and were at a normal level in 2005. The Gudrun storm in January 2005 led to claims payments of EUR 22 million after reinsurers’ share and a reinstatement fee of EUR 11 million. The risk ratio decreased by 0.8 percentage points to 66.2 per cent. Claims inflation continued to be very low. EUR 39 million was released from technical reserves relating to prior year claims.
At 31 December 2005, If ’s total investment assets amounted to EUR 10.0 billion (8.9). Of all investment assets, 88 per cent was invested in fixed income instruments (84), 10 per cent in equity (12) and 2 per cent in other assets (4). Investment income rose to EUR 460 million (160), largely because of the good performance of equity investments. The return on investment was 5.8 percent (4.3). At 31 December 2005 the duration for interest-bearing assets was 2.4 years.
(approx. EUR 430 million) is planned for distribution to the parent company, Sampo plc, in early 2006. The average duration of liabilities was 4.7 years at 31 December 2005. Technical reserves at the end of 2005 were EUR 7,885 million (7,302) and were 156.6 per cent (144.0) of premiums written.
life insurance Sampo Life Group consists of Sampo Life, a wholly-owned subsidiary of Sampo plc, operating in Finland and of its subsidiaries in all the Baltic countries. The company also has a subsidiary in Sweden to complement the product offering of If P&C.
The solvency capital of Sampo Life Group amounted to EUR 1,077 million (852) and the solvency ratio rose to 21.3 per cent of technical reserves (17.7). The extended solvency capital of Sampo Life was EUR 1,410 million (1,142). A dividend of EUR 150 million, which will be paid to Sampo plc in March 2006, has been deducted from the solvency capital.
Life insurance technical reserves on own account amounted to EUR 6,000 million (5,510), of which unit-linked insurance reserves were EUR 1,262 million (884). The share of unit-linked reserves of total technical reserves grew to 21.0 per cent (16.0). Policyholders of Sampo Life received a bonus of 0 – 2.0 per cent depending on the guaranteed rate of their policies and the total bonuses amounted to EUR 15.7 million (21.3). Reserves for future customer bonuses were EUR 13.7 million (18.3) at the year end. The interest rate used for discounting technical reserves relating to endowment and capital redemption policies was decreased to 2.5 per cent from 3.5 per cent. The measure increased technical reserves by EUR 25.5 million. In addition the guaranteed rate for individual and group pension reserves carrying a guaranteed rate of 3.5 or 4.5 per cent was lowered to 3 per cent for the year 2006, which increased technical reserves by EUR 19 million.
Sampo Life’s overall market share in Finland rose to 19.5 per cent (17.9). The company is by far the biggest player in the corporate segment with a market share of 39.4 per cent (29.5). Market shares increased also in all Baltic countries, particularly in unit-linked insurance. Sampo Life Group is the third biggest unit-linked provider in the region.
The sale of individual pension policies grew by 40 per cent to almost 12,000 policies, nearly all of which were unitlinked contracts. Sampo Life’s market share in the Finnish unit-linked insurance decreased to 20.8 per cent (25.5).
Sampo plc’s balance sheet total was EUR 3.6 billion. Of this amount, holdings in banking and investment services companies accounted for EUR 0.8 billion and holdings in insurance companies for EUR 2.4 billion. Investments in real estate decreased from EUR 105 million to EUR 31 million, because of disposals. In addition to short-term operational financing, liabilities include two debt instruments – a subordinated note and a senior note with face values of EUR 600 million and EUR 300 million respectively. At current market rates Sampo plc is liable for interest payments on the above instruments of approximately EUR 10 million per quarter.
outlook for 2006 At the start of 2006 the outlook for the world economy remains fairly positive. Relatively strong growth is already largely discounted in the equity prices, which have continued their upward momentum through the last three years. There is, however, uncertainty as to how long the new growth engines of the world economy, like China and India, can maintain the steady progress.
Sampo Bank Group’s operating profitability – profit excluding extraordinary gains and losses – is estimated to improve during 2006. Lending volume will continue its healthy growth which, combined with some relief in margin pressure and the rise in interest rates, will result in an improvement in net interest income. Furthermore, fee and commission growth is expected to continue and credit quality to remain firm. Although particular attention will be paid to cost efficiency, it is increasingly challenging to maintain the current cost level, as growth particularly in the Baltic countries requires more resources. The RoE target for banking and investment services is 20 per cent.
Sampo plc, the parent company, is included in the Other segment, which reports a loss of approximately EUR 12 million per quarter, mainly because of interest payments on the financing associated with the If acquisition in 2004.
Board’s dividend proposal Distributable capital and reserves totalled EUR 2, 017 million in the Group and EUR 853 million in the parent company. The Board proposes that a dividend for the financial year of EUR 0.60 per share be paid on the company’s 564,700,515 shares. The number of shares includes 382,200 shares converted in 2005 with warrants, which were approved by the Board on 20 January 2006. Dividends are not paid on the 7,000,000 Sampo A shares that Sampo plc held at 31 December 2005. The total amount of dividends would be EUR 338,820,309.00.
Group solvency 1) EURm 2,124 1,504 – – – Group solvency ratio % 196.1 170.6 – – –
Banking and investment services Revenue EURm 1,105 989 1,119 1,261 1,664
Revenue EURm 4,398 3,054 Premiums written before reinsurers’ share EURm 3,962 2,427 Premiums earned EURm 3,709 2,697 Profit before taxes EURm 800 427 % of revenue % 18.2 14.0 Return on equity (at fair values) % 24.1 20.3 Risk ratio 2) % 66.2 64.6 Cost ratio 2) % 24.3 25.2 Loss ratio 2) % 74.1 72.6 Loss ratio before unwinding of discount 2) % 72.7 71.1 Expense ratio 2) % 17.8 18.7 Combined ratio % 91.9 91.2 Combined ratio before unwinding of discount % 90.5 89.8 Solvency margin **) EURm 3,216 2,499 Solvency capital **) EURm 3,216 2,499 % of technical provisions **) % 40.8 34.2 Solvency ratio **) % 87.5 69.8 Average number of staff 6,592 6,776 *) Figures of P&C insurance for April to December 2004 **) Based on the financial statements of If Group
Return on equity (at fair values) % 39.0 32.2 – – –
Equalisation provision EURm – – 4 4 13 other business 3)
Profit before taxes EURm –49 106 –4 286 372 per share key figures
Adjusted average number of shares 1,000 564,864 558,077 553,859 555,730 555,588 Number of shares at 31 Dec. 1,000 564,701 563,762 553,920 553,853 555,623 Adjusted number of shares at 31 Dec. 1,000 575,268 566,391 553,920 553,853 555,623 Counter-value of shares at 31 Dec. EUR (appr.) 0.17 0.17 0.17 0.17 0.17
A shares Adjusted average number of shares 1,000 563,664 556,877 552,659 554,530 554,388 Number of shares at 31 Dec. 1,000 563,501 562,562 552,720 552,653 554,423 Adjusted number of shares at 31 Dec. 1,000 574,068 562,562 552,720 552,653 554,423 Weighted average share price EUR 11.97 8.72 6.85 8.16 10.11 Adjusted share price, high EUR 14.95 10.24 8.53 9.95 12.70 Adjusted share price, low EUR 9.83 7.20 5.05 6.02 7.70
5) The Board of Director’s proposal to the Annual General Meeting for the accounting period 2005. The dividend for 2004 was EUR 0.20.
In calculating the net asset value per share and the return on equity as per 2002 and 2003, an interpretation of the principle of fairness in life insurance has been taken into account, according to which the owners’ share of the valuation differences is a standard 25%. Previously the valuation differences have not been included in the capital and reserves. As a result of a change in accounting practice in 2004, the target level for total policyholder bonuses was kept as before, but the division of valuation differences in accounting was abandoned. Accordingly, the valuation differences of investments for 2005 and 2004 have been treated entirely as capital and reserves in calculating the above key figures.
Banking and investment services + interest income + net income from investments excl. profit / loss from associates + fee and commission income + net income from financial transactions + other operating income
Property & casualty insurance + premiums earned before reinsurers’ share + net income from investments + other income
Life insurance + premiums written before reinsurers’ share + net income from investments + other income
Other business Calculated using the formula shown above for banking and investment services revenue profit before taxes + banking and investment services profit before taxes + property & casualty insurance profit before taxes + life insurance profit before taxes + other business profit before taxes ± Group elimination with result impact
Banking and investment services + net interest income + net income from financial transactions + net fee and comission income ± impairment losses on loans and receivables + net income from investments + other operating income – staff costs – other operating expenses
The key figures for the Banking and Investment Services and the Other business have been calculated according to the standard 3.1 of the Financial Supervision.
Life insurance + insurance premiums + net income from investments + other operating income – claims incurred – change in liabilities for investment and insurance contracts – staff costs – other operating expenses
+ total equity ± valuation differences on investments after deduction of deferred tax (average of values on 1 Jan. and 31 Dec.)
equity/assets ratio (at fair values), % + total equity ± valuation differences on investments after deduction of deferred tax
Banking and investment service key figures revenue Formula shown above in connection with calculation of Group key figures.
cost to income ratio – staff costs – other operating expenses
solvency capital (ifrs) + solvency margin + equalisation provision + minority intrest solvency capital, % of technical provision + solvency capital
+ liabilities for insurance and investment contracts – reinsurers’ share of insurance liabilities – equalisation provision solvency ratio, % + solvency capital
return on equity (at fair values), % Formula shown above in connection with calculation of Group key figures.
solvency capital Formula shown above in connection with calculation of P&C insurance solvency capital.
+ liabilities for insurance and investment contracts – reinsurers’ share of insurance liabilities – equalisation provision – 75 % x technical provisions relating to unit-linked per-share key figures earnings per share + profit before taxes – tax ± minority interest adjusted average number of shares earnings per share incl. change in fair value reserve + profit before taxes – tax ± minority interest ± revaluation entered into / withdrawn from fair value reserve adjusted average number of shares capital and reserves per share equity attributable to parent company’s equityholders adjusted number of shares at balance sheet date net asset value per share + equity attributable to paret company’s equityholders ± valuation differences on investments ± deferred tax relating 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.
Net income from investments 8 1,080 689 390 Other operating income 72 94 –22 Total operating income 6,100 4,535 1,564
Claims incurred 9 –3,014 –2,206 –808 Change in liabilities for insurance and investment contracts 10 –390 –191 –199 Staff costs 11 –706 –567 –139 Other operating expenses 12 –695 –617 –78 Total operating expenses –4,805 –3,580 –1,225
Taxes 26 –332 –100 –232 Profit for the financial year 963 848 115
Liabilities Financial liabilities at fair value through p/l 17 649 589 Amounts owed to credit institutions and customers 27 12,260 11,037 Debt securities in issue 28 9,647 7,928 Liabilities for insurance and investment contracts 29 12,623 12,226 Liabilities for unit-linked insurance and investment contracts 30 1,262 884
Retained earnings 2,412 1,723 Equity attributable to parent company’s equityholders 4,322 3,440 Minority interest 26 26 Total equity 4,348 3,465
Cash flows from operating activities Profit before taxes 1,295 948 Adjustments: Depreciation and amortisation 94 95 Unrealised gains and losses arising from valuation –215 98 Realised gains and losses on investments –593 –361 Impairment losses on loans and receivables 13 4 Change in liabilities for insurance and investment contracts 1,200 92 Other adjustments 23 –33 Adjustments total 523 –105
Cash flows from investing activities Investments in group and associated undertakings – –1,421 Proceeds from the sale of group and associated undertakings 102 1 Net investment in equipment and intangible assets –27 –42 Net cash flow from investing activities 75 –1,462
Cash and cash equivalents at 1 January 1,250 461 Effects of exchange rate changes 4 – Cash and cash equivalents at 31 December 1,787 1,254 Net increase in cash and cash equivalents 533 793
Cash and cash equivalents include cash at bank and in hand EURm 318 (210), balances with central banks EURm 1,253 (886), loans and advances to credit institutions repayable on demand EURm 122 (87) and short-term deposits EURm 94 (71).
eUrm 2005 Sale price Sampo PTE S.A. 93 Sampo T.U. Zycie S.A. 2 Mandatum Private Equity Funds Ltd 4
Disposed cash and cash equivalents Sampo PTE S.A. 0 Sampo T.U. Zycie S.A. 2 Mandatum Private Equity Funds Ltd 0
eUrm 2004 Acquisition cost Sampo Banka 13 If Skadeförsäkring Holding AB 1,649
Disclosures of financial assets and financial liabilities are presented in accordance with IFRS 7 ‘Financial Instruments: Disclosures’, which Sampo adopted early from 1 January 2005 as allowed by the transitional provisions of the standard. Similarly, the amendment to IAS 1 ‘Capital disclosures’ was adopted from 1 January 2005, in accordance with the transitional provisions of the standard. Capital disclosures are presented in Notes together with the risk management disclosures.
The areas involving a higher degree of estimation and judgement include the fair valuing of unlisted financial assets and liabilities and investment properties, the impairment of financial assets and goodwill, and the assumptions used in actuarial valuations.
The acquisition method of accounting is used for the purchases of subsidiaries. The cost of an acquisition is allocated to the identifiable assets, liabilities and contingent liabilities, which are measured at the fair value of the date of acquisition. The excess of the cost of an acquisition over the Group’s share of the fair value of the identifiable net assets acquired is recorded as goodwill.
associates Associates are entities in which the Group has significant influence, but no control over the financial management and operating policy decisions. This is generally demonstrated when the Group holds in excess of 20 per cent, but no more than 50 per cent, of the voting rights of the entities. Investments in associates are treated by the equity method of accounting, in which the investment is initially recorded at cost and increased (or decreased) each year by the Group’s share of the postacquisition net income (or loss), or other movements reflected directly in the equity of the associated entity. Goodwill arising on the acquisition is included in the cost of the investment. Unrealised gains (losses ) on transactions are eliminated to the extent of the Group’s interest in the entity.
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.
interest and dividends Interest income and expenses are recognised in the income statement using the effective interest rate method. This method recognises income and expenses on the instrument evenly in proportion to the amount outstanding over the period to maturity. The calculation of effective interest includes all the fees and points received or paid between parties to the contract that are an integral part of the effective interest rate, all the transaction costs and all other premiums or discounts.
fees and commissions Fees and commissions which are an integral part of the effective interest rate of a financial instrument are deferred and treated as an adjustment to the effective interest rate. Such fees may be origination fees (including compensation for activities such as evaluating the borrower’s financial condition, evaluating and registering guarantees, collateral and other securities and documentation) and commitment fees, for example. If a commitment fee expires without an entity making a loan, the fee is recognised as revenue upon expiry.
In the insurance business, fees and commissions paid for investment activities are included in ‘Net income from investments’.
financial assets and financial liabilities at fair value through profit or loss Financial assets and liabilities at fair value through profit or loss comprise trading assets and liabilities, derivatives held for trading, and financial assets designated as at fair value through profit or loss.
Trading assets and liabilities and financial derivatives held for trading are initially recognised at cost which is the fair value of the consideration paid or given, with transaction costs included directly in the income statement, and are subsequently remeasured at fair value. Derivative instruments are carried as assets when the fair value is positive, and as liabilities when the fair value is negative. Gains and losses arising from changes in fair value or realised on disposal, together with the related interest income and expenses and dividends, are recognised in the income statement.
financial assets designated as at fair value through profit or loss
According to the Group risk management policy, investments are managed at fair value in order to have the most realistic and real-time picture of investments, and they are reported to the Group key management personnel at fair value.
