Sampo is a financial services group comprising: ● If, the leading P&C insurance company in the Nordic and Baltic countries,
● Sampo, Finland’s leading bank specialising in long-term savings, with subsidiary banks in all the Baltic countries, and
In addition, Sampo Group operates in Finland in selected market segments under the Mandatum and Realty World (Kiinteistömaailma) brands.
P&C insurance 478 – – Share of associated company If’s profit 27 84 –68
The internal dividends and sales profits between the different lines of business have not been eliminated in the result analysis and specifications or key figures of banking and investment services and the insurance business. The above-mentioned items have been eliminated in the Group operating profit. Furthermore, the profit or loss corresponding to the share earlier held in the associated company, If, has been added or deducted in the operating profit until Q1. Therefore, the Group operating profit is not equal to the sum of the business area operating profits.
Contents 2 Chief Executive Officer’s Review 4 Strategy 5 Sampo Group’s Return Targets 5 Organisation 6 Holding Company’s Year 2004 8 Sampo’s History 10 Corporate Governance 15 Main Legal Structure 16 Board of Directors 18 Group Executive Committee 20 Group Staff 21 Corporate Responsibility 22 Shares and shareholders 26 Financial Statements 27 Sampo plc – Board of Directors’ Report 2004 36 Consolidated Profit and Loss Account 40 Consolidated Balance Sheet 47 Parent Company Profit and Loss Account 48 Parent Company Balance Sheet 50 Notes to the Accounts 50 Risk Management 64 Accounting Policies 72 Transition to IFRS reporting 74 Calculation of key figures 78 Key Figures 81 Other Notes to the Account 136 Auditors’ Report 137 Contact Information
If became a success story The P&C insurance business has undergone a major transformation. The integration of Sampo’s P&C insurance business into If, the Nordic leader in this field, and the re-engineering of its strategy have produced a success story that I could hardly have imagined a couple of years ago.
During the past two years, If ’s staff and management, working with the company’s Sampo-controlled Board of Directors, have achieved outstanding results. The best evidence is that If ’s combined ratio decreased to 92.7 per cent in 2004.
Our P&C insurance business has excellent prospects of maintaining and even strengthening its position as the market leader in the Nordic and Baltic countries.
From the outset, I was convinced that there would be no significant synergies between P&C insurance and banking and long-term savings. This does not mean, however, that they cannot constitute major core businesses for Sampo. The common denominators in Sampo’s businesses are shareholder-focused management, cost efficiency and a focus on longterm customer relationships.
Efficient use of capital For banks and insurance companies, the optimal use of capital is an essential pillar of strategy. At the beginning of 2003, Sampo had nearly one billion euros of excess capital. We distributed most of this in dividends to our shareholders in the spring, in anticipation of a change in Finnish dividend taxation.
We have systematically dismantled risk concentrations that had been built up in the old Sampo. We have diversified our investment holdings both geographically and in terms of sectors. It would have been extremely expensive, for example, to hold on to the excessive Nokia position we held in 2000. We have also off-loaded risky businesses, such as Marine & Energy in P&C insurance, and export and project finance on the banking side.
I wish to thank our staff for the past year. I am convinced that we can do even better in the coming year. The employees are crucial to the success of a service company. I believe that all our employees in all Sampo’s businesses share my views on our future potential, and I trust that you will be ready to join me in taking Sampo further down the road to continued success.
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 the 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 in certain market segments under the Mandatum and Realty World (Kiinteistömaailma) brands.
Banking, long-term savings and life insurance In the banking and long-term savings business, Sampo’s strategy is to be a long-term partner for its customers, rather than just a vendor of individual products.
Sampo Life’s strong expertise and market position provides a good foundation for success in the longterm savings market in the future, too. Significant growth can be expected in the coming years, particularly in supplementary pension insurance and pure risk policies for key corporate personnel, as well as in the management of personal risk for both private persons and entrepreneurs.
per cent of Sampo’s shares. In June, the government sold a total of  per cent of all of Sampo’s shares to the market. The buyers were primarily international institutional investors. After these share sales, the government owned 2.35 per cent of Sampo’s shares.
New Group Internet site at www.sampo.com Sampo plc introduced a new Internet site at the address www.sampo.com in May. The pages are primarily designed for investors, the press and others who are interested in Sampo Group. The business unit sites will continue to present their services and products in the former way.
Other internal restructuring Sampo merged Sampo Finance Ltd into Sampo Bank plc and Sampo Credit plc into Sampo plc on 30 September.
On 8 December, Sampo Life Insurance Company Limited became a wholly-owned subsidiary of Sampo plc, when Sampo Bank plc decided to distribute the Sampo Life shares it owned to the holding company as an extra dividend for  January 2003–3 December 2003. The value of the extra dividend is EUR 26 million.
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After Mandatum joined the Group, Sampo’s banking operations specialised in investment and savings. Mandatum continued as a part of the Group with its original strategy to become Finland’s most highly respected private bank. In addition to long-term savings, Sampo Bank also emphasises more traditional banking products. In corporate banking, Sampo has a strong position as Finland’s second-largest corporate bank.
Of the subsidiaries providing long-term savings services, the fund management company (currently Sampo Fund Management Ltd) was established in 987. Asset management operations were commenced in the Group in 988. Mandatum Asset Management Ltd assumed its current name in 200.
Banking Finland Sampo’s banking activities were started in 887 by the Finnish state-owned Post and Savings Bank (Postisäästöpankki) which accepted deposits from the public at its post offices. After the Second World War the banking function was extended to include companies and credit for housing construction. A significant advance was made with the introduction of the first modern payment transfer system – the postal giro service – in 939. Another major step forward was taken in 958, when the Post and Savings Bank became Finland’s first company to enter the computer age.
In 970, the Post and Savings Bank was reconstituted as the Post Bank (Postipankki), and in 988 its legal status was changed from that of a public corporation to a state-owned limited liability company offering a full range of banking services like the privately-owned commercial banks. In 997 Postipankki Oyj and Finnish Export Credit Ltd, both state-owned, were merged to form a new company which was named Leonia plc the following year.
Sampo plc increased its holding in If to 00 per cent in 2004.
A major change took place in 983 when Norway’s largest P&C insurance company, Storebrand, merged with the third-largest P&C insurance company, Norden.
the Norske Folk P&C insurance company, and they adopted the name UNI Forsikring. In 99, Storebrand and UNI Forsikring combined their businesses to form a new company called UNI Storebrand. The “UNI” was left out of the name in 996. If ’s market share in Norway is around one-third.
Skandia expanded its product range to include sickness and accident insurance in 880, traffic insurance in 920, and home insurance in 938. Thereafter, individuals were able to compile comprehensive insurance coverage, whether they needed protection against fire, theft, water damage or personal liability. In 964, Skandia’s five insurance groups, originally formed from 53 Swedish insurance companies, merged to form a new group. If ’s market share in Sweden is over one-fifth.
Finland If ’s Finnish roots can be found in the story of a P&C insurance company called Sampo. In 909, industrialists from Turku formed the Sampo Mutual Insurance Corporation when manufacturing companies wanted a competitor to the insurance organisations that were organised as tariff associations. The Turku Workers’ Casualty Insurance Company, founded in 897, was one of those that merged with Sampo.
Life insurance Finland Sampo’s life insurance business is founded on traditions stretching back to 874, when Finland’s oldest life insurance company, Kaleva, was established. For a long time, Kaleva was responsible for the life insurance and pension insurance products offered to Sampo’s customers. Currently, Kaleva continues to operate as a mutual company in close co-operation with Sampo, and is also one of Sampo’s major owners.
Baltic countries and Poland Sampo expanded its life insurance activities outside Finland in 999 by establishing AS Sampo Elukindlustus in Estonia, and by acquiring a Latvian life insurance company, AAS Sampo Dziviba, established by Hansapank a year previously. In Lithuania, the life insurance business UAB Sampo gyvybes draudimas began in 200 supported, as in Estonia and Latvia, by the P&C insurance company.
In Poland, the life insurance company Sampo Towarzystwo Ubezpieczen na Zycie S.A. and the pension company Sampo Powszechne Towarzystwo Emerytalne S.A. were acquired by Sampo in 2000.
insurers, Sampo and Tarmo, were merged. As a result of the merger, the company was called Sampo-Tarmo for a short time. Sampo was converted into a limited liability company in 987, and its shares were listed on the Helsinki Stock Exchange. The mutually-owned Industrial Insurance Company, which had specialised in P&C insurance for large and medium sized enterprises became a subsidiary of Sampo at the beginning of 993. At that time, the Otso Loss of Profits Insurance Company was also acquired by Sampo. In 994, the Vahinko-Kansa Insurance Company was included in Sampo Group. If ’s market share in Finland is around one-third.
In 998, Sampo also expanded to Latvia’s P&C insurance markets, establishing the subsidiary AAS Sampo Latvija. In Lithuania, Sampo’s subsidiary, UAB Sampo Draudimas, was licensed in 999.
The Board of Directors approves the business strategy and long-term operating plans of Sampo Group, and the principles governing Sampo 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.
The Board elects the CEO and executives of Sampo Group, releases them from their duties, and decides on their terms and conditions of employment and on other compensation. In addition, the Board confirms the Group’s staff planning targets and monitors their fulfilment, determines the grounds for the Group’s compensation system and decides on other farreaching matters concerning the staff.
The following Board members are independent of the company and its major shareholders: Olli-Pekka Kallasvuo, Jyrki Juusela, Tom Berglund, Georg Ehrnrooth and Christoffer Taxell.
The Board of Directors of Sampo plc convened 7 times in 2004. The average attendance of Board members at meetings was 98.5 per cent.
Sampo Group’s Executive Committee Sampo Group’s Executive Committee, appointed by the Board of Directors, 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 Executive committee is as follows: Björn Wahlroos, Group CEO Kari Stadigh, Group Deputy CEO Ilona Ervasti-Vaintola, Chief Counsel, Principal Attorney Ilkka Hallavo, Executive Vice President, Head of Corporate Banking, Managing Director of Sampo Bank Mika Ihamuotila, President, Head of Banking Peter Johansson, Group CFO Patrick Lapveteläinen, Group CIO Torbjörn Magnusson, CEO of If P&C Ivar Martinsen, Head of Commercial business area, If P&C Petri Niemisvirta, President, Head of Life Insurance, Managing Director of Sampo Life Maarit Näkyvä, Executive Vice President, Head of Retail and Private Banking Gunnar Rogstad, Head of Private business area, If P&C Ricard Wennerklint, CFO, If P&C
Other Committees Asset and Liability Committee, Credit Committee and Investment Committee The Asset and Liability Committee is responsible for preparing the Group’s balance risk policy for approval by the Board, preparing the banking book and trading limits and authorisations for the Boards of Group companies, and monitoring the use of limits and authorisations and the Group’s consolidated liquidity. The Asset and Liability Committee comprises Patrick Lapveteläinen (Chairman), Martti Porkka, Kai Brander, Aki Palo, Markku Pehkonen, Risto Tornivaara, Jyrki Appelqvist, Pekka Kainulainen and Petri Viertiö, the last three being expert members.
The Investment Committee is responsible for preparing the Group’s investment policy for approval by the Board, preparing investment decision authorisations for the Boards of Group companies, and monitoring the use of limits and authorisations. The Investment Committee comprises Kari Stadigh (Chairman), Patrick Lapveteläinen, Sirpa Mannila, Vesa
The period of notice for terminating the service contract of the CEO of Sampo Group is six months. In addition to receiving salary for the period of notice, the CEO will be entitled to severance compensation of 8 months’ full salary (not including bonuses), provided the service contract has been terminated by Sampo.
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 2005: the Chairman EUR 4,500, the Vice Chairman EUR 3,600, and the other members of the Board EUR 2,700. In addition, all members of the Board will be paid EUR 450 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.
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.
