GrGroup CEO's Roup CEO's Reevievieww ................................................................................................................................................................................. 44 2015 in Figur2015 in Figureses ................................................................................................................................................................................................... 66 9If P&C Insurance 10Mandatum Life
GrGroup Soup Structurtructuree ............................................................................................................................................................................................ 1212 15If P&C Insurance 17Nordea 18Mandatum Life 20If P&C Insurance 26Mandatum Life
Sampo performed very well in 2015 and achieved its best result ever. Based on the proposal made to the AGM, Sampo will increase its dividend to EUR 2.15 per share. This represents the seventh successive spring that Sampo will have raised its dividend from the previous year.
If P&C’s result for 2015 was excellent and amounted to EUR 960 million before taxes. The combined ratio was the best on record – 86.5 per cent excluding the nonrecurring items.
Customer satisfaction increased further in 2015 and the fine-tuning of the Nordic business model continued. The growth of efficiency in operations reflected especially in the cost ratio which reached its lowest ever level – 22.3 per cent excluding the nonrecurring items.
The persevering work aimed at improving efficiency at Mandatum Life could be seen in the key figures for 2015: expense and risk results reached new record levels. Premium income also reached an all-time high: EUR 1,144 million. In addition, customer satisfaction was further improved upon.
After the financial crisis it was clear that risks in the banking sector had to be reduced and better managed. The most effective and simple way of achieving this would be to increase capital requirements. This has also been done and an example is Nordea, where its CET1 ratio increased from 7.5 per cent in 2007 to 16.5 per cent in 2015. Furthermore, Nordea’s Tier 1 Capital increased at the same time by over EUR 10 billion.
Simultaneously, regulation that is applicable to the entire financial sector overlaps (as a result of there being several regulatory bodies involved) and forms various layers (the implementation from directives to national guidelines and then subsequently to rules). All of this creates a regulatory jungle made up of several thousand pages and the result is that even the best-in-class companies – in spite of good intentions – have difficulties in keeping up with the regulatory reforms. Overregulation and recurring capital requirements also come at a price: customer service becomes more complicated and cumbersome while the positive contribution of an effective financial sector to the general economic growth weakens. Increased bureaucracy also means a higher barrier to market entry and thus hinders genuine competition.
In closing, last but not least, I would like to thank all of our customers and employees for helping us to once again realize another excellent year for Sampo.
Dividend Policy Sampo plc, the listed parent company of Sampo Group, is a good dividend payer. Sampo aims to pay at least 50 per cent of Group’s net profit as dividend. Share buy-backs can be used to complement the dividend. The Board proposes to the AGM a dividend of EUR 2.15 per share for the year 2015. The proposed dividend corresponds to a pay-out ratio of 73 per cent.
• The PrivPrivaattee business area is If’s largest business area and the Nordic market leader with more than three million private individuals as customers.
• The BalticBaltic business area offers property and casualty insurances for both private individuals and corporate customers. If is the second largest P&C
Mandatum Life is the leading provider of cover against health and life risks, and a well-respected manager of customer wealth in Finland and the Baltic countries. Mandatum Life Group offers its customers comprehensive services that include tailored unitlinked investments and wealth management, personal risk insurance for private customers, pension and reward services for companies and the related consultation services.
The parent company of Mandatum Life Group is Mandatum Life Insurance Company Limited, the subsidiaries of which are, following a change in corporate structure in 2014, Mandatum Life Services Ltd., Mandatum Life Investment Services Ltd., Mandatum Life Fund Management S.A. and Innova Services Ltd. and Mandatum Life Insurance SE Baltic, which continue to operate as before.
The focal point of Mandatum Life’s new sales business is unit-linked insurances, capital redemption contracts, group pension insurance and risk insurance covering personal risks. For these, Mandatum Life has three sales channels in Finland: sales groups specialized in corporate sales, wealth managers focused on highnet -worth individuals and Danske Bank’s distribution network. The fourth sales channel is customer services, which is responsible especially for the additional services offered to existing clientele.
Insurance for Corporate Customers and Entrepreneurs a Strong Strategic Focal Area
Mandatum Life’s result consists of three components: investment result, risk result and expense result. In expense and risk result, Mandatum Life seeks growth through both higher operational efficiency and volume growth. The company’s financial target is to produce an RoE of at least 17.5 per cent.
Nordea, the largest bank in the Nordic region, has around 11 million customers and is one of the largest universal banks in Europe in terms of total market capitalization. The Nordea share is listed in the Nasdaq Nordic Exchanges in Stockholm, Helsinki and Copenhagen. In Sampo Group’s reporting Nordea is treated as an associate and included in the segment Holding. At the end of 2015 Sampo plc held 21.2 per cent of shares in the Bank.
Mandatum Life provides its customers with a variety of services, including wealth management, investments, savings, personal risk insurance, as well as, incentive and reward solutions. Mandatum Life has an estimated 250,000 private and 25,000 corporate customers. In addition to Finland, it operates in the Baltic countries.
2015 was yet another year characterized by uncertainty in the global economy with continued low interest rates. The most important success factors in this environment include healthy profitability in the core business, as well as the ability to retain existing customers and winning new. As a market leader with a long-term strategic focus and Nordic market knowledge, If P&C is well positioned for this challenge. The company aims to offer superior customer experience compared to competitors and at the same time maintain a high degree of efficiency in order to secure competitiveness.
year internet sales increased by more than 20 per cent and approximately 40 per cent of Private claims are now filed online. Furthermore, today 30 per cent of all customers are e-Customers, i.e. customers with digital payment and digital policy letters on all their policies. This work has led to an additional improvement in customer satisfaction levels. Also, customer reviews of If P&C’s claims handling process continue to improve further from an already high level where the customer promise “Relax we’ll help you” is fulfilled.
In 2015 If P&C also continued the implementation of a state of the art Nordic IT core system, replacing local legacy systems in all four Nordic countries. Synergies are expected to be effectively utilized on a pan-Nordic basis as well as across Business Areas.
& Poor’s has affirmed the company’s A-rating with a stable outlook and the Strong assessment of Enterprise Risk Management.
Under these market conditions, Nordea showed 3 per cent increase in income in local currencies and excluding one-offs, a reduction in costs, improved credit quality, improved operating profit by 7 per cent, and a return on equity which improved to 12.3 per cent.
In Retail Banking, digitalization continued to make a significant impact on the business. Nordea’s customers increase rapidly their use of online and mobile offerings and also appreciate the accessibility of online meetings, with one of seven customer meetings now carried out online. Nordea has launched new digital services, e.g. updated mobile bank with easy access features such as touch ID, preauthentication on the chat and call functions.
2016 to 2018 – a Transition Period to Deliver One Nordea
The coming three years will be a transition period in which Nordea will execute on its transformational change agenda in order to create a truly digital bank. This change agenda is driven by changed customer behavior, a shift in technology as well as regulatory requirements.
Nordea has around 11 million customers and approximately 650 branch office locations and the Nordea share is listed on the Nasdaq Stockholm, Nasdaq Helsinki and Nasdaq Copenhagen exchanges.
2015 was, in many respects, a successful year for Mandatum Life, and the company’s results were, by all measures, excellent. Expense result once again increased to a record-high level, and risk result also reached the highest level in the company’s history. In addition, unit-linked premium income and technical provisions broke new records, as they did in the previous year. The transfer of Suomi Mutual’s group pension portfolio at the end of 2014 was executed according to plan, and Mandatum Life was able to offer supplementary benefits on the portfolio already after the first year.
Personnel Sampo Group operates in an industry, where value creation rests on operational excellence, continuous renewal and highly skilled employees. Through operational excellence, we can build trust and respond to customer expectations.
In 2015 Sampo Group employed on average 6,755 people (6,739). P&C Insurance is the Group’s largest business area, with If P&C employees comprising 91 per cent of the Group personnel (6,176 employees). 8 per cent of employees worked in life insurance and 1 per cent in the parent company Sampo plc.
In geographical terms, 33 per cent of the personnel worked in Finland, 27 per cent in Sweden and 20 per cent in Norway. The Baltic countries, Denmark and other countries employed 20 per cent.
The HR strategy of If P&C is based on four core areas: leadership, employeeship, competence development and ensuring the right person in the right place. In 2015, the main focus has been on promoting employeeship and developing leadership to support it.
Customer focus has also been the reason for structural changes in 2015. If P&C is building major customer centers in each country: these act as centers of excellence for both the delivery and development of customer service. HR is contributing to this project by focused recruitment practices and training efforts.
The insurance industry is developing rapidly in light of digitalization and changing customer behavior. As a result, jobs in the insurance industry are evolving and becoming more complex, requiring multifaceted leaders and increasingly competent employees.
In 2015 the Future Leadership Program was continued to help recruit and integrate potential future leaders and key specialists for If P&C. In addition, new strategic initiatives for top talent recruitment were launched, such as recruitment pipelines to key academic institutions.
Employees should also increasingly see themselves as leaders within their own areas of responsibility. Employeeship encourages employees to take responsibility and initiative for their own development and performance.
In 2015, measures mainly concentrated on implementing the employeeship culture through leader seminars, employee discussions, a revised employee survey, updated recruitment processes and the development of a performance model emphasizing employeeship.
If P&C’s internal competence development unit – If Academy – promotes business driven competence development. In 2015 over 2,000 employees were trained through If Academy activities, which equals nearly 4,000 training days. Additionally, business units themselves organize ample training, and If P&C also encourages on-the-job-training.
Change cChange comparompared ted too prpreevious yvious yearear * Sickness statistics are based on If P&C’s internal reporting standards and may deviate from locally published statistics.
Continuous work on employee well-being is also shown in the employee satisfaction survey. The results have been on a very high level for years, and 2015 is no exception. On the scale of 1 to 7, the statement “I enjoy working at If” reached a figure as high as 6.07.
Age diversity is endorsed with a pilot program in Finland, Always the Right Age. The program supports the performance and well-being of employees of all ages. The aim of the program is to increase understanding about the importance of adjusting to changing life situations, rather than focusing solely on age.
Managers (male 55.9%, female 44.1%) All employees (male 46.2%, female 53.8%)
To illustrate If P&C’s purpose, the people behind insurances and their stories were brought to the limelight.
Watch the video of insurance stories around the Nordics at: www.youtube.com/watch?v=yIRn4BlgQl0
As a financial services provider, Mandatum Life provides customers with versatile opportunities to secure their financial security. Our values reflect customer focus and teamwork, putting the development and competence of our employees at the core.
The goal is that by 2020, 90 per cent of Mandatum Life’s employees feel that they are working in a great workplace. Continuous efforts have been fruitful: we already exceeded this target in 2015, with a result of 92 per cent.
Moreover, Mandatum Life has been ranked among the best Finnish workplaces for six years running.
Corporate culture is one of the areas that Mandatum Life seeks to develop on an ongoing basis. Performance is measured, for example, with a survey of in-house cooperation, in which the units provide feedback of their closest partners within the company. The results are reviewed by the management and included in the incentive rewards criteria.
During 2015, the work to develop efficient working methods continued. The targets of the cost-efficiency project organized in 2014 were achieved in 2015 as well.
Based on the 360 assessment results, the management feedback at Mandatum Life is at a high level compared to other expert organizations. The results reflect our inputs in developing management work, management trainings and the attention of our recruiting managers.
In the annual survey measuring well-being at work, Great Place to Work, Mandatum Life’s total grade was 84 per cent. This was an improvement of four percentage points from 2015. Positive development was especially seen in sections that measure employee experiences of leadership and pride in working at Mandatum Life. The response rate for the survey was 90 per cent (91).
Mandatum Life seeks to promote gender equality by monitoring the figures on a continuous basis. There is an equal number of men and women among Mandatum Life employees. Women are also represented in the management team, but men hold the majority.
Managers (male 68.0%, female 32.0%) All employees (male 50.0%, female 50.0%)
Gender SGender Structurtructure in Finland (Managers and All Emploe in Finland (Managers and All Employyeesees)) Mandatum Life, 2015
Mandatum Life holds its experienced employees and their skills and competences in high regard. To highlight this, we set up the ML Plus 58 group in early 2015. It is intended for all employees who have turned 58.
ML Plus 58 focuses on three areas: Fitness (guidance and instruction in maintaining one’s physical condition); Wisdom (skills development and sharing); and Good Feeling (catering for enjoyment in work, as well as motivation and wellness).
The annual development discussions include ‘senior talks’ that address issues such as flexibilities at work, retirement, the sharing of skills and knowledge, wellness-at-work and working ability. The activities are carried out in collaboration with the ML Seniors group, the HR Department, Mehiläinen Medical Centre and Varma insurance company.