In the P&C Insurance business, financial investments are primarily designated as financial assets at fair value through profit or loss. Investments comprise debt and equity securities. In the Life insurance business, financial assets designated as at fair value through profit of loss are investments related to unit-linked insurance, which are presented separately in the balance sheet. Also the corresponding liabilities are presented separately. In addition, fincancial investments which are manaded at fair value and reported to the Group key management personnel at fair value are designated as financial assets at fair value through profit or loss. In Banking and Investment Services, financial assets designated as at fair value through profit or loss are debt securities used in managing the collateral and liquidity portfolio.
loans and receivables Loans and receivables comprise nonderivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Group is not intending to sell immediately or in the short term. The category also comprises cash and balances with central banks.
Loans and receivables are initially recognised at cost which is the fair value of the consideration given, including transaction costs that are directly attributable to the acquisition of the asset. Loans and receivables are subsequently measured at amortised cost using the effective interest rate method.
Held-to-maturity investments Held-to-maturity investments are nonderivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold until maturity. Held-to-maturity investments are initially recorded at cost which is the fair value of the consideration given plus any directly attributable transaction costs, and are subsequently measured at amortised cost using the effective interest rate method.
financial assets and liabilities Based on the measurement practice, financial assets and liabilities are classified in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, financial liabilities at fair value through profit or loss, and other liabilities.
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. Changes in fair value are included as a separate component of equity. 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 recognised.
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 there are items in a position offsetting each other’s market position, 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.
impairment of financial assets Sampo assesses on each balance sheet date whether there is any objective evidence that a financial asset may be impaired. A financial asset is impaired and impairment losses are incurred, if there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset, and if that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.
financial assets carried at amortised cost The objective evidence of the customer’s ability to pay all contractual payments is based on a default rating. There is objective evidence of impairment if the payment status of a customer is rated as ‘default’, which, in the case of loans and held-to-maturity investments, is demonstrated by one or more of the following loss events: - Overdue payments: Interest or principal payments more than 90 days overdue.
- Forced concession: Decision the Group would not have made at the given terms, if the customer had not had existing exposures in the Group (e.g. reduction of an interest rate or a material abatement of interest or principal, change in the status of a loan to subordinate, voluntary restructuring or rearrangement of payments).
The impairment of loans is assessed individually. The carrying amount of loans that are individually significant is reduced directly, whereas that of other loans is reduced through the use of an allowance account. Amounts recognised into the allowance account are written off against the carrying amount of an impaired loan, when the recovery has ceased to be probable, at the latest.
If, in a subsequent period, the amount of the impairment loss decreases, and the decease can be related objectively to an event occurring after the impairment was recognised (the default status is removed), the previously recognised impairment
Hedge accounting Sampo Group hedges its operations against interest rate risks, currency risks and price risks through fair value hedging and cash flow hedging. Fair value hedging is used to protect against changes in the fair value of recognised assets or liabilities, while cash flow hedging is used to protect against the variability of the cash flows of recognised assets or liabilities which are attributable to a particular risk and could affect profit or loss.
Hedge accounting is applied to hedges that are effective in relation to the hedged risk and meet the hedge accounting requirements of IAS 39. The hedging relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for undertaking the hedge, are documented at the inception of the hedge. In addition, the effectiveness of a hedge is assessed both at inception and on an ongoing basis, to ensure that it is highly effective throughout the period for which it was designated. Hedges are regarded as highly effective in offsetting changes in fair value or the cash flows attributable to a hedged risk within a range of 80–125 per cent.
In the Banking and Investment Services segment, assets, liabilities and future cash flows denominated in euro or other currencies are hedged against related interest rate, currency and price risks. Both individual items and portfolios are designated as hedged items to which hedge accounting is applied. In the Insurance segments, hedges are made against interest rate risk and currency risk, but hedge accounting is not applied.
sale and repurchase agreements and securities lending Securities sold subject to irrevocable repurchase agreements (‘repos’) are retained in the balance sheet as financial assets. The sale is recognised as a liability and included in ‘Amounts owed to credit institutions and customers’ in the balance sheet. Securities purchased under irrevocable agreements to resell (‘reverse repos’)
loss shall be reversed either directly or by adjusting the allowance account.
available-for-sale financial assets The impairment of available-for-sale financial assets is monitored through an investment plan. The credit risk limits by issuer have been determined in the investment plan and the plan is followed daily. The objective evidence of an impairment of available-for-sale financial assets is based on a separate assessment, which is done if the credit rating of an issuer has declined or the entity is placed on watchlist, or there is a significant or prolonged decline in the fair value of an equity instrument below its cost. When the observable data indicates that an impairment has occurred, the cumulative loss recognised directly in equity is removed from equity and recognised in profit or loss.
Leases in which assets are leased out and substantially all the risks and rewards of ownership are transferred to the lessee are classified as finance leases. Finance leases are recognised as receivables in the balance sheet at an amount equal to the net investment in the lease. The lease payment is allocated between the repayment of principal and interest income. The interest income is amortised over the lease period so as to achieve a constant periodic rate of return on the remaining net investment for the lease term.
intangible assets 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. The classification and accounting treatment of these acquisitions have not been adjusted in preparing the Group IFRS opening balance sheet.
Goodwill is measured at historical cost less accumulated impairment losses. Goodwill is not depreciated.
other intangible assets IT software and other intangible assets are recognised in the balance sheet, if it is probable that the expected future economic benefits that are attributable to the assets will flow to the Group and the cost of the assets can be measured reliably. Research costs are recognised as expenses in profit or loss as they are incurred. Costs arising from development of new IT software or from significant improvement in existing software are recognised only to the extent they meet the above-mentioned requirements for being recognised as assets in the balance sheet.
Intangible assets 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
Items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful life. Land is not depreciated. Estimates of useful life are reviewed at financial year-ends and the useful life is adjusted if the estimates
The valuation takes into account the characteristics of the property with respect to location, condition, lease situation and comparable market information regarding rents, yield requirements and unit prices. The valuations are conducted by the Group’s internal resources.
Obligations arising from defined benefit plans are presented as provisions in Other liabilities in the balance sheet.
insurance and investment contracts Insurance contracts are dealt with in accordance with IFRS 4. Under the standard, insurance contracts are classified as insurance contracts and other contracts according to whether significant insurance risk is transferred between the policyholder and the insurer. The liabilities arising from contracts are treated in the first phase of the standard according to national accounting standards. Sampo Group’s insurance companies continue to apply national accounting standards, except for equalisation reserve and changes in it which are reported in equity and profit or loss. As it is not possible under IFRS 4 to recognise the equalisation reserve as a liability, they have been transferred from insurance liabilities to equity in the opening balance sheet.
costs and operating expenses during the remaining term of insurance contracts in force. In P&C insurance and reinsurance, the provision for unearned premiums is normally calculated on a strictly proportional basis over time, i.e. on a pro rata temporis basis. In the event that premiums are judged to be insufficient to cover anticipated claims costs and operating expenses, the provision for unearned premiums must be augmented by a provision for unexpired risks. Calculation of the provision for unexpired risks must also take into account instalment premiums not yet due.
The provision for a collective guarantee is regulated by Finland’s Traffic and Accident Insurance Act and must be collected by insurance vendors. Its purpose is to guarantee the payment of claims to customers in the event that any insurance vendors are put into liquidation or bankruptcy.
The pay-as-you-go system related to pension index raises is not treated as an insurance activity under IFRS 4 and does not lead to any risk for the insurance company. Thus, the pay-as-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.
In the P&C insurance business, acquisition costs clearly relating to the writing of insurance contracts and extending beyond the financial year are recognised as assets in the balance sheet. Acquisition costs include operating expenses directly or indirectly attributable to writing insurance contracts, fees and commissions, marketing expenses and the salaries and overheads of sales staff.
Policies issued by the Life Insurance business are classified as either insurance contracts or investment contracts. Insurance contracts are those contracts where significant insurance risks are carried or may be carried if the policyholders use their rights to change the contract by increasing the risk. Only capital redemption operations do not involve insurance risk, but they involve financial risk. They are classified as investment contracts.
1999:65 of the Ministry of Social Affairs and Health. The guaranteed interest rate used in the direct insurance premium basis varies on the basis of the starting date of the insurance from 0 to 4.5 per cent.
Due to the difference in the discount rate of liabilities and the guaranteed interest of policies, supplementary provisions for guaranteed interest have been added to technical provisions.
In the Baltic subsidiaries, the discount interest rate varies by country between 2.2–3.5 per cent and the average guaranteed interest rate between 3.5–3.9 per cent.
In calculating the provision for claims outstanding of direct insurance, discounting is applied only in connection with the liabilities of pensions whose payment has commenced. The liabilities of assumed reinsurance are based on the reports of the ceding company and on an estimate of claims which have not yet been settled.
According to Chapter 13, Section 3 of the Finnish Insurance Companies’ Act, the Principle of Fairness must be observed in life insurance and investment contracts with a discretionary participation feature. If the solvency requirements do not prevent it, a reasonable part of the surplus has to be returned to these policies as bonuses.
Sampo 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. As for the level of the total return, continuity is pursued. The aim is to maintain the company’s solvency status on such a level that it does not limit the giving of bonuses to policyholders, nor the distribution of profit to shareholders.
employee benefits post-employment benefits Post-employment benefits include pensions and life insurance.
In direct insurance, the insurance liability is calculated by policy, while in reinsurance it is calculated on the basis of reports of the ceding company or the company’s own bases of calculation.
The interest rate used in discounting liabilities is, at most, the maximum rate accepted by the authorities in each country. 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 is discounted by an interest rate of 3.5 per cent, and most of the life business with DPF by 2.5 per cent. The highest discount rate used for accrued benefits is 3.5 per cent.
obligation is calculated separately for each plan using the projected unit credit method. In calculating the amount of the obligation, actuarial assumptions are used. The pension costs are recognised as an expense for the service period of employees.
When reporting defined benefit plans in the balance sheet, the so-called corridor method is used. According to this model, accrued actuarial gains and losses resulting from differences between calculated assumptions and the actual outcome are not reported in the income statement unless the accumulated difference exceeds 10 per cent of the present value of the future obligations or the fair value of plan’s assets, whichever is higher. Accumulated differences that exceed the 10 per cent limit are accrued in the income statement as pension costs throughout the duration of the obligation. The accumulated accrued actuarial gains and losses calculated in this way that are not reported in the income statement are reported in the balance sheet as a net asset/net liability.
other long-term employee benefits In Sampo, other long-term employee benefits include long-term incentive schemes (2003 I, 2004 I and 2004 II, 2005 I and II) for Group executives and experts. bonuses are paid when a defined return on equity is achieved. The total amount of the bonus is based on the fulfilment of return criteria and on the imputed bonus units granted, the value of which is calculated on the basis of the Sampo share price and the starting price of a share defined in the incentive scheme. The value of the incentive recognised in the profit or loss and balance sheet of a reporting date is the amount that would be paid, if the programme matured for payment at the reporting date.
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.
Deferred tax is calculated on all temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The largest temporary differences arise from measurement at fair value. Deferred tax is not recognised on non-deductible goodwill impairment, and nor is it recognised on the undistributed profits of subsidiaries to the extent that it is probable that the temporary difference will not reverse in the foreseeable future.
In the cash flow statement, interest received and paid are presented in cash flows from operating activities. In addition, the dividends received are included in cash flows from operating activities. Dividends paid are presented in cash flows from financing.
The main objectives of the risk management process are to ensure that risks are properly identified, risk measurement is independent and the capital base is adequate in relation to the risks. The risks related to the Group’s activities and the sufficiency of the companies’ capitalisation in relation to these risks are regularly evaluated. These evaluations are made at both the individual company and the Group level.
The Board of Directors of Sampo plc is responsible for ensuring that the Group’s risks are properly managed and controlled. The Board sets the principles of risk management and provides guidance on the organisation of risk management and internal control in the business areas. The Board monitors the risk management process and has established a risk control committee to control the Group’s risks. The major risk-related decisions are made within the framework of the given authorities in the Investment Committee, the Credit Committee and the Asset and Liability Committee (ALCO). For more details see also “Market risk management ” on page 44. The Group’s overall risk exposures are reported to the board on a monthly basis. The risk management organisation is presented in figure (1).
Business model and risks Sampo Group is divided into business areas (segments), which are banking and investment services, property & casualty insurance (P&C insurance) and life insurance (Figure 2). The parent company, Sampo plc, acts as the holding company and has no active operational business role.
( Figure 1)32 risk management overview 32 Business model and risks 33 capital management 33 Regulatory capital 34 Economic capital 34 Capitalisation and capital management process 34 financial risks 34 Market risks 3� Credit risks 40 Liquidity risks 4� Property risks 4� insurance risks 4� P&C insurance risks 42 Life insurance risks 44 risk management process and methods 44 Risk management governance 44 Market risks management 46 Credit risks management 47 Investment management of insurance companies 47 P&C insurance 4� Life insurance risk management 4� Operational risk management 49 preparation for changes in the operating environmet sampo's Board of directors risk control committee financial control alco credit committee investment committees sampo Group
The life insurance business is based on bearing and managing risks resulting from the randomness of the occurrence and size of casualty events and the financial risks included in assets and liabilities. The major part of Sampo Life group’s business risks and result comes from investment assets. Return on assets should cover, in the long run, at least the guaranteed interest, bonuses based on the principle of fairness and the cost of shareholder capital. Other elements of profit are the results of the insurance risk and expense risk. The insurance risk result is the assumed claims in premium calculations minus the actual claims. It is managed through careful risk selection and diversification, for example. The expense result is the expense charges from policies minus the actual expenses. It is managed by continuously monitoring expenses, by improving efficiency and by using an expense charge structure that also covers expenses after policy inception.
There are formal rules for minimum capital and capital structure. Capital adequacy and solvency are reported quarterly to the supervisory authorities monitoring Sampo group and its subsidiaries. The supervisors are the Financial Supervision Authority and Insurance Supervision Authority In Finland, Finansinspektionen (SFSA) in Sweden and local supervisors in the Baltic countries. The Financial Supervision Authority acts as the co-ordinator. Subsidiaries are monitored on a solo basis by the authority of the country of their location.
� Banking & Investment Services 2 Life Insurance 3 P&C Insurance 4 Holding Company 5 Sampo Group (incl. diversification effect)
financial risks Market, credit, liquidity and property risks are here classified under financial risks. The breakdown of the group and its segments into financial assets and liabilities is presented in table (3). The eliminations in the table are due to inter-segment transactions. Transactions between the Group’s companies are always priced in a marketconsistent manner.
The currency risk consists mainly of the translation risk related to the net asset value and dividends of If. The cur-
sampo Group, financial assets and liabilities, sensitivity to market change risk interest rate equity commodity �% parallel �% parallel �0% fall �0% fall eUrm shift down shift Up in prices in prices
Assets Cash Bonds 395 –364 Money market 11 –11 Equity and funds –2 2 –304 –1 Loans and receivables 127 –127 Credit cards 1 –1 Financial lease assets 6 –6 Other financial assets
Liabilities Deposits –110 110 Term deposits –8 8 Money market –12 12 Loans –4 4 Senior bonds –51 51 Subordinated bonds –45 43 Other financial liabilities
The market risks of banking arise from the banking book and trading services. The most noteworthy of the market risks is the interest rate risk of the banking book. The interest rate risk is managed in
P&C, investments –95 –117 –139 –92 Life, investments –173 –166 –180 –145 Sampo Plc –62 –57 –64 –46
Sampo Bank’s banking book. Interest rate risk is not actively taken in the subsidiaries.