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 2004 to executives who are members of the Executive Committee is an amount corresponding to ninemonths ’ salary.
and the performance of Sampo’s RORAC (return on risk allocated capital). The effect of If is excluded from the RORAC calculations.
Recipients of performance bonuses must use 20 per cent of the performance bonuses they receive, after deduction of taxes and similar payments, to buy Sampo A shares on the Helsinki Stock Exchange, after which they must hold the shares in their possession for two years.
All the options of the year 2000 Sampo option programme have been subject to trading in the Helsinki Stock Exchange since 2 January 2004.
The total fees paid to the auditor for services rendered and invoiced were EUR 852,853. In addition, Ernst & Young Oy were paid fees for nonaudit services rendered and invoiced totalling EUR 40,70.
Internal Audit Sampo’s Internal Audit is a function independent of business operations which evaluates the sufficiency and effectiveness of the internal control system and the quality with which tasks are performed in Sampo Group. The Internal Audit reports to the CEO. The Internal Audit has been organised to correspond with the business organisation.
In its auditing work, Internal Audit applies the professional auditing standards approved by the IIA (Institute of Internal Auditors)
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 Insiders and 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 Regulations of the Financial Supervision Authority. Sampo Group’s Guidelines for Insiders are stricter than the above-mentioned norms on matters that concern the Group Executive Committee, other corporate executives and other specifically-named persons, as these persons must ask for separate written permission in advance for each share-related securities transaction they make.
Sampo plc’s insider guidelines and insider register may be viewed on the Internet at www. sampo.com/english, see Investor Relations/ Shares and Options/Insiders.
Chairman of the Board of Nextrom Holding SA and member of the Board of EMC Corporation
He was appointed member of the Board of Directors of Sampo plc and Chairman of the Board on 5 April, 200
Chairman of the Board of the Foundation of Technology, Vice Chairman of the Board of Varma Mutual Pension Insurance Company, and member of the Boards of Inmet Mining Corporation, the Technology Industries of Finland and the Association of Finnish Steel and Metal Producers
He holds 0,905 Sampo plc shares directly or through a controlled company
Tom Berglund, born 95 Professor, Swedish School of Economics and Business Administration (Helsinki)
Member of the Boards of the Finnish National Opera Foundation, the Finnish Cultural Foundation and the Finnish Fund for Industrial Cooperation Ltd (Finnfund)
She was appointed member of the Board of Directors of Sampo plc on 9 April, 2003
Chairman of the Boards of Assa Abloy AB (publ) and Varma Mutual Pension Insurance Company (until 3 December, 2004), Vice Chairman of the Board of Rautaruukki Corporation, and member of the Boards of Nokia Corporation, Karl Fazer Oy Ab and Sandvik AB
He holds ,000 Sampo plc shares directly or through a controlled company
He holds 7,000 Sampo plc shares directly or through a controlled company
Members of the Group Executive Committee for all of 2004 were Björn Wahlroos, Kari Stadigh, Ilona Ervasti-Vaintola, Ilkka Hallavo, Mika Ihamuotila, Peter Johansson, Patrick Lapveteläinen, Petri Niemisvirta and Maarit Näkyvä. Torbjörn Magnusson became a member of the Group Executive Committee on 6 May, 2004.
Kari Stadigh, born 955 Group Deputy CEO, Chairman of the Boards of If P&C Insurance Holding Ltd and Sampo Life Insurance Company Limited
He holds 00,380 Sampo plc shares directly or through controlled company
Member of the Boards of OMX Exchanges Ltd. and Stockholmsbörsen AB, member of the Legal Committee of the Central Chamber of Commerce (chairman from  January 2005), Chairman of the Delegation of the Investors’ Compensation Fund, member of the Delegation of the Deposit Insurance Fund of the Commercial Banks and Postipankki Oy, and member of the Delegation of the Deposit Insurance Fund
She holds 297,720 Sampo plc shares directly or through controlled company
Ilkka Hallavo, born 956 Executive Vice President, Head of Corporate Banking, Managing Director of Sampo Bank plc
Chairman of the Board of MB Equity Partners Oy, member of the Board of MB Rahastot Oy, member of the Executive Committee of the Customer Advisory Office of the Banking Sector, and member of the Supervisory Boards of Finpro ry and Luottokunta
He holds 500,90 Sampo plc shares directly or through controlled company
Member of the Boards of Meridea Financial Software Oy and the Deposit Insurance Fund of the Commercial Banks and Postipankki Oy
He holds 8,000 Sampo plc shares directly or through controlled company
Petri Niemisvirta, born 970 President, Head of Life Insurance, Managing Director of Sampo Life Insurance Company Limited
Gunnar Rogstad, born 956 Head of Private Business Area, If P&C
You may also read the staff reviews in the parts of the Sampo Annual Report entitled Banking and Long-term Savings, and If P&C Insurance.
Society benefits from the company’s cost efficiency and ability to develop its business operations, as competitive products are continuously sought and made available to customers, while resources committed to outdated structures are released for other purposes. Maintaining competitiveness and making structural changes can sometimes mean that the staff has to adapt to changes in workforce demand. Recent years have seen Sampo’s staff decrease in number, but the company has sought to implement the reductions in a responsible way through pension schemes, retraining and support packages. The company also offers its staff opportunities to develop their skills and competence, and it provides incentives. Staff surveys conducted during 2004 showed that work satisfaction levels had increased from the previous year.
Multi-dimensional reporting The single, most significant event in Sampo Group in 2004 was the acquisition of the entire stock of If, the P&C insurance company. P&C insurance is run as a separate business, because it has no substantial synergies with the other businesses. The handling of Group-level matters such as financial reporting is centralised, however. Sampo has a Group-wide perspective on corporate responsibility reporting, but given the diversity of the businesses, some of the reporting takes place through separate channels. Investors are gradually becoming more and more interested in corporate responsibility issues, which will encourage more uniform reporting in the future. Key factors for corporate responsibility – like values (ethicality, loyalty, transparency, enterprise) and the sustainable development policy – are shared throughout the Sampo Group.
Corporate responsibility reviews for Sampo Group businesses are contained in the Banking and Long-term Savings and If P&C reports for 2004. Corporate responsibility is also discussed more extensively, complete with environmental indicators, in a separate corporate responsibility report and on the company’s web pages (www.sampo.com).
Shares and votes According to Sampo plc’s Articles of Association, the share capital can be at minimum EUR 30,05,638.84 and at maximum EUR 20,422,555.30. On 3 December, 2004, the company’s share capital was EUR 94,88,03.58, divided into 563,762,45 shares, of which 562,562,45 were A shares and ,200,000 were B shares. The shares have no nominal value. The counter book value of the shares is EUR 0.7 (not an exact value). Each A share has  vote and each B share has 5 votes at General Meetings. The A shares have been quoted on the Helsinki Stock Exchange since 988. All the B shares are owned by the Kaleva Mutual Insurance Company. In addition, Sampo’s 998 A/B/C warrants and 2000 A/B options are quoted on
Decrease in share capital 11 April, 2003 Cancellation of shares bought back (2,434,400 A shares)
“Sampo Uudet” share category Sampo plc’s Board of Directors decided on 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 3 December, 2004 will be traded under the new share category.
The new share category will be adopted in order to facilitate the payment of year 2004 dividends, because, on the basis of the option programs, Sampo’s A shares subscribed for after 3 December, 2004 are entitled to dividends only after the dividend distribution for 2004.
Changes in share capital During the year under review, warrants from Sampo’s 998 option programme were exercised to subscribe for ,575,050 A shares, of which Sampo’s
Kaleva Mutual Insurance Company were entitled to subscribe. Around 72 per cent of the staff employed at the time utilised their entitlement to subscribe.
The share subscription price is EUR 6.94. If the Annual General Meeting approves the Board’s proposed dividend distribution for 2004, the subscription price will be reduced to EUR 6.74.
As a result of the subscriptions, the number of Sampo shares can increase by a maximum of 26,000,000 new shares and the share capital by a maximum of EUR 4,372,886.09, which equalled approximately 4.6 per cent of the share capital as of the end of 2004. At the end of the year under review, 5,99,000 of the 2000 A/B warrants were still unexercised.
At the end of the year the members of the Board of Directors and the Chief Executive Officer owned, directly or indirectly, a total of ,907,395 Sampo shares. Their total holdings constituted 2. per cent of the share capital and votes.
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 2 September, 997. In this case, the shareholder must present at
The registration deadline to the AGM is at 6:00 on 6 April, 2005.
Dividends and distribution policy The Board of Sampo plc adopted a new distribution policy on 3 November 2004, according to which the company’s objective is to distribute 50 per cent of the Group net profit to shareholders through share buy-backs and/or dividends. The Board also announced that, in line with the financial plan prepared at the time of the acquisition of If in February 2004, it would not, however, propose to the AGM of spring 2005 a total profit distribution for 2004 exceeding 25 per cent.
In previous years, dividends have been distributed as follows (the figures have been split-corrected): 2000 EUR 1.60 2001 EUR 0.75 2002 EUR 0.35 2003 EUR 1.50 2004 EUR 0.20 *)
Shareholders at 31 December, 2004 A and B shares Number of shares % of share capital % of votes
Varma Mutual Pension Insurance Company 85,262,285 15.12 15.00 Wahlroos Björn 11,739,890 2.08 2.06 The Local Government Pensions Institution 11,000,000 1.95 1.93 Stora-Enso Oyj 8,746,620 1.55 1.54 Kaleva Mutual Insurance Company *) 8,147,255 1.45 2.28 The State Pension Fund 5,519,700 0.98 0.97 Ilmarinen Mutual Pension Insurance Company 5,103,348 0.91 0.90 OP-Delta Fund 2,244,100 0.40 0.39 Mutual Insurance Company Pension-Fennia 2,230,800 0.40 0.39
Sampo will publish three Interim Reports in 2005, on 11 May, 10 August and 9 November. The Interim reports are published on the Internet at
The P&C insurance subsidiary If ’s combined ratio (SGAAP) improved further and was 92.7 per cent for the full year 2004 (00.9). The main contributors were increased efficiency and favourable claims outcome. If ’s operating profit for 2004 was EUR 570 million (298), of which Sampo Group consolidated EUR 504 million in its profit and loss account.
Sampo Group’s life operations reported an operating profit of EUR 2 million (82). The yield on investment assets was 8.3 per cent at market values (9.5). Sampo Life maintained its strong position in focus areas and its overall market share grew to 7.9 per cent (7.6).
Operating profit for the holding company was EUR 20 million (-4). Operating profit for the financial year contains EUR 95 million in sales gains from Skandia shares in the first quarter.
Sampo plc sold its shareholdings in AS Sampo Pank in Estonia and AB Sampo bankas in Lithuania to Sampo Bank plc, a wholly-owned subsidiary of Sampo plc on 2 January 2004. In addition, Sampo plc sold its life insurance subsidiaries in the Baltic countries, AAS Sampo Dziviba, UAB Sampo Gyvybes Draudimas and AS Sampo Elukindlustus, to Sampo Life Insurance Company Limited on 9 May 2004. On 7 November Sampo Bank plc acquired the privately owned AS Maras Banka in Latvia. Maras Banka focuses on mortgage lending to retail customers. The measures emphasized the role of the fast growing Baltic markets in Sampo Group’s strategy.
If concluded the divestment of two companies in its run off portfolio, Patria and ST International, in June 2004.
The Annual General Meeting approved the financial accounts for 2003 and discharged the Board of Directors and the Chief Executive Officer from liability. The Meeting also decided, in accordance with the proposal of the Board of Directors, to distribute a dividend of EUR .50 per share, totally EUR 83 million.
The Corporate Governance Recommendation for Listed Companies issued by HEX plc, the Central Chamber of Commerce of Finland and the Confederation of Finnish Industry and Employers entered into force on  July 2004. Sampo is in full compliance with the Recommendation.