Corporate Responsibility The focus of Sampo Group’s corporate responsibility work is on the subsidiary level. This is where the customers are met and where 99 per cent of the personnel work. The operations of Sampo Group’s insurance subsidiaries If P&C Insurance and Mandatum Life differ significantly from each other and, therefore, the nature of their corporate responsibility activities also differs to a great extent. The subsidiaries have their own models of corporate responsibility reporting reflecting the special features of their businesses. On a Group level Sampo continued to develop the Group level non-financial reporting while waiting for the authorities' decision reporting requirements.
If P&C Insurance is committed to promoting a safe and secure society. Along with the police, rescue services, judiciary, and other public authorities, the property and casualty insurance companies play a key role in providing safe environment for people and businesses alike.
If P&C endeavors to take its social responsibility beyond its business operations. Its principal objective is to constantly act in a manner that satisfies or exceeds the ethical, legal and commercial requirements placed upon the business. For example, the company has been carrying out extensive work, for several years now, at the highest political level to place increased focus on the issue of everyday crime, such as burglary and car theft. This is a problem that affects hundreds of thousands of people in the Nordic region every year. The situation has started to improve, but If P&C believes that the authorities can do even more to solve the problem.
Environmental issues are of critical importance to everyone and often have a direct impact on the operations of the P&C insurance companies. Climaterelated meteorological phenomena, such as heavy rainfalls and flooding, are becoming increasingly common. Populated areas along the coastlines of exposed regions are experiencing frequent flooding.
All of If P&C's activities are governed by a strict environmental policy. The essence of this policy is that the most environmentally viable solution for clients, suppliers and partners as well as the company itself will always be looked for.
ClimaClimatte impact:e impact: If P&C’s carbon dioxide emissions continued to decrease in 2015. In 2011, the company had launched a carbon offsetting scheme whereby it compensates for its emissions of carbon dioxide in the Nordic region by distributing energy-efficient woodburning stoves to villages in India. In 2015, the target country changed from India to Tanzania. The scheme is a so-called "Gold Standard project", which is an internationally recognized certification standard developed in collaboration with the World Wide Fund for Nature and other organizations. Not only do the wood-burning stoves reduce carbon dioxide emissions, they also save lives. A report published by the World Bank shows that about four million people die each year from the pollutants emitted by inefficient wood-burning stoves. If P&C will be continuing with this offsetting program in 2016.
DeDevvelopment of Flight Telopment of Flight Trraavvel and Vel and Video Meetingsideo Meetings If P&C, 2007-2015
The methodology to calculate emissions from flights has been updated for 2015. Using the previous methodology the emissions would have been 10,783 tons.
• The Head office in Oslo, Norway, achieved the “Miljøfyrtårn” certification.
If P&C’s environmental program has three levels: • A steering group, led by a member of If P&C’s executive board, sets up and upholds the environmental strategy, policies and overall goals.
Mandatum Life’s corporate responsibility is based on the cornerstones of its business operations: increasing and securing the financial welfare of its customers and safeguarding against financial risks. The success of its business operations is a central part of Mandatum Life’s corporate responsibility, as it helps make life better and easier for its customers and employees.
Financial responsibility at Mandatum Life means ensuring the continuity, profitability, earnings power and solvency of operations in all market situations. Ensuring continuity creates the foundation for the sustainable and responsible management of customers’ insurance-related liabilities and customer investments and pensions over the decades. That is why risk management is a key component in the company’s financial responsibility. The most important goals of the risk management process are to ensure the sufficiency of capital in relation to business risks and to curb variations in financial performance in the long run. Sufficient capitalization and well-functioning risk management processes safeguard the company’s ability to take care of its customers’ pensions and compensations, whatever the situation or economic environment.
In 2015, Mandatum Life paid out a total of approximately EUR 387 million in pensions to 76,000 pensioners, as well as other indemnities for death, accidents, serious illness and disability, totaling some EUR 77 million. Responsibility towards shareholders is reflected in the company’s goal of ensuring a steady dividend stream.
Mandatum Life is also a key societal contributor and employer. The company employs more than 500 people in Finland and the Baltic countries. Mandatum Life has been one of Finland’s largest tax payers for many years, bearing its responsibility towards society through its business profits. In 2014, Mandatum Life was the 17th largest corporate tax payer in Finland, paying a total of EUR 37 million in taxes.
Mandatum Life also provides financial support for third-sector activities. In 2014, the company started co-operation with the Tukikummit foundation, whose objective is to prevent marginalization by providing financial support to youth at risk of exclusion. Mandatum Life participates in the foundation’s activities by donating accident insurance policies to children whose families are in need. In 2015, close to 1,100 children were covered by such accident insurance. In 2015, Mandatum Life made a commitment to the Baltic Sea Action Group (BSAG) towards promoting the protection of the Baltic Sea. BSAG is a non-profit foundation that co-operates with state heads, authorities and the private sector. In 2015, Tukikummit and BSAG were the beneficiaries of Mandatum Life’s Christmas donation totaling EUR 10,000.
Responsible investing at Mandatum Life means taking into account environmental, social and governance (ESG) issues in its investment decisions. Mandatum Life’s Wealth Management signed the UN’s Principles for Responsible Investment (UN PRI) in 2011. Mandatum Life is also a member of FINSIF (Finland's Sustainable Investment Forum). Investment operations linked to the management of customers’ wealth are implemented according to these principles. ESG issues have been incorporated into the investment process, backed by a dialogue with operators, companies and co-operation partners in the sector.
Investors can have a major impact on solving social and environmental challenges. In September 2015, Mandatum Life Investment Services Ltd. joined the international Portfolio Decarbonization Coalition, whose objective is to reduce the carbon footprint of investments worldwide. Mandatum Life is also committed to increasing investors’ awareness and
The investment object has been a success and it has from inception until the end of 2015 outperformed the general equity market index (parent index MSCI World) return by about 0.6 per cent. The target index of ML Future Climate MSCI World Low Carbon Leaders has outperformed the general equity market by more than 4 percentage points from November 2010. Although this is no guarantee for the upcoming years, it does suggest that responsible investing is not just about fighting for a good cause but also about profitable investment operations.
One of the company’s goals is to increase investors’ awareness of the opportunities offered by responsible investing and the risks of ignoring them. In the lead-up to the Paris Climate Change Conference, Mandatum Life invited trade opinion leaders to discuss the risks caused by climate change to investors as well as investors’ possibilities to have an impact on mitigating climate change. The goal of emphasizing the role of investors as part of the efforts to mitigate climate change was achieved through direct engagement with the public and media visibility: the opinion leaders that spoke at the event gained media visibility through their statements. A total of around 150 opinion leaders from the business world and society participated in the event.
The proportion of working-aged people in Finland will diminish over the following decades and the number of pensioners will increase. At the end of 2013, people receiving old-age pension already accounted for 25 per cent of all people aged over 16 (Source: Finnish Centre for Pensions). With changing demographics, the pension system is also being reformed. The purpose of the pension reform, which will take effect at the start of 2017, is to lengthen careers and help close the sustainability gap in public finances. Today, 30-year-olds are expected to continue working until over the age of 70 if they wish to secure their income during retirement. Earlier retirement could lead to insufficient pension cover for entrepreneurs, for example, if they have not prepared themselves.
Mandatum Life wishes to increase Finns’ awareness of their possibilities to influence the sufficiency of their income during retirement. The company offers sensible and cost-effective ways to save and invest for
Employers should also prepare for the ageing and retirement of their personnel. The company should devise a pension strategy, which includes models for ensuring the employees’ and management’s ability and willingness to work. At the same time, this provides the company with a foundation for knowledge transfer and for making positive use of senior employees’ experience. A thoughtfully built model improves the company’s business and makes it a more responsible employer.
A key aspect of securing an entrepreneur’s future is taking care of his or her pension security. The average pension of an entrepreneur amounts to approximately EUR 1,300 per month (Finnish Unemployment Fund for Entrepreneurs 2011). This is very little compared to the income many entrepreneurs receive while working. Mandatum Life helps entrepreneurs to identify this security deficit and to solve it using a combination of YEL contributions and voluntary preparations according to their specific needs.
Around one third of all entrepreneurs in Finland are currently over 55. This means that close to 78,000 entrepreneurs will be retiring within a decade
A company that takes care of its employees’ motivation and well-being also has more satisfied customers. A responsible company cares for each of its employees, enhances their well-being and plays a role in safeguarding against potential risk situations – while simultaneously creating a positive corporate image.
A good reward solution supports the company’s strategy and business goals as well as motivates the personnel. It all starts with job grading, the determination of basic salary and the other components of pay in relation to roles and competitors, and with the setting of performance indicators. It also includes transparency and highquality employee communications that are essential in creating a fair system from personnel’s perspective. If rewards are not managed effectively they become nothing more than a significant cost item to the company. Efficient indicators are at the heart of an effective reward system. They guide employees to do the right things and increase the bottom line.
• The entire personnel is extensively insured in case of accidents, also outside work. It safeguards the
• The personnel fund offers employees the opportunity for long-term saving in a smart way and through professional investment activities. The personnel fund is an open, transparent and fair solution that aims at long-term benefits. The company encourages long-term saving by paying an additional 20 per cent bonus to employees who decide to fund their bonuses. A total of 87 per cent of personnel decided to do so in 2015.
At Mandatum Life, focusing on the corporate culture is a strategic decision and an investment. It is based on good leadership, a corporate culture with a flat hierarchy and on valuing expertise. Mandatum Life’s employees take an active role in developing the business and their work environment and improving operating models. This results in new innovations and the creation of a pleasant workplace that values its employees. The flat hierarchy in the organization is also reflected in the results of the Great Place to Work survey: up to 88 per cent (85) of Mandatum Life employees feel that management is easy to approach.
For Mandatum Life, the diversity and equality of personnel is measured. 87 per cent of personnel feel that people are treated equally at Mandatum Life, regardless of gender. The personnel structure of Mandatum Life consists equally of men and women. Women account for 32 per cent of all supervisors.
Mandatum Life additionally supports various forms of physical exercise and different work patterns and practices that facilitate daily work by offering, for example, possibilities for remote work and assistance in caring for a sick child.
Mandatum Life’s business operations do not give rise to significant direct emissions, which is why the company has identified the promotion of responsible investment as the best opportunity to engage in environmental responsibility. As a major investor, the company has a responsibility to contribute to reducing the carbon footprint of investments. This prompted Mandatum Life Investment Services to join the Portfolio Decarbonisation Coalition in autumn 2015. Read more about the coalition in the ‘Responsible investing’ section.
For Finland, environmentally responsible investing is paramount, because the country’s climate is warming at a faster pace than that of the rest of the world (Sitra 2013). Mandatum Life contributes to solving environmental challenges that are of crucial importance to Finland by supporting the ecological restoration of the Baltic Sea. The Baltic Sea is one of the most polluted seas in the world. Mandatum Life has made a commitment to the Baltic Sea Action Group (BSAG), supporting its work through annual donations and promoting responsible investment operations among its stakeholders.
BoarBoard-Appointd-Appointed Ced Committommitteesees ............................................................................................................................................ 4949 50Audit Committee 51Nomination and Compensation Committee
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 Nordea Bank AB (publ), Chairman of the Board; UPM-Kymmene Corporation, Chairman of the Board; Finnish Business and Policy Forum EVA, Board Member; The Research Institute of the Finnish Economy ETLA, Board Member; Hanken School of Economics, Chairman of the Board; The Mannerheim Foundation, Board Member; Several other charitable institutions
Member of the Board of Directors of Sampo plc since 15 April 2008. PalinLehtinen holds 4,490 Sampo plc shares directly or through a controlled company.
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 Teleste Corporation, Board Member; Kelonia (Private Equity holding company), Board Member; Veritas Pension Company, Member of the Supervisory Board; Hanken School of Economics, Board Member and Chairman of the Investment Committee; Swedish Society of Literature in Finland, Board Member
Member of the Board of Directors of Sampo plc since 18 April 2013. Fagerholm holds 1,682 Sampo plc shares directly or through a controlled company.
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 KONE Corporation, Board Member; Sanoma Corporation, Board Member; Stora Enso, Board Member; The Research Institute of the Finnish Economy ETLA, Board Member; Finnish Business and Policy Forum EVA, Board Member; Aalto University Foundation, Vice Chairman
Risto Murto Chief Executive Officer and President, Varma Mutual Pension Insurance Company Born 1963
Member of the Board of Directors of Sampo plc since 16 April 2015. Murto holds 422 Sampo plc shares directly or through a controlled company.