If Group’s investment operations achieved a return of 5.8 per cent in 2005. The amount of investment assets increased by EUR 1,100 million. The duration of investments was increased during the year and credit investments were favoured.
currency risk by segment, dec. 3�, 2005 foreign currency eUrm currency risk Home open position ccy eUr seK noK dKK eeK lVl ltl GBp Usd JpY other
Real estate 1,5% Private equity 2,0% Commodities 0,3% Hedge funds 0,5%
The duration of reserves depends on type of insurance (Figure 12). The overall duration of all technical provisions is about 4.7 years. The length of the provisions for motor claims in Finland and Sweden and for Worker’s Compensation in Finland is due to the fact that claims are disbursed in the form of annuities.
Reserves for annuities in Finland, Sweden and Denmark are discounted, and potential changes in the discount rate will affect technical provisions. The discount rates vary between countries due to legislation. The total amount of discounted provisions is EUR 1,581 million.
P&C insurance writes insurance policies mostly denominated in Scandinavian currencies and in Euro. See Figure (15) on page 42. In order to reduce the risk of having investments and technical provisions moving differently if there are movements in currency rates, technical provisions are matched with investments in the corresponding currencies.
The duration gap between liabilities and fixed investments is under constant monitoring and management. Most (77 per cent) of Sampo Life’s liabilities with a guaranteed return are formed from the long-term pension business with a very low surrender risk. This fact, coupled with high solvency, makes it possible for the investment strategy to look for an extra return, e.g. from the equity markets.
Sampo Life has prepared for low interest rates by, for example, reducing the minimum guaranteed interest of new contracts and increasing the reserve for a decreased discount rate. Due to these operations, the claim for future returns of the pension business has been decreased to 3.5 per cent and, with respect to other business, to 2.5 per cent. In addition, existing contracts and processes have been altered so that the re-investment risk can be better managed. Sampo Life has no investment risk in the unit-linked business.
In finnish individual policies sold before 1999, the guaranteed interest rate is 4.5 per cent, this being also the statutory maximum discount rate of these policies. With respect to these individual pension policies, the discount rate used in discounting liabilities has been decreased to 3.5 per cent. The discount rate of life insurance and capital redemption policies having a guaranteed interest of 3.5 or 4.5 per cent was decreased on 31 December 2005 to 2.5 per cent. The liabilities have been increased by EUR 149 million due to these decreases, of which EUR 103 million is accounted for by individual pension policies, and EUR 46 million by life insurance and capital redemption policies. In addition, EUR 19 million has been reserved to lower the rate of the return requirement for the individual and group pension business during 2006 to 3.0 per cent.
� Motor 2 Workers’ Compensation 3 Liability 4 Accident 5 Property 6 Cargo
The liabilities related to each guaranteed interest rate are shown in table (17) on page 43. The table also shows the change in each category during 2005. Table (19) on page 45 shows the maturity of each category.
Measured by Sampo’s credit risk model, the credit risk of corporate and institutional customers of banking increased during the year by 14 per cent. The growth in economic capital was due primarily to the growth in volume of exposures. The average LGD-weighted probability of default (PD) in corporate exposures at the end of the year was 1.6 per cent. Estimated loss given default was 13 per cent of the volume of exposures. The expected loss of corporate exposures remained at the 0.2 per cent level of the beginning of the year. Analysed by rating categories, the relative share of exposures belonging to at least the l2– (BBB–) category decreased from 80 per cent to 76 per cent. The total exposures included in the two lowest categories (l4, l4–) decreased by EUR 39 million from the level of the beginning of the year. At the end of the year, these exposures totalled EUR 204 million and were secured by I–V category collateral amounting to EUR 149 million.
The defaulted exposures totalling EUR 116 million are secured with category I–IV collateral totalling about EUR 85 million. These figures are based on the outstanding exposure. Unused limits of defaulted customers totalled EUR 15 million at the end of 2005. Total exposures to corporate and institutional customers in default increased by EUR 1 million and to retail customers by EUR 4 million.
Figure (13) on page 40 shows the past due carrying amounts for financial assets that are past due by their age. Nonperforming loans were EUR 36 million and they decreased by EUR4 million. Nonperforming loans of retail customers were EUR 24 million and 0,24% of the exposure. Corporate customers’ nonperforming loans were EUR 12 million and 0,08% of the exposure.
Exposure to credit risks in P&C insurance is mainly associated with exposure to reinsurers, partly through reinsurance receivables and partly through the reinsurers ’ portion of outstanding claims. The exposure is quite limited for premium receivables from policyholders, because non-payment generally results in cancellation of the insurance policies.
liquidity risks In the broadest sense, liquidity risks concern the availability of funding and reinsurance. If a liquidity risk materialises, it may jeopardise the conduct of regular business activities and, in extreme cases, may endanger the ability to fulfil daily payment obligations.
Sampo Bank has also actively entered into ISDA Master Agreements with Credit Support Annexes to ensure there is also availability of OTC-market counterparties in times of market stress.
To manage its short term liquidity, Sampo Bank Group has liquidity buffers in the form of liquid money market securities. There are also tested contingency plans in place to ensure that liquidity management is managed in a co-ordinated manner, if there are severe liquidity problems in the markets.
Liquidity risks are minor in P&C insurance, since premiums are collected in advance and large claims payments are usually known a long time before they fall due. The expected maturity for technical provisions is presented in figure (14).
As only a relatively small proportion of life insurance liabilities can be surrendered, it is possible to forecast short-term claims expenditure reliably. Because of this and the liquidity of the assets, liquidity risks do not play a major role in Sampo’s life business.
Distribution of technical provisions for claims outstanding on period of payment
financial assets and liabilities together with the insurance liability carrying amount total cash flows eUrm carrying non maturity amount with carrying carrying contractual 20�� – eUrm amount total amount maturity 2006 2007 200� 2009 20�0 2020 202�–
liquidity profile of the banking book, dec. 3�, 2005 eUrm 0–�m �–�2m �–2Y 2–5Y > 5Y total - Loans and advances to customers 1,260 2,029 1,660 3,859 7,014 15,821 - Loans and advances to customers 2,520 1,360 1,027 3,230 2,620 10,756 - Liabilities to credit institutions and central banks 106 528 0 25 81 740
insurance risks p&c insurance risks The main insurance risks in insurance operations are underwriting risks and provision risks. Underwriting risks relate to the pricing of undertaken insurance policies and to the inherent uncertainty associated with such policies. Of utmost importance to profitability is an accurate assessment of the probable magnitude and frequency of insurance claims, to ensure that the insurance premiums cover the expected future claims. However, the claims cost may deviate from the expected level since risk is an inherent part of P&C insurance, e.g. due to single large claims or natural catastrophes.
P&C insurance follows detailed underwriting guidelines, intended to properly secure the assessment and quantification of the risks P&C insurance will undertake, regulate the size of the sums insured and define the risk types that cash flows according to contractual maturity (expected future payments of technical provisions), no eliminations
In terms of insurance classes, Motor insurance constitutes a relatively large share of the overall business underwritten, especially in Sweden. Due to the long-tailed nature of Swedish and Finnish motor third party liability insurance, changes in future inflation and in legislation could affect the overall underwriting result. This risk is managed by investing in assets with similar characteristics to the liabilities, and by closely following and immediately reacting to any proposed or decided changes in legislation.
With respect to Sampo Life group, the insurance risks of insurance policies refer to risks related to the mortality rate and the incidence of disability and illness. The insurance risk in life insurance is due to the underwriting and provision risks. The underwriting risk contains a risk of losses due to pricing, concentration, improper reinsurance coverage or random fluctuations in frequency and size of claims. The provision risk is the risk that the carrying amounts of the liabilities are not adequate to cover all the liabilities. In life insurance the main risk is due to the discount interest rate risk, but it also contains the same risks as the underwriting risk, such as random fluctuations in the frequency and size of claims. See also ”Market risks of life insurance liabilities” on page 37.
Provision risks relate to the adequacy of technical provisions or reserves. The estimation of technical provisions for P&C insurance portfolios always includes an element of uncertainty as the provisions represent an estimate of future claims payments. For the sensitivities of the reserves, see table (16).
The storms of January 2005 mainly hit P&C insurance’s Swedish business. The business area industrial was affected the most. The total estimated cost, including reinstatement premiums, amounts to about EUR 32 million, net of reinsurance. The total impact on the combined ratio is 0.9 per cent.
sensitivy test, provision risk change in effect risk portfolios risk parameter country eUrm
Table (18) on page 44 shows the result of insurance risks in life insurance policies. The ratio of the actual claims expenditure of life insurance cover to the claims expenditure assumed in insurance premiums was 87 per cent in 2005.
Tables (17), (18) and (19) show the amount of Sampo Life’s risks from different perspectives.
The Board of Directors of Sampo plc is responsible for ensuring that the Group’s risks are properly managed and controlled. The Board sets the principles of risk management and provides guidance on the organisation of risk management and internal control in the business areas. The Board monitors the risk management process and has established a Risk Control Committee (RCC) to control the group’s risks. The major riskrelated decisions are made within the framework of the given authority in the investment committees, the credit committee and the asset and liability committee (ALCO).
The Group Treasury manages the interest rate and liquidity risks of the banking book within its authorisations and limits. These risks arise from Sampo ’s customer business. The objective is to preserve the net interest margin generated by customer business. The interest rate and liquidity risk of the banking book is managed by using derivatives and debt instruments. To reduce liquidity risks, some of the market-based funding must be acquired in maturities corresponding to the assets. A wide range of available financing sources with varying maturities is used. Customer behaviour data related to demand deposits and the prepayment characteristics of household loans are taken into account in the management process and in the related market risk models.
Market risks in trading are measured and limited by using a technique called Value-at-Risk (VaR), and are calculated within a confidence level of 99 per cent for overnight risk. The volatility and correlation parameters required by the model are calculated daily on the basis of 60-banking day historical market observations.
Risks are also monitored and limited by means of stress testing and exposure limits, thus ensuring that agreed levels of risk are not exceeded in exceptional market conditions.
Risks relating to the investment portfolios of the insurance companies are also measured with the var technique. The confidence level used is 97.5 per cent and the investment horizon is one month. The covariances are calculated from five-year data, using exponential weighted moving averages. Stress testing is also performed in support of the VaR calculations.
credit risk management The Group’s guidelines lay down uniform principles for credit risk taking, with the aim of ensuring good quality in the credit process. Sampo’s Board of Directors annually approves the credit risk policy. This sets the parameters for credit risk appetite, expressed by the economic capital allocated to credit risks and the diversification of risks from different perspectives. The targeted economic capital is set at a level below the actual capital in the balance sheet. Lending is focused on customers operating in Finland and the Baltic coun-
Reserve for decreased discount rate 5.3 55 25 39 22 12 6 7
Sampo Life Parent Company Total 8.2 1,192 1,135 2,068 1,262 888 625 971 *) Before reinsurers’ share **) investment contracts maturity of Sampo Life Group’s business in force at 31 December 2005. The maturing amounts of Sampo Life are evaluated by assuming lapse rates based on past experience. guaranteed interests and bonus rates based on the liability adequacy test
The Group’s Credit Committee is authorised to make all credit decisions. The authority is further delegated to separate sub-committees responsible for domestic and Baltic customers, and to authorised credit officers in customer business units. The nominal amount of the authorisation varies according to the economic capital and the total exposure of the customer after the decision. All credit requests are prepared in the customer business units. Credit decisions are primarily based on the risk-adjusted return on risk-adjusted capital. The most important factors are creditworthiness, the loss given default, and the maturity of the respective customer exposures.
The Group’s Rating Committee, which is independent of the credit decision process, decides on all significant ratings. The use of credit decision-making authority is controlled by the limits set for countries, customers, customer groups and products and by regular reporting requirements.
The group has an internal 12-stage creditworthiness rating scale, which covers more than 97 per cent of loans and other exposures in Sampo Group. The internal rating system has existed in its current form since 1997. The default probabilities given to the rating categories refer to the possibility of future counterparty defaults. A customer will be rated as default grade, if interest and loan instalments are unpaid for over 90 days, loans must be restructured resulting in a financial loss, or a customer is forced into corporate or debt restructuring or bankruptcy. Sampo Bank regularly utilises its own data to test the default probabilities given to the rating categories and changes them, when necessary.
Credit risk monitoring is based on the continuous monitoring of both macroeconomy and individual customer business sectors, and customer creditworthiness, collateral values and covenants. The credit risks of the customer business units are reviewed systematically at least once a year, monitoring the appropriateness of credit decisions, categorising the customers and collateral, and implementing action plans created to reduce the risks of customers in the lowest rating categories. Country, customer and product limits are monitored daily. The achievement of credit policy targets is followed monthly.
All collateral is valued at the time it is pledged and regularly thereafter. The values of different collateral types are divided into four quality categories on the basis of volatility and liquidity. Only the value of collateral in the two best quality categories is taken into account in calculating the loss given default for each customer. For example, the two best categories do not exceed 70 per cent of the market value of dwellings or 60 per cent of the market value of business premises with good liquidity. Each collateral type has its own maximum per cent of market value which is used when part of the market value is allocated to each quality categories.
investment management of insurance companies The investment operations of Sampo Group’s insurance companies aim at achieving the highest possible returns at acceptable levels of risk, to ensure that both Sampo Life and the If Group will, under all circumstances, exceed the required solvency ratio and have sufficient and structurally suitable investment assets to cover the companies’ technical provisions. The biggest risks threatening investment performance are decreases in the value of investments, and returns that are lower than that required by technical provisions. The intention is to limit these risks by diversifying the investment portfolio as far as possible by instrument, sector and country. Currency risks are managed by keeping assets and liabilities sufficiently balanced across currencies or by using derivatives. If necessary, derivatives are also used to hedge the investment portfolio against value decreases.
The Boards of Directors of the Group’s insurance companies annually approve the companies’ investment policies which define the target allocation of the investment portfolio, the limits by instrument, the organisation of investment activities and the authorities to make and execute decisions. In allocating assets and setting return and liquidity requirements, the structure and requirements of the companies’ technical provisions, their risk-bearing capacities, regulatory requirements, rating ambitions and risk capacity /appetite are taken into account. The investment risks are monitored by sensitivity analysis. In this case, standard deviations by types of asset, annually approved by each company’s Board of Directors, are used in calculating the long-term risk of value changes in the investment portfolio. In calculating the overall risk, all markets are assumed to lose their value by one standard deviation simultaneously. Additionally, the total risks of the investment portfolios are monitored using the Value-at-Risk technique. The investment policy also includes guidelines on the use of derivatives. The risk of using derivatives is monitored every month using the same technique.
Sampo’s Board of Directors and each insurance company’s Board of Directors appoint an Investment Committee, which is responsible for the organisation and control of investment activities. The Investment Committee ensures compliance with the principles and limits specified in the investment policy and reports to the company’s Board on investment activities. Sampo Life’s Investment Committee meets every second week and if ’s investment committee meets at least eight times a year. The Boards of Directors of both companies annually approve the risk management plan concerning the risks of the entire insurance company.
The credit risk in investment operations can be broken down into issuer risk and counterparty risk. Issuer risk is often associated with a direct holding in a security, while counterparty risk is related to derivatives. The essential difference in terms of risk is that in the former case, the entire value of the bond is at risk, whereas in the latter case it is only the current market value of the derivative contract that is at risk. Standard & Poor’s and Moody’s ratings are used to judge the creditworthiness of issuers and counterparties. The credit risk is controlled by restrictions and limits given in the investment policy, and followed-up on a continuous basis.
The estimation of technical provisions for P&C insurance portfolios always includes an element of uncertainty. The provisions represent an estimate of future claims payments. The estimates are based on the facts and data known and available at the balance sheet date. The basis for the estimation is historical claims. In addition, trends in loss development, levels of unpaid claims, legislative changes, judicial decisions and economic conditions are taken into consideration. The methods used in general are the Chain Ladder and the Bornhuetter-Fergusson methods combined with projections of numbers of claims and average claims costs.