On 5 October 2004, Sampo plc’s Board of Directors decided to apply for the listing of a new share category called Sampo Uudet (Sampo New) on the main list of the Helsinki Exchanges. The Sampo A shares subscribed for with warrants from the 998 or 2000 option programs after 3 December 2004 will be traded as a new category. Such shares are entitled to dividends only after the dividend distribution for 2004 has taken place, and the new share category will be adopted to facilitate the payment of year 2004 dividends.
Staff P&C insurance employees are included in the Group’s staff from the second quarter of 2004. Accordingly the staff increased by 6,625 employees to ,890 employees as of the end of December 2004. 35 per cent of the staff worked in banking and investment services, 56 per cent in P&C insurance, 3 per cent in life insurance,  per cent in the holding company and 5 per cent in Primasoft. Staff decreased in Finnish banking due to reorganisation of the branch network and increased in the rapidly growing Baltic subsidiaries. Staff decreased marginally in the life insurance operations, Primasoft and in the P&C operations.
During the second half of the year, Standard & Poor’s revised its outlook on Sampo Bank plc’s rating, A-, to stable from negative on 28 September 2004. S&P also affirmed its A-/A-2 counterparty credit rating on Sampo Bank. On the same day, S&P raised its long-term counterparty credit and insurer financial strength ratings on Sweden-based If P&C Insurance Ltd and Finland-based If P&C Insurance Company Ltd to A- from BBB+. The outlook is stable. S&P stated that the revisions reflect the strong results in Sampo Group’s operating entities, particularly in the If Group, as well as reduced leverage at the level of the holding company, Sampo plc.
Group capital adequacy Because its operations are weighted towards financial services, Sampo’s capital adequacy in 2004 is calculated under the Credit Institutions Act. The Group’s capital adequacy ratio was 5.4 per cent on 3 December 2004 (2.5). The tier  capital ratio was 4.5 per cent (3.5). In the capital adequacy calculation, deductions from capital and intangible assets more than doubled because of the If acquisition. However, two preferred capital notes issues by Sampo Bank plc added EUR 225 million tier  capital and one subordinated EUR
Banking and investment services The Group’s main banking and investment service companies in Finland are Sampo Bank plc, Sampo Fund Management Ltd, Mandatum Asset Management Ltd, Mandatum Stockbrokers Ltd, Mandatum & Co Ltd, Mandatum Private Equity Funds Ltd and 3C Asset Management Ltd. Sampo Bank’s subsidiaries AS Sampo Pank in Estonia, AS Maras Banka in Latvia and AB Sampo bankas in Lithuania as well as Sampo PTE S.A., a pension fund company in Poland, are also included in the accounts of Sampo’s banking and investment services. The branch network operates as a distribution channel for a wide range of advisory services and longterm savings products.
The consolidation group comprises Sampo Bank Group, Sampo PTE S.A., Sampo Fund Management Ltd, Mandatum Asset Management Ltd, Mandatum Private Equity Funds Ltd, Mandatum Stockbrokers Ltd, Mandatum & Co Ltd, 3C Asset Management Ltd and the holding company, Sampo plc. In 2005, the Group capital adequacy will be calculated under the national rules on conglomerate capital adequacy based on the European Union’s Directive 2002/87/EU.
Other issues On 3 December 2004, Sampo received a decision from Finland’s Tax Office for Major Corporations (KOVE) according to which Sampo Group was obliged to pay approximately EUR 33 million in VAT for the years 200-2003. This decision reversed two prior final rulings by KOVE. Sampo considers the new decision to be without merit and has appealed the decision.
Capital adequacy ratio – total capital / risk-weighted assets 15.4% 12.5% – Tier 1 / risk-weighted assets 14.5% 13.5%
Fees and commissions payable –17 –16 –15 –14 –12 Net income from transactions in securities and foreign exchange dealing –2 3 1 –2 11
Claims incurred –673 –649 –685 Operating expenses –163 –167 –166 Other technical income and charges 0 0 0 Balance on technical account before the change in equalization provision 77 96 63 Investment income and charges 117 15 136 Other income and charges –9 –4 –13 Share of associated undertakings’ profit 0 1 –
subsidiaries. The return on economic capital (RoEC) was 2.5 per cent.
Net income from financial operations weakened to EUR 394 million (404). This reduction was due to the narrowing of interest margin caused by competition especially in housing loans, and by the fall in market rates influencing the first quarter. Sampo Bank’s interest spread between deposits and lending averaged about 2.4 percentage points during 2004, which was about 0.3 percentage points lower than a year earlier. During the fourth quarter net income from financial operations remained at roughly the same level as in the six previous quarters. The merger of Sampo Credit into Sampo plc at the end of September 2004 reduces the net income from financial operations by approximately EUR 3 million by quarter, but the decrease was compensated by growth in lending and minor seasonal factors.
Administrative expenses fell by EUR 8 million due to efficiency improvements. Expenses include one-off provisions for reorganisation both in 2004 and 2003. The underlying
Fees and commissions payable –1 0 0 0 0 Net income from transactions in securities and foreign exchange dealing –4 –1 4 95 –1
Administrative expenses –29 –24 –27 –30 –30 Depreciation and write-down of tangible and intangible assets –13 –12 –12 –14 0 Other operating expenses –8 –5 –10 –6 –9 Provisions for bad and doubtful debts 0 0 0 0 0 Write-offs in respect to debt securities held as financial fixed assets – – – – 0 Income from companies accounted for by the equity method 1 4 3 –2 1 Operating profit –25 –26 –7 78 –4
reduction in expenses has been larger, but during the fourth quarter more than EUR 0 million was provisioned for executive management incentive schemes, performance bonuses and profit-sharing bonuses to the personnel fund. The cost to income ratio (including the net amount of fees and commissions receivable and payable) improved to 60.4 per cent (64.4).
Substantial growth in Finnish household and Baltic lending Sampo Group’s loan portfolio grew by 6 per cent, with growth continuing to be focused on loans to Finnish households and the Baltic area. Outstanding housing loans increased by 5 per cent year-on-year and Sampo Bank’s market share was 4.3 per cent (4.3). Spreads in housing loans decreased compared to 2003. Loans to domestic companies grew by 3 per cent and credit quality continued to be very good. At the end of the year, Sampo Bank’s market share of all loans granted by Finnish financial institutions was about 4 per cent (4) and market share of lending to households in Finland was 3 per cent (3).
Total deposits grew by  per cent year-on-year, as most of the growth in customer funds flowed to mutual funds and other long-term savings assets. Sampo Bank’s market share of deposits by the public in Finland was about 3 per cent (3).
Credit losses and non-performing loans decreased Net provisions for bad and doubtful loans were EUR 4 million positive (0), because recoveries and releases exceeded new provisions. Provisions pooled by customer group decreased to EUR 5 million at the end of the year (37) as customer specific provisions were recorded. Also specific provisions decreased and stood at EUR 65 million at year end (80). The amount of nonperforming loans decreased to EUR 45 million (6), while other non-interestearning loans totalled EUR  million ().
Mainly due to the increase in funds, the discretionary asset management business continued to show good growth at Mandatum Asset Management. Sampo PTE, the fifth largest Polish pension fund management company, also reported continued strong growth. The company had 670,000 registered accounts at the end of December (526 000) and assets under management exceeded EUR 530 million (293). Core assets under management (customer funds under discretionary management in asset management companies belonging to Sampo Group) increased from EUR 8,002 million to EUR 8,940 million.
P&C insurance If is the leading property and casualty insurance company in the Nordic region, with insurance operations that also encompass the Baltic countries. If
P&C Insurance Holding Ltd, headquartered in Solna, Sweden, is the parent company for property and casualty insurance within the Sampo Group. Business operations are conducted via subsidiaries and branch offices in the Nordic and Baltic countries.
Investment assets grew significantly Investment income was satisfactory but weakened slightly compared with 2003, due to weak international stock markets and low interest rates. Earnings from investments decreased to EUR 368 million (43) and the return on assets was 4.3 percent (5.) in 2004. Based on the assets’ current value, the return amounted to 4.3 percent (4.6) and earnings amounted to EUR 368 million (376).
Cash flow from insurance operations rose to EUR 595 million (472), despite reinsurance flows of EUR 250 million in connection with the marine and energy transaction at the beginning of the year. Cash flow from investments declined to EUR 222 million (273).
Life insurance The core of the Group’s life insurance operations is Sampo Life, operating in Finland, with subsidiaries in all the three Baltic states. The business area also comprises Sampo T.U. Zycie in Poland.
Total technical reserves in Sampo Group’s life operations were EUR 5,499 million (5,259), of which unit-linked reserves comprised 6. per cent (.5). Sampo Life’s reserve for future customer bonuses decreased in the year under review to EUR 8.3 million (45.2).
Sampo Life aims to provide withprofit policyholders with a total yield matching at least the Finnish Government long bond yield. Total yield consists of a guaranteed return and an annual bonus based on Sampo Life’s result. Under IFRS, valuation differences constitute a part of shareholders ’ funds and to avoid conflicting treatment in Sampo Life’s FGAAP accounts and Sampo Group’s IFRS accounts, the company has decided to abandon the earlier notional split of valuation differences already in the FGAAP accounts for 2004.
The holding company’s balance sheet total was EUR 3.7 billion. Of this amount, holdings in banking and investment services companies accounted for EUR 0.8 billion and holdings in insurance companies for EUR 2.5 billion. Other investments totalled EUR 0.5 billion.
The If transactions, the first completed in April and the second in October 2004 had a significant impact on Sampo plc’s balance sheet. Three elements were used to finance the first transaction - subordinated notes to the amount of EUR 600 million eligible for inclusion in the tier 2 regulatory capital, senior notes to the amount of EUR 300 million and a syndicated loan of EUR 550 million. The syndicated loan was repaid in early October. A new bank loan of EUR 200 million was taken to partly finance the latter If transaction.
At current market rates, the holding company is liable for interest payments on the above instruments of approximately EUR  million per quarter.
The adoption of International Financial Reporting Standards (IFRS) On  May 2005 Sampo will publish the first-quarter 2005 Interim Report in accordance with IFRS. Before publishing the Interim Report, Sampo will release information on the effects of the transition to IFRS and the changes in key accounting policies. The 2004 Annual Report will include a preliminary account of changes in Sampo Group’s capital and reserves under the new accounting standards and a description of the key IFRS changes. In week 4 a stock exchange release, including i.a. the 2004 profit and loss account and balance sheet in accordance with the IFRS, as well as a bridge between the figures calculated according to the Finnish accounting standards and the new standards, will be published.
Outlook for 2005 Although a weak US dollar and high oil prices have increased the risks in the world economy and lowered growth estimates for 2005, growth in the Nordic and Baltic economies, where Sampo Group mainly operates, is forecast to continue at a relatively high level. Macroeconomic developments are therefore not expected to hamper Sampo Group’s prospects for 2005.
Sampo Group’s profitability is expected to remain good in 2005. However, one-off items similar to those in 2004 are not foreseen. The Group targets a RoEC of 9 per cent.
The P&C insurance operation, If, has a leading position in the Nordic and Baltic markets, which have become less cyclical than the international P&C markets. The company targets a combined ratio of less than 95 per cent. With a low-risk investment portfolio If is expected to exceed its RoEC target of 7.5 per cent. Strong cash flow is further enhanced by the low level of taxes paid in 2005 and 2006, which is projected to be approximately 8 per cent.
The Group’s life operations are expected to maintain their strong position in focus areas – regular premium retail and corporate policies with an emphasis on unit-linked products. Uncertainties regarding the taxation of individual pension policies have been clarified and new sales will pick up again. Fast growth in the Baltic subsidiaries continues with a focus on unit-linked products. Profitability remains good, barring adverse developments in the capital markets, and a RoEC of 7.5 per cent is targeted.
The holding company will report a loss of approximately EUR 5 million per quarter, primarily because of the interest payments for financing the If acquisition in 2004. Goodwill amortisations will no longer be done under IFRS.