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 The Finnish Fair Association, Member of the Supervisory Board; Confederation of Finnish Industries EK, Board Member and Member of Representative Assembly; Service Sector Employers PALTA, Chairman of the Board; The National Emergency Supply Council, Member; FiCom, Chairman of the Board
On 11 February 2015 Sampo plc’s Board of Directors approved a Policy on Diversity as regards the Board of Directors of Sampo. According to the Policy, when electing the Board of Directors the aim is to ensure that the Board as a whole for the purpose of its work possesses the requisite knowledge of and expertise in the social, business and cultural conditions of the regions and markets in which the main activities of the Group are carried out. In addition the diversity, including age, gender, geographical provenance and educational and professional background, is an important factor to take into consideration. According to the Policy on Diversity it is also important that the person to be elected to the Board shall have the qualifications required for the duties and the possibility to devote a sufficient amount of time to the work.
LLength of Tength of Tenurenure of the Boare of the Board Membersd Members
EEducaducational Backtional Backgrground of the Boaround of the Board Membersd Members
The Committee also monitors the efficiency of the Group's internal control, internal audit and risk management systems, and monitors the Group's risks and the quality and scope of risk management. In addition, the Committee approves internal audit’s annual action plan, monitors internal audit's reporting, monitors the fulfillment of risk policies, the use of limits and the development of profit in various business areas, oversees the preparation of and compliance with risk management policies and other guidelines within the scope of Audit Committee’s activities, and reviews the description of the main features of the internal control and risk management systems pertaining to the financial reporting process, which is included in the company's Corporate Governance Statement.
In 2015, the Chairman of the Audit Committee was Anne BrunilaAnne Brunila, and the other members were JannicaJannica FFagerholm, Aagerholm, Adine Grdine Graatte Axe Axénén and PPer Arthur Sørlieer Arthur Sørlie. Also participating in the meetings were the Auditor's representative, Group CEO, Group CFO, CFO of If P&C Holding Ab, Group Chief Risk Officer and Group Chief Audit Executive.
In 2015, the Nomination and Compensation Committee comprised the Chairman of the Board (who acted as the Committee's Chairman), the Vice Chairman of the Board and two members elected from among the members of the Board.
The Chairman of the Nomination and Compensation Committee in 2015 was Björn WBjörn Wahlrahlroosoos, and the other members were VVeli-Maeli-Matti Matti Mattilattila, EirEira Pa Palin-Lalin-Lehtinenehtinen, MaMatti Vtti Vuoriauoria (until 16 April 2015) and RisRistto Murto Murtoo (as of 16 April 2015).
The Committee convened four times in 2015. The attendance of members at meetings was 100 per cent.
Kari Stadigh Group CEO and President, MD of Sampo plc Born 1955
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 Nordea Bank AB (publ), Board Member, Board Risk Committee, Chairman; Nokia Corporation, Board Member; The Federation of Finnish Financial Services, Board Member; If P&C Insurance Holding Ltd, Chairman of the Board; Mandatum Life Insurance Company Limited, Chairman of the Board; Niilo Helander Foundation, Board Member; Waypoint Group Holdings Limited, Board Member
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 If P&C Insurance Ltd, Board Member; If Livförsäkring AB, Board Member; If P&C Insurance Company Ltd, Board Member; If P&C Insurance AS, Board Member; CJSC If Insurance, Board Member
Group Executive Committee The Board of Directors has appointed the Sampo Group Executive Committee and a Group MD
Committee to the Group Executive Committee, which supports the Group CEO in preparing matters to be handled by the Group Executive Committee.
Member of Sampo Group Executive Committee since 2004. Magnusson holds 22,860 Sampo plc shares directly or through controlled companies or persons closely associated with him.
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 If P&C Insurance Holding Ltd, Board Member; Mandatum Life Insurance Company Limited, Vice Chairman of the Board
Member of Sampo Group Executive Committee since 2001. Johansson holds 43,757 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Petri Niemisvirta Head of Life Insurance, MD of Mandatum Life Insurance Company Limited Born 1970
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 Alma Media Corporation, Vice Chairman of the Board; BenCo Insurance Holding B.V., Board Member; Federation of Finnish Financial Services, Life Insurance Executive Committee, Chairman; Kaleva Mutual Insurance Company, Chairman of the Board; Varma Mutual Pension Insurance Company, Board Member; Finland Chamber of Commerce, Board Member; Confederation of Finnish Industries EK, Chairman of Finance and Tax Commission
Member of Sampo Group Executive Committee since 2001. Niemisvirta holds 65,293 Sampo plc shares directly or through controlled companies or persons closely associated with him.
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 The Norwegian Financial Services Association, Board Member
PPositions of Tositions of Trusrust, 12/31/2015t, 12/31/2015 If P&C Insurance Company Ltd, Board Member; If P&C Insurance AS, Board Member; CJSC If Insurance, Board Member; Nobia AB, Board Member
Member of Sampo Group Executive Committee since 2005. Wennerklint holds 38,752 Sampo plc shares directly or through controlled companies or persons closely associated with him.
The Group MD Committee comprised KKari Sari Stadightadigh (Chairman), PPeteter Johanser Johanssonson, PPaatrick Laptrick Lapvveteteläineneläinen, TTorbjörn Magnusorbjörn Magnussonson, PPetri Niemisetri Niemisvirtavirta and RicarRicardd WWennerklintennerklint.
Member of Sampo Group Executive Committee since 2009. Vuorinen holds 27,904 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Directors. The Group CEO ensures the legal compliance of Sampo's accounting and the trustworthy organization of asset management.
Remuneration Report Sampo has published a Remuneration Report on its website in accordance with the Corporate Governance Code.
Annual General Meeting in 2016: EUR 160,000 to the Chairman, EUR 100,000 to the Vice Chairman, and EUR 80,000 to the other members of the Board, with approximately 50 per cent of each Board member's fee being paid, after taxes and corresponding charges, in Sampo A shares and the rest in cash. Sampo plc will pay any possible transfer tax related to the acquisition of the shares. In addition, potential statutory social
Members of the Group Executive Committee are also participating in the long-term incentive programs 2011:1, 2011:1/2 and 2014:1 for Sampo's management. The terms of the incentive programs are available on Sampo's website.
Mr. Kari Stadigh is the CEO of Sampo Group. For year 2015 the Group CEO was paid EUR 856,961 in fixed salary and EUR 472,262 in short-term incentive (including deferred compensation pertaining to the operative year 2011 and excluding compensation deferred in 2015) and EUR 2,961,000 in long-term incentive, together totaling EUR 4,290,223.
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 has been organized to correspond with the business organization.
The Internal Audit reports on the audits performed to the Group CEO and the Audit Committee. Companyspecific audit observations are reported to the respective companies' governing bodies and management.
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 obtain a separate written permission in advance for each share related securities transaction they make with the securities of Sampo plc or any of Sampo’s publicly listed subsidiary or affiliate company (currently Nordea Bank AB (publ.) and Topdanmark A/S).
69Life Insurance 72Holding 73Changes in Group Structure 73Annual General Meeting 74Corporate Responsibility 74Personnel 75Remuneration 76Risk Management
Earnings per share amounted to EUR 2.96 (2.75). Mark-to-market earnings per share were EUR 2.79 (2.11). The return on equity for the Group increased to 14.0 per cent (10.9) for 2015. Net asset value per share on 31 December 2015 was EUR 23.79 (22.63).
Sampo Group’s total investment assets on 31 December 2015 amounted to EUR 19.4 billion (19.2), of which 77 per cent was invested in fixed income instruments (78), 18 per cent in equities (16) and 5 per cent in other assets (6). If P&C’s share of assets was 59 per cent, Mandatum Life’s 34 per cent and Sampo plc’s 7 per cent.
The Group’s equity as at 31 December 2015 amounted to EUR 11,411 million (10,924). Equity was strengthened mainly by the comprehensive income for the year of EUR 1,564 million and reduced by the EUR 1,092 million of dividends paid. Other changes were small.
Sampo Group’s solvency capital calculated according to the Act on the Supervision of Financial and Insurance Conglomerates (2004/699) based on Directive 2002/87/EC of the European Parliament and of the Council exceeded the minimum solvency requirements at the end of 2015 by EUR 4,616 million (4,282) and the conglomerate solvency ratio stood at 192.6 per cent (187.4).
Balance sheet (at the end of period) 1.2314 1.2612 1.2352 1.2437 1.2616
Economic Environment The Nordic countries are still on diverging courses, with Sweden leading the race for growth followed by Denmark, which is back on the growth track after several years of stagnation. The Norwegian economy is hard hit by the decline in oil prices, but economic policy easing coupled with sharp weakening of the krone have prevented the downturn from becoming as severe as might have been feared. Finland still lags far behind its peers.
The Swedish economy has shifted into a higher gear with GDP growth accelerating to over 3 per cent in 2015. Domestic demand is the main driving force. Exports have started to pick up as an effect of Euroarea growth. The refugee crisis gives fiscal stimulus through increased government spending. Strong growth and rising inflation make further monetary policy easing unlikely.
In 2015, the Norwegian economy was hard hit by the decline in oil prices. However, strong growth in exports and consumer spending underpinned growth. Mainland exports was benefiting strongly from the krone’s weakness. Norges Bank’s rate cuts will put a damper on any NOK appreciation. And should the NOK strengthen markedly, the bank is likely to respond by cutting rates more to curb the strengthening.
The decline in commodity prices is one of the main factors behind the low level of inflation globally. It also means that the low interest rate regime will persist for a long time, even though the Federal Reserve started raising rates. Hence, US monetary policy will remain supportive of economic activity for some time, while any tightening measures by the ECB in Europe seem a long way off.
The very low interest rate level notwithstanding, global investment activity remained very subdued. One reason might be persistent excess capacity following the big recession, but also uncertainties about the future played a role. During the year, the markets were rocked time and time again by the Greek crisis, then by the Chinese stock market, and all the while investors kept a wary eye on the workings of central banks, shepherded by the ECB and the Fed.
Technical reserves relating to prior year claims were strengthened by EUR 61 million in January – December 2015 (EUR 2 million released in the previous year).Return on equity (RoE) increased to 21.5 per cent (18.1) and the fair value reserve on 31 December 2015 amounted to EUR 391 million (507).
Cost ratio improved to 18.8 per cent (22.5) and expense ratio to 13.0 per cent (16.7), both impacted by the positive effect of the non-recurring reform of the pension system in If Norway booked in the second quarter of the year. Excluding the non-recurring item the cost ratio was 22.3 per cent and expense ratio 16.6 per cent.
Torbjörn Magnusson, Sampo Group’s Head of P&C insurance, was elected to Topdanmark’s Board at the AGM on 10 April 2014 and currently acts as vicechairman of the Board.
In Sampo Group’s 2015 accounts the contribution of Topdanmark’s net profit amounted to EUR 43 million (53). If P&C’s solvency capital on 31 December 2015 includes the proportion of Topdanmark’s solvency capital corresponding to If P&C’s holding.
Nordea, the largest bank in the Nordic region, has around 11 million customers, approximately 650 branch office locations and is among the ten largest universal banks in Europe in terms of total market capitalization. The Nordea share is listed on the Nasdaq exchanges in Stockholm, Helsinki and Copenhagen. In Sampo Group’s reporting Nordea is treated as an associated company and is included in the segment Holding.
Nordea’s Board of Directors proposes to the AGM 2016 a dividend of EUR 0.64 per share (0.62). The
*) Key figures for continuing operations, following divestment of Polish banking, financing and life insurance operations. **) Excluding non-recurring items (Q2/2014: restructuring charge of EUR 190 million, Q3/2014: gain from the divestment of Nets EUR 378 million and of intangible assets EUR 344 million, Q4/2015: gain from divestment of Nordea’s merchant acquiring business to Nets of EUR 176 million before tax and restructuring charge of EUR 263 million).
Net interest income was down 4 per cent in local currencies (-7 per cent in euros) from last year. Net interest income was under severe pressure due to lower interest rates, while the savings operations were the main growth driver.
Net fee and commission income increased 8 per cent in local currencies (6 per cent in euros) and the net
result from items at fair value increased by 19 per cent in local currencies (20 per cent in euros) from last year.
Total expenses were down 1 per cent in local currencies (-4 per cent in euros) compared from previous year excluding non-recurring items. Staff costs were up 4 per cent in local currencies excluding restructuring costs.
The cost-to-income ratio for continuing operations improved 2.2 percentage points to 47.1 per cent which is the best ratio Nordea has ever reported.
REA was EUR 143.3 billion in the fourth quarter, a decrease of EUR 3.4 billion compared to the previous quarter. The reduction is a combination of decreased market risk for internal models, reduced counterparty credit risk and a decrease of the article 3 buffer due to implementation in the credit risk models.
As communicated in the Q2 2015 report, Nordea is working on simplifying its legal structure with the aim to change the Norwegian, Danish and Finnish subsidiary banks to branches of the Swedish parent company by means of cross-border mergers. The preparations are progressing as planned including the ability to present a proposal to the AGM in March. The changes to the legal structure depend among other on regulatory approvals and a satisfactory outcome of discussion with the local authorities.