For statutory insurance lines such as Motor Third Party Liability and Workers’ Compensation, legislation differs significantly between countries. Some of the Finnish, Swedish and Danish provisions consist of annuities sensitive to changes in mortality assumptions and discount rates. In particular, the swedish technical provisions are sensitive to changes in inflation. The proportion of the technical provisions for claims related to MTPL and WC is 66 per cent of the total claims provisions.
In addition to the specific risks that are individually associated with the insurance business or investment assets, P&C Insurance is exposed to the aggregated effect of such risks. Some of the risks P&C Insurance is exposed to work in opposite directions, creating natural hedges. To analyse the accumulation and diversification of risks, a Dynamic Financial Analysis (DFA) model is used. If ’s DFA model is a market-recognised simulation model which has been customised to the specific needs of P&C Insurance.
At inception of reinsurance the accepted credit risk of the reinsurer is considered. The credit risks of reinsurance assets are followed.
operational risk management Operational risks are defined as the risks of losses attributable to inadequate or defective internal processes and systems, people or external events. Operational risks also include legal and reputational risks. Risks can be divided into eight classes: • Internal fraud • External fraud • Deficiencies in personnel management • Deficiencies in practices concerning customers, products or business • Damage to physical assets • Business disruption and system failures • Deficiencies in execution, delivery and process management • Changes in the external operating • environment
and Sampo Life make self-assessments of operational risk annually, whereas in if these assessments are made quarterly. The risk indicator values are reported regularly, and the operational risk losses as soon as they are noticed.
A wide variety of banking services is available in the internet and the use of web services has increased rapidly. Maintenance of the service level of Sampo Bank’s web banking services requires that internal controls and risk management methods are systematically complied with. Risk management is evaluated regularly in the light of changes in activities and the environment. There are updated risk analyses concerning the main activities, systems, projects and processes. The development and maintenance of activities is in a specified documented form.
Continuity plans have been prepared and revised for the most critical business areas. On the basis of these plans, key functions can be continued in situations of possible disruption. The plans are regularly tested and updated at least annually. Continuity issues are reported to Sampo plc’s Board of Directors.
Sampo Bank left the application to use the internal ratings based approach for credit risks during 2005. Sampo Bank is planning to apply the Standardized Approach for operational risks.
The solvency reform of insurance companies (Solvency II) is also under development. Solvency II should encourage and give incentives to insurance companies to measure and manage their risks. To some extent the solvency II approach and rules will be compatible with Basel II. Solvency II is not expected to come into force before 2010.
Net interest income 341 –39 8 310 Net income from financial transactions 69 0 6 75 Net fee and commission income 221 –1 –17 203 Impairment losses on loans and receivables 3 –2 1
Consolidated Income Statement by Business Segment for Year Ended 31 December 2005
Depreciation and amortisation by segment are disclosed in Note 12 and investments in associates in Note 20.
Banking and p&c life elimina- eUrm investment insurance insurance other tions Group
Claims incurred –1,742 –464 –2,206 Change in liabilities for insurance and investment contracts –191 –191 Staff costs –185 –329 –19 –46 13 –567 Other operating expenses –218 –375 –29 –83 88 –617 Total operating expenses –403 –2,445 –703 –129 101 –3,580 net income between the segments 29 30 21 –79
Profit before taxes from continuing operations 279 427 144 106 0 955
Assets Cash and balances at central banks 1,290 366 211 –201 1,665 Financial assets at fair value through p/l 2,409 87 46 3 –8 2,537 Loans and receivables 18,911 62 –55 18,918
Equity Share capital 96 Reserves 1,814 Retained earnings 2,412 Equity attributable to parent company’s equityholders 4,322 Minority interest 26 Total equity 4,348
Liabilities Financial liabilities at fair value through p/l 451 129 9 0 589 Amounts owed to credit institutions and customers 10,985 313 –260 11,037
Equity Share capital 95 Reserves 1,622 Retained earnings 1,723 Equity attributable to parent company’s equityholders 3,440 Minority interest 26 Total equity 3,465
assets by geographical segment eUrm finland sweden norway denmark Baltic other elimination total
Assets 2005 Banking and investment services 21,276 – – – 1,918 – – 23,194
Investments of P&C insurance are managed concentratedly and in the segment reporting they are allocated to Sweden.
most significant changes in accounting principles The most significant change from Sampo Group’s perspective is the valuation of financial instruments at fair value through p/l according to IAS 39. The change has an effect especially on the life insurance business where financial instruments were previously measured at the lower of cost and fair value. In banking and investment services financial instruments were largely measured even previously in accordance with IAS 39.
The treatment of lease contracts according to IAS 17 Leases differs from the previous accounting practice. Contrary to the previous practice, the lessor will recognise the lease as a receivable instead of a tangible asset. Leases in which the risks and rewards incidental to ownership remain substantially with the Group are classified as operating leases. These assets are included in the Group’s property, plant and equipment, and related income is recognised as rental income. As a result of changes in accounting practice, there are changes between income statement and balance sheet items, but they have no material effects on the Group’s result or equity.
In the valuation of life investment contracts with a discretionary participation feature, national accounting principles are applied in the IFRS financial statements for the present. Hence the related insurance liability is calculated as previously, with the potential impact of the liability adequacy test taken into account, however.
Investments made to cover the requirements of both with-profit contracts and equity are managed comprehensively. Most of these investments are categorised as financial assets available-for-sale according to IAS 39. The changes in fair value of these assets are recognised in the fair value reserve of the equity.
With respect to unit-linked insurance contracts and investments covering these contracts, the current practice of valuing them at fair value, relating to the policyholder’s choice of investment, will be continued.
Sampo’s unit-linked life investment contracts offer policyholders the opportunity, as specified in the contract, to convert their savings to with-profit contracts. The accounting practice of these contracts remains the same. The unit-linked portion of these investment contracts accounts for 0.2 per cent of the total amount in the balance sheet.
According to the Finnish accounting practice, the equalisation provision, planned to even out changes in claims incurred, was previously recognised in technical provisions. In accordance with IFRS 4 the equalisation provision is no longer recognised as a liability, but as a component in the equity of the consolidated accounts.
Sampo uses the exemption under IFRS 1 and does not show the cumulative translation differences that existed at the date of transition to IFRSs as a separate componenet of equity, but deems the cumulative translation differences to be zero.
With respect to investment property, an acquisition method is applied for the present in compliance with IAS 40.
Sampo has two employee option programmes that fall under IFRS 2 Share-based Payment. The programmes date from the years 1998 and 2000 and the share options including in them have been granted before the Exposure Draft was published on 7 Nov. 2002. In accordance with IFRS 1 Sampo does not apply IFRS 2 to these employee option programmes.
reconciliation of the equity share preferred fair share premium legal capital value retained minority eUrm capital account reserve notes reserve earnings total interest total
3) After the transition to IFRSs, the Group’s securities have been classified under IAS 39 as financial assets held for trading, financial assets designated as at fair value through profit or loss, financial assets available-for-sale and investments heldto -maturity. Securities are measured at fair value except in the case of investments held-to-maturity, which are measured at amortised cost using the effective interest rate method. The gain or loss arising from a change in the fair value of financial assets available-for-sale is recognised directly in the fair value reserve as a component of equity.
In banking and investment services and the holding business this causes a change in the valuation of hedging derivative financial instruments, as under previous accounting practice these instruments were measured according to the same principles as the hedged balance sheet item. The net income from the fair value hedge and the ineffective part of the cash flow hedge are recognised in the income statement, while the effective part of the cash flow hedge is recognised in the fair value reserve as a separate component in equity.
5) Other changes include e.g. EUR 4.7 million in restoring unrecognised interests on non-performing loans. Under previous accounting practice, no interest was accrued on non-performing loans. Under IFRSs, interest is accrued.
7) The minority interest is presented as a separate component of equity.
14) The reduction of the Group’s taxes for the financial year results mainly from the measurement of balance sheet items at fair value and from the change in treatment of corporate tax credits.
Holding business Shares, financial fixed assets 214 274 Financial assets available-for-sale *) Are presented in the balance sheet as a separate item.
First acquisition 51.89% 1,373 Second acquisition 10.06% 271 Costs allocated to acquisitions 5 specification of net assets for the first acquisition acquiree's eUrm carrying amount fair value
Reinsurer’s share of insurance liabilities 1,020 1,020 Intangible assets 159 122 Property, plant and equipment 36 36 Other assets 1,470 1,470 Tax assets 242 242 Total assets 11,140 11,201
Acquired share of net assets 51.89% 945 Purchase price 1,378 Goodwill 433 specification of net assets for the second acquisition acquiree's eUrm carrying amount fair value
Liabilities Financial liabilities at fair value through p/l 85 85 Debt securities in issue 262 315 Liabilities for insurance and investment contracts 7,991 7,991 Other liabilities 621 599 Tax liabilities 183 211 Total liabilities 9,142 9,201
Goodwill arising from acquisition of If Group First acquisition 433 Second acquisition 66 Total 498 acquisition of sampo Banka (a/s māras Banka) in the year 2004 On the 17 November 2004 Sampo Bank plc acquired Sampo Banka (AS Māras Banka) in Latvia. The purchase price, EURm 13, was paid in cash. No other costs were allocated to the acquisition. As the acquisition was carried out at the end of the financial year, the effect of the acquisition on Sampo Group’s profit was immaterial.
Acquired share of net assets 100% 7 Purchase price 13 Goodwill 6 sampo Group’s revenue and profit for the financial year if the acquisition date for if Group and sampo Banka had been the beginning of the year 2004 eUrm
Pro forma revenue Sampo Group’s revenue for year ended 31 Dec. 2004 excl. If Group 2,104 If Group’s revenue for year ended 31 Dec. 2004 4,289 Sampo Banka’s revenue for year ended 31 Dec. 2004 3 Sampo Group’s pro forma revenue for year ended 31 Dec. 2004 6,395
On 30 December 2005 Sampo plc sold its shareholdings in the following investment service companies to Sampo Bank plc, a wholly-owned subsidiary of Sampo plc: Mandatum Stockbrokers Ltd Mandatum & CO Ltd 3C Asset Management Ltd Arvo Value Asset Management Ltd Mandatum Asset Management Ltd Sampo Fund Management Ltd
On 9 December 2004 Sampo plc sold Mandatum Private Equity Funds Ltd to Amanda Capital Ltd.
Banking and investment services Interest income Loans and receivables 659 572 Other interest income 7 12
Included within interest income is EURm 1 (EURm 0) interest income accrued on impaired financial assets.
Interest income and expenses from P&C insurance and life insurance business are disclosed in Net income from investments.
Gains/losses from hedge accounting Fair value hedging Change in fair value of hedging derivative instruments, net –20 –5 Hedging loan portfolio 2 –5 Hedging individual loans 3 –5 Hedging liabilities –24 4 Change in fair value of hedged items, net 19 6 Loan portfolio –2 5 Individual loans –3 5 Liabilities 24 –3 Total –1 1
Banking and investment services Loans and receivables Impairment losses –36 –22 Reversal of impairment losses and recoveries of loan receivables previously written off 39 33
Banking and investment services, total 221 197 other business other business, total –1 –1
Fee and comission income from financial assets and liabilities EURm 115 (EURm 112) and fee and commission expenses EURm 10 (EURm 8).
7 insurance premiums p&c insurance Premiums from insurance contracts Premiums written, direct insurance 3,886 2,392 Premiums written, assumed reinsurance 76 35 Premiums written, gross 3,962 2,427 Ceded reinsurance premiums written –244 –123 Premiums written, net 3,717 2,304 Change in unearned premium provision –23 467 Recoverable from reinsurers 15 –74 Insurance premiums earned, net 3,709 2,697
life insurance Premiums from insurance contracts Premiums written, direct insurance 664 526 Premiums written, assumed reinsurance –13 –9 Insurance contracts total, gross 650 517 Premium revenue ceded to reinsurers on insurance contracts issued –5 –17 Insurance contracts total, net 645 500 Investment contracts 4 5 Net insurance premium revenue total *) 649 505
Group, total 4,358 3,202 *) The change in unearned premiums is presented in note 10 performance analysis per class of p&c insurance fire and accident motor, motor, marine, other third and third party other air and damage to party credit eUrm health liability classes transport property liability insurance
Claims incurred, gross 2004 –399 –478 –425 –39 –433 –96 –1 Operating expenses, gross 2005 –86 –155 –145 –37 –209 –36 0 2004 –68 –102 –114 –37 –170 –30 –1 Profit/loss from ceded reinsurance
total legal direct reinsurance eUrm expenses other insurance assumed elimination total
Technical result before investment return *) Premiums written related to sold insurance portfolios (EURm 12) has been deducted from premiums written.
Premiums from investment contracts Premiums from contracts with discretionary participation feature 1 1 Premiums from unit-linked contracts 4 5
Banking and investment services Financial assets Investment securities held-to-maturity Debt securities Interest income 1 3 Financial assets available-for-sale Debt securities Interest income –3 5 Gains/losses 8 0 Equity securities Gains/losses 14 0 Dividend income 7 7 other assets Investment property Gains/losses 0 0
Net income from investments includes exchange differences Arising from insurance business 3 17 Arising from investments 3 –28 life insurance Financial assets Trading assets and derivative financial instrument Derivatives Gains/losses –56 24 Financial assets designated as at fair value through p/l Debt securities Interest income/expenses 2 0 Gains/losses 2 1 Equity securities Gains/losses 1 0 Dividend income 0 0 Investments related to unit-linked contracts Debt securities Gains/losses 0 0 Equity securities Gains/losses 155 47 Dividend and other income 7 5 Investment in securities held-to-maturity Debt securities Interest income 11 10 Gains/losses -7 2 Loans and receivables Interest income 3 3 Gains/losses 1 2 Financial assets available-for-sale Debt securities Interest income 96 101 Gains/losses 105 –1 Equity securities Gains/losses 193 93 Impairment losses –15 –25 Dividend and other income 80 70
Net income from investments includes exchange differences Arising from insurance business 0 1 Arising from investments –48 24
other business Financial assets Financial assets available-for-sale Debt securities Interest income 6 3 Equity securities Gains/losses –1 99 Dividend income 6 7 other assets Investment properties Gains/losses 6 –2 Impairment losses –7 –
The changes in the fair value reserve are disclosed in the Statement of changes in equity on p. 18 and in note 34.
Other income and expenses comprise rental income, maintenance charges and depreciation of investment property.
in insurance business investments are managed as a whole and so all the income and expenses arising from are included in Net income from investments.