However, in line with the financial plan laid out in connection with the acquisition of If in February 2004, the Board of Sampo will propose to the AGM of spring 2005 a distribution for the year 2004 not exceeding 25 per cent.
Board’s dividend proposal Distributable capital and reserves totalled EUR ,478,735,58.27 in the Group and EUR 560,250,756.50 in the parent company. The Board proposes that a dividend for the financial year of EUR 0.20 per share be paid on the company’s 565,78,265 shares. The number of shares includes 2,08,850 shares converted in 2004 with warrants, which were approved by the Board on 4 January 2005. The total amount of dividends would be EUR 3,56,253.00.
Interest payable 1 –261 –273 Net income from financial operations 394 404
Change in the provision for outstanding claims –159 Reinsurers’ share –116
Balance on technical account before the change in equalisation provision 236
Unrealised gains on investment assets – Unrealised losses on investment assets –
Claims incurred Claims paid 16 –437 –401 Reinsurers’ share 15 10
Technical result before customer bonuses and the change in equalisation provision 209 182
Holding business Interest receivable 22 8 2 Interest payable 22 –43 –11 Net income from financial operations –35 –9
Profit for the financial year 779 354 > Consolidated Profit and Loss Account
Cash and balances at central banks 921 305 Treasury bills and other eligible bills 30, 37, 75, 76
Loans and advances to customers 32, 35, 75, 76 14,749 13,908
Prepayments and accrued income 43 121 276 Deferred tax assets 77 19 27 Elimination items 111 –43 –125
Other financial investments Shares and participations 963 Debt securities 7,560 Other loans 0 Deposits with credit institutions 96
Debt securities and loans to Group undertakings 90 151 Shares and participations in associated undertakings 3 3
Shares and participations 62 49 214 Shares and participations in associated undertakings 62, 110 21 786 Intangible assets 64
Profit/loss brought forward 418 368 Profit for the financial year 779 354
Depreciation and write-down of tangible and intangible assets 25 –15 –5 Other operating expenses 24 –29 –20 Provisions for bad and doubtful debts 0 – Write-offs in respect of debt securities held as financial fixed assets 63 –43 – Operating profit before extraordinary items 447 420
Shares and participations 62 49 214 Shares and participations in associated undertakings 62 18 317 Shares and participations in Group undertakings 62 3,276 2,087
Other assets 45 20 Prepayments and accrued income 66 22 2 Deferred tax assets 99 3 4
Liabilities to credit institutions and central banks 97, 98 Other than repayable on demand to credit institutions 200 –
Holding business off-balance sheet items Other than sale and option to resell transactions 17 25 > Parent Company Balance Sheet
As a company in the financial services sector, Sampo Group’s capital adequacy is also monitored by the supervisory authorities, which in Finland are the Financial Supervision Authority and the Insurance Supervision Authority and in Sweden the Finansinspektion. The Financial Supervision Authority acts as the authority co-ordinating the supervision. The capital adequacy and solvency margin calculations that comply with official requirements are presented in key figures. As of the beginning of 2005, Sampo Group reports the Group’s capital adequacy in accordance with the Financial Conglomerates Directive (2002/87/EC).
The banking result mainly depends on fee income and margins gained from loans, other commitments and deposits, changes in market shares, the general level of interest rates, provisions for bad and doubtful debts and the price of the bank’s marketbased refinancing. Interest margins in banking change relatively slowly. Thus the operating result may change fast as a result mainly of credit risks.
The insurance business is based on the bearing and managing of risks resulting from the randomness of the occurrence and volume of casualty events. Every attempt is made to set insurance premiums prudently on the basis of claims experience. Additionally, the insurance business involves investment risks due to the long-term nature of technical provisions and the discount rate used in determining technical provisions.
Risks and economic capital The major risks associated with Sampo Group’s business companies are credit risks, the interest rate and liquidity risks of non-trading positions, the market risks of investment portfolios, insurance risks and the operational risks inherent in every kind of activity. Market risks in trading activities are minimal. The parent company, Sampo plc, acts as the holding company.
The overall risk situation in Sampo Group is aggregated through economic capital. Economic capital is an internal tool of Sampo which describes the capital required in the Group in order to bear different kinds of risks.
Risk is an essential part of Sampo’s operating environment. The main objective of risk management is to ensure that the capital base is adequate in relation to the risks arising from business activities. Sampo Group provides a wide range of financial and insurance services for its customers, with each co mpany focusing on the business activities defined by its strategy. The clear division of responsibilities between Group companies ensures minimal overlaps in risk-taking. The risks related to the Group’s business areas and the sufficiency of the companies ’ capitalisation in relation to these risks are regularly evaluated. These evaluations are made at the individual company level and at the Group level.
field of long-term savings will affect the Group’s businesses and subsidiaries in very different ways. The magnitude of diversification effects at the Group level is about 6 per cent.
The economic capital required by market and credit risks and by the technical risks of insurance is calculated by means of the Group’s own statistical risk models. These models use the Basel 2 Standard Approach as the capital requirement for operational risks. Business risks are measured by business area in terms of the volatility of the operating profit or costs.
The application of economic capital was expanded in 2004. The economic capital tied up in the Group’s operations increased during the year by about EUR ,042 million (48 per cent). The reasons for this were the acquisition of If P&C Insurance Company as a fully owned subsidiary of Sampo plc and the growth of business. At the same time the statutory minimum capital adequacy requirements increased by about EUR 530 million (33 per cent). The capital allocated to credit institution operations increased by about EUR 40 million. The capital allocated to life insurance operations increased by about EUR 50 million. The capital allocated to the parent company mainly comprises the exchange rate risks of subsidiary holdings. Analysed by risk category, the capital allocated to insurance risks and credit risks increased the most.
1 Market risks 34% 2 Credit risks 27% 3 Insurance risks 22% 4 Business risks 10% 5 Operational risks 7%
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 actual capital in the balance sheet. Lending is focused on customers operating in Finland. Limits are set for risk concentrations, measured by the ratio of a customer group’s nominal exposures to the Bank’s total capital as well as by the ratio of a customer group’s economic capital, calculated by a credit risk model, to the total economic capital. The risk concentration parameters are at a clearly lower level than official norms.
The Group’s Credit Committee is authorised to make all credit decisions. The authority is further delegated to separate sub-committees responsible for corporate and retail customers, and to authorised credit officers in customer business units. The nominal amount of the authorisation varies according to the creditworthiness of customers and the quality and type of collateral. All credit requests are prepared in the customer business units. Credit decisions are primarily based on the creditworthiness of the respective customers. To reduce uncertainty related to its estimation, collateral or covenants are required.
The Group has an internal 2-stage creditworthiness rating scale, which covers more than 97 per cent of loans and other exposures to corporate and institutional customers in domestic banking and about 93 per cent of the corresponding loans and exposures in Sampo Group. The internal rating system has existed in its current form since 997. The default probabilities given to the rating categories refer to the possibility of future counterparty defaults, i.e. for example that a customer ’s interest and loan instalments are unpaid for over 90 days, or that a customer’s loans must be restructured resulting in a financial loss, or that a customer is forced into corporate or debt restructuring or bankruptcy. Sampo Bank regularly utilises its own data banks to test the default probabilities given to the rating categories and changes them, when necessary, based on the analyses made.
Assessing and monitoring the credit risks of retail customers The creditworthiness of retail customers is assessed by inspecting each customer ’s or his or her family’s income, living expenses and debt repayment obligations, as well as other factors that have a bearing on the customer’s solvency. These are used for customer credit scoring. The scoring technique varies by product, because the information available for each product differs. A default probability is attached to the credit score calculated by each scoring technique. Uncertainties related to the evaluation of creditworthiness are covered by collateral which, in the case of long-term loans, is usually a dwelling. The “loss given default” is computed on the basis of the counterparty’s exposure and collateral position. Using this information the economic capital tied up in the contract can be calculated. Sampo applies risk-weighted pricing to loans. The incidence of delayed loan repayments and the development of non-performing loans are monitored and reported on continuously.
Collateral rating All collateral is valued at the time it is pledged and regularly thereafter. The collateral is divided into four quality categories on the basis of its volatility and liquidity. Only the share of the value of the collateral in the best quality categories is taken into account in calculating the customer’s collateral deficit.
During autumn 2004, the risk quantification parameters were tested extensively with Sampo Bank’s own data. As of the beginning of 2005, the risk parameter estimates are updated based on the said analysis as Sampo prepares for the banks’ capital adequacy reform. The most substantial change will occur in the amount of loss given default, which, due to a more extensive default definition, will in the future be significantly smaller in the event of counterparty default. The change will cause a decrease in the economic capital for credit risk.
Credit risks in 2004 The figures in the tables describe the exposures of customers of Sampo Group, excluding the life insurance business outside Finland. The If P&C Insurance Group is included only in the 2004 figures. The internal receivables of Sampo Group com-
panies have been eliminated from the figures. Exposures are primarily categorised according to customers or counterparties. However, in cases where the credit decision was based on the creditworthiness of a guarantor, they are categorised according to the guarantor. Geographical reporting is based on the country of registration of the customer or guarantor. The reporting of credit risks covers all agreements and derivative contracts, both on and off-balance sheet, with which they are associated.
Management of market risks Market risks arise from earnings volatility caused by changes in market values. Movements in risk factors such as interest rates, exchange rates, equity prices and their respective volatilities or the creditworthiness of investment targets affect market values.
Sampo Bank’s Trading unit operates within limits and authorisations which are monitored daily by an independent risk control function. ALCO guides
Total exposures to corporate and institutional customers in default increased by EUR  million, including non-performing loans of EUR 4 million. The latter decreased by EUR 5
the economic value of the banking book and on the annual net interest income of the banking book. In liquidity risk monitoring, the main focus is on the so-called funding gap – the difference between customer-related assets and liabilities, the maturing of assets and liabilities over time, new issues and the ratio of liquid assets to different types of illiquid liabilities. The fundamental market risk of credit institutions, taking all operations into account, is interest rate risk.
The banking book and asset and liability activities In 2004, Sampo Credit was merged into Sampo plc and the remaining corporate credit portfolio was sold to Sampo Bank. Additionally, Sampo Bank acquired the Lithuanan AB Sampo bankas and the Estonian AS
Domestic retail 31 30 Foreign retail 1 2 Total retail customers 32 33
Liquidity risks in the banking book Liquidity risks can be defined as earnings volatility caused by changes in funding costs, or as problems in the availability of funding. Liquidity risks arise in situations of general credit market turmoil or a lack of confidence in individual borrowers.
Net of euro-denominated items 548 –1,543 437 –580 1,526 389 236 Assets denominated in other currencies 561 185 73 264 168 1,251 1,408 Liabilities denominated in other currencies 765 310 317 114 230 1,736 1,682 Net of items denominated in other currencies –203 –125 –244 150 –62 –484 –274
The average maturity of long-term funding exceeded five years. Maturity was influenced not only by the gap between customer loans and deposits, but also by the fact that the increase in customer-related assets was largely due to mortgage loans. The average maturity of the mortgage loans has increased. The market conditions were favourable for long-term funding.
Risks in insurance operations Technical risks of P&C insurance Insurance is based on managing risk. The two main risks in insurance operations are the underwriting risk and the provision risk, the management and assessment of which provide the foundation for all insurance operations. Pricing the risk that the insurance company assumes when concluding an insurance contract is decisive for the profitability of the P&C insurance business.
The underwriting risk is managed by means of: – statistical surveys of historical claims results – internal underwriting guidelines indicating, for example, the types of risks that can be underwritten and the amounts that can be insured
Trading items are reported at the shortest maturity and market value. Account assets are reported at different maturities. The calculations only include balance sheet items. For example undrawn loans or overdraft facilities are not included. The table does not include derivative instruments.
independently. The If Group’s reinsurance programme for 2005 includes a retention level of about EUR 22 million. The retention level is the maximum amount for which the direct insurer is responsible in the event of a claim.