For more information on Nordea Bank AB and its results for 2015, see www.nordea.com.
Change in liabilities for inv. and ins. contracts -462 -499 -7
Profit before taxes for life insurance operations in 2015 amounted to EUR 181 million (163). The total comprehensive income for the period after tax reflecting the changes in market values of assets was EUR 168 million (149). Return on equity (RoE) amounted to 12.7 per cent (11.4). Without the net additions of EUR 109 million to the discount rate reserve made during 2015, RoE would have been 18.5 per cent.
Net investment income, excluding income on unitlinked contracts, increased to EUR 365 million (273) largely because of a good equity market performance. Net income from unit-linked contracts was EUR 239 million (267). During 2015 fair value reserve increased to EUR 532 million (508).
Total technical reserves of Mandatum Life Group increased to EUR 10.9 billion (10.4). The unit-linked reserves grew to EUR 5.9 billion (5.3) at the end of 2015, which corresponds to 54 per cent (51) of total technical reserves. With profit reserves continued to decrease during 2015 and amounted to EUR 5.0 billion (5.1) at the end of 2015. With profit reserves related to the higher guarantees of 4.5 and 3.5 per cent decreased EUR 188 million to EUR 3.1 billion in 2015.
All in all, Mandatum Life has increased its technical reserves with a total of EUR 244 million (135) due to low level of interest rates. The figure does not take into account the reserves relating to the segregated fund. The rates used for 2016, 2017 and 2018 are 1.0 per cent, 1.25 per cent, and 2.25 per cent, respectively.
At the end of 2015 Mandatum Life Group’s investment assets, excluding the assets of EUR 5.9 billion (5.3) covering unit-linked liabilities, amounted to EUR 6.7 billion (6.6) at market values.
European insurance companies report their solvency position for the last time according to Solvency I for 31 December 2015. Mandatum Life’s position remains strong and the Solvency I ratio amounted to 23.6 per cent (22.9). The Solvency II regime entered into force as of 1 January 2016. More about Mandatum Life’s Solvency II position in the section Solvency.
Sampo plc owns and controls its subsidiaries engaged in P&C and life insurance. In addition Sampo plc held on 31 December 2015 approximately 21.2 per cent of the share capital of Nordea, the largest bank in the Nordic countries. Nordea is an associated company to Sampo plc.
Holding segment’s profit before taxes amounted to EUR 749 million (669), of which EUR 751 million (680) relates to Sampo’s share of Nordea’s 2015 profit. Segment’s profit excluding Nordea was EUR -1 million (12). The strengthening of Swedish krona had a negative impact of EUR 12 million on the reported finance costs in 2015. The strengthening impacted mainly fourth quarter results.
The Annual General Meeting of Sampo plc, held on 16 April 2015, decided to distribute a dividend of EUR 1.95 per share for 2014. The Annual General Meeting adopted the financial accounts for 2014 and discharged the Board of Directors and the Group CEO and President from liability for the financial year.
The Annual General Meeting elected eight members to the Board of Directors. The following members were re-elected to the Board: Anne Brunila, Jannica Fagerholm, Adine Grate Axén, Veli-Matti Mattila, Eira Palin-Lehtinen, Per Arthur Sørlie and Björn Wahlroos. Risto Murto was elected as a new member to the Board. Of the former members Matti Vuoria was not available for re-election. The Members of the Board were elected for a term continuing until the close of the next Annual General Meeting.
Ernst & Young Oy was elected as Auditor. The Auditor will be paid a fee determined by an invoice approved
The focus of Sampo Group’s corporate responsibility work is on the subsidiary level. This is where the customers are met and where 99 per cent of the personnel work.
The operations of Sampo Group’s insurance subsidiaries If P&C Insurance and Mandatum Life differ significantly from each other and, therefore, the nature of their corporate responsibility activities also differs to a great extent. The subsidiaries have their own models of corporate responsibility reporting reflecting the special features of their businesses. On a Group level Sampo continued to develop the Group level non-financial reporting while waiting for the authorities’ decision on reporting requirements.
Remuneration in Sampo Group is based on the Remuneration Principles that apply to all companies within Sampo Group. Remuneration Principles, approved on 17 September 2014, describe the remuneration structure and the principles used in setting up remuneration systems within the general governance framework and according to the Sampo Group Risk Management Principles. The Remuneration Principles are available at www.sampo.com/ remuneration.
The core of the Remuneration Principles is that all remuneration systems in Sampo Group shall safeguard the financial stability of the Group and comply with regulatory and ethical standards. They shall also be designed to balance the interests of different stakeholder groups such as shareholders, employees, customers and supervisory authorities. Furthermore, all compensation mechanisms shall be designed in parallel with the Risk Management Principles.
The payment of a certain portion of the variable compensation payable to senior executive management and to certain key persons shall be deferred for a defined period of time as required in the regulatory framework applicable to each Group company. After the deferral period, a retrospective risk adjustment review shall be carried out and the Board shall decide whether the deferred variable compensation shall be paid out in full, partly or cancelled in whole. For the year 2015, parts of both short-term and long-term incentives have been deferred. For the operative year 2015, altogether EUR 10.6 million has been deferred.
In 2015 EUR 34 million (26), including social costs, was paid on the basis of the long-term incentive schemes. EUR 33 million (33), including social costs, was paid as short-term incentives during the same period. The outcome of the long-term incentive schemes is determined by Sampo’s share price development over a period of approximately three years starting from the issue of the respective program. The programs are subject to thresholds on share price development and company profitability, as well as ceilings for maximum payout. Furthermore, the programs are subject to rules requiring part of the paid incentive reward to be used to acquire Sampo shares, which must in turn be held for a specified period of time. The result impact of the long-term incentive schemes in force in 2015 was EUR 33 million (34). The terms of the long-term incentive schemes are available at www.sampo.com/ incentiveterms.
In Sampo Group the risks associated with business activities fall by definition into three main categories: strategic risks associated with external drivers affecting the business environment, reputational risk associated with the company’s business practices or associations and risks inherent in business operations.
A more detailed description of Sampo Group’s risk management activities, governance, risks and capitalization is available in the Risk Management section of the Annual Report.
DeDevvelopment of the Number of Sharelopment of the Number of Shareses Sampo plc, 2011–2015
SharShareholders beholders by the Number of Shary the Number of Shares Ownedes Owned Sampo plc, 31 December 2015
Approximately 1.2 (1.3) per cent of shares had not been transferred to the book-entry system. The holdings of nominee-registered and foreign shareholders increased to 60.96 per cent (59.84) of the shares and 60.45 per cent of the votes (59.33).
NotificaNotification rtion receceiveived oned on % of all shar% of all shareses % of all v% of all vototeses
The following table presents the Board’s and Group Executive Committee’s holdings of Sampo A shares. At the end of 2015, the members of Sampo plc’s Board of Directors and their close family members owned either directly or indirectly 11,891,850 (11,924,379) Sampo A shares. Their combined holdings constituted 2.1 per cent (2.1) of the share capital and related votes.
The members of the Group Executive Committee and their close family members owned either directly or indirectly 771,156 (793,741) Sampo A shares representing 0.1 per cent (0.1) of the share capital and related votes.
On 6 November 2015 Sampo's Group CEO and President Kari Stadigh sold 54,390 Sampo A shares.
GrGroup Exoup Executivecutive Ce Committommitteeee 31 Dec 201531 Dec 2015 31 Dec 201431 Dec 2014
On 27 January 2016 Nordea Bank AB’s Board of Directors proposed to the Annual General meeting to be held on 17 March 2016, a dividend of EUR 0.64 per share. With its current holding Sampo plc’s share amounts to EUR 551 million. The dividend is proposed to be paid on 30 March 2016.
All the ratings for Sampo Group companies remained unchanged in 2015. In September 2015 Moody’s affirmed If P&C’s and Sampo plc’s ratings and changed the outlook to positive.
Sampo plc, the parent company – with no business activities of its own – is structurally subordinate to the business areas. Therefore it is dependent on their financial performance and their obligations. The parent company prefers to maintain in its business areas a balance between profits, risks and capital which supports their ability to pay stable dividends after servicing their own obligations.
As the approval process could not be finalized before 1 January 2016, If P&C has withdrawn its application with the Finnish Financial Supervisory Authority (FSA). If P&C Group will use a standard model for Solvency II and evaluate the situation. The difference between the standard model and the partial internal model is mainly that the standard formula does not take into account the geographical diversification between countries.
The standard model has roughly a EUR 400 million higher capital requirement than the partial internal model. However, If P&C Group has an A rating from S&P which will continue to require significantly more capital and therefore the use of standard model has no practical implications on the Group’s capital position. On 31 December 2015 If P&C Group’s Solvency II capital requirement under standard model amounted to EUR 2,073 million and own funds to EUR 3,202 million. Solvency ratio amounted to 154 per cent. S&P A rating requirement for If P&C Group amounted to EUR 3,058 million at the end of 2015.
In April 2015 Mandatum Life applied for approval from Finnish FSA to use transitional measures on technical provisions and application was supplemented in May 2015 because of information requests by FSA. The Finnish FSA issued its decision to approve the use of transitional measures on 11 August 2015.
solvency capital requirement EUR 1,307 million leading to a solvency ratio of 103 per cent.
Sampo plc’s debt financing on 31 December 2015 amounted to EUR 2,302 million (2,192) and interest bearing assets to EUR 1,343 million (1,233). Interest bearing assets include bank accounts, EUR 579 million (465) of hybrid capital and subordinated debt instruments issued by the subsidiaries and associates and EUR 25 million of other fixed income instruments. On 31 December 2015 the net debt amounted to EUR 959 million (960). The net debt calculation only takes into account interest bearing assets and liabilities. Gross debt to Sampo plc’s equity was 32 per cent (31) and financial leverage 24 per cent (24).
On 28 May 2015 Sampo plc repaid SEK 2,000 million senior notes maturing on that date. In connection to the repayment it issued under Sampo plc EMTN Programme senior unsecured floating rate notes of SEK 2,000 million and fixed rate notes of SEK 1,000 million both maturing on 28 May 2020.
As at 31 December 2015 financial liabilities in Sampo plc’s balance sheet consisted of issued senior bonds and notes of EUR 1,997 million (1,888) and EUR 305 million (305) of CPs issued. The average interest, net of interest rate swaps, on Sampo plc’s debt as of 31 December 2015 was 1.45 per cent (1.74).
Senior Bond 500 EURm (EMTN) 4.2500% Euribor3M + 2.7910% 2.6870% 27 February 2017
Senior Bond 500 EURm (EMTN) 1.5000% - 1.5920% 16 September 2021
Sampo Group’s business areas are expected to report good operating results for 2016.
The P&C insurance operations are expected to reach their long-term combined ratio target of below 95 per cent in 2016 by a margin.
Nordea’s contribution to the Group’s profit is expected to be significant.
The Major Risks and Uncertainties to the Group in the Near-term
Major risks affecting the Group companies’ profitability and its variation are market, credit, insurance and operational risks that are quantified independently by the major business units. At the Group level sources of risks are same, but they are not additive because of diversification effects.
Dividend Proposal According to Sampo plc’s dividend policy, total annual dividends paid shall be at least 50 per cent of the Group’s net profit for the year (excluding extraordinary items). In addition, share buy-backs can be used to complement the cash dividend.
The parent company’s distributable capital and reserves totaled EUR 7,053,102,301.21 of which profit for the financial year was EUR 1,227,831,784.12.
Return on equity (at fair values) % 14.0 10.9 13.8 19.9 7.7
Return on equity (at fair values) % 12.7 11.4 18.3 28.5 -11.7
Net asset value per share EUR 23.79 22.63 22.15 17.38 14.05
Adjusted number of shares at 31 Dec. 1.000 560,000 560,000 560,000 560,000 560,000
Average adjusted number of shares 1.000 560,000 560,000 560,000 560,000 560,863
Average adjusted number of shares 1.000 558,800 558,800 558,800 558,800 559,663
Share trading volume during the financial year 1.000 182,762 194,492 188,402 252,821 399,759
Adjusted number of shares at 31 Dec. 1.000 1,200 1,200 1,200 1,200 1,200
³) The Board of Director's proposal to the Annual General Meeting for the accounting period 2015.