P&C insurances total claims incurred –2,613 156 –2,457 –1,730 –12 –1,742 interest rate used in calculating the technical provisions of annuities (%)
Unit-linked contracts –47 –44 0 0 –47 –44 Total –174 –178 –5 0 –179 –179
Investment contracts Capital redemption policy Contracts with discretionary participation feature (DPF) –46 –41 – – –46 –41 Unit-linked contracts –3 –12 – – –3 –12 Investment contracts, total –50 –53 – – –50 –53
Insurance contracts Life insurance Surrender benefits –12 –16 Death benefits –27 –22 Maturity benefits –81 –90 Loss adjustment expenses 0 0 Other –6 –5 Total –127 –134
Life insurance, unit-linked Surrender benefits –18 –18 Death benefits –8 –7 Maturity benefits –20 –14 Loss adjustment expenses 0 0
Life insurance Pension insurance Pension payments –202 –184 Surrender benefits –13 –6 Death benefits –4 –5 Loss adjustment expenses 0 0
Investment contracts Capital redemption policy Contracts with discretionary participation feature (DPF) 38 39 Unit-linked contracts –3 6 Investment contracts, total 35 45
Basic earnings per share Profit or loss attributable to the equity holders of the parent company/continuing operations 949 824 Profit or loss attributable to the equity holders of the parent company/discontinuing operations 0 –7 Weighted average number of shares outstanding during the period 565 558 Basic earnings per share (EUR per share)/continuing operations 1.68 1.48 Basic earnings per share (EUR per share)/discontinuing operations 0 –0,01
Financial assets available-for-sale 5,378 88 276 1 93 financial liabilities Financial liabilities at fair value through p/l Trading liabilities and derivative financial instruments 649 –
�5 fair Values fair carrying fair carrying eUrm value value value value financial assets Cash and balances at central banks 1,665 1,665 1,166 1,166 Financial assets at fair value through p/l 2,537 2,537 2,727 2,727
Investments related to financial liablities Financial liabilities at fair value through p/l 649 649 589 589 Amounts owed to credit institutions and customers 12,203 12,260 10,946 11,037 Debt securities in issue 9,666 9,647 7,956 7,953
The fair value of trading and investment securities is assessed using quoted prices in active markets. If published price quotations are not available, the fair value is assessed using discounting method. Values for the discount rates are taken from the market’s yield curve. The private equity funds are carried at cost during the first for operating years and funds of funds during the first five operating years, following the funds’ foundation, unless they cannot be assessed to be permanently impaired.
The fair value of loans and other financial instruments which have no quoted price in active markets is based discounted cash flows, using quoted market rates. The market’s yield curve is adjusted by other components of the instrument, f.ex. by credit risk.
�7 financial assets and liabilities at fair Value through p/l eUrm assets liabilities assets liabilities
Banking and investment services Assets/liabilities held for trading 1,255 – 1,501 106
Financial assets designated as at fair value through p/l of insurance business are included in Investments.
Debt securities Treasury bills and other eligible bills 902 1,138 Other debt securities 340 363 - Issued by public bodies 94 46 Government bonds 21 37 - Certificates of deposit issued by banks 165 88 - Other debt securities 81 228 Total debt securities 1,242 1,501
Trading securities pledged as colleteral securities are disclosed in note 33.
liabilities Held for trading Short selling – 106 - Debt securities – 106 Total liabilities held for trading – 106
2005 2004 contract/ fair value contract/ fair value notional notional eUrm amount assets liabilities amount assets liabilities derivative financial instruments Derivatives held for trading Interest rate derivatives OTC derivatives
Interest rate options, bought and sold 15,687 102 101 9,179 21 19
Interest rate options, bought and sold 10,388 2 2 3,520 1 1
Equity and equity index options – – – 0 0 0 Equity index futures – – – 14 0 0
Total derivatives held for trading 49,004 295 327 37,003 289 266
Total derivatives designated as as cash flow hedges 170 1 – 421 8 –
Total derivatives held for hedging 4,154 211 136 2,874 203 79 financial assets designated as at fair Value through p/l
2005 2004 contract/ fair value contract/ fair value notional notional eUrm amount assets liabilities amount assets liabilities p&c insurance derivative financial instruments
Total derivatives held for trading 4,566 87 149 12,864 176 129 life insurance Derivatives held for trading Interest rate derivatives OTC derivatives
Equity derivatives OTC derivatives OTC equity and equity index options 5 – 3 – – – Total OTC derivatives 5 – 3 – – –
Exchange traded derivatives Equity and equity index options 15 2 – – – – Total exchange trade derivatives 15 2 – – – –
Exchange traded derivatives Commodity futures 11 1 – – – – Total exchange traded derivatives 11 1 – – – –
Total derivatives held for trading 5,094 46 36 1,776 28 9
Derivatives held for hedging Derivatives designated as fair value hedges Foreign exchange derivatives Currency options, bought and sold – – – 160 10 – Total derivatives designated as fair value hedges – – – 160 10 –
Total derivatives held for hedging – – – 160 10 –
Consumer loans 1,103 934 Other retail loans 1,111 963 Finance lease assets 1) 766 650 Money market loans 15 223 Reverse repos 0 0 Other commercial loans 7,348 6,426 Allowance for impairmentt 2) –18 –15
Loans and receivables of insurance business are included in Investments, note 19.
Maturities for finance lease assets not later than one year 227 258 later than one year and not later than five years 505 372 later than five years 132 89 Gross investments in the finance lease 863 719
Group, total 15,313 13,981 Of which: Financial assets 15,037 13,519 Other assets 276 461
Banking and investment services, total 74 78 p&c insurance financial assets
Total financial assets designated as at fair value through p/l 9,535 8,559
Accumulated depreciation –1 0 Accumulated impairment losses –18 – Net carrying amount at 1 Jan. 122 185
Non-cancellable minimum rental - not later than one year 3 4 - later than one year and not later than five years 3 5 - later than five years – 0
Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period –2 –2 - direct operating expenses arising from investment property not generating rental income during the period 0 0 Total –2 –2
Total financial assets designated as at fair value through p/l 53 14
Investments held-to-maturity Debt securities Issued by public bodies – 96 Other than government bonds – 96 Other debt securities 16 16 Total debt securities 16 112
Financial assets available-for-sale Debt securities Issued by public bodies 1,539 1,398 Government bonds 1,514 1,398 Other 25 – Certificates of deposit issued by banks 1,132 743 Other debt securities 560 648 Total debt securities 3,230 2,789
Accumulated depreciation –31 –53 Accumulated impairment losses –18 –22 Net carrying amount at 31 Dec. 130 260
Non-cancellable minimum rental - not later than one year 11 23 - later than one year and not later than five years 21 53 - later than five years 2 14
Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period –7 9 - direct operating expenses arising from investment property not generating rental income during the period 0 0 Total –8 –9
Financial assets available-for-sale Debt securities Treasury bills and other eligible bills – – Other debt securitiest 132 99 Total debt securities 132 99
Accumulated depreciation –1 0 Accumulated impairment losses –17 21 Net carrying amount at 1 Jan. 56 122
Expenses arising from investment property - direct operating expenses arising from investment property generating rental income during the period 1 2 - direct operating expenses arising from investment property not generating rental income during the period 0 0
Total financial assets designated at fair value through p/l 1,262 881
Accumulated amortisation – –115 –115 Other changes – –4 –4 Net carrying amount at 31 Dec 5 61 66
Banking and investment services, total 66 other customer intangible eUrm Goodwill relations assets total p&c insurance At 1 January
Opening net carrying amount 549 47 28 623 Exchange rate differences –15 – 0 –15
Amortisation charge – –9 –6 –15 Closing net carrying amount 533 38 23 595
Accumulated amortisation – –9 –89 –98 Net carrying amount at 31 Dec 533 38 23 595
The intangible asset allocated to customer relations arouse from acquisition of If, when one part of the acquisition cost was allocated to insurance contracts of If Group. The item is amortised on a straight-line basis over 6 years.
Amortisation charge – –1 –1 Closing net carrying amount 153 4 157
Opening net carrying amount 24 Additions 8 Disposals 0 Amortisation charge –6 Closing net carrying amount 26
Disposals 0 –3 –3 Impairment losses recognised 0 0 0 Depreciations 0 –26 –26 Closing net carrying amount 10 22 31
Opening net carrying amount 33 Additions 10 Disposals –1 Depreciations –13 Exchange rate differences 0 Closing net carrying amount 29
At 31 December Cost 97 Accumulated depreciation –68 Net carrying amount 29
Accumulated depreciation –2 –3 –5 Accumulated impairment losses – – – Net carrying amount 18 2 20
Disposals –14 0 –14 Impairment losses recognised – 0 0 Depreciations 0 –1 –1 Closing net carrying amount 4 1 5
Banking and investment services, total 344 280 p&c insurance other assets
25 deferred tax assets and liabilities changes in deferred tax during the financial period 2005 recognised recognised exchange in p/l in rate eUrm � Jan. 2005 account equity differences 3� dec. 2005
Deferred tax assets Confirmed losses 17 –14 –1 2 Changes in fair values 4 –2 1 Pension obligations 24 –1 –1 23 Other deductible temporary differences 177 –25 –1 –5 147 Total deferred tax assets 222 –39 –3 –6 173
Deferred tax liabilities Depreciation differences and untexed reserves 189 75 3 266 Changes in fair values 149 14 58 –1 220
Deferred tax liabilities in balance sheet 545 changes in deferred tax during the financial period 2004 recognised recognised exchange acquired in p/l in rate eUrm � Jan. 2004 subsidiaries account equity differences 3� dec. 2004
Deferred tax assets Confirmed losses 87 –71 17 Changes in fair values 3 0 4 Pension obligations 25 –1 24 Impact of consolidation and elimination 1 10 –2 2 11 Other deductible temporary differences 35 135 –4 0 166
Consolidation procedures and eliminations – –123 Income not subject to tax –8 –20 Net profit from associates –5 –18 Different tax rates on overseas earnings 4 –13 Tax losses carried forward – –8 Expenses not allowable for tax purposes 4 1 Effect of tax rate changes on deferred taxes – 6 Other 0 –
Banking and investment services Amounts owed to credit institutions Liabilities to central banks 0 0 Deposits from credit insitutions 664 174 Other liabilities owed to credit institutions 202 383
Amounts owed to customers Other liabilities 99 106 Total amounts owed to customers 99 106 other business, total 106 313
Sampo Housing Loan Bank issued in 2005 first significant covered bond with a principal of EURm 1 000 and a maturity of 5 years. The loan pays fixed interest rate of 2.5%, which was swapped to floating rate at 0.01% below Euribor.
Sampo Bank Group had in issue on 31 December 2005 three capital securities included in Tier 1 capital, all of them repayable with the consent of the Finnish Financial Supervision Authority and in one of them a step-up clause at the earliest call.
p&c insurance Subordinated debt securities Subordinated loans Euro-denominated loans Preferred capital note, 2001 221 219 Preferred capital note, 2002 73 52 Preferred capital note, 2005 149 –
Insurance contracts total Provision for unearned premiums 3,127 3,090 Provision for claims outstanding 1,468 1,354
Exemption allowed in the standard has been applied to investment contracts with DPF or contracts with a right to trade-off for an investment contract with DPF. These investment contracts have been valued like insurance contracts.
Banking and investment services, total 892 710 restructuring pension eUrm provision provision total p&c insurance provisions
Current (less than 1 year) 25 11 35 Non-current (more than 1 year) 30 89 119
Amounts used during the period –21 –11 –32 Unused amounts reversed during the period –12 – –12 Discount effect – 14 14
Current (less than 1 year) 20 11 31 Non-current (more than 1 year) 19 88 107
Arising out of reinsurance operations 7 17 Other liabilities 55 27
2005 2004 funded Unfunded funded Unfunded eUrm plans plans total plans plans total employee benefit obligations of p&c insurance 3� dec. Employee benefit obligation Present value of estimated pension obligation 298 54 352 260 41 302 Fair value of plan assets 203 – 203 178 – 178
Recognised in Income Statement Current service cost 19 13 Interest expense on obligation 19 16 Expected rate of return on plan assets at start of year –10 –9 Actuarial gains (+) or losses (-) recognised during the financial year 1 – Losses (+) or gains (-) on curtailments and settlements 2 7 Past service cost –3 – Pension costs 27 27
Specification of change in net liability entered in the balance sheet Net liability on 1 Jan, 2005 excl. social security 77 86 Net cost recognised in Income Statement 27 27 Exchange differences on foreign plans 2 1 Contributions –23 –27 Paid out pensions and settlements –2 –6 Net liability on 31 Dec. 81 81 Provision for social security 19 19 Provision for pensions 31 Dec. 100 99
other short-term employee benefits There are other short-term staff incentive schemes in the Group, the terms of which vary according to country, business area or company. Benefits are recognised in the profit or loss for the year they arise from. An estimated amount of these profit-sharing bonuses for 2005 is EURm 47.
Undrawn loans, overdraft facilities and other commitments to lend 4,062 3,575 - original maturity less than one year 642 874 - original maturity more than one year 3,420 2,701 Other irrevocable commitments 17 7
Total of sublease payments expected to be received under non-cancellable operating sub-leases at 31 Dec 12 13
Non-cancellable operating leases Minimum lease payments under non-cancellable operating leases - not later than one year 26 29 - later than one year and not later than five years 72 73 - later than five years 39 7
Lease and sublease payments recognised as an expense in the period - minimum lease payments 28 31
Subsidaries If P&C Insurance Ltd and If P&C Insurance Company Ltd provide insurance with mutual undertakings within the Nordic Nuclear Insurance Pool and within the Norwegian Natural Perils’ Pool. The subsidiary If P&C Insurance Company Ltd has funded assets within the framework of the Finnish guarantee ordinance systems pertaining to such matters as Workers Compensation insurance.
If P&C Insurance 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. in favor of the Institute of London Underwriters.
If P&C Insurance Holding Ltd has issued a guarantee to the benefit of TietoEnator Corporation whereby If Holding guarantees the commitments incurred by the If Group company If It Services A/S with TietoEnator based on an agreement covering IT-services. The guarantee will indemnify TietoEnator if If IT Services A/S is declared bankrupt, suspends payments in general, seeks a composition of creditors or in any other way is deemed to be insolvent.
If P&C Insurance Holding Ltd has issued a guarantee to the benefit of Svenska Handelsbanken AB (publ) whereby If Holding guarantees the commitments incurred by the If P&C Insurance Ltd deriving from short term credits up to an amount of EURm 53 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.
other business off-balance sheet items Subscription liabilities 12 17 other Sampo plc is involved in a legal dispute concerning a VAT refund. If the decision of the Tax Office for Major Corporations, which is under complaint, remains final, despite the appeal process, the impact on the profit for the period is estimated to be EURm 26, at the maximum. See Note 37 for the financial statements of Sampo plc.
Non-cancellable operating leases Minimum lease payments under non-cancellable operating leases - not later than one year 2 1 - later than one year and not later than five years 6 6 - later than five years – 0
The Group had at the end of 2005 premises a total of 361 364 m2 taken as a lessee. The contracts have been made mainly for 3 to 10 years.
34 equity and reserves equity number of share- premium eUrm shares capital account total
Reserves at 31 December 2004 Legal reserve 370 Fair value reserve 233 Total 603
Reserves at 31 December 2005 Legal reserve 370 Fair value reserve 396 Total 766 movements in reserves: Legal reserve
Cash flow hedge: Recognised in equity 3 Transferred to profit or loss –10 Financial asset available-for-sale Recognised in equity 209 Transferred to profit or loss –138
The fair value reserve consists of changes in the fair values of the financial assets available for sale and derivative instruments used for hedging cash flows.
Profit for the financial year 949 Dividend distribution –113 Exchange rate translation difference –62 Recognition of undrawn dividends 4 Acquisition of own shares –88
shares and votes According to Sampo plc’s Articles of Association, the share capital can be at minimum EUR 30,105,638.84 and at maximum EUR 120,422,555.30. On 31 December, 2005, the company’s share capital was EUR 96,088,842.74.
Sampo plc’s Board of Directors decided at 5 October 2004 to apply for the listing of a new share category called Sampo Uudet (Sampo New) on the main list of the Helsinki Stock Exchange. Sampo A shares subscribed for with warrants or options after 31 December 2004 were to be traded under the new share category.
The Annual General Meeting of 11 April 2005 granted the Board of Directors authorisation, valid until 11 April 2006, to buy back Sampo shares. The maximum amount of A shares that can be bought back is five per cent of the company’s share capital or of the number of votes carried by all shares. Shares can be bought back either by an offer made to all holders of A shares in proportion to their holdings and on equal terms determined by the Board, or through public trading on the Helsinki Stock Exchange, in which case the shares will not be bought in proportion to the shareholders’ holdings.
The new shares were admitted for trading on the Helsinki Stock Exchange following the entry of each lot in the Trade Register.