The reinsurance policy is set annually by the boards of the P&C insurance companies and is followed up each year by a Reinsurance Committee comprising the chief actuary of P&C insurance and representatives from the ALM (Asset Liability Management) unit, all business areas and the reinsurance unit.
In P&C insurance, claims are notified after a certain delay, and the establishment of a final claims settlement can take time. Using statistical methods based on historical claims data, a provision is posted for claims that have occurred, but have not yet been reported.
Each business area within the If Group has insurance actuaries who are responsible for determining the size of claims provisions. The total claims provisions of P&C insurance are approx. EUR 6. billion.
Distribution of P&C technical provisions based on period of payment 2004
Insurance commitments that are longer than ten years account for 25 per cent of the technical provisions. The size of the provisions is determined by assumptions regarding future payments and the anticipated return on the reserved capital.
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.
also features a large amount of international diversification, a considerable sum of assets and liabilities are in currencies other than SEK. In line with If ’s currency policy, exchange rate risks are curtailed through special hedging transactions when necessary. The Group’s policy specifies limits for currency exposure.
Dynamic financial analysis (DFA) in risk management In the P&C insurance business, DFAs are used to analyse the combined effect of various risks. The analyses are carried out using statistical simulation techniques that calculate the probabilities of different insurance and asset management results; in other words, the analyses cover the whole spectrum of the P&C insurance business. DFAs can also be applied to the individual business areas of P&C insurance.
DFAs are used in: – selecting investment strategies – assessing reinsurance programmes – assessing the solvency requirements of P&C insurance – determining the profitability requirements of P&C insurance
Technical risks of the life insurance business The technical provisions of Sampo’s life insurance business arise almost entirely from Sampo Life’s Finnish operations. Thus, the figures, risks and principles presented in this section refer to Sampo Life in Finland. The technical risks in Sampo’s Polish and Baltic life insurance companies are
Interest rate risk The most noteworthy risk included in technical provisions is the interest rate risk related to the guaranteed interest rate. In the most with-profit policies the guaranteed interest rate used in the premiums basis is 3.5 per cent. In individual policies sold before  January 999, the guaranteed interest rate is 4.5 per cent. With respect to these policies, the discount rate used in discounting technical provisions has been decreased from 4.5 per cent by increasing technical provisions by EUR 22 million.
The surrender risk included in technical provisions is the most noteworthy in with-profit insurance. In pension insurance, surrender is possible only in exceptional cases, so that the real surrender risk in Sampo Life is in life insurance and capital redemption operations. This risk is reduced by the relatively short maturity of such agreements and the surrender penalties of the first years.
Among the most significant of the technical risks included in life insurance policies are protection covering death, disability and medical expenses. These risks are limited through careful risk selection, by pricing to reflect the risks and costs, by setting upper limits for the protection granted and by reinsurance. The amount of individual risk is limited by reinsurance. The company’s Board of Directors annually determines the maximum amount of risk to be retained for its own account. To mitigate the effects of possible catastrophes, Sampo Life participates in the catastrophe pool of Finnish life insurance companies.
In most individual pension insurance the longevity risk is smaller due to the fixed term of the policies and the structure of the products. In some older policies the mortality rate and structure of products differ from the remainder of the portfolio, for which reason the technical provisions of such policies were supplemented in 2004 by EUR 5.8 million due to the increase in assumed life expectancy.
Ind. life and capital redemption 415 187 –56 –7 0 0 48 588 10.7 4.5
4 Raw material indices 1% 5 Real estate 1% 6 Private equity 0,3% 7 Hedge funds 0,1%
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.
Sampo life’s investment operations achieved a return of 8.3 per cent in 2004. The year was particularly good in terms of equity investments. On the fixed income side there was an expectation of rising interest rates and therefore short-term interest-bearing instruments were heavily favoured. The If Group’s investment operations achieved a return of 4.3 per cent in 2004.
The attached graphs include also accrued interest and the balance of bank accounts
Management of operational risks Operational risks are defined as the risks of losses attributable to inadequate or defective internal processes, systems, people or external events. Operational risks also include legal and reputational risks. These 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 external operating environment
Operational risks are reflected, for example, in costs, claims, loss of reputation, false information concerning positions, risks and results or business disruptions. The management of operational risks enhances the efficiency and productiveness of the Group’s internal processes and decreases fluctuations in returns. The co-ordinated management of operational risks gives management an overall view of the realisation and
The development of procedures to manage operational risks is ongoing. The intention is to use both quantitative and qualitative methods. The Group’s companies and units have used selfevaluation methods to survey those operational risks they consider to be the most important, their probabilities and significance. At the same time, they have also evaluated risk management controls and instructions. The selfevaluations are updated annually.
Risk indicator monitoring to depict changes in the risk position has been started in the business units. Risk indicators are set in connection with risk evaluations and their validity is assessed regularly. Generally speaking, the risk indicators are process deviations, volume changes and changes in the external and internal operating environment. The indicator values are compared
Contingency plans have been prepared for the most critical business areas, on the basis of which key functions can be continued in situations of possible disruption. The plans are regularly tested and updated when needed and always at least annually. A Crisis Management Team established by Sampo Bank plc held an emergency practice in November 2004, designed to test crisis management and communications. Contingency plans are reported annually to Sampo plc’s Board of Directors.
Preparation for changes in the operating environment The regulations affecting the capital adequacy of Sampo Group’s business areas will change in the coming years. The reform of credit institution activity is known as the Basle 2 reform. The corresponding reform affecting insurance companies is known as Solvency 2. The new legislation concerning the capital adequacy of financial groupings came into force in Europe at the beginning of 2005.
With respect to banking, the aim of the EU’s capital adequacy framework reform is to increase the risk sensitivity of banks’ capital adequacy calculations, and to encourage banks to develop their internal risk management systems in line with the recommendations of the Basle Committee. According to the proposal on capital adequacy, banks can select the method of calculating capital adequacy that is the most appropriate for the bank’s own risk management system. The reform aims at maintaining the capital base in the international banking system at its present level. The new capital adequacy framework will affect all credit institutions and investment firms in the EU. The reform will probably come into force in stages from the beginning of 2007.
– minimum capital requirements, a supervisory review process and market discipline. The reform will result in substantial changes in all of these pillars. The linkage between them is strong. For example, the approach that banks adopt to calculate the minimum capital requirement for credit risk affects both disclosure requirements and the standards for risk management processes within supervisory review.
The solvency reform of insurance companies (Solvency 2) is based, according to current understanding, on the reform of stage 2 (IFRS) of the accounting standards for insurance contracts, in which the aim is to value the technical provisions of insurance companies at fair values. These standards will probably be ready in 2008. Thus the Solvency 2 reform will probably not come into force until 200.
The consolidated accounts of Sampo Group have been prepared in accordance with the Decree of the Finnish Government on the consolidated accounts of financial services and insurance groups.
The annual accounts of the insurance companies of the Group have been prepared in accordance with the provisions of Chapter 0 of the Insurance Companies Act, the Decree of the Ministry of Social Affairs and Health on the annual and consolidated accounts of insurance companies, and the instructions and regulations of the Insurance Supervision Authority.
The provisions of the Companies Act and Accounting Act and the Decree on Accounting are followed as is prescribed in the Act on Credit Institutions, the Insurance Companies Act and the Decree of the Ministry of Social Affairs and Health. In addition, the rules and recommendations concerning companies listed on the Helsinki Stock Exchange have been taken into account.
Companies of whose equity voting rights the Group holds more than 50 per cent, either directly or indirectly, have been treated as subsidiary undertakings. Companies of whose equity voting rights the Group owns 20-50 per cent have been treated as associated undertakings.
Details of the subsidiary undertakings included in the Group accounts are given in note 09.
The accounts of the Group companies are included in the consolidated accounts using uniform accounting policies where possible. Differences arise in particular from the different valuation principles applied in banking and investment services and holding company business on the one hand and in the insurance business on the other. Assets and liabilities in the same line of business are valued using the same principles.
Associated undertakings are included in the Group accounts by using the equity method of accounting. Details of the Group’s associated undertakings are given in note 0.
Banking and investment services and holding company business The assets, liabilities and off-balance sheet items denominated in foreign currencies have been translated into the domestic currency at the European Central Bank’s middle rate on the balance sheet date.
Assets and liabilities, which have been hedged by currency swaps are stated at the rate of the original currency. Exchange rate differences arising from translating the items in other currencies into euro and the valuation of exchange rate contracts are included in “Net income from foreign exchange dealing”.
Insurance business Receivables, receivables held as investments, liabilities and off-balance sheet items denominated in foreign currencies have been translated into the domestic currency at the European Central Bank’s middle rate on the balance sheet date.
Other investments have been valued at the exchange rates on the date of acquisition or on the balance sheet date, whichever is lower, with the exception of shares held as investments, which have been valued without separating the changes in exchange rates and market values. Exchange rate differences resulting from receivables and investments are included in the profit and loss account under the items “Investment income” and “Investment charges”.
Foreign subsidiaries Balance sheets of the foreign subsidiaries have been translated into euro at the European Central Bank’s middle rate on the balance sheet date and profit and loss accounts at the middle rate of the accounting period. The exchange rate differences arising from consolidation have been included in capital and reserves.
The Group valuation principles are presented by line of business to the extent that they differ from each other. The differences result from different accounting regulations in the banking and insurance business.
If the probable value of a loan or advance is estimated at lower than the book value, the loan or advance has been stated in the balance sheet at this estimated value and the difference is included in the profit and loss account under the item “Provisions for bad and doubtful debts”.
In the consolidated profit and loss account, the lease payments less depreciation according to plan is included in “Interest receivable”. The additional depreciation, which is actually write-downs of lease assets, is included in “Provisions for bad and doubtful debts”. Other income from and expenses of lease assets are included in the item that corresponds with their nature.
The market value of listed securities is regarded as the last transaction price on the balance sheet date. The market value of unlisted debt securities is estimated as the net present value of future cash flows discounted at the current market rate, and that of equity shares as the acquisition cost or the lower probable market value. The unrealised profits and losses arising from valuation of the securities held for trading purposes are included in “Net income from transactions in securities”.
“Write-offs in respect of securities held as financial fixed assets”. The item also includes the potential write-backs of these securities.
The write-downs of the values of properties and property companies held as fixed assets are based on the permanency and materiality of the diminution. Revaluations have been made in the book values of certain properties and property companies.
“Investment charges”. An amount corresponding to unrealised revaluation gains is transferred from distributable capital and reserves to undistributable capital and reserves. Since investments in land and buildings are recorded at current value, no depreciation is booked on them.
Other investments Receivables and receivables held as investments are stated at their nominal value or at the lower current value. Credit losses relating to receivables held as investments are treated as value adjustments.
Derivative contracts are treated as shown in “Off-balance sheet items and derivative contracts”.
Shares and participations held as investments are stated at the lower of cost and current value. However, private equity funds are stated at cost during the first four operating years, and funds of funds during the first five operating years, following the funds’ foundation, unless the diminution of
their value can be deemed permanent. Investments in shares in the P&C insurance business are valued at the current value.
FAIR VALUES OF OTHER INVESTMENTS The current value of publicly traded shares and debt securities is stated as the buying rate on the balance sheet date or, if this is not available, the latest transaction rate.
In the life insurance business, various methods are applied in calculating technical provisions which involve assumptions on matters such as mortality, morbidity, yield level of investments, future operating expenses and the settlement of claims. Technical provisions are annually revised on the basis of assumptions and new data received.