GrGroup solvoup solvencency ry raatiotio, %, % own funds minimum requirements for own funds x 100%
AAvvererage number of sage number of stafftaff Average of month-end figures, adjusted for part-time staff
Risk rRisk raatiotio, %, % + claims incurred - claims settlement expenses premiums earned x 100%
LLososs rs raatio etio exxcl. uncl. unwinding of discwinding of discount, %ount, % claims incurred before unwinding of discount premiums earned x 100%
Expense rExpense raatiotio, %, % operating expenses premiums earned x 100%
SolvSolvencency ry raatio (IFRS), %tio (IFRS), % solvency capital premiums earned from 12 months x 100%
RReturn on equity (aeturn on equity (at ft fair vair valuesalues), %), % Formula shown above in connection with the Group key figures.
Net asNet asset vset value per sharalue per sharee + equity attributable to the parent company’s equity holders
Dividend per sharDividend per sharee, %, % dividend for the accounting period adjusted number of shares at balance sheet date x 100%
Dividend per earnings, %Dividend per earnings, % dividend per share earnings per share x 100%
MarkMarket capitalisaet capitalisationtion number of shares at 31 Dec. x closing share price at 31 Dec.
RRelaelativtive share share tre trading vading volumeolume, %, % number of shares traded through the Helsinki Exchanges adjusted average number of shares x 100%
Sampo GrSampo Group’oup’s Ss Structurtructure and Businese and Business Models Model ........................................................................................ 9595
Sampo GrSampo Group’oup’s Risks Risks and Cs and Corore Risk Management Ae Risk Management Activitiesctivities .......................................... 9797 97Group’s Risks 99Core Risk Management Activities
InInvvesestment Ptment Portfortfolio Markolio Market Risket Riskss ............................................................................................................................ 123123 124Asset Allocations and Investment Returns 129Interest Rate and Currency Risks 130Equity and Spread Risks
Appendix 1: Sampo GrAppendix 1: Sampo Group Soup Stteering Freering Frameamewwork and Riskork and Risk Management PrManagement Prococesesss ....................................................................................................................................................................... 145145 146Parent Company’s Guidance 146Subsidiaries’ Activities and Risk Management 149Parent Company’s Oversight and Activities 149Risk Governance
Sampo Group (“Group”) is engaged in three separately managed business areas being non-life insurance, life insurance and banking.
Non-life insurance and life insurance activities are conducted by the subsidiaries If P&C Insurance Holding Ltd (“If P&C”) and Mandatum Life Insurance Company Ltd (“Mandatum Life”) which are wholly owned by the Group’s parent company, Sampo plc (“parent company” or “Sampo”), which is a listed holding company and has no insurance or banking activities of its own. In addition to the insurance subsidiaries, Group’s parent company held, as at 31 December 2015, an equity stake of 21.2 per cent in Nordea Bank AB (publ) (“Nordea”) through which Sampo Group is engaged in banking business.
Sampo Group’s legal structure and business model are both straightforward and simple. In addition there are only limited amount of intragroup exposures (i.e. Group companies’ direct or indirect intragroup claims excluding normal business transactions with Nordea) and capitalization of subsidiaries is diligently managed. As a result, Sampo Group structure is non-
For both subsidiaries, the insurance liabilities and the company specific risk appetite are the starting points for investment activities. Unlike underwriting activities, the subsidiaries’ investment activities are coordinated closely at group level as follows: • Their investment portfolios’ risk profiles are designed and decided separately from each other, but they are coordinated to proactively prevent potential concentrations.
Reputational risk refers to the risk that adverse publicity regarding the company’s business practices or associations, whether accurate or not, causes a loss of confidence in the integrity of the institution. Reputational risk is often a consequence of a materialized operational or compliance risk and often manifests as a deterioration of reputation amongst customers and other stakeholders. Reputational risk is related to all activities as shown in the figure Classification of Risks in Sampo Group. As the roots of reputational risk are varied, the tools to prevent it must be diverse and embedded in the corporate culture. The corporate culture, which is based on the core values of ethicality, loyalty, openness and entrepreneurship, is thus seen as an essential tool in preventing reputational risk in Sampo Group. These core values are reflected in Sampo Group’s Corporate Governance system and in how Sampo deals with core stakeholders (i.e. customers, personnel, investors, other co-operation partners, tax authorities and supervisory authorities) and other parties, who may have an interest in Sampo’s business.
In its underwriting and investment operations, Sampo Group is consciously taking certain risks in order to generate earnings. These earningsearnings riskriskss are carefully selected and actively managed. Underwriting risks are priced to reflect their inherent risk levels and the expected return of investments is compared to the related risks. Furthermore, earnings related risk exposures are adjusted continuously and their impact on the capital need is assessed regularly.
Successful management of underwriting risks and investment portfolio market risks is the main source of earnings for Sampo Group companies. Day-to-day management of these risks, i.e. maintaining them within given limits and authorisations is the responsibility of the business areas and the investment unit.
To create value for all stakeholders in the long run, Sampo Group companies must have the following capitals in place: • Financial flexibility in the form of adequate capital and liquidity
• Human capital in the form of skillful and motivated employees
AAt the ct the companompany ley levvel,el, these capitals are in use when the following core activities related to risk pricing, risk taking and active management of risk portfolios are carried out.
When the above-mentioned core activities are successfully implemented, a balance between profits, risks and capitalization can be achieved on both a company and group level and shareholder value can be created.
In Solvency I (“SI”) framework, the solvency capital requirement (“SCR”) was insensitive to risks and the solvency margin excluded certain loss absorbing items like equalization reserves. This is why If P&C and Mandatum Life used economic capital figures as capital need estimates and so called adjusted solvency capital was the measure of the actual capital absorbing losses. Internal capitalization analysis was based on these more realistic estimates of capital need and capital base and they were disclosed regularly together with the respective statutory SI figures.
To serve its current clients, If P&C is maintaining a Single-A rating and effectively is setting a higher
capital floor than the SCR. Mandatum Life as a nonrated company considers the SCR to be an adequate capital floor.
• Business growth prospects: if business is growing the buffer is larger than in the case of a run-off business. For instance in Mandatum Life, capital consuming with profit business has already been in a virtual run-off mode for ten years.
On a cOn a companompany ley levvel,el, the target can also be set for the capital scapital structurtructuree. In general, Sampo Group is in favour of strong capital structures and as a result Sampo Group companies currently have, according to SII rules, room for new hybrid capital and subordinated debt instruments in their balance sheet. However, at the moment there are no exact targets set for the amount of issued instruments.
In If P&C, the SF OF was EUR 3,202 million while the SF SCR applying transitional measures on equity holdings was EUR 2,073 million. Hence, the solvency ratio was 154 per cent at the end of year 2015 and the buffer was EUR 1,129 million.
As described earlier If P&C’s internally set capital floor based on the rating agency criteria is higher than the capital need based on its SCR. Effectively, If P&C is hence maintaining its OF and rating agency’s Total Adjusted Capital over the rating agency’s Total Target Capital (“TTC”) for Single-A which is EUR 3,058 million. Because the capital amount according to TTC is much higher than the SCR, the evident consequence is that the buffer between the OF and the SCR is wide and the solvency ratio (=OF/SCR) is considered to be adequate. With regards to the capital structure, only EUR 200 million i.e. 6.2 per cent of the OF consisted of subordinated debt at the end of 2015.
The solvency and the capital structure of If P&C are strong. The level of If P&C’s profitability is good and profit volatility has been low. There is also subordinated debt issuance capacity available. Hence, If P&C is in a good position to generate capital and to maintain a capital level needed for operations in the future as well.
SCR trend. Internally Mandatum Life is forecasting solvency ratios with and without the transitional measures and both forecasts are affecting the company’s business decisions.
In regards to NorNordeadea, the Swedish requirements for bank capital include components which are countryspecific and thus the total requirement is higher than in many other countries. The Swedish FSA has communicated the capital requirement for Nordea and Nordea’s capital policy aims to maintain a management buffer of 50–150 basis points above the capital requirement. By the end of third quarter 2015, the communicated Common Equity Tier 1 (“CET1”) ratio requirement for Nordea was 15.4 per cent.
The factors affecting Sampo Group level capitalization are illustrated in the picture Sampo Group’s Capitalization Framework.
The separate companies’ internal capital needs and regulatory requirements include diversification effects between their risks. The diversification effect between companies exists also at group level, but to be conservative it is not included in the internally assessed capital need. This non-diversified method is consistent with the method enforced in Conglomerate Rules which are described more in detail later in this document. Since diversification has a central role in Sampo Group’s business case, it is internally evaluated regularly and it affects group capitalization indirectly through the size of the capital buffer.
• It may also appear that the Group solvency ratio decreases because of a weaker Swedish krona, while the equity of If P&C in Swedish kronas may be higher and the solvency of If P&C may be stronger than earlier.
Because of the above reasons, translation currency risk is monitored internally and its effect on Sampo Group’s capital requirement and own funds are analyzed regularly. However, internally, no capital need is set for translation risk. Management decisions on Sampo Group’s translation currency risk exposure may be made when a subsidiary or an associated company creating translation risk is potentially subject to merger, acquisition or other corporate restructuring. Also, decisions may be made if a major move in the EUR/SEK currency rate level is expected.
The next step is to add the so called sectsectororal ital itemsems to the Group’s consolidated equity. The sectoral items include, for example, the subordinated debt instruments held by the external investors. In addition, the intangible asintangible assetssets as well as other deductible itother deductible itemsems are subtracted from the consolidated equity.
• The level and the volatility of the sub-groups’ profits: the less volatile and the higher the profits are, the lower the buffer need is.
• The correlation between business entities’ profits: the weaker the correlation, the greater the diversification benefits are and the smaller the need to reserve capital at group level. Parent company continuously monitors the realized profit correlations and forecasts sub-groups’ future profits based on common macroeconomic forecasts.
CalculaCalculation prtion prococeduredures and Gres and Group solvoup solvencency figury figures:es: As described earlier, the starting point of GrGroup’oup’s os ownwn fundsfunds is the consolidated Group equity. The sectoral items are added to it and the intangibles and other deductibles are subtracted from it. There are no major differences between Conglomerate Rules and SII methods.
The Group capital requirement (“Group SCR”) is calculated either by the Conglomerate Rule or Solvency II directive.
• AAccccorording tding to the Co the Conglomeronglomeraatte Rulee Rule,, the Group’s total minimum requirement for own funds is the sum of the separate sub-group’s requirements (sectoral rules) and the parent company’s requirement (banking rules) for the solvency capital. The Conglomerate capital requirement does not take into account any diversification between the companies. Hence it is a quite conservative measure of capital requirement and easy to interpret as well.
The SII SCR takes into account diversification only within the insurance group thus excluding the diversification effect of Nordea.
Sampo Group’s regulatory solvency by Conglomerate Rules applying the current SI rules for insurance subsidiaries is reported in table Group Solvency According to the Act on the Supervision of Financial and Insurance Conglomerates, 31 December 2015 and 31 December 2014. The Group solvency ratio increased from 187 per cent to 193 per cent.
liabilities with transitional measures which is reflected as higher own funds of insurance subsidiaries. Solvency capital requirements of insurance subsidiaries applying SII rules are higher than the SI
requirements. As a net result, the Group solvency ratio decreases from 193 per cent to 145 per cent when the new sectoral rules for insurance subsidiaries will come into effect.
Minimum rMinimum requirequirements fements for oor own funds, twn funds, totalotal 4,9014,901 4,9834,983 7,1147,114
GrGroup Solvoup Solvencency Ay Accccorording tding to the Ao the Act on the Supervision of Financial andct on the Supervision of Financial and InsurInsurancance Ce Conglomeronglomeraatteses
AAdequacdequacy of buffy of buffer aer at grt group leoup levvel:el: Sampo plc considers that the buffer between Group own funds and Group capital requirement is more than adequate in light of the facts below.
Mandatum Life is the smallest company in Group and its OF with transitional measures is relatively high compared to SCR. Mandatum Life’s with-profit business with high guarantees is in a run-off mode. Hence the capital need is decreasing over time.
• DivDiversificaersification efftion effects within Grects within Group aroup are positive positive:e: The correlation of the business areas’ reported profits are quite modest as presented in the table Diversification Effect and Group's Internal Capital Adequacy Assessment, 31 December 2015. In particular, Nordea’s profits are weakly correlated with If P&C’s and Mandatum Life’s profits. Hence, there is a clear diversification benefit within group.
• TThe parhe parent cent companompany’y’s capacity ts capacity to genero generaattee liquidity is sliquidity is strtrong.ong. The capacity to generate funds is dependent on leverage and liquidity buffers which can be inferred from the table Sampo plc Balance Sheet Structure, 31 December 2015.
DivDiversificaersification Efftion Effect and Grect and Group's Intoup's Internal Capital Aernal Capital Adequacdequacy Asy Assessessmentsment
Financial leFinancial levvererageage measured as the portion of debt of all liabilities was low, being 24 per cent.