**) The subscription price of each series is fixed but reduced by the amount of paid dividend. The subscription price of the 1998 scheme is a rounded value.
Year 2000 option programme On 29 Sep, 2000 an Extraordinary General Meeting of Sampo decided to offer options without consideration to the management, middle management and other key personnel of Sampo and its subsidiaries and to a wholly-owned subsidiary specified by the Board of Directors. The decision to offer these options disapplied the shareholders’ pre-emptive subscription rights.
35 dividends The Board of Directors proposes to the Annual General Meeting on 5 April 2006 that a dividend of EUR 0.60 per share, EUR 338,820,309 in total (EUR 0.20 per share, EUR 113,156,253 in total) be distributed for 2005. The dividends to be paid will be accounted for in the equity in 2006 as an appropriation of retained earnings.
36 related party disclosures Key management personnel The key management personnel in Sampo Group consists of the members of the Board of Directors of Sampo plc and Sampo Group’s Executive Committee.
Other long-term benefits consist of the benefits under long-term incentive schemes accounted for for the year.
Banking and investment services Sampo Bank plc 100 787 Sampo Housing Loan Bank plc 100 41 MB Mezzanine Fund II Ky 62.5 8 AS Sampo Pank 100 39 AB Sampo bankas 100 58 AS Sampo Banka 100 20 3C Asset Management 60.2 1 Mandatum & Co Ltd 67.8 1 Mandatum Asset Management Ltd 100 4 Mandatum Stockbrokers Ltd 81.3 3 Arvo Value Asset Management Ltd 62.0 0 MB Equity Partners Ltd 40.0 0 Sampo Fund Management Ltd 100 4 p&c insurance If P&C Insurance Holding Ltd 100 1,886 If P&C Insurance Ltd 100 1,446 If Säkerhet AB 100 1 If P&C Insurance Company Ltd 100 550 UAB If Draudimas 100 8 AAS If Latvia 100 6 AS If Eesti Kindlustus 100 47 life insurance Sampo Life Insurance Company Ltd 100 484 AS Sampo Eesti Elukindlustus 100 2 UAB Sampo Lietuva Gyvybes Draudimas 100 4 AAS Sampo Latvija Dziviba 100 4 If Livförsäkring AB 100 5 other business Oy Finnish Captive & Risk Services Ltd 100 0 If IT Services A/S 100 0 Nortwest 2 Seething Lane 100 7 Riskienhallinta Oy 100 0 Realty World Ltd 100 2 Satura Oy 100 1 Primasoft Oy 40 1
Exclude property and housing companies accounted for in the consolidated accounts.
39 investments in shares and participations other than subsidiaries and associates carrying Holding amount/ eUrm country no. of shares % fair value life insurance listed companies
Alma Media Corporation FI 6,655,512 8.92% 51 Aspocomp Group Plc FI 2,626,752 13.08% 10 Comptel Corporation FI 19,569,925 18.28% 32 Elisa Corporation FI 1,158,435 0.70% 18 Finnlines Plc FI 800,000 1.97% 12 Fiskars Corporation FI 1,142,326 1.47% 11 Kemira Oyj FI 3,410,940 2.73% 46 Lassila & Tikanoja Plc FI 2,171,238 5.66% 32 Nokia Corporation FI 2,992,124 0.07% 46 Norvestia Plc FI 1,789,538 11.68% 15 Okmetic Oyj FI 872,250 5.17% 2 Outokumpu Oyj FI 431,600 0.24% 5 Sanoma-WSOY Corporation FI 2,512,787 1.60% 50 Stora Enso Oyj FI 3,443,889 0.42% 39 Suominen Yhtymä Corporation FI 1,398,424 5.90% 4 Tamfelt Corporation FI 788,427 2.86% 7 Tecnomen Corporation FI 3,083,400 5.29% 8 Teleste Corporation FI 1,624,200 9.37% 12 Turvatiimi Oyj FI 5,699,436 9.85% 3 Uponor Corporation FI 4,609,970 6.20% 83 UPM-Kymmene Oyj FI 3,740,300 0.71% 62 Vaisala Group FI 766,650 4.34% 18 Wärtsilä Corporation FI 1,984,668 2.11% 49 YIT Corporation FI 5,366,710 8.60% 194 Total 809 Other listed companies 11 Listed companies in total 821 other companies Ahlstrom Oyj FI 382,800 1.05% 11 Atine Group Oyj FI 1,195,000 11.31% 2 Varma Mutual Pension Insurance Company FI 14 19.72% 2 Kaleva Mutual Insurance Company FI 5,000 10.00% 1 Meridea Financial Software Oy FI 14,289,177 16.41% 2 Metsä Tissue Oyj FI 553,407 1.84% 11 Oy G. W. Sohlberg Ab FI 244,813 9.07% 13 Sato-Yhtymä Oyj FI 124,419 5.66% 10
Unit trusts BBL Baltic States Cap Fund FI 10,042 18 Fourton Odysseus Growth FI 126,716 18 Mandatum China Growth FI 7,832,662 9 Mandatum Emerging Asia Growth FI 2,164,262 56 Mandatum Emerging Markets Debt FI 65,806,418 97 Mandatum Europe Enhanced Index FI 32,876,947 52 Mandatum European Opportunities Growth FI 60,000,000 61 Mandatum High Yield Growth FI 145,734,761 148 Mandatum Gold Growth FI 4,712,183 5 Mandatum Latin America K FI 17,718,541 32 Mandatum North America Enhanced Index FI 14,965,134 19 Mandatum Commodity Growth FI 5,000,000 5 Mandatum Russia Growth FI 5,223,977 11 Mandatum Russia Small Cap Growth FI 15,052,750 16 Mandatum US Bond Growth FI 101,709,000 94 Mandatum US Small Cap Value Growth FI 25,942,959 38 Sampo Japan Equity Growth FI 490,573,991 73
carrying Holding amount/ eUrm country no. of shares % fair value capital trusts Fenno rahasto Ky FI 540,088 6 Finnmezzanine rahasto III A Ky FI 728,662 8 Finnventure rahasto V Ky FI 374,721 8 First European Fund Investments UK L.P. FI 962,036 7 Total 834 Other shares and participations 37 Domestic shares and participations in total 1,692 listed foreign shares and participations Nordea Bank AB SE 7,955,000 0.29 % 70 Other listed companies 1 Listed foreign shares and participations in total 72 other foreign shares and participations Nordben Life & Pension Insurance Co Ltd GB 9,300,000 14,76% 4 Bravida ASA NO 216,838 11,58% 50 foreign unit trusts New Providence Fund Ltd BS 49,039 12 RMF Commodity Strategies (Class SOE1) BS 14,787 16 RMF Relative Value Strategies F BS 12,243 16 Trigon Central and Eastern European Fund EE 673,504 10 Richelieu France FR 52,910 21 Lloyd George Asia Small Companies Fund HK 290,769 23 APS China A Share Fund IE 120,768 11 APS Japan Growth Fund KY 183,278 15 Prosperity Cub Fund KY 350,000 48 Comgest Panda LU 18,631 25 JPMorgan Fleming Funds - India Fund LU 312,990 12 Merril Lynch IIF Japan Opportunities Fund A2 LU 397,562 22 Futuris Hedge Fund SE 19,917 5 Nektar Hedge Fund SE 59,045 13 foreign capital trusts Access Capital L.P. GB 4,335,141 37 Duke Street Capital IV UK L.P. GB 437,557 8 Duke Street Capital V Limited GB 639,454 6 EQT Northern Europe III UK No 1 L.P. GB 1,146,152 14 Industri Kapital 2000 Fund GB 650,776 6 Permira Europe II L.P.2 GB 452,235 7 Schroder Ventures Asia Pacific Fund CLP 2 KY 723,375 6 VenCap 9 LLC KY 941,786 8 Unicapital Investments II LU 690,425 7 CapMan Equity VII B L.P. NL 633,373 6 EQT IV ISS Co-investment Limited Partnership NL 872,610 9 Behrman Capital III L.P. US 865,662 7 Thomas H. Lee Equity Fund V L.P. US 888,992 9 other foreign shares and participations in total 433 Other shares and participations 78 Foreign shares and participations in total 583
Holdings exceeding EURm 5 and holdings in listed companies exceeding five per cent specified. Continues, Note 39→
Danske Bank DK 1,600,000 0.25% 48 Other listed companies 11 Listed companies in total 476 other than listed companies 1 carrying Holding amount/ eUrm country no. of shares % fair value
Interest income 9 6 Interest expenses –42 –42 Net interest income –34 –36
Dividend income from Group companies 530 450 from associates 3 9 from other companies 6 8
Fee and commission income 0 0 Fee and commission expenses –1 –1
Net income from transactions in securities and foreign excange dealing from transactions in securities 0 0 from foreign exchange dealing 0 –1
Administrative expenses Staff costs Wages and salaries –14 –11 Social security costs Pension costs –2 –1 Other –1 –1 Other administrative expenses –8 –10
Loans and advances to credit institutions Repayable on demand 47 50
Loans and advances to customers Other than repayable on demand – 13
Shares and participations 51 49 Shares and participations in associates 18 18 Shares and participations in Group companies 3,157 3,276 Derivative financial instruments 2 – Intangible assets 26 24 Property, plant and equipment Properties and shares in property companies Investment property 17 66
Other assets 74 45 Prepayments and accrued income 24 22 Deferred tax assets 20 3
summary of significant account policies The separate financial statements of Sampo plc for 2005 have been prepared in accordance with the provisions of Article 4 of the Act on Credit Institutions (1607/1993), the Decree of the Ministry of Finance (1259/2000) concerning annual accounts and Group accounts of financial institutions and investment services companies, and Standard 3.1 Financial statements and Annual report issued by the Finnish Financial Supervision Authority. In addition, the provisions of the Accounting Act and Companies Act are followed, with the exceptions mentioned in the Act on Credit Institutions, 30:2 §.The comparative figures in Income statement and Balance sheet for 2004 have been restated to comply with the figures for the financial year. The valuation differences arising from changes in the valuation principles of financial instruments have been recognised as an adjustment into the equity at 1 January 2005 (Note 29).
Accounting policies applied to the separate financial statements of Sampo plc do not materially differ from those of the consolidated financial statements of Sampo plc, prepared in accordance with the International Financial Reporting Standards (IFRS).
Interest expenses Liabilities to credit institutions 2 Liabilities to customers 4 Debt securities in issue 14 Derivative financial instruments –7 Subordinated liabilities 29 Other interest expenses 0 Total 42 2 dividend income eUrm 2005
Change in fair value of hedging derivatives –2 Change in fair value of hedged items 2 Total 0 6 net income from investment property eUrm 2005
� depreciation and impairment on property, plant and equipment and intangible assets eUrm 2005
�0 information on business areas and geographical market areas Sampo plc’s income comprise primarily dividend income from subsidiaries, reduced by interest expenses on funding the acquisition of If. Income generates totally in Finland.
Debt securities total – 133 133 of which treasury bills and other eligible bills – – – of which the total amount of those on which interest is not accrued – – – of which the amount of subordinated debt securities – 132 132
�6 movements in intangible assets during the year information eUrm technology other
�� movements in property, plant and equipment during the year investment other pro- property and perty and shares in shares pro- eUrm property comp. perty comp. equipment
Dividend receivable 22 Other 52 Total 74 20 prepayments and accrued income eUrm 2005
Deferred tax assets Timing differences 16 Fair value reserve 3 Total 20
Less than 3 months 47 Loans and advances to credit institutions 47 3–12 months –
Liabilities Liabilities to customers 99 – 99 – Debt securities in issue 438 – 438 6
29 movements in the parent company's equity in the year ended 3� december 2005 share fair share premiums legal value other retained eUrm capital account reserve reserve reserves earnings total
3� share issues, option rights and issue of convertible bonds Information is disclosed in Note 34 to the consolidated financial statements.
Kaleva Mutual Insurance Company *) 6,993,855 1.2 2.0 Ilmarinen Mutual Pension Insurance Company 6,120,255 1.1 1.1 The State Pension Fund 3,900,000 0.7 0.7 OP-Delta fund 3,820,300 0.7 0.7 Mutual Insurance Company Pension-Fennia 2,915,800 0.5 0.5 The Local Government Pensions Institutions 2,389,446 0.4 0.4
Neste Oil Pension Fund 1,748,940 0.3 0.3 OMX Helsinki 25 Exchange Traded Fund 1,425,248 0.2 0.2 Etera Mutual Pension Insurance Company 1,407,350 0.2 0.2 Sampo Finnish Equity Fund 1,355,375 0.2 0.2
In the nominee register in total 276,549,664 48.4 48.0 Others in total 89,736,037 15.7 15.6 *) 5,793,855 A shares and 1,200,000 B shares.
Not more than one year 2 Over one year but not more than five years 6 Over five years – Total 8 36 off-balance sheet items eUrm 2005
Underwriting commitments 12 off-balance sheet items total 12 To or on behalf of Group companies – To or on behalf of associates –
Balance at beginning of year 8 Additions 2 Repayments 0 Balance at end of year 10
notes on shares held 40 shares held percentage carrying of share amount capital held *) eUrm subsidiaries Banking Sampo Bank plc, Helsinki Finland 100.00 787
**) Sampo Group holds 40% of the share capital and 60% of the voting rights.
SAMPO OYJ Board of Directors anne Brunila tom Berglund Georg ehrnrooth
to the shareholders of sampo plc We have audited the accounting records, the financial statements and the administration of Sampo plc for the financial year 2005. The Board of Directors and the Managing Director have prepared the Report of the Board of Directors and the consolidated financial statements prepared in accordance with International Financial Reporting Standards as adopted by the EU and the parent company’s financial statements prepared in accordance with prevailing regulations in Finland, that includes parent company’s balance sheet, income statement and the notes to the financial statements. Based on our audit, we express an opinion on the consolidated financial statements, the parent company’s financial statements and on the administration of the parent company.
We have conducted the audit in accordance with Finnish Standards on Auditing. Those standards require that we perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the management as well as evaluating the overall financial statements presentation. The purpose of our audit of administration is to examine that the members of the Board of Directors and the Managing Director of the parent company have complied with the rules of the Companies’ Act.
consolidated financial statements In our opinion the consolidated financial statements prepared in accordance with International Financial Reporting Standards as adopted by the EU give a true and fair view, as referred to in the International Financial Reporting Standards as adopted by the EU and defined in the Finnish Accounting Act, of the consolidated result of operations as well as of the financial position. The consolidated financial statements can be adopted.
The contact information for subsidiaries providing P&C insurance services is available in the Review’s part for ’If P&C Insurance’.
t ra ns la tio n: B el lc re st -T
, r eg is te re d do m ic ile
Sampo is also well-known to Finnish customers for its Mandatum brand in asset management, private banking, corporate finance and stock brokerage. Some of the mutual funds also still bear the name Mandatum. In real estate, Realty World (Kiinteistömaailma ) offers real estate agency services for houses and apartments on our behalf all over Finland.
RoE 28.4% Earning per share, EUR 1.68 Profit before taxes EURm 1,295
8 Banking Corporate and Institutional Customers 11 Long-term Savings Life Insurance Mutual Funds Asset Management Brokerage 15 Corporate Finance 16 Sampo in the Baltic Countries 18 Staff 20 Corporate Responsibility 21 Segments Profit and Loss Account 23 Segments Balance Sheet 25 Contact Information
First, banks should be able to actively offer their customers solutions that customers will find financially beneficial, even after many years. The bank needs to have an opinion and the courage to communicate this to the customer, even though selling this type of solution might prove a little more difficult. The benefit gained by the customer from the bank must no longer concentrate on discounts or bonuses – they are minor issues compared with whether the major financial decisions made by the customer are right, or not.