The guaranteed interest rate used in the calculation of technical provisions of a Finnish life insurance company is in compliance with the calculation basis approved by the company’s Board of Directors and fulfils both the decrees (248/999 and 56/2003) of the Council of State and the requirements of regulation 999:65 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: 2.5 per cent, if the insurance was granted on  March 2003 or thereafter; 3.5 per cent, if the insurance was granted no earlier than  January 999 and no later than 28 February 2003; a maximum of 4.5 per cent, if the insurance was granted before  January
In the P&C insurance business, the provision for unearned premiums is intended to cover the expected costs of claims and operating expenses during the remaining term of insurance contracts in force. 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 the expected costs of claims and operating expenses, the provision for unearned premiums is required to be strengthened by a provision for unexpected risks.
The provision for claims outstanding in direct P&C insurance and reinsurance may be calculated by statistical methods or assessed individually. Often a combination of the two methods is used, meaning large claims are assessed individually while small claims and claims incurred but not reported (the IBNR provision) are calculated using statistical methods. The provision for claims outstanding is not discounted, with the exception of provisions for vested annuities, which are discounted to present value using standard actuarial methods, taking into account expected inflation and mortality.
In the P&C insurance business, acquisition costs clearly related to the writing of insurance contracts and extending beyond the financial year have been capitalised as assets in the balance sheet. Such costs include fees and commissions, marketing costs, and the salaries and overheads of sales staff. The acquisition cost is amortised corresponding to the amortisation of the unearned premiums and is depreciated in not longer than 2 months.
The concept and treatment of valuation differences will change in financial accounts prepared under the new IAS/IFRSs, with valuation differences being primarily included in capital and reserves. Since Sampo Life’s Board of Directors has decided to abandon the computational distribution of valuation differences previously applied in the accounting, valuation differences will be treated by the same rules in all financial accounts. The new practice has been applied in the financial accounts for 2004.
The depreciation plan is made on a uniform basis within the Group. Assets are amortised or depreciated on a straight-line basis according to plan over their estimated useful economic lives, as follows: Intangible rights 4–0 years Goodwill 5–20 years Goodwill arising from consolidation and negative consolidation difference 3–20 years Other long-term expenditure 3–0 years Residential and business premises and offices 20–60 years Industrial premises and warehouses 30–60 years Components of buildings 0–5 years IT equipment and cars 3–5 years Other equipment 3–0 years
In the life insurance business, the revaluations made and recognised as income with respect to buildings held as investments are depreciated according to plan over the average useful economic lives of those buildings.
A specific provision can be made against an individual loan or against a certain group of loans pooled by customer. A provision against a group of loans pooled by customer will be made, if impaired loans are judged to be present in the loan portfolio but have not yet been identified individually. A specific provision is made when it is considered that recovery is doubtful and the estimated sales value of the asset pledged as collateral security does not cover the principal of the loan. The loans classified as bad debts are written off when the authorities have confirmed the insolvency of a customer. In assessing the amount of a provision, the assets pledged as collateral have been valued at their fair values.
In note 33 the other non-interest earning loans comprise loans from which no income of any kind will be received, based on agreement with customers.
For those employed by the Finnish Group companies, statutory pension cover has been arranged through the Employees’ Pensions Act, TEL. In some Group companies there is additional pension cover arranged through insurance companies. In foreign subsidiaries, pension schemes have been arranged in accordance with local practice. Pension costs are included in the profit and loss account on an accrual basis.
Appropriations In accordance with the Finnish regulations on accounting and taxation, companies are allowed to include in the accounts certain untaxed reserves and depreciation in excess of plan, which impact on the taxation of the companies. Companies use them in planning their accounts and taxation. The amount of those appropriations or changes in them do not reflect the risks of the companies.
In the accounts of the individual Group undertakings, the untaxed reserves and the difference between the depreciation according to plan and the amount deductible in corporate taxation are shown as a separate item in companies’ profit and loss accounts under “Appropriations” and in balance sheets under “Accumulated appropriations ”. The appropriations shown in the individual profit and loss accounts and balance sheets are presented without deducting the deferred tax liability arising from them.
In the Group accounts the untaxed reserves and the depreciation difference are shown in the balance sheet under “Deferred tax liability” and
“Capital and reserves” and, correspondingly, the changes in them are shown in the profit and loss account under
Derivative contracts which are accounted for as hedges are treated in the accounts in accordance with the treatment of hedged contracts. Interest on interest rate contracts used to hedge loans and advances, liabilities and debt securities held as financial fixed assets are included in “Net income from financial operations”, while profits and losses on derivative contracts that are used to hedge securities held for trading purposes are included in “Net income from transactions in securities and foreign exchange dealing”.
Insurance business In the life insurance business, derivative contracts are valued at current values on the balance sheet date. A negative difference between the current value of a non-hedging derivative contract and its higher book value/contract rate is stated as a loss. A positive difference is not stated in the accounts.
Both the changes in the fair value reserves and the changes recognised in the profit brought forward derive primarily from measuring the financial instruments referred to in IAS 39 (shares, bonds and derivatives) at fair value. Tax impacts have been taken into account. Most of the changes arise from the life insurance business. Preferred capital notes have been transferred from the capital and reserves to subordinated liabilities.
Sampo will elect to apply the exemption permitted in IFRS 1 (First-time Adoption of International Financial Reporting Standards) and not to apply IFRS 3 retrospectively to business combinations carried out before 3
March 2004. The impairment tests required by IAS 36 Impairment of Assets have been applied to goodwill and resulted in no impairment losses being included in the opening balance sheet.
The disability pension insurance included in TEL (Finnish employee pension insurance) will be treated in accordance with paragraph 30 of IAS 19 Employee Benefits, according to which the costs of the benefit will be recognised in the accounts when the event causing the disability occurs. Thus, disability pensions will not lead to any IFRS adjustment in the opening balance sheet.
Sampo has two employee option programmes classified under IFRS 2 Share-based Payment as share-based payments. They date from the years 998 and 2000 and the share options included in them were granted before 7 November 2002. Also the vesting period ended before  January 2005, which was the effective date of this standard. According to the transitional provisions of IFRS 2, Sampo does not apply the standard to the employee options.
The key figures relating to insurance business have been calculated in accordance with the decree issued by the Ministry of Finance and with supplementary instructions issued by the Ministry of Social Affairs and Health on 23 September 2002.
Revenue Banking and investment services revenue + property & casualty insurance revenue + life insurance revenue + holding company revenue
Property & casualty insurance + premiums earned before reinsurers’ share + investment income + other income + revaluations entered as income, realised in connection with sales
Property & casualty insurance + premiums earned – claims incurred – operating expenses ± other technical income and charges ± investment income and charges ± other income and charges ± income from companies accounted for by the equity method
Profit before extraordinary items and tax + banking and investment services operating profit + property & casualty insurance operating profit + life insurance operating profit + holding company operating profit ± change in the property & casualty insurance equalisation profit + property & casualty insurance unrealised gains on investment assets – property & casualty insurance unrealised losses on investment assets ± change in the life insurance equalisation provision ± life insurance bonuses and rebates
+ minority interest ± valuation differences on investments after deduction of deferred tax *) (average of values on  Jan. and 3 Dec.)
Operating profit Formula shown above in connection with calculation of Group key figures.
Formula shown above in connection with calculation of Group key figures.
Solvency margin + capital and reserves after proposed profit distribution ± valuation difference on investment – intangible assets ± deferred tax + other required items (Ministry of Finance decree)
Capital and reserves per share capital and reserves (excl. preferred capital notes in banking operations)
Net asset value per share + capital and reserves (excl. preferred capital notes in banking operations) ± valuation differences on investments *) ± deferred tax and minority interest relating to valuation differences on investments adjusted number of shares at balance sheet date
Market capitalisation number of shares at 3 Dec. × closing share price at 3 Dec.
× 00 adjusted average number of shares *) In calculating the returns on equity and assets and net asset value per share, the valuation differences have been adjusted for the “other required items (Ministry of Finance decree)” component of the solvency margin, which includes derivative contracts pertaining to the insurance operations.
Profit before appropriations and tax EURm 965 486 552 1,078 1,175
Revenue EURm 3,475 Premiums written before reinsurers’ share EURm 2,549 Premiums earned EURm 2,738 Operating profit EURm 478 of revenue % 13.7 Risk ratio % 66.8 Cost ratio % 24.5 Loss ratio % 73.3 Expense ratio % 18.1 Combined ratio % 91.4 Solvency margin EURm 2,009 Solvency capital EURm 2,201 of technical provisions % 29.7 Solvency ratio % 60.3 Average number of staff 6,776 *) Figures of P&C insurance for April to December 2004 continues >
Options diluted earnings per share ***) EUR 1.38 0.64 0.62 1.49 1.78 Capital and reserves per share euro 5.37 5.43 5.15 5.18 5.52 Net asset value per share, less full deferred tax from the Group’s valuation differences EUR 5.97 5.64 5.26 5.67 8.40
Adjusted average number of shares 1,000 558,077 553,859 555,730 555,588 522,535 Number of shares at 31 Dec. 1,000 563,762 553,920 553,853 555,623 520,000 Adjusted number of shares at 31 Dec. 1,000 563,762 553,920 553,853 555,623 520,000 Counter-value of shares at 31 Dec. 0.17 0.17 0.17 0.17 0.17 continues >
****) The Board of Director’s proposal to the Annual General Meeting for the accounting period 2004. The dividend for 2003 was EUR 1.50.
Note page Notes to the profit and loss account Banking and Investment Services 1 Interest receivable and payable ......................................................82 2 Net income from transactions in securities ....................................82 3 Other operating income and expenses ............................................82 4 Depreciation and write-downs of tangible and intangible assets ...82 5 Provisions for bad and doubtful debts plus write-offs in respect of debt securities held as financial fixed assets ................83 Property & Casualty Insurance Business 6 Segmental information ....................................................................83 7 Premiums written ............................................................................84 8 P&C insurance balance on technical account by group of insurance class .................................................................84 9 Total operating expenses by activity ................................................85 10 Staff expenses ..................................................................................85 11 Emoluments of members of administrative and supervisory bodies ...........................................................................85 12 Average staff numbers ....................................................................85 13 Net investment income ....................................................................86 14 Other income and charges ..............................................................86 Life Insurance Business 15 Premiums written ............................................................................87 16 Claims paid ......................................................................................88 17 Total operating expenses by activity ................................................88 18 Staff costs ........................................................................................88 19 Emoluments of members of administrative and supervisory bodies ...........................................................................89 20 Average staff numbers ....................................................................89 21 Net investment income ....................................................................89 Holding Business 22 Interest receivable and payable .......................................................91 23 Net income from transactions in securities ....................................91 24 Other operating income and expenses ............................................91 25 Depreciation and write-downs of tangible and intangible assets ...91 26 Segmental information ....................................................................92 Sampo Group 27 Income taxes ....................................................................................92 28 Segmental information of the group by class of business ..............92 29 Elimination items in consolidated profit and loss account .............93
Balance sheet notes Banking and Investment Services Assets 30 Treasury bills and other eligible bills ..............................................94 31 Loans and advances to central banks included in loans and advances to credit institutions .........................................................94 32 Loans and advances to customers ..................................................94 33 Non-performing and other non-interest earning loans ..................95 34 Assets acquired in settlement of unpaid loans and those acquired in connection with the re-organisation of a customer’s business operations ........................................................................................95 35 Subordinated loans ..........................................................................95 36 Lease assets ....................................................................................95 37 Debt securities .................................................................................95 38 Shares and participations ................................................................96 39 Movements in shares and participations held as financial fixed assets and in tangible assets ...................................97 40 Intangible assets ..............................................................................97 41 Properties and shares in property companies ................................97 42 Other assets .....................................................................................98 43 Prepayments and accrued income ..................................................98 Property & Casualty Insurance Assets 44 Changes in intangible and tangible assets ......................................99 45 Current value and valuation difference on investments .................99 46 Changes in investments in land and buildings .............................100 47 Shares and participations in other than subsidiaries and associated companies ...................................................................100 48 Investments in group undertakings and associated undertakings 102 49 Derivative contracts shown on the balance sheet ........................102 Life Insurance Assets 50 Changes in intangible and tangible assets ....................................102 51 Fair value and valuation difference on investments .....................103 52 Changes in investments in land and buildings .............................104 53 Shares and participations in other than subsidiaries and associated companies ............................................................105
Loans and advances to credit institutions 27 33 Loans and advances to customers 512 523 Debt securities 71 83 Net leasing income 32 29 Other interest receivable 14 10
–11 2 3 Other operating income and expenses Other operating income
Rental expenses 28 30 Expenses on properties and property companies 0 0 Loss on disposal of properties and property companies – 0 Other expenses 15 24 4 Depreciation and write-downs of tangible and intangible assets Depreciation according to plan on tangible assets 9 10 on intangible assets 27 23
EURm Gross amount Releases and recoveries Gross amount Releases and recoveries
Specific provisions written off during the year –7 –7 Recoveries of loans and guarantees written off in previous years –14 –14 New specific provisions for the year 13 21 Releases of provisions for the year –18 –12 Charge to profit and loss account –14 0
Provisions pooled by customer group included in the specific provisions for the year – –
Income includes net income from financial operations, dividend income, fees and commissions receivable, net income from transactions in securities and foreign exchange dealing and other operating income. Intragroup items have not been eliminated.