Because sub-ordinated loans presented in the table Sampo plc Balance Sheet Structure, 2015 are issued by If P&C, Mandatum Life, Nordea and Topdanmark, they are eliminated from Group solvency capital. In the event that these assets would be sold, in addition to liquidity in Sampo plc, also OF would be created at group level.
Sampo plc is in a good position to refinance its current debt and even issue more debt. This capacity together with the tradable financial assets, means that Sampo plc is able to generate a good amount of liquid funds.
Underwriting Risks With respect to the underwriting businesses carried out in the subsidiary companies, it has been established that If P&C and Mandatum Life operate mostly in different lines of business and hence their underwriting risks are, by their nature, different. The most material common risk factor which affects both companies’ technical provisions is the life expectancy in Finland.
Hence, there are no material underwriting risk concentrations under the normal course of business and, consequently, business lines as such are contributing diversification benefits rather than a concentration of risks. This is why underwriting risks can be described only at the company level.
Risk definitions related to underwriting risks may be found in Appendix 2 (Risk Definitions).
The UW Policy is supplemented with guidelines outlining in greater detail how to conduct underwriting within each business area. These guidelines cover areas such as tariff and rating models for pricing, guidelines in respect of standard conditions and manuscript wordings, as well as authorities and limits. In accordance with the Instructions for the Underwriting Committee, the
The insurance portfolio is well diversified, given the fact that If P&C has a large customer base and the business is underwritten in different geographical areas and across several lines of business. The degree of diversification is shown in the figures Breakdown of Gross Written Premiums by Business Area, Country and Line of Business, If P&C, 2015.
BrBreakeakdodown of Grwn of Grososs Ws Writtritten Pren Premiums bemiums by Cy Countryountry If P&C, 2015, total EUR 4,559 million
BrBreakeakdodown of Grwn of Grososs Ws Writtritten Pren Premiums bemiums by Line of Businesy Line of Businesss If P&C, 2015, total EUR 4,559 million
The sensitivity of the underwriting result and hence underwriting risk is presented by changes in certain key figures in the table Sensitivity Test of Underwriting Result, If P&C, 31 December 2015 and 31 December 2014.
Combined ratio, business area Private 88,1% +/- 1 percentage point +/- 26 +/- 26
Combined ratio, business area Commercial 89,2% +/- 1 percentage point +/- 12 +/- 13
Combined ratio, business area Baltics 85,7% +/- 1 percentage point +/- 1 +/- 1
The anticipated inflation trend is taken into account when calculating all provisions and is of the utmost
Sensitivity TSensitivity Tesest of Underwriting Rt of Underwriting Resultesult If P&C 31 December 2015 and 31 December 2014
importance for claims settled over a long period of time, such as Motor Third Party Liability (MTPL) and Workers’ Compensation (WC). The anticipated inflation is based on external assessments of the inflation trend in various areas, such as the consumer price index and payroll index, combined with If P&C’s own estimation of costs for various types of claims. For lines of business such as MTPL and WC, legislation differs significantly between countries. Some of the Finnish, Swedish and Danish technical provisions for these lines include annuities that are sensitive to changes in mortality assumptions and discount rates. The proportion of technical provisions related to MTPL and WC was 68 per cent.
The table Claim Ratios After Reinsurance, Mandatum Life, 2015 and 2014 shows the insurance risk result in Mandatum Life’s Finnish life insurance policies. The ratio of the actual claims costs to the assumed was 72 per cent in 2015 (79 per cent in 2014). Sensitivity of the insurance risk result can also be assessed on the basis of the information in the table. For instance the increase of mortality by 100 per cent would increase the amount of benefit payments from EUR 10 million to EUR 19 million.
The annual longevity risk result and longevity trend is analyzed regularly. For the segregated group pension portfolio, the assumed life expectancy related to the technical provisions was revised in 2014 and for the other group pension portfolios in 2002 and 2007. In total, these changes increased the 2014 technical provision by EUR 106 million (EUR 108 million in 2014) including a EUR 87 million longevity reserve for the segregated group pension portfolio. The cumulative longevity risk result has been positive since these revisions. The longevity risk result of group pension for the year 2015 was EUR 5.7 million (EUR 3.8 million in 2014).
The insurance portfolio of Mandatum Life is relatively well diversified and does not include a major concentration of risks. To further mitigate the effects of possible risk concentrations, Mandatum Life has catastrophe reinsurance in place.
The provisions related to each product type and guaranteed interest rates are shown in the table Analysis of the Change in Provisions before Reinsurance, Mandatum Life, 2015. The table also shows the change in each category during 2015.
Individual pension insurIndividual pension insurancancee 1,0381,038 1414 -146-146 -5-5 4242 00 3030 973973 99
Individual lifIndividual life insure insurancancee 218218 3232 -34-34 -10-10 77 00 -16-16 197197 22
AnalyAnalysis of the Change in Prsis of the Change in Proovisions befvisions beforore Re Reinsureinsurancancee Mandatum Life, 2015
highest 4.5 per cent and 3.5 per cent guarantees have decreased. The technical provisions with the highest guarantees fell by EUR 188 million. In total the with profit technical provisions decreased modestly, only EUR 51 million to the level of EUR 5,014 million, due to the set reserves.
DeDevvelopment of Welopment of With Prith Profit and Unit-linkofit and Unit-linked Ted Technical Prechnical Proovisionsvisions Mandatum Life, 2005–2015
Unit-linkUnit-linked liabilities ted liabilities totalotal 8.48.4 1,0891,089 840840 1,5601,560 1,0571,057 800800 313313 402402
Individual lifIndividual life insure insurancancee 9.39.3 5555 3535 6565 4343 3232 2222 3333
Capital rCapital redemption operedemption operaations *)tions *) 8.08.0 33 1111 55 66 55 22 11
The Insurance Risk Committee is responsible for maintaining the Underwriting Policy and monitoring the functioning of the risk selection and claims processes. The Committee also reports all deviations from the Underwriting Policy to the RMC. The Insurance Risk Committee is chaired by the Chief Actuary who is responsible for ensuring that the principles for pricing policies and for the calculation of technical provisions are adequate and in line with the risk selection and claims processes.
The investment portfolios are reported on a fair value basis. These fair values are determined either on the basis of direct market quotes or by using various valuation models. More information on the valuation methods of the investment assets is presented in Note 17 of Sampo Group Financial Statements.
Sampo Group has a thorough understanding of the Nordic markets and issuers and consequently Group’s direct investments are mainly made in Nordic securities although lately direct investments outside non-Nordic countries have increased. Mandatum Life’s direct investments are mainly denominated in euro and in companies geographically located in Finland and selectively in other countries, whereas, If P&C has the major part of its direct investments denominated in the Scandinavian currencies and in the respective countries. Through effective differentiation in asset selection between companies, concentration risk is proactively managed at group level.
The external asset managers and funds managed by them are selected for both companies by the same members of Sampo Group’s Investment Unit. The funds are mostly allocated to areas outside of the Nordic countries. Consequently, the risk of unidentified or unwanted concentrations is relatively low.
Market risk control is separated from portfolio management activities in two ways. Firstly, the persons independent from the Investment Unit prepare Investment Policies for Board approval. Secondly, Middle Office units which are independent of the Investment Unit, measure risks, performance and control limits set in Investment Policies on a daily basis.
Policy to the Board of Directors and report to the Board.
The aggregated market risks and concentrations at group level are controlled by Group’s Audit Committee quarterly at a minimum. If deemed necessary, the concentration risks are further managed by deploying group level exposure restrictions, for instance by industries or by individual issuers.
Life has had, on average, higher returns and higher volatility. The figures Annual Investment Returns at Fair Values, If P&C and Mandatum Life, 2004–2015 present the historical development of investment returns.
The weighted average investment return of Group’s investment portfolios (including Sampo plc) in 2015 was 3.1 per cent (4.3 per cent in 2014).
Mandatum Life, Sampo plc and Sampo Group as at year-end 2015 are presented in the table Consolidated Investment Allocation, If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2015.
FX ExposurFX Exposuree,, grgrososs positions position *)Private Equity also includes direct holdings in non-listed equities
The parent company’s asset portfolio includes hybrid capital debt instruments issued by the Group companies and the portion of short-term liquid instruments is substantial, because the portfolio is also held as a liquidity buffer. The hybrid debt instruments issued by the subsidiaries are not included in the consolidated figures. From time to time, the asset portfolios may include other investments as well. The market risks of the parent company are limited. Interest rate risk arising from gross debt and the interest bearing assets is Sampo plc’s most significant market risk together with refinancing risk related to gross debt. Most of the parent company’s debt is tied to short-term reference rates as a consequence of the interest rate swaps used. This mitigates group level interest rate risk because, while lower interest rates would reduce the subsidiaries’ investment returns in the long-term, the interest expense in the parent company would also be lower.
Additionally, If P&C and Mandatum Life have real estate, private equity, biometric and other alternative investments. The Investment Policies set limits for the maximum allocations into these asset classes and products. On 31 December 2015, the combined share of the above mentioned investments was 5.5 per cent of the total investment portfolio of Sampo Group. In If P&C the proportion was 0.4 per cent and in Mandatum Life it was 14.9 per cent. These asset classes are managed, in most cases, by external asset managers with the exception of Group’s real estate portfolio which is managed by Sampo Group’s real estate management unit. The real estate portfolio includes both direct investments in properties and indirect investments in real estate funds as well as in shares and debt instruments of real estate companies.
TTrransaction Risk Pansaction Risk Positionosition If P&C and Mandatum Life, 31 December 2015
Sampo plc’s transaction risk position is related mainly to SEK denominated dividends paid by If P&C and to debt instruments in currencies other than euro. The asset portfolio may from time to time include assets denominated in foreign currencies.
In addition to transaction risk, Sampo Group and its insurance subsidiaries are also exposed to translation risk. At group level it stems from the If P&C and within the If P&C it stems mainly from its Finnish subsidiary. Translation risk and its management in Sampo Group were described in the Profitability, Risks and Capital section.
In Sampo Group, the selection of direct fixed income and equity investments is based primarily on stock and bond picking and secondarily on top-down allocation. This investment style ensures that the portfolio includes thoroughly analysed investments with risk return ratios internally considered to be adequate, although the portfolio might not be necessarily as diversified as the finance or portfolio theory suggests.
The main steps in decision making, limit and monitoring process are as follows: 1. Potential investments are analysed thoroughly. The creditworthiness and future prospects of the issuer are assessed together with collaterals and structural details of the instruments. Although external credit ratings by rating agencies and the opinions of analysts are used to support the internal assessment, Sampo Group’s own internal assessment is always the most important factor in decision making.
2. Investment transactions shall be executable on short notice when an opportunity appears. This puts pressure on authorisations and credit limit structures and procedures that must be simultaneously (i) carried out flexibly enough to facilitate fast decision making regardless of instrument type, (ii) well-structured to ensure that investment opportunities are assessed prudently, taking into account the specific features and risks of all investment types and (iii) able to restrict the maximum exposure of a single name risk to the level that is in balance with the company’s risk appetite.
Exposures in fixed income and equity instruments are shown in the tables Exposures by Sectors, Asset Classes and Rating, If P&C, Mandatum Life and Sampo Group, 31 December 2015. The tables also include counterparty risk exposures relating to reinsurance and derivative transactions. Counterparty default risks are described in more detail in section: Counterparty Default Risks. Due to differences in the reporting treatment of derivatives, the figures in the table are not fully comparable with other tables in this annual report
ExposurExposures bes by Secty Sectors, Asors, Asset Classet Classes and Rases and Ratingting Mandatum Life, 31 December 2015
EURmEURm GoGovvernmentsernments GoGovvernment guarernment guarantanteedeed Public sectPublic sectoror,, otherother TTotal markotal marketet vvaluealue
The exposures in non-rated and high-yield fixed income instruments are significant, because a relatively small number of Nordic companies are rated. The largest high-yield and non-rated fixed income investment exposures are presented in the table Ten Largest Direct High Yield and Non-rated Fixed Income Investments, Sampo Group, 31 December 2015.
FixFixed Inced Income Inome Invvesestments in Public Secttments in Public Sectoror Sampo Group, 31 December 2015
A breakdown of the listed equity exposures of Sampo Group by geographical regions is shown in the figure Breakdown of Listed Equity Investments by Geographical Regions, Sampo Group, If P&C and Mandatum Life, 31 December 2015.