The operating profit of banking was EUR 315 million and the return on equity exceeded 23 per cent. Behind the excellent operating result is strong business growth, cost-efficient operations and a high-class loan portfolio. Sampo Life’s operating profit reached EUR 245 million. The result was boosted not only by surging investment markets but also by greater operating efficiency and rapidly growing customer assets.
Although we had set tough growth targets in banking and ong-term saving for Finland in 2005, the results still took us by surprise. The bank’s housing loan portfolio increased by more than 26 per cent due to high market demand and appreciable growth in our market share. We also substantially bolstered our position as a bank for all sizes of companies and entrepreneurs. Sampo Life was particularly successful in the corporate customer segment and further reinforced its already solid position as the leading provider of corporate life and pension insurance in Finland.
Although our significant growth in 2005 was partly driven by the market, our staff’s will to win was just as important. I am extremely proud of our team. Looking ahead to the year 2006, I am convinced that our progress will continue. The outlook for banking and long-term savings is positive, and I doubt that anyone else can match our strong will to create benefit for more and more customers, while still achieving a commendable result.
Customers have indeed found that the Personal Financial Plan is an excellent way to plan their finances and appreciate the uniqueness of the service compared with the competition. At the same time, most customers have opted to expand their use of Sampo Bank’s services.
The Personal Financial Plan continued to thrive in 2005, surpassing the magic figure of 100,000 completed plans in April. Increasing numbers of customers wish to update their plans annually, and in the future the bank’s specialists will be able to provide them with more comprehensive services.
In developing the Personal Financial Plan, Sampo Bank has focused on finding solutions for the financial needs of customers at different stages of their lives.
Sampo Bank expanded its branch network in the greater Helsinki area. Mika Lehtiniemi, Bank Manager, and katri Salminen, Finance Manager, are on hand to serve customers at the Sampo Bank branch opened in october at the Jumbo shopping centre in Vantaa. Four other sales or service points were also opened in the Greater Helsinki area.
Our housing loan portfolio increased by 26 per cent – clearly faster than the market.
The focus on better service and the provision of new safe options reinforced customers’ trust in Sampo Bank. In 2004, the housing loan portfolio in Finland increased 26 per cent and the market share went up from 14.3 per cent to 15.5 per cent.
Customers are protecting themselves against the risks of loan management by a loan insurance policy. An essential part of loan negotiations with customers is advising on how to prepare for unexpected events. About 40 per cent of all housing loans granted by Sampo Bank were covered by a loan insurance policy.
The integration of retail and corporate customer branch offices that was started last year continued in many locations and proved an excellent solution. The integration of offices creates a more flexible service model, in which specialists in the different areas of banking and long-term savings can be more readily contacted.
Many housing loan applicants consider it vital to plan their finances carefully so that all is in good order, even before they have found a new home. When buying a house or apartment it is also important to get a realistic idea of the amount and terms of a potential loan as quickly as possible.
Sampo Bank took on this challenge in January 2005. Now the branches can make decisions on housing loans independently and faster than ever. At the same time, they are ready to make an entirely new kind of service promise.
Although the significance of doing one’s banking in the branch network is growing, the web bank is increasingly being used as a trading place. The number of web bank transactions continued to grow rapidly throughout the year, and web bank communications between the customer and the bank increased as well. Almost 90 per cent of all daily retail transactions took place in the web bank. Nevertheless, service availability remained at over 99 per cent and much attention was paid during the year to ensuring the security of the web bank. The strong demand for housing loans, consumer credits and mutual funds was also reflected in the web bank.
During the year, online securities brokerage services were made more customer-friendly by simplifying bookentry account pricing, improving the quality of trading both technically and service-wise, and expanding domestic research and analysis. The number of Internet investor agreements increased by almost 100 per cent, and Sampo Bank has become an obvious alternative for those with investments or savings in securities.
In 2005, the telephone sales service focused on credit card and consumer credit products. Approximately 40 per cent of new sales of credit card and consumer credit products took place through Sampo Bank’s telephone service. In addition to normal selling, the telephone service arranged new customer appointments at branch offices in the main population centres and Greater Helsinki area.
In 2005, the assets under Mandatum Private Bank’s management increased by over 30 per cent. The previous year’s drive to develop discretionary services was successful, as these accounted for a large part of the growth achieved in 2005.
Mandatum Private Bank, which is part of Sampo Bank, offers private wealth management and banking services to individuals and companies in its ten branches around Finland. In addition, the Private Bank includes a Family Office, set up to provide a comprehensive service for family groups.
The Private Bank’s comprehensive service concept is intended to offer customers a wide variety of opportunities in banking, funding and financial services through its personal service. The Private Bank’s services also include legal counselling in taxation, and family and inheritance rights issues.
number of customers taking loan insurance number of customers with continuous fund saving agreements
The demand for apartments remained strong all year. In 2005, Realty World’s brokerage revenue increased by 21 per cent on the previous year. The chain brokered a total of 14,000 real estate transactions, which is an increase of 12 per cent over the previous year. Realty World is Finland’s second largest real estate agency chain. The target of market leadership is coming closer.
The central unit of Realty World is owned by Sampo Bank. The operations of the Realty World chain are based on a franchising concept, in which all the real estate agencies in the chain are independently owned and operated firms. The service combines the economies of scale of a large chain with the entrepreneur’s motivation to serve customers individually and efficiently. The chain concept also allows countrywide joint marketing and sales, and provides customers with a uniform package of services.
At the end of the year, the Realty World chain comprised 104 franchised real estate agencies in 52 localities. The Realty World chain employed 650 people.
Mergers and acquisitions and new SME customers boosted sales in corporate business.
Sampo’s corporate banking serves almost 100,000 companies and institutions in Finland. The banking and insurance needs of companies, entrepreneurs and their families are attended to through a countrywide sales network and telephone and internet services.
Telephone sales units specialising in corporate customers are located in Helsinki, Tampere and Oulu. They annually negotiate the payments and investment service needs of over 20,000 corporate customers in co-operation with the branches and, when necessary, they direct customers to personal meetings to discuss matters such as financial services.
During the year, significant improvements were made and security features were added to Sampo Bank’s web bank. Over the past ten years, Sampo Bank has systematically developed and expanded its web services for corporate customers. The web bank offers companies of all sizes a highly functional and extensive desktop.
Ownership, sales and marketing of the Netvisor service were transferred during the year to the Passeli companies that boast a large pool of financial management software customers in Finland. Sampo Bank provides Netvisor’s certification service.
Sampo Bank’s web services are based on the bank’s competence, innovation and long-term commitment. As before, Sampo Bank was a desired partner for its customers and many other stakeholders also in 2005. The web and payments solutions designed drew on the bank’s knowledge of customer operations, processes and needs.
2005 was also a year of preparing consumers for web-based invoicing. The web-based invoice for consumers will be a serious alternative for companies, especially in view of pending European payments regulations affecting Finland.
Sampo Bank will continue to support its customers by introducing web services and expanding the available services in the coming years.
The basic idea of the Sampo Agreement is to evaluate the customer’s personal finances and business needs without fees and commitments. The Sampo Agreement is then compiled to meet the customer’s needs at that particular moment and it can be adapted as the company grows.
Sampo Agreement customers are assigned their own Sampo contact person, through whom all services are readily available in one place. Customers can access all services under the Sampo Agreement via Sampo’s web bank.
Corporate customer assets increased by over 10 per cent in 2005, with the fastest growth being in mutual funds. The number of customers also increased during the year.
Sampo Bank’s fixed income funds succeeded well in both domestic and international comparisons. Cus-
The Sampo Agreement, jointly introduced in the autumn by Sampo Bank, Sampo Life and If, is aimed at small businesses and incorporates tailored solutions for the entrepreneur’s banking and insurance needs. Tytti Kumpulainen, Bank Manager, is at the service of customers at the Pitäjänmäki corporate branch in Helsinki.
In October 2005, Sampo Bank began preparations to commence banking operations in Russia. The goal is to offer selected banking services to Nordic companies and Russian retail customers.
Sampo Bank is a leader in the sale of capital-guaranteed loans to companies, and the demand for these products experienced vigorous growth late in the year.
Sampo Finance’s leasing and hire-purchase financing experienced strong growth all year, with particular success achieved in financing for car sales. As a result, the relative share of consumers in the customer base is on the increase. In customer service development, the focus was on the diversification of web services. During the year, Sampo Finance also introduced a new management system for hire-purchase contracts. In the future, Sampo Finance will focus on increasing its market share through new product concepts.
Sampo 15.9 OKO 15.1 Barclays Capital 7.7 Citigroup 7.7 JP Morgan 6.6 UBS 6.4 Deutsche Bank 4.3 Nordea 4.0 Dresdner 3.9 Credit Suisse 3.9
Sampo’s Polish life and pension insurance business was divested in 2005. More information on the Baltic and Polish life insurance services is given in a separate review on page 17.
Overall in the life insurance sector, premiums written increased by 10 per cent and insurance savings by approximately 12 per cent on the previous year. Sampo Life’s premiums written increased by 20 per cent, double that of average growth in the business.
It is increasingly common for companies to strengthen the commitment of their staff through pension and risk insurance policies. Premiums written by corporate customers climbed by more than 70 per cent to reach EUR 280 million. One significant contributor to growth was the decision to insure the liabilities of certain supplementary pension funds.
Corporate and risk policies are major growth areas Confidence in insurance saving strengthened in 2005. Savings decisions were influenced primarily by the good performance of the investment markets and the stabilisation of legislation.
In particular, the Sesam group pension insurance policies that complement the pension security of key staff members were sold at a record rate, and Sampo Life further reinforced its position as Finland’s leading corporate life and pension insurer.
Unit-linked insurance savings increased to EUR 1.2 billion, and unitlinked premiums written totalled EUR 270 million. However, the development of premium income and sales in mainly single-premium savings policies was modest. There is potential in the market for faster growth, and measures to utilise this potential were initiated in late 2005.
Sampo Life utilises a variety of sales channels in addition to its own resources. In sales to retail customers, the major channel in Finland and the Baltic countries is Sampo Bank. With respect to corporate customers, If and Sampo Bank’s corporate branches are the most significant. Other sales channels outside the Group are also being developed.
In policy and claims handling, customers increasingly use telephone and web services. This is cost- and time-efficient not only for customers, but also for Sampo Life.
The emerging equity markets became much more popular among investors in 2005. Sampo Fund Management successfully launched several mutual funds investing in emerging markets, including Mandatum Black Sea which invests mainly in Turkey, Mandatum China which invests on the Chinese stock market and Mandatum Russia Small Cap which specialises in small Russian companies.
They are HSBC Asset Management, Martin Currie Investment Management and BlackRock.
The number of Sampo fund unit holders rose steeply during the year from 290,000 to over 345,000. In particular, the number of continuous fund savings customers increased, due to the new emerging markets’ funds. At the end of the year, 105,000 customers had made a continuous fund saving agreement, compared with 91,000 one year before.
Leading position Mandatum Asset Management strengthened its position as Finland’s leading asset manager. Assets increased to over EUR 24 billion.
Core customer assets managed by the company increased to EUR 8.3 billion, while other customer assets, including Group assets, increased to EUR 15.8 billion. The total volume of assets under management increased by a good 17 per cent, or EUR 3.5 billion, on the previous year and passed the EUR 24 billion level.
At the end of 2005 the assets managed by the company totalled EUR 565 million and the funds managed by the company had a total of 19,038 unit holders.
It was a succesful year for Corporate Finance Mandatum held its leading position as an advisor in Finnish mergers and acquisitions.
The M&A markets continued to grow and were again characterised by the active participation of private equity investors on both the selling and buying side. Mandatum’s invoicing grew by about one third on the previous year.
The 47 per cent climb in the revenues of Mandatum Securities’ investment services generated a major improvement in operating profit compared with 2004. Behind the strong profitability performance, however, was both the favourable market and the success of service packages targeted at Finnish investors. Despite tighter competition, the focus on analysis and sales quality led to a strengthening of market position among Finnish investors. The trend was very positive in domestic and European equities, as well as in structured products.
The higher overall service quality raised not only profitability, but also market share. Mandatum’s share of total turnover in the Helsinki Stock Exchange rose to 3.5 per cent (3.0), and the company brokered 5.1 per cent (5.2) of total transactions. Mandatum’s role in the transactions of end investors increased even more, as its share of trading-driven Nokia transactions fell from the previous year’s figure of just under 2 per cent to 1.5 per cent in 2005.
In 2006, Mandatum Securities will further increases its focus on providing comprehensive services for Finnish investors. Growth is expected both in European equities and derivatives and in the much improved sales of structured products. As in 2005, the focus of growth in the equity markets will remain on cooperation within the European Securities Network (ESN). Brokerage services aimed at Finnish retail customers will be developed in co-operation with Sampo Bank’s branch network.
In its analysis activities, Mandatum Securities aims to maintain its current proactive and market-oriented approach. The main focus in this area, too, will be on raising quality. Already in 2005 the company achieved a number of top rankings in different independent comparisons.
Sampo launched its banking activities in the Baltic countries by acquiring local banks in Estonia and Lithuania late in 2000 and in Latvia in 2004. Nowadays, these operations are well-established. The Estonian bank operates under the name AS Sampo Pank, and the Lithuanian bank under the name AB Sampo bankas. In Estonia, Sampo Pank has now increased the number of its branches to 16. In Lithuania, Sampo bankas has 12 branches in the largest growth centres. At the end of the year, AS Sampo Banka (Latvia) had two branches in Riga and a 2.1 per cent market share of housing loans for private individuals. The strong performance of Sampo Banka will continue through a renewal of its IT systems and expansion of the branch network. The purpose of this development is to make Sampo Banka a full-service bank for both private and corporate customers.
The Estonian and Lithuanian Sampo banks both increased their customers substantially in 2005. At the end of the year, there were 129,900 customers in Estonia and 46,900 in Lithuania. From the beginning of the year, growth in Estonia was 18 per cent and in Lithuania 82 per cent.
Most of the increase came from new retail customers, who are the main focus in the Baltic countries. Housing loans, in particular, grew strongly all year. In Lithuania, Sampo’s market share grew to 17 per cent, making it the third-largest bank in housing loans. In Estonia, Sampo ’s market share in housing loans has also increased, and the company is now the fourth-largest housing loan provider with a market share of 9.7 per cent.
Jekaterina tomberg (left), Marje kutser and tiina kohv, customer service clerks in a Sampo Bank branch in the old quarters of tallinn, Estonia, exchange currency for tourists and locals.
expansion of Sampo’s banking network to the entire Baltic region has become a key goal.
Sampo life insurance activities grew rapidly in the Baltic countries in 2005, clearly exceeding the average growth of the market.
The combined staff of the Baltic life companies is approximately 100 people. On average, half are working in sales or customer service jobs.
In December 2005, Sampo Life’s Board of Directors made a decision to combine all the Baltic subsidiaries into one legal entity by forming SE Sampo Life Baltic. The arrangement streamlines and strengthens the structure of the Baltic life insurance activities and increases operational efficiency. The arrangement still requires the approval of the respective authorities in each Baltic country. The arrangement has no effect on currently valid life policies and requires no measures from customers.
Sampo Elukindlustus continued to be Estonia’s fastest growing life insurance company.It improved its market position in 2005 and became the country’s thirdlargest life company with a market share of 12.9 per cent. Gross premiums written were up by 95 per cent on 2004.
In the year under review, Sampo Dziviba ’s premiums written climbed by 126 per cent, and the company’s market share expanded to 28 per cent.