Change in the collective guarantee item 0 Other technical charges 0 Change in the equalisation provision –53 Balance on technical account 183
Direct insurance commissions 91 Commission on reinsurance assumed and profit participations 5 Other policy acquisition costs 206
Change in deferred acquisition costs 26 Policy management expenses 66 Administrative expenses 131 Commissions on reinsurance ceded and profit participations (–) –31
By geographical segment Finland 2,086 Sweden 1,798 Norway 1,750 Estonia 482 Denmark 400 Lithuania 136 Latvia 69 England 25 Other 30
Gains on realisation of investments 179 Unrealised gains on investment 7
Charges arising from investments in land and buildings –5 Charges arising from other investments –45 Interest and other expenses on liabilities to Group undertakings 0 Interest and other expenses on liabilities to other than Group undertakings 2 Total –48
Life insurance Unit-linked individual life insurance 194 153 Other individual life insurance 67 90 Unit-linked capital redemption policy 5 4 Other capital redemption policy 1 3 Employees’ group life insurance 4 4 Other group life insurance 3 3
Unit-linked individual pension insurance 74 57 Other individual pension insurance 92 96 Unit-linked group pension insurance 12 7 Other group pension insurance 86 105
Claims paid in total 437 401 From which: Surrender claims paid 54 74 Savings reimbursements 152 114
Direct insurance commissions 19 15 Commissions on reinsurance assumed and profit participations 1 1 Other policy acquisition costs 7 6
19 Emoluments of members of administrative and supervisory bodies Managing Directors and Deputy Managing Directors 0.8 0.6 Members and deputy members of the Board of Directors and Supervisory Board 0.0 0.0 20 Average staff numbers By class of business
Interest income from associated undertakings 0 0 Other income from Group undertakings 0 1 Other income from other than Group undertakings 32 32
Net investment income before revaluations and revaluation adjustments 382 375 Revaluations on investments 30 12 Revaluation adjustments on investments 0 0
Share of unit-linked insurance of net investment income Investment income 4 3 Investment charges 0 –1
Revaluations on investments 29 11 Revaluation adjustments on investments 0 0 Value adjustments on investments –1 0 Value readjustments 17 31
Expenses on properties and property companies 6 8 7 9 Loss on disposal of properties and property companies 10 6 10 6 25 Depreciation and write-downs of tangible and intangible assets Group Parent Company
Banking and investment services 814 4,167 756 4,471 P&C insurance business ***) 3,475 6,776 – –
Other operating income –2 –2 Administrative expenses 39 – Other operating expenses 4 6 Operating profit 20 –25
Operating expenses 27 Balance on technical account before the change in equalisation provision 27
Investment income –9 –5 Investment charges 6 5 Operating expenses 23 18 Technical result before customer bonuses and the change in equalisation provision 21 17
Banking and Investment Services 30 Treasury bills and other eligible bills Treasury bills 9 28 Government bonds 724 657 Certificates of deposit issued by other banks 848 479 31 Loans and advances to central banks included in loans and advances to credit institutions Loans and advances to credit institutions 425 479 of which to central banks – –
32 Loans and advances to customers Loans and advances to customers by geographical area
Other EU countries 947 144 Other EMU countries 30 51 Other Europe 36 490 USA, Canada, Japan, Australia, New Zealand 23 39
Hotels and restaurants 71 56 Wholesale and retail trade 762 565 Other corporations 2,617 2,681
Bad and doubtful debt provisions based on credit rating –15 –37
Provisions at beginning of year 72 76 + New provisions for year 10 21 – Releases of provisions –14 –10 – Provisions written off –3 –7 Provisions at end of year 65 80
Banking and Investment Services 33 Non-performing and other non-interest earning loans
Other non-interest earning loans Total 34 Assets acquired in settlement of unpaid loans and those acquired in connection with the re-organisation of a customer’s business operations
Properties and buildings 68 101 Other assets 188 85 37 Debt securities Book value
Debt securities 390 648 Treasury bills and other eligible bills 1,688 1,290
Difference between the market value and the lower book value of listed securities
Shares and participations in associated undertakings Other than credit institutions 28 19
Banking and Investment Services 39 Movements in shares and participations held as financial fixed assets and in tangible assets
Land and buildings, shares and participations in property companies Equipment and other tangible assets
Disposals – –42 –1 –12 Transfers between items +/– Depreciation according to plan for the year – 0 –10 Write-downs/write-backs for the year +/– 0 0 Accumulated depreciation at beginning of year – 1 Accumulated write-downs at beginning of year – –1 –39
Other intangible assets 69 75 41 Properties and shares in property companies
Occupied for own activities 2 2 – Other – – –
Banking and Investment Services Properties and shares in property companies occupied for other than own activities 31 December 2004
over 7 – Total 60 1) The capital employed is the depreciated cost of an asset which, in case of shares in property companies, is added by Group’s share of liabilities relating to equity shares in these companies and/or share of debts of these companies.
2) The net income% is a proportion of the net income to the capital employed and has been calculated by property.
42 Other assets Items in transit 5 9 Guarantee claims 1 1 Derivative contracts 516 364 43 Prepayments and accrued income Accrued interest 104 111
Accumulated depreciation, 1 April –79 –48 –79 –206 Accumulated depreciation on decreases and appropriations 9 21 34 64
Depreciation for the financial period –12 –12 –10 –35 Accumulated depreciation, 31 December –83 –38 –55 –176 45 Current value and valuation difference on investments at 31 December 2004
Investments in land and buildings Land and buildings 96 96 96 Real estate shares in associated undertakings 13 13 13 Other real estate shares 1 1 1
Other debt securities 711 711 711 Deposits with credit institutions 96 96 96
The remaining acquisition cost of debt securities comprises: That difference between the amount repayable at maturity and purchase price, which has been released to interest income (+) or charged to interest income (–) –11
COMP RZESZOW PL 18 – 0 0 47 Shares and participations in other than subsidiaries and associated companies
Acquisition cost, 1 Apr. 80 Decrease –2 Transfers between items –75
Accumulated depreciation, 1 Apr. 0 Accumulated depreciation on decreases and appropriations 0
Book value, 31 Dec. 3 49 Derivative contracts shown on the balance sheet EURm 2004
Shares in property companies, associated 10 10 10 2 2 2 Other shares in property companies 9 9 13 8 8 8
The remaining acquisition cost of debt securities comprises: Amortised premiums and discounts have been added to (+) or deducted from interest income (–) 39 40
Book value comprises Unrealised gains included in income 6 8 Other revaluations – 1
Value adjustments on investments, 1 Jan. –23 Value adjustments for the financial year –3 Value readjustments 4
Value adjustments on investments, 1 Jan. 6 Value adjustments for the financial year 0
Varma Mutual Pension Insurance Company 14 19.72 2 2 Kaleva Mutual Insurance Company 5,000 10.00 1 1
Other listed companies 29 33 Listed companies in total 72 85
Nordben Life & Pension Insurance Co Ltd UK 10,350,000 13.62 4 4
Capital trusts 673,504 EQT II B.V. Netherlands 5,167,299 – 5 7 VenCap 9 LLC Cayman Islands 5,419,678 – 5 5 Access Capital L.P. UK 39,364,989 – 39 39 Duke Street Capital IV UK L.P. UK 10,064,734 – 10 11 Duke Street Capital V Limited UK 6,515,528 – 7 7 EQT III UK No 1 L.P. UK 14,076,014 – 14 14 Industri Kapital 2000 Fund UK 7,585,415 – 8 8 Nexit Infocom 2000 Fund Limited Partnership UK 5,551,597 – 6 6 Permira Europe II L.P.2 UK 7,416,205 – 7 7 Unicapital Investments II Luxembourg 7,784,270 – 8 8 Behrman Capital III L.P. United States 6,658,919 – 7 7 Thomas H. Lee Equity Fund V L.P. United States 5,849,970 – 6 6
Life Insurance Business 54 Investments in group undertakings and associated undertakings
Value adjustments on investments, 1 Jan. Value adjustments on investments for the financial period
Deposits and other investments 1 1 1 1 Investments pertaining to unit-linked insurances corresponding to technical provisions 883 882 650 603 57 Derivative contracts shown on the balance sheet
Amounts include due from Group undertakings 101 19 101 19 due from associated undertakings – – – –
Holding Business Group Parent Company 62 Shares and participations Book value of shares and participations, total 49 214 49 214
Shares and participations in Group undertakings Credit institutions – – 787 1,463 * Incl. investment in If P&C Insurance Holding Ltd consolidated as an associated company.
63 Movements in shares and participations held as financial fixed assets and in tangible assets Group
Disposals – –783 –82 –1 Depreciation according to plan for the year – –1 –2 Write-downs/write-backs for the year +/– 11 Accumulated deductions of depreciation +/– 1 Accumulated depreciation at beginning of year – –7 –13 Deductions of accumulated write-downs – Accumulated write-downs at beginning of year – –24
Disposals – –758 –82 0 Depreciation according to plan for the year – –1 –1 Write-downs/write-backs for the year +/– –43 11 Accumulated deductions of depreciation +/– Accumulated depreciation at beginning of year – –7 –5 Deductions of accumulated write-downs – Accumulated write-downs at beginning of year – –105 –24 64 Intangible assets Group Parent Company
Land and buildings Occupied for own activities 7 7 – 7 7 –
*) Properties and shares in property companies occupied for other than own activities 31 December 2004.
Area Capital employed 1) Net income 2) Unlet space 3) Area Capital employed 1) Net income 2) Unlet space 3)
By activity Housing – – – – – – – –
Capital employed in properties occupied for other than own activity by net income %
Total 70 Total 75 1) The capital employed is the depreciated cost of an asset which, in case of shares in property companies, is added by Group’s share of liabilities relating to equity shares in these companies and/or share of debts of these companies.
2) The net income % is a proportion of the net income to the capital employed and has been calculated by property.
Sampo Group EURm 67 Movements in consolidated capital and reserves 1 Jan. – 31 Dec. 2004 Share capital, 1 Jan. 93
Euro-denominated loans Banking and investment services, 1998 – 10 Property & casualty insurance business, 2001 200 – Property & casualty insurance business, 2002 *) 65 – Life insurance business, 2002 **)
Banking and investment services, 2004 125 – Banking and investment services, 2004 100 –
*) The share of Sampo Bank plc (38,05%) has been eliminated on the consolidated balance sheet **) Has been eliminated on the consolidated balance sheet
Sampo Life issued on 2002 EUR 100 million Capital Notes. The loan is perpetual and pays floating rate interest. The interest is payable only from distributable capital. The loan is repayable only with the consent of the Insurance Supervisory Authority and at the earliest on 2012 or any interest payment date after that.