TTen Laren Largesgest Dirt Direct High Yect High Yield and Non-rield and Non-raatted Fixed Fixed Inced Income Inome Invvesestmentstments Sampo Group, 31 December 2015
The geographical emphasis of Sampo Group’s equity investments is in the Nordic companies. The proportion of Nordic companies’ equities corresponds to 55 per cent of the total equity portfolio. This is in line with Sampo Group’s investment strategy to focus on Nordic companies. However, these Nordic companies are mainly competing on global markets and few of them are pure domestic companies. Hence, the ultimate risk is not highly dependent on the Nordic economies. Moreover, Group’s insurance liabilities are mostly denominated in euro and in the Nordic currencies. In the long run the proportion of investments outside of the Nordic countries has gradually increased, because the amount of companies issuing securities in the Nordic countries is limited and from a tactical point of view other geographical areas have recently provided interesting investment opportunities.
The sector allocation of direct listed equity investments in Sampo Group is presented in tables: Exposures by Sectors, Asset Classes and Rating, If P&C, Mandatum Life and Sampo Group, 31 December 2015. The largest allocations are to consumer products, capital goods and financial institutions. Listed equity investments made through mutual funds and ETF investments accounted for 38 per cent of the entire equity portfolio.
BrBreakeakdodown of Liswn of Listted Eed Equity Inquity Invvesestments btments by Geogry Geographical Raphical Regionsegions Mandatum Life, 31 December 2015, total EUR 1,732 million
TTotal total top 10 eop 10 exposurxposureses 1,0171,017 47.6 %47.6 %
LarLargesgest Exposurt Exposures bes by Isy Issuer and bsuer and by Asy Asset Classet Classs Sampo Group, 31 December 2015
Counterparty Default Risks Counterparty Default Risk (Counterparty Risk) is one type of consequential risk, which Sampo Group is exposed to through its activities. Default risk related to reinsurance counterparties mainly concerns If P&C, as the use of reinsurance in Mandatum Life is relatively limited.
Risk definitions related to counterparty default risks may be found in Appendix 2 (Risk Definitions).
The amount of ceded treaty and facultative premiums was EUR 63.3 million. Of this amount, 100 per cent related to reinsurance counterparties with a credit rating of A- or higher.
RReinsureinsurancance Re Rececoovvererablesables If P&C, 31 December 2015 and 31 December 2014
Counterparty Default Risk Management In Sampo Group, the default risk of derivative counterparties is a by-product of managing market risks. The risk is mitigated by careful selection of counterparties, diversification of counterparties to prevent risk concentrations and by using collateral techniques, e.g. ISDA Master Agreements backed by Credit Support Annexes. This is the case especially in Sampo plc and Mandatum Life which are frequent users of long-term derivatives.
To limit and control default risk associated with ceded reinsurance, If P&C has a Reinsurance Security Policy that sets requirements for the reinsurers’ minimum credit ratings and the maximum exposure to individual reinsurers. Credit ratings from rating agencies are used to determine the assessment of the creditworthiness of reinsurance companies.
ALM Risks At the total balance sheet level, ALM risks contribute considerably to economic values of insurance liabilities, market value of assets, risks and capital need. ALM risks and exposures are analysed actively and the risks are taken into account when managing investments and developing insurance products. ALM
risks include also liquidity risk and other risks that may cumulate at the balance sheet level.
Principles of Asset and Liability Management: In Sampo Group, insurance liabilities are the starting point for investment management. Insurance liabilities are modelled and analysed to form an understanding of their expected future cash flows and their sensitivities to changes in factors such as inflation, interest rates and foreign exchange rates.
To maintain the ALM risk within the overall risk appetite, the cash flows of insurance liabilities (technical provisions) are matched by investing in fixed income instruments and by using currency derivatives.
The Investment Policy for other investment assets defines the control levels for the maximum acceptable risk and respective measures to manage the risk. The control levels are the critical levels set above the Solvency II SCR and they are based on predetermined capital stress tests. The general objective of these
control levels and respective guidelines is to maintain the required solvency.
When the above mentioned control levels are breached, the ALCO reports to the Board which then takes the responsibility for the decisions related to the capitalization and the market risks in the balance sheet.
Sampo Group. This risk is partly mitigated by having major portion of Sampo plc´s debt tied to the short term interest rates.
• To ensure that operations are compliant with laws and regulations
Business units are responsible for the identification, assessment and management of own operational risks, including organizing adequate internal control. The Operational Risk Committee (ORC) monitors and coordinates risk management issues regarding operational risks within Mandatum Life, such as policies and recommendations concerning operational risk management. The committee ensures that risks are identified and internal control and risk management have been organized in a proper way. The committee also analyses deviations from operational risk management policies and monitors operational risks identified in the self-assessments as well as the occurred incidents. The committee meets three times a year at a minimum. Significant observations on operational risks are submitted to the Risk Management Committee and the Board of Directors on a quarterly basis.
The Operational Risk Committee (ORC) analyzes and handles operational risks, e.g. in relation to new products and services, changes in processes and risks as well as realized operational risk incidents. Significant observations are reported to the Risk Management Committee and to the Board of Directors quarterly. The ORC is also responsible for maintaining and updating the continuity and preparedness plans as well as the Internal Control Policy.
In order to limit operational risks, Mandatum Life has approved a number of policies including e.g. Internal Control Policy, Compliance Policy, Security Policies, Continuity Plan, Procurement and Outsourcing Policy, Complaints Handling Policy and a number of other policies related to ongoing operative activities. Deviations against different policies are followed up independently in each business unit and are reported to the Compliance Officer and the ORC.
The internal control system aims at preventing and identifying negative incidents and minimizing their impact. In addition, would there be an operational risk event or a near miss, this must be analyzed and reported to ORC.
Management Process When Sampo Group is organizing its business and risk management activities, clear responsibilities and simple and flat operational structures are the profound principles. The responsibilities and operational structures, as illustrated in the figure Sampo Group’s Steering Framework, are described in the following paragraphs.
Group’s parent company steers the subsidiaries by setting targets for their capitalization and return on equity (RoE) and by defining the main preconditions for the subsidiaries’ operations in the form of the group-wide principles.
TTararget Setting:get Setting: The Board of Directors of Sampo plc decides on the subsidiaries’ return on equity targets which are currently 17.5 per cent for both If P&C and Mandatum Life. In addition, If P&C has a long-term target of maintaining the combined ratio below 95 per cent.
The Board of Directors of the Sampo plc decides on the main guidelines governing the subsidiaries’ business activities and risk management. The most significant of these guidelines are the Code of Conduct, Risk Management Principles, Remuneration Principles and Compliance Principles. There are also further guidelines which are followed in order to prevent reputational and compliance risks, for example the Disclosure Policy.
Sampo Group’s subsidiaries decide independently on the governance structure of their operations. The executive management of the subsidiaries have extensive experience in the insurance industry, as well as in financial and risk management. The members of different committees and governing bodies represent expertise related to business and other functions. The subsidiaries’ operations are monitored by the different governing bodies and ultimately by the Boards of Directors whose members are mainly in senior management positions in Sampo plc.
At the operative level, the subsidiaries focus on the effective execution of insurance operations and financial and risk management activities. Investments are managed according to the Investment Policies which are approved by the Board of Directors of the respective subsidiaries. Parent company led day-today management of investments, facilitates simultaneous effective execution of the subsidiaries’ investment policies and group-wide oversight of the investment portfolios.
Parties independent of business activities are responsible for the risk management governance framework, risk policies, risk limits and authorizations which form the structure that sets the limits for business and investment units’ risk taking and principles for risk monitoring. These structures are one
prerequisite for the risk management process and they reflect capital adequacy targets and the risk appetite in general.
The figure Company Level Financial and Risk Management Process illustrates the (i) prerequisites, (ii) tasks together with the responsible functions and (iii) targets of company level risk management.
CContinuous Analyontinuous Analysis of Opportunities and Risksis of Opportunities and Riskss
High quality execution of the above tasks contributes to the achievement of the three central targets of the risk management process: BalancBalance betwe between riskeen risks, capital and earningss, capital and earnings
• Client service processes and internal operative processes are cost efficient and of high quality.
Sampo plc reviews Group as a business portfolio and is active especially in matters related to Group’s capitalization and risks as well as related to the parent company’s capital structure and liquidity.
At group level, the central focus areas are potential concentrations arising from Group companies’
The Board of Directors of Sampo plc is responsible for ensuring that Group’s risks are properly managed and controlled. The Board of Directors of Sampo plc defines financial and capitalization targets for the subsidiaries and approves group level principles which steer the subsidiaries’ activities. The risk exposures and capitalization reports of the subsidiaries are consolidated at group level on a quarterly basis and reported to the Board and to the Audit Committee of Sampo plc.
The responsibility to identify, evaluate, control and manage risks lies within the line organization. There are separate committees in place for key risk areas and they have the responsibility of monitoring the management and control risks to ensure compliance with the instructions of the Boards of Directors. The risk committees in If P&C do not have a decision mandate.
There are policies in place for each risk area which specify restrictions and limits chosen to reflect and ensure that the risk level is constantly in compliance with the overall risk appetite and capital adequacy constraints of If P&C. The committees also monitor the effectiveness of policies and give input to changes and updates if needed.
• The Internal Model Committee is an advisory and preparatory body to the Boards of Directors and the CEOs. In accordance with the committee instruction, its tasks are to identify sources for potential model changes and to give its opinion to the Chairman on the assessment and classification of potential changes and on further validation activities or internal model development. In addition to the tasks above, the committee discusses and analyzes information related to the internal model from other committees as well as monitors the status of internal model use and development activities.
The Managing Director of Mandatum Life has the overall responsibility for risk management according to the Board of Directors’ instructions. The Managing Director is the Chairman of the Risk Management Committee (“RMC”) which coordinates and monitors all risks in Mandatum Life. The risks are divided into one of several main groups, the main groups being insurance, market, operational, legal and compliance risks as well as business and reputation risks. Each risk area has its own specialized committee or unit and a responsible person in the RMC.
Mandatum Life’s Risk Management Committee. The Chairman of the Baltic Subsidiary is a member of the Risk Management Committee.
Underwriting risk can be generally defined as a change in the value of insurance liabilities which is caused by the final costs for full contractual obligations varying from those assumed when these obligations were estimated. Hence, underwriting risk is realized as unexpected liability cash flows or unexpected change in the value of insurance liabilities when the pricing and provisioning assumptions on claims payments differ to the actual payments.
Catastrophe risk can be seen as an extreme case of premium risk. It is the risk of extreme or exceptional events, such as natural catastrophes where the pricing and setting of provisioning assumptions include significant uncertainty. These events may lead to significant deviations between the actual claims and the total expected claims resulting into a loss or adverse changes in the value of insurance liabilities.
insurance and reinsurance liabilities, resulting from fluctuations in the level, trend, or volatility of revision rates applied to annuities, due to changes in the legal environment or in the state of health of the person insured.
The value of life insurance liabilities is sensitive to underwriting risks and discount rate risk in technical provisions. Underwriting risk includes biometric, policyholder behavior and expense risks as presented in the picture Life Insurance Underwriting Risks.
Biometric risks refer to the risk that the company has to pay more mortality, disability or morbidity benefits than expected, or the company has to keep paying pension payments to the pension policy holders for a longer period (longevity risk) than expected originally when pricing the policy.
Policyholder behaviour risks arise from the uncertainty related to the behaviour of policyholders. The policyholders have the right to cease paying premiums
(lapse risk) and may have a possibility to interrupt their policies (surrender risk).
Discount rate risk in technical provisions is the main risk affecting the adequacy of technical provisions. The guaranteed interest rate in policies is fixed for the whole policy period. Thus, if market interest rates and expected investment returns fall, technical provisions may have to be supplemented.
Credit risk by definition comprises of default, spread and settlement risks. Default risk refers to losses arising from occurred defaults of contractual counterparties (counterparty risk) or debtors (issuer risk).
Spread risk refers to losses resulting from changes in the credit spreads of debt instruments and credit derivatives. Credit spreads are affected when the market’s perception of probabilities of defaults is changing. In essence, credit spread is the market price of default risk which is priced into the market value of the debt instrument. Hence the debt instrument’s value should lower before the event of default occurs. Because of these features, spread risk, including also the default risk of debt instruments, is categorized in Sampo Group under investment portfolio market risks.
The sources of liquidity risk in Sampo Group are either internal or external by their nature. If the company’s rating declines or if the company’s solvency otherwise appears jeopardised, its ability to raise funding, buy reinsurance cover or enter into financial derivatives at a reasonable price is endangered. Moreover, policyholders may also not be willing to renew their policies because of the company’s financial challenges or in the case of reputational issues. If these risks, caused by internal reasons, are realized together with general market turmoil, which makes the selling of investment assets and the refinancing of debt difficult, maintaining adequate liquidity can be a challenge.
• Damage to physical property • Interruption of activities and system failures • Defects in the operating process.