In May, Sampo Bank launched a brand new card, named Freestyle, on the Estonian market. Customers can use the card for payments and cash dispenser withdrawals. Additionally, a credit option can be attached to the card, without collateral. The Freestyle card is only available at Sampo Bank in Estonia for persons of at least 18 years of age.
This card, styled with a transparent appearance, has become very popular in Estonia. The flexibility offered by the credit option has aroused great interest, especially among youth and students.
Systematic efforts to develop staff competence continued in all business areas. In the retail customer business, the competence of office staff was reviewed with respect to the customer services offered, and the appropriate competence development was continued through network-supported, on-the-job learning. In particular, the service provided to small and medium-size companies was supported in the branches through multiform, network-supported training programmes.
Working in conjunction with the business areas, Human Resources Management launched projects to develop competence management. The objective is to use customer feedback and the discussions on personal objectives and development to establish a common basis for competence development.
According to Sampo’s job satisfaction survey, employees feel that they can cope well in their work. Supervisor training and support in matters related to wellbeing at work continued along the lines of the previous years. The well-being of employees is nowadays considered much more carefully and widely in everyday workplace activities. The co-operation with Varma continued, and new Evita well-being at work projects were commenced in a number of units. As a result of such projects, subsidised sports activities have increased substantially.
Research has shown that the quality of indoor air is one of the key factors affecting job satisfaction and productivity. During the autumn, Sampo implemented, with the support of the Finnish Work Environment Fund, an R&D project on the proper management of indoor air quality. Sampo’s experts in human resources and workspace management will utilise the project results in the indoor air workgroup.
In spring 2005, Sampo’s Board of Directors decided on the overall reward structure for the entire Group. In addition to fixed salaries and benefits, the three main forms of compensation are the personnel fund, the annual bonus systems and the long-term incentive programs for management and key experts. These elements are applied with due consideration for national collective bargaining agreements and accepted practices and conformance with legislation.
Finnish legislation on employee representation in corporate governance gives staff representatives the right to be present and express opinions at meetings of the Boards of Directors of Sampo Bank and Sampo Life.
Please consult page 20 of the Group Report for a table of the number of employees working in each of Sampo Group’s business areas.
In 2005, the focus was again on measures promoting the staff’s working capacities and well-being.
Responsible companies are concerned not only about profitability, but also about their customers, employees, the surrounding society and environmental issues.
Sampo offers its customers opportunities for responsible investment, particularly through its sustainability funds.
The credit risk analyses of Sampo Bank’s corporate research assess how companies manage environmental risks in Finland and the Baltic countries. Environmental risks are emphasised because of their effect on the continuity and profitability of operations.
Sampo Bank’s Estonian subsidiary, Sampo Pank, established a three-year program for the Tartto University Hospital to finance scientific research by doctors.
Co-operation with Helia (the Helsinki Business Polytechnic) continued. Sampo’s experts served as lecturers in an introductory course on banking and insurance.
An equality plan for 2006 was confirmed for all of Sampo’s banking and long-term savings units in Finland. Staff health and well-being at work were promoted through physical exercise campaigns and by providing support to those who wish to stop smoking.
Environmental issues were emphasised in Sampo in the Green Light project started in 2004. The project aims at reducing electricity and paper consumption, in particular. The staff was encouraged to contribute savings tips and to enhance the sorting and recycling of office waste.
Banking and P&C Life- Elimina- EURm investment insurance insurance Other tions Group
Net income from financial transactions 69 0 6 75 Net fee and commission income 221 -1 -17 203 Impairment losses on loans and receivables 3 -2 1
Liabilities Financial liabilities at fair value through p/l 464 149 36 649 Amounts owed to credit institutions and customers 12,336 106 -182 12,260
Investments related to unit-linked contracts 882 882 Reinsurers’ share of insurance liabilities 679 16 696
Equity Share capital 95 Reserves 1,622 Retained earnings 1,723 Equity attributable to parent company’s equityholders 3,440 Minority interest 26 total equity 3,465 total equity and liabilities 38,138 2� Sampo | Banking and Long-term Savings 2005
Sampo plc Visiting address: Unioninkatu 22, Helsinki, Finland Postal address: FI-00075 SAMPO, FINLAND
Mandatum & Co Ltd Visiting address: Fabianinkatu 23, Helsinki, Finland Postal address: P.O.Box 95, FI-00131 HELSINKI, FINLAND
Sampo Fund Management Ltd Visiting address: Bulevardi 10 A, 6th floor Helsinki, Finland Postal address: P.O.Box 1396, FI-00075 SAMPO, FINLAND Telephone: +358 10 236 10 www.sampo.fi
�C Asset Management Ltd Visiting address: Bulevardi 10 B, Helsinki, Finland Postal address: P.O.Box 152, FI-00121 HELSINKI, FINLAND
Lithuania AB SAMPO gyvybes draudimas (Life insurance company) Gelezinio Vilko 18a, LT-08104 VILNIUS, LITHUANIA Telephone: +370 5 2109 390 Fax: +370 5 2109 380 www.sampo.lt
Sweden Sampo Bank´s branch office in Sweden Barks väg 11, SE-16903 SOLNA, SWEDEN
Associated and Co-operation Companies Kaleva Mutual Insurance Company Visiting address: Bulevardi 56, Helsinki, Finland Postal address: FI-00075 SAMPO, FINLAND
The contact information for P&C Insurance is available in the Annual Report part for ‘If P&C Insurance’ and on the Internet at www.if.fi
Concept, graphic design and layout: Miltton Oy | Photographers: Horst Neumann and Petri Artturi Asikainen | translation: Bellcrest-Translations Ltd, Tmi Tina Pettersson-Mäki, Uddevalla Språkkonsult, Olof Sandberg | Photographs: Tapani Kyrki (cover and case, Sampo Group Review), Olli Pulkkanen (cover, Banking and Long-term Savings), Maria Ervasti (cover, If P&C Insurance) | Printing: Libris, Helsinki 2006 | Sampo plc, registered domicile Helsinki, business ID 0142213-3
The scope for new initiatives in nordic property and casualty insurance has been considered limited...
sampo Bank provides banking services and services required for managing money affairs and financially securing the future for retail, corporate and institutional customers. About 1,1 million retail customers and almost 100,000 corporate and institutional customers use these banking and long-term savings services. Sampo’s banking and investment services employ about 4,200 people and are available in Finland, Sweden, Estonia, Latvia and Lithuania.
If P&C Insurance is the leading property and casualty insurance company in the Nordic countries, with approximately 3.6 million customers and a staff of about 6,600 people.
sampo Life specialises in life and pension insurance, with operations in Finland, Sweden, Norway, Estonia, Latvia and Lithuania. Sampo employs approximately 370 people in its life and pension insurance businesses.
• If, the leading P&C insurance company in the Nordic countries
Within product development, If also made considerable advances toward Nordic solutions during the year, as exemplified by the personal risk market, which was opened to If in 2004, when If became a wholly owned subsidiary of Sampo. In a short period, If has established a position as a significant player in this market by offering a series of new concepts, such as Nordic child insurance and Nordic accident insurance as well as Nordic insurance for adults that provides financial protection in the event of serious illness. More innovations will be launched in 2006.
If also launched several new Nordic products within personnel insurance during 2005, including private healthcare insurance providing access to faster care for those becoming ill. The personal risk and personnel insurance markets are highly dynamic areas where the underlying trend indicates that property and casualty insurance companies will eventually play an increased role as security providers in those societies in which they operate.
Claims adjustment is an area in which we believe that the initiatives implemented by If will generate important effects. Customer surveys show that, in addition to paying correct premiums, our customers also assign priority to receiving rapid assistance. If adjusts more than one and a half million claims every year, of which more than half are definitively adjusted within a day. Customers are beginning to note the difference compared with our competitors.
• Shareholders view If as a stable investment that offers limited risk combined with an attractive return.
Investment strategy based on balanced risk If seeks a risk level characterized by a balance between the risks in its insurance and investment portfolios. The aim of If ’s investment strategy is to maintain a balance between insurance commitments and investment assets in terms of currency and duration. Surplus capital is invested in an effort to enhance the total return.
The Nordic insurance market is relatively consolidated. The market share of the largest companies has risen substantially since the mid-1990s. The five largest companies account for two thirds of the market and three of them are established in more than one Nordic country.
Growth in the Nordic casualty and property insurance market tracks growth in the gross domestic product, GDP. During the 1990s, premium levels fell in relation to GDP and most companies experienced profitability problems. Since the beginning of the 21st century, premium levels have risen slightly in relation to GDP and the sector has attained a sustainable level of profitability.
The Baltic countries If has established a presence as one of the principal players in the growing Baltic markets. The Estonian insurance market is dominated by four major players, of which If is the market leader accounting for 39%. The Latvian and Lithuanian markets are more fragmented with a large number of players. If is the fourth largest company with a market share of 10% in Lithuania and the fifth largest company in Latvia with a market share of 9%.
If – the largest property & casulty insurer in the Nordic region
1) Sources: Danish, Finnish, Norwegian and Swedish insurance associations. Danish statistics are for 2004.
If is the market leader within private property and casualty insurance in the Nordic region and offers comprehensive insurance cover to private individuals in Norway, Sweden, Finland and Denmark. It has 3 million customers.
Healthy earnings and initiatives in new product areas Business trend during the year As a result of continued focus on efficiency, improved risk selection and a relatively favorable claims trend during the year, last years strong result could be maintained in 2005. The technical result amounted to MSEK 2 789 (2 750) and the already low combined ratio improved marginally to 89.1% (89.4).
Adjusted for exchange-rate effects, premiums written rose by 3% during the year, due to volume growth in Finland and Sweden. New personal insurance products launched during the year, such as accident insurance and child insurance, contributed to the growth.
As a result of more stringent risk selection and improved pricing the risk ratio remained at the same level as last year, despite a claims-intensive first quarter. The risk ratio was 64.6 (64.8) at yearend. Most product areas were showing strong results, but motor and property insurance contributed most towards the earnings. As in 2004, the claims trend was unusually favorable in Norway while the trend was more stable in the other Nordic countries. The average claim cost trend was positive due to such factors as favorable repair costs. The winter storms had a negative impact of approximately MSEK 100 net of reinsurance. However, this was offset by downward adjustments of claims provisions, in part connected to the tsunami disaster at the end of 2004.
the wrong type of insurance protection, If launched its “Active service” program in 2005, whereby customers and If personnel jointly review all of the customers ’ current policies and their total insurance requirements. During 2005, “Active service” helped 360,000 customers to review their insurance cover and the objective is to further increase this figure in 2006. To help customers become more conscious of risks and to prevent claims arising in their everyday life, the popular “Bad luck test” was launched on the Internet. This test won several awards during the year.
In order to further improve If ’s product offering to private customers, “If Plus” was launched successfully in Norway and Sweden during the year. This program rewards those customers who concentrate their insurance cover in If by offering them such benefits as lower deductibles and premium discounts. If Plus customers are also offered various services, such as cut-price rental of child car seats and claims-prevention products.
To satisfy customer requirements for rapid assistance in the event of a claim, efforts designed to reduce the claimsadministration time continued during the year. The proportion of customers who had their claims finally settled within 24 hours rose to 60% (58) in 2005, thus contributing to both increased customer satisfaction and a reduction in administrative costs.
Future focus Risk selection and correct pricing are the keys to sustainable profitability and also benefit customers by helping to stabilize price levels over time. Since the pricing methods used in the Nordic markets vary in accordance with the competitive situation, there is scope to develop more efficient pricing methods by increasing the transfer of knowledge among the countries in which If is active. For example, the pricing platform for certain products in Finland will be refined using the platforms applied in Norway and Sweden as a model. In addition, improved risk-selection and pricing systems are being used at If ’s call centers, something that has proved effective in efforts to avoid the incorrect pricing of products.
Personal insurance is the segment of the private market that is expected to grow most during the years immediately ahead. As a result of changes in social security systems in the Nordic markets, demand for private alternatives is increasing. By continuing to focus on efficiency, pricing and risk selection, If will be able to cost-effectively offer attractive products to the private market.
The Finns were not as concerned about burglary, but they were more than double as worried as the Swedes and four times as worried as the Norwegians about water damage.
Swedes are significantly more concerned about death than their Nordic neighbors, with 15% of all
In Finland, people are also much more concerned than other Nordic citizens about being injured by a drunk driver. Nearly one of every ten Finns also stated that driving a car in the dark was frightening, while the Norwegians hardly worried about this at all.
Business trend during the year Earnings improved sharply compared with the preceding year, as a result of improved risk selection, efficiency improvements and a favorable claims trend. The technical result rose to MSEK 1,469 (1,039) during the year. The combined ratio improved to 90.6% (95.0).
Adjusted for exchange-rate effects, costs declined with MSEK 50. The operations have become increasingly efficient as a result of organizational changes and general cost awareness. Improved work processes within both claims handling and sales channels also contributed to the increased efficiency. As the effeciency was enhanced, the risk ratio improved to 25.3% (26.5).
Activities during the year During recent years, the price scenario in the Nordic market for commercial insurance has stabilized. If ’s position is strong, both financially and in the market. The new forms of cooperation within distribution in some countries will start to affect the commercial market in 2006. The competition for customers who are reviewing their insurance cover is expected to increase.
During 2005, If implemented a series of changes in such areas as customer service and distribution in order to consolidate and enhance its market position. Among other improvements, processes, IT sup-
In order to improve customer service, the development of IT-based tools and more automated processes continues, as exemplified by If Login. This is an Internet portal for If ’s corporate customers that provides them with an overview of their entire insurance cover and enables them to report claims and receive help in claims prevention. If Login is widely appreciated among customers and the number of users rose by approximately 65% during the year. The service generates considerable efficiency gains, for both customers and If.
Personnel products are a strategically important growth area. In 2005, If launched a series of new products, such as healthcare insurance, which is now available in all Nordic countires. Rehabilitation insurance has been established in Sweden and in Norway, a sales initiative focusing on group life insurance was implemented. In 2005, new products accounted for 25% of the growth reported in Norway.
A series of risk-related projects are under way: • The product range is changing. New concepts are being devised in order to cover the entire breadth of customer requirements. Particular attention is being paid to panNordic solutions.
• Work to improve cost-effectiveness continues with undiminished strength. A key example is the work to further increase the efficiency of internal processes. At the same time, If Login and other IT solutions are generating distinct benefits in the daily lives of customers, and long-term savings for If.
Norway, the reverse was true: 55% of small-scale companies and 64% of midsize companies were not concerned about how changes in laws and ordinances would affect their business.
Costs decreased by 20 percent to MSEK 832, mainly as a result of lower commission expenses, reduced staffing and general cost rationalization. The improved efficiency resulted in a cost ratio of 19.3% (24.0).
Activities during the year In order to ensure competitive service and cost-effectiveness, several improvements of products, concepts and work processes were implemented during the year. The key work processes now have a Nordic structure, which is enabling the realization of economies of scale within underwriting, product development and customer service. For example, Lighthouse, a Nordic IT system, was launched during 2005, thus creating a joint work process in all If countries.
Lighthouse, which was launched in eight countries and replaces several existing systems, will contribute to increased efficiency and generate a number of customer benefits. From a European perspective, Lighthouse is unique, because it produces insurance contracts and conducts administrative insurance work in all countires where If
Since maintaining efficient control over portfolio risks is of decisive importance to long-term profitability, several improvements of risk-evaluation and control methods have been implemented within underwriting during recent years. The joint Nordic guidelines for underwriting have now gained an impact on operating earnings. In order to further enhance risk quality and control, underwriting units are product-specializied. In addition, specialized Nordic centers of excellence have been established for selected industries. Moreover, Nordic benchmarking and evaluations are being implemented with the aim of securing the transfer of knowledge and equivalent work methods. To strengthen risk competencies, several training activities were also implemented during the year.