69 Movements in parent company capital and reserves 1 Jan. – 31 Dec. 2004 EURm
Profit brought forward, 1 Jan. 316 For dividend distribution –316 Expiration of dividents for 1998 1
Profit for the financial year 286 + Distributable reserves 273 + Profit brought forward 1 Total distributable profit 560 Information about Sampo’s shares and shareholders is presented in the Annual Report, pages 22–25.
Discounts Debt securities in issue 100 88 Subordinated liabilities 0 0
72 Other liabilities Items in transit 296 324 Short selling 28 – Finance lease liabilities 1 – Derivative contracts 401 424 73 Accruals and deferred income Deferred interest 192 168 74 Subordinated liabilities Subordinated liabilities with a book value more than 10% of the total amount of such liabilities
Sampo Bank plc 1) 150 EUR 2.87 14 June 2007 Sampo Bank plc 2) 77 USD 2.79 perpetual Sampo Bank plc 3) 50 EUR 2.70 16 Dec. 2013 Sampo Bank plc 4) 150 EUR 2.68 17 March 2014 1) Repayable on due date. 2) Repayable on any interest payment date. 3) Repayable on interest payment date December year 2008. 4) Repayable on interest payment date March year 2009.
Banking and Investment Services 75 Maturity analysis of assets and liabilities, by remaining maturity
Liabilities to credit institutions and central banks 133 93 Liabilities to customers 391 298 Debt securities in issue 1,457 1,273
Liabilities to credit institutions and central banks 72 41 Liabilities to customers 15 12 Debt securities in issue 579 45
Banking and Investment Services 76 Assets and liabilities denominated in domestic and foreign currencies
Assets Treasury bills and other eligible bills 1,688 – 1,290 – Loans and advances to credit institutions 171 254 193 286 Loans and advances to customers 14,145 706 13,048 860
Debt securities in issue 5,190 710 3,649 617 77 Deferred tax EURm 2004 2003
78 Assets pledged as collateral security and secured liabilities as well as other assets pledged on behalf of the company and other group undertakings
Intra-day overdraft limit of the Bank of Finland’s settlement account 800 800
80 Rental commitments Rental payments for next year 22 16 Rental payments thereafter 104 106 81 Off-balance sheet items Guarantees and assets pledged as collateral security 2,429 1,911 on behalf of Group undertakings – – on behalf of associated undertakings 0 0
Undrawn loans, overdraft facilities and commitments to lend 3,575 3,463 to Group companies – – to associated undertakings 11 –
Exchange rate contracts Futures and forward exchange – 9,224 – 9,108 Options
Other derivative contracts 0 0 – – Contracts settled on a net basis ***) 365 75 253 53 *) Options for hedging purposes are embedded options attached to funding and derivatives hedging funding. The values of underlying instruments are included both in purchased and written options and in items interest rate swaps, interest rate and cross currency swaps and other equity contracts. No separate credit equivalent amounts have been calculated for embedded options attached to derivative contracts, but the market values of the embedded options are included in the credit equivalent amounts of those contracts.
**) Other derivative contracts comprise of options and embedded options attached to funding and derivatives hedging funding. These are barrier options ***) The netting is based on a blanket agreement between ISDA and The Finnish Bankers’ association. Derivate contracts between business areas have not been eliminated.
Arising from appropriations 101 Arising from consolidation procedure 3 Included in the Group undertakings’ balance sheets 38
Property & Casualty Insurance Business EURm 2004 87 Contingent liabilities, pledged assets and derivatives Guarantees for own liabilities
Open letters of credit, foreign reinsurance liabilities 97 Pledged countersecurities 112
To be paid during the starting financial year 29 To be paid during following years 80
The subsidiary If P&C Insurance Ltd provides insurance with mutual undertakings within the Swedish Atomic Insurance Pool and within the Norwegian Natural Perils’ Pool.
If P&C Holding Ltd and If P&C Insurance Ltd have separately entered into contracts with Försäkringsaktiebolaget Skandia (publ.) and Tryg-Baltica Forsikrings AS whereby Skandia and Tryg-Baltica will be indemnified against any claims attributable to guarantees issued by Försäkringsaktiebolaget Skandia (publ.) and Vesta Forsikring AS, on behalf of Skandia Marine Insurance Company (U.K.) Ltd. in favor of the Institute of London Underwriters.
The currenct values of option contracts include received and paid premiums. Negative valuation differences of derivative contracts made for other than hedging purposes have been entered as charges (current value = 0). Other contingent liabilities, pledged assets and derivatives do not exit. (ICA, 10th ch. 8.3 §)
Provision for unearned premiums 884 607 Provision for claims outstanding – 0
Pledges against own liabilities 7 10 Amount of the above liabilities 0 0
Amount of joint liability pertaining to VAT group registration 0 –
For other purposes underlying instruments 73 282 fair value – –
For hedging purposes underlying instruments 252 230 fair value 2 12
For other purposes underlying instruments 624 152 fair value – –
For other purposes underlying instruments 329 499 fair value 2 2
94 Other liabilities Derivative contracts – 1 – 1 95 Accruals and deferred income
Subordinated liabilities with a book value more than 10% of the total amount of such liabilities
Issuer Nominal value Book value Currency Interest *) Due date *) The loan bears interest at the rate of 4.625% until 21st April 2009 and thereafter 3-month Euribor plus 2.97%.
Holding Business 97 Maturity analysis of assets and liabilities, by remaining maturity
Liabilities to credit institutions and central banks 0 - - Debt securities in issue 211 166 211 166
Liabilities to credit institutions and central banks 206 6 200 Debt securities in issue 299 - 299 -
Holding Business 98 Assets and liabilities denominated in domestic and foreign currencies
Liabilities Liabilities to credit institutions and central banks 200 – – – Liabilities to customers 105 – 105 – Debt securities in issue 624 – 313 – Subordinated liabilities 596 – – –
Deferred tax liabilities Arising from appropriations – 0 – 0 Arising from consolidation procedures 0 116 – –
Interest rate contracts Interest rate swaps *) 640 – 35 50
Amount of joint liability pertaining to VAT group registration 0 1 2 2
Sampo plc received value added tax refunds in 2004 based on the Tax Office for Major Corporation’s final value added tax refund decisions. Sampo plc is the entity liable to tax in a tax group of Sampo plc for the purpose of the Value Added Tax Act. The tax refund was based on a refund application made by a member of the group.
As the group member liable to tax Sampo plc has paid the VAT debited in December 2004 in January 2005. Accordingly, the VAT in question has been treated as debt to the taxation authority and as a receivable from the group member in the accounts for 2004.
Full-time staff 11,807 6,459 5,348 –409 Part-time staff 165 –16 181 –39 of which in banking and investment services 4,167 –304 4,471 –276 full-time 4,019 –291 4,310 –257 part-time 148 –13 161 –19 in P&C insurance 6,776 6,776 – – full-time 6,776 6,776 – – part-time – – – –
in life insurance 378 –9 387 –105 full-time 367 –10 377 –92 in holding company 651 –20 671 –67 full-time 645 –16 661 –60 part-time 6 –4 10 –7
Parent Company Full-time staff 81 –4 85 –40 Part-time staff 1 – 1 –1 107 Emoluments of members of administrative and supervisory bodies Group Parent Company
P&C insurance Members and deputy members of the Board of Directors/ Management and President and Executive Vice Presidents 9 –
Members and deputy members of the Supervisory Board, members and deputy members of the Board of Directors/Management and President and Executive 24 – 19 – Auditors – – – –
The interest on loans to members of administrative and supervisory bodies is at least as high as on the staff loans referred to in the Income and Capital Tax Act, section 67, so that the interest benefit will not be available for taxation.
Banking Sampo Bank plc 1 Helsinki Finland 100.00 100.00 787 Housing Loan Bank of Finland plc 1 Helsinki Finland 100.00 – 6 AS Sampo Pank 1 Tallinn Estonia 100.00 – 30 AB Sampo bankas 1 Vilnius Lithuania 100.00 – 33 AS Māras banka 1 Riga Latvia 100.00 – 13
P & C insurance If Skadeförsäkring Holding AB (publ) 1 Stockholm Sweden 100.00 100.00 1,886 If Skadeförsäkring AB (publ) 1 Stockholm Sweden 100.00 – 1,845 If Reseförsäkring AB 1 Stockholm Sweden 100.00 – 25 If Säkerhet AB 1 Stockholm Sweden 100.00 – 1 If Towarzystwo Ubezpieczen Spolka Akcyjna 1 Warsaw Poland 100.00 – 2 If Vahinkovakuutusyhtiö Oy 1 Helsinki Finland 100.00 – 602 Marlon Insurance Company Ltd 1 London UK 100.00 – 41 UAB If Draudimas 1 Vilnius Lithuania 100.00 – 6 AAS If Latvia 1 Riga Latvia 100.00 – 5 AS If Eesti Kindlustus 1,7 Tallinn Estonia 100.00 – 14
Property companies Kiinteistö Oy Hervannan Tieteenkatu 1 1 Tampere Finland 100.00 100.00 8 Kiinteistö Oy Salon Meriniitty Oy 1 Salo Finland 100.00 – 2 Kiinteistö Oy Salon Örninkatu 15 1 Salo Finland 100.00 – 12 Kiinteistö Oy Teollisuuskatu 29 1 Helsinki Finland 100.00 100.00 14
By virtue of regulations for credit institutions 12 property companies have been excluded from consolidation, the balance sheet total of which is less than EUR 10 million.
Financing Amanda Capital Plc 2 Helsinki Finland 45.41 45.41 16 42 5 MB Equity Fund Ky 2, 7 Helsinki Finland 32.52 11.63 2 17 13 MB Equity Fund II Ky 2, 7 Helsinki Finland 18.03 – 5 65 39
Life insurance Industrial Hansa Reinsurance Management Ab 2 Stockholm Sweden 50.00 50.00 0 Kaleva Mutual Insurance Company 5, 6, 7 Helsinki Finland 50.00 30.00 5 147 -1 Retro Life Insurance Company Ltd 2 Helsinki Finland 24.21 – 2 4 67
Consulting AB Lennemark & Andersson Stockholm Sweden 22.00 – 1 2 0
Sampo Group 111 Elimination items in the consolidated balance sheet ASSETS
Debtors Other debtors –1 –1 Cash at bank and in hand – 0
Loans and advances to credit institutions –52 –55 Loans and advances to customers –2 –2 Debt securities
To the Shareholders of Sampo plc We have audited the accounting records and the financial statements, as well as the administration by the Board of Directors and the Managing Director of Sampo plc for the financial year 2004. The financial statements, which include the report of the Board of Directors, consolidated and parent company income statements, balance sheets and notes to the financial statements, have been prepared by the Board of Directors and the Managing Director. Based on our audit we express an opinion on these financial statements and on the company’s administration.
Investor Relations Jarmo Salonen, Head of Investor Relations Telephone +358 0 56 0030 Fax +358 0 56 0605 E-mail jarmo.o.salonen@sampo.fi
Peter Johansson, CFO Telephone +358 0 56 000 Fax +358 0 56 006 E-mail peter.johansson@sampo.fi
Pasi Kuoppamäki, Manager, Investor Relations Telephone +358 0 56 0025 Fax +358 0 56 0605 E-mail pasi.kuoppamäki@sampo.fi
Shareholder Services E-mail osakas@sampo.fi Telephone +358 0 53 6033 and +358 0 53 6034 Fax +358 0 53 2744
The contact information for Group subsidiaries is available at the Internet address: www.sampo.com/group
The contact information for subsidiaries providing banking and long-term savings services is also available in the Annual Report part for ‘Banking and Long-term Savings’.
The contact information for subsidiaries providing P&C insurance services is available in the Annual Report part for ‘If P&C Insurance’.
Read also the Banking and Long-Term Savings Report, and the If P&C Insurance Report 2004