Sampo plcSampo plc’’s Financial Ss Financial Statattementsements ............................................................................................................................ 258258 258Sampo plc’s income statement 259Sampo plc’s balance sheet 260Sampo plc’s statement of cash flows 262Summary of Sampo plc’s significant accounting policies 263Notes to Sampo plc’s Financial Statements
EEquity aquity at 1 January 2014t 1 January 2014 9898 00 44 1,5271,527 8,1758,175 -136-136 976976 10,64310,643
EEquity aquity at 31 Dect 31 December 2014ember 2014 9898 00 44 1,5271,527 8,6558,655 -400-400 1,0391,039 10,92410,924
EEquity aquity at 31 Dect 31 December 2015ember 2015 9898 00 44 1,5271,527 9,3259,325 -472-472 929929 11,41111,411 1) IAS 19 Pension benefits had a net effect of EURm 90 (-160) on retained earnings.
Net cash frNet cash from operom operaating activitiesting activities 323323 1,6601,660
Dividend income received 93 102 *) Investments include investment property, financial assets and investments related to unit-linked insurance contracts.
movements reflected directly in the equity of the associate. If the Group’s share of the associate’s loss exceeds the carrying amount of the investment, the investment is carried at zero value, and the loss in excess is consolidated only if the Group is committed to fulfilling the obligations of the associate. Goodwill arising on the acquisition is included in the cost of the investment. Unrealised gains (losses) on transactions are eliminated to the extent of the Group’s interest in the entity.
In the inter-segment and inter-company pricing, for both domestic and cross border transactions, marketbased prices are applied. The pricing is based on the Code of conduct on Transfer Pricing Documentation in the EU and OECD guidelines.
Other fees and commissions paid for investment activities are included in ‘Net income from investments’.
Financial assets designated as at fair value through profit or loss in the life insurance business are investments related to unit-linked insurance, presented separately in the balance sheet. The corresponding liabilities are also presented separately. In addition, in the life insurance business, investments classified as the financial assets of foreign subsidiaries, and financial instruments in which embedded derivatives have not been separated from the host contract have been designated as at fair value through profit or loss.
Financial asFinancial assets designasets designatted as aed as at ft fair vair valuealue thrthrough prough profit or losofit or losss
Loans and receivables are initially recognised at their fair value, added by transaction costs directly attributable to the acquisition of the asset. Loans and receivables are subsequently measured at amortised cost using the effective interest rate method.
Hedge accounting applies to hedges that are effective in relation to the hedged risk and meet the hedge accounting requirements of IAS 39. The hedging relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for undertaking the hedge, are documented at the inception of the hedge. In addition, the effectiveness of a hedge is assessed both at inception and on an ongoing basis, to ensure that it is highly effective throughout the period for which it was designated. Hedges are regarded as highly effective in offsetting changes in fair value or the cash flows attributable to a hedged risk within a range of
Property, plant and equipment comprise properties occupied for Sampo’s own activities, office equipment, fixtures and fittings, and furniture. Classification of properties as those occupied for own activities and those for investment activities is based on the square metres in use. If the proportion of a property in Sampo’s use is no more than 10 per cent, the property is classified as an investment property.
Items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful life. In most cases, the residual value is estimated at zero. Land is not depreciated. Estimates of useful life are reviewed at financial yearends and the useful life is adjusted if the estimates change significantly. The estimated useful lives by asset class are as follows: Residential, business premises and offices years
If there is any indication that an impairment loss recognised for an asset in prior periods may no longer exist or may have decreased, the recoverable amount of the asset will be estimated. If the recoverable amount of the asset exceeds the carrying amount, the impairment loss is reversed, but no more than to the carrying amount which it would have been without
recognition of the impairment loss. Impairment losses recognised for goodwill are not reversed.
Insurance contracts are treated, in accordance with IFRS 4, either as insurance or investment contracts. Under the standard, insurance contracts are classified as insurance contracts if significant insurance risk is transferred between the policyholder and the insurer. If the risk transferred on the basis of the contract is essentially financial risk rather than significant insurance risk, the contract is classified as an investment contract. Classification of a contract as an insurance contract or investment contract determines the measurement principle applied to it.
A liability adequacy test is performed separately for both the provision for claims outstanding and the provision for unearned premiums. The provision for claims outstanding is based on estimates of future cash flows. The estimates are made by using wellestablished actuarial methods.
Pensions and compensation for healthcare or medical rehabilitation paid on the basis of Finland’s statutory P&C insurance (accident, motor third party liability and patient insurance) are raised annually by the TEL (Employee Pensions Act) index in order to maintain the real value of the pensions. The index raises are not the responsibility of the insurance companies, but are funded by the so-called pay-as-you-go principle, i.e. each year premiums written include index raises to the same amount that is paid out in that year. In practice, the P&C insurance companies collect a so-called expense loading along with their premiums written, which is then forwarded to the central organisation for
the particular insurance line. The central organisation distributes the pay-as-you-go contributions collected so that the company undertaking the type of insurance in question receives an amount equal to the compensation falling under the pay-as-you-go system it has paid that year. The insurer’s participation in the payment is proportional to the insurer’s market share in the insurance line in question.
Regarding the group pension portfolio transferred from Suomi Mutual (=segregated portfolio), a socalled shadow accounting is applied, as permitted in IFRS 4.30, by adjusting the equity with the amount of unrealised gains and losses of the agreement. The equity is adjusted with an amount that unrealised gains or losses would have affected the Segregated Portfolio in accordance with the profit distribution policy of the Segregated Portfolio, if the gains or losses had been realised at the balance sheet date.
Mortality assumptions have an essential effect on the amount of liability, particularly in group pension insurance, the liability of which accounts for about 38 per cent of the technical provisions of the Finnish life company. A so-called cohort mortality model is used in calculating the group pension insurance liability since 2002, incorporating the insured person’s birth year in addition to his or her age and sex. The cohort mortality model assumes that life expectancy increases by one year over a ten-year period.
The provision for claims outstanding is intended to cover the anticipated future payments of all claims incurred, including claims not yet reported to the company (the “IBNR” provision). The provision for claims outstanding includes claim payments plus all costs of claim settlements.
Mandatum Life aims at giving a total return before charges and taxes on the original insurance portfolio’s policyholders’ savings in contracts with DPF that is at least the yield of those long term bonds, which are considered to have lowest risk. At the moment we consider German government bonds to be the most risk free long term bonds available. Nevertheless, Finnish government bonds are used as target levels at the moment. The total return consists of the guaranteed interest rate and bonuses determined annually. Continuity is pursued in the level of bonuses. The aim is to maintain the company’s solvency status on such a level that it neither limits the giving of bonuses to policyholders nor the distribution of profit to shareholders. The principle is explained in detail on the company’s website.
In the defined benefit plans, the company still has obligations after paying the contributions for the financial period and bears their actuarial and/or investment risk. The obligation is calculated separately for each plan using the projected unit credit method. In calculating the amount of the obligation, actuarial assumptions are used. The pension costs are recognised as an expense for the service period of employees.
Cash and cash equivalents comprise cash and shortterm deposits (3 months).
Accounting policies requiring management judgement and key sources of estimation uncertainties
A substantial part of the Group’s P&C insurance liabilities concerns statutory accident and traffic insurance. The most significant uncertainties related to the evaluation of these liabilities are assumptions about inflation, mortality, discount rates and the effects of legislative revisions and legal practices.
Goodwill, intangible assets not yet available for use, and intangible assets with an indefinite useful life are tested for impairment at least annually. The recoverable amounts from cash-generating units have mainly been determined using calculations based on value in use. These require management estimates on matters such as future cash flows, the discount rate, and general economic growth and inflation.
The amendments to IFRS 9 Financial Instruments (effective for annual periods beginning on 1 Jan 2018 or after) supersede IAS 39 Financial Instruments: Recognition and Measurement. The new standard changes the classification and measurement of financial assets and includes a new impairment model based on expected credit losses. The hedge accounting will continue to have three different hedging relationships. The adoption of the new standard will have an impact on the Group’s financial statements; the effects are under valuation in the Group.
Segment information has been produced in accordance with the accounting policies adopted for preparing and presenting the consolidated financial statements.The segment revenue, expense, assets and liabilities, either directly attributable or reasonably allocable, have been allocated to the segments. Inter-segment pricing is based on market prices. The transactions, assets and liabilities between the segments are eliminated in the consolidated financial statements on a line-by-line basis.
TTotal itotal items not rems not reclaseclassifiable tsifiable to pro profit or losofit or loss,s, net of taxnet of tax
The assets transferred from Suomi Mutual equalled the share of the group pension portfolio of the total assets of Suomi Mutual.
Premium revenue ceded to reinsurers on insurance contracts issued -5 -5
Included in gains/losses from financial assets available for-sale is a net gain of EURm 12 (2) transferred from the fair value reserve.
Change in claims provision for annuities -1 - -1 -3 - -3
TTotal claims paidotal claims paid -2,750-2,750 6161 -2,689-2,689 -2,969-2,969 195195 -2,774-2,774
TTotal change in protal change in proovision fvision for claims outsor claims outstandingtanding -195-195 -10-10 -205-205 5050 -178-178 -128-128
InsurInsurancance ce controntracts tacts total, netotal, net -641-641 -585-585 -25-25 33 -666-666 -582-582
InInvvesestment ctment controntracts, tacts, totalotal -358-358 -294-294 -- -- -358-358 -294-294
GrGroupoup, t, totalotal -3,917-3,917 -3,771-3,771 4 Change in liabilities for insurance and investment contracts
SpecificaSpecification of activitytion of activity-based oper-based operaating eting expenses included in the incxpenses included in the income some statattementement
TTechnical rechnical result befesult beforore ine invvesestmenttment rreturneturn 1) Activity-based operating costs EURm 249 (260) have been allocated to claims incurred.
2) Includes other technical income EURm 28 (27) and other technical expenses EURm 28 (27).
Earnings per share (EUR per share) 2.96 2.75 10 Financial assets and liabilities
Financial assets designated as at fair value through p/l 48 1 2 - 0
Financial liabilities, grFinancial liabilities, group toup totalotal 2,4232,423 -53-53 2424 11 Property, plant and equipment
Net carrying amountNet carrying amount 44 11 55 44 22 55
FFair vair value of inalue of invvesestment prtment property aoperty at 31 Dec.t 31 Dec. 203203 196196
Net carrying amountNet carrying amount 153153 77 160160 153153 77 160160
Other intangible assets in all segments comprise mainly IT software. Depreciation and impairment losses are included in the income statement item Other operating expenses.
For the purpose of testing goodwill for impairment, Sampo determines the recoverable amount of its cash-generating units, to which goodwill has been allocated, on the basis of value in use. Sampo has defined these cash-generating units as If Group and Mandatum Life.
AAt end of yt end of yearear 7,3057,305 374374 7,6797,679 7,0657,065 382382 7,4477,447
Sampo's sharSampo's share of Nore of Nordea's losdea's loss/prs/profit cofit consisonsists of the fts of the folloollowing as of 31 Dec. 2015:wing as of 31 Dec. 2015: Share of loss/profit of the associate 778 708
TTotal intotal intereresest rt raatte derive derivaativtiveses 2,0692,069 00 22 153153 00 -3-3
TTotal fotal fororeign eeign exxchange derivchange derivaativtiveses 2,8782,878 2121 1515 3,0083,008 4242 2121
TTotal derivotal derivaativtives held fes held for tror tradingading 4,9484,948 2121 1717 3,1623,162 4242 1818
TTotal fotal fororeign eeign exxchange derivchange derivaativtiveses 1,7891,789 99 2222 1,3771,377 33 1515
TTotal derivotal derivaativtives held fes held for hedgingor hedging 602602 22 99 583583 00 5050
Fair value hedging is used to hedge a proportion of foreign exchange and interest risk in available-for-sale financial assets. The interest elements of forward contracts have been excluded from hedging relationships in foreign exchange hedges. Net result from exchange derivatives designated as fair value hedges amounted to EURm -69 (-74). Net result from hedged risks in fair value hedges of available for sale financial assets amounted to EURm 68 (74).
TTotal financial asotal financial assets designasets designatted as aed as at ft fair vair valuealue thrthrough p/lough p/l
Financial assets available for sale / debt securities: Debt securities available for sale include EURm 3,334 (1,963) investments in bonds and EURm 95 (932) investments in money market instruments.
Equity and equity index options 60 10 10 69 10 11
Disclosed fair values are "clean" fair values, i.e. less interest accruals.
TTotal financial liabilities measurotal financial liabilities measured aed at ft fair vair valuealue 22 118118 -- 120120
During the last quarter 2014, the Group started to utilise the BVAL Score information for level determination. Most of the classifiation changes in the table result from this.
TTrransfansfersers frfrom leom levvel 2el 2 tto leo levvel 1el 1
TTrransfansfersers frfrom leom levvel 1el 1 tto leo levvel 2el 2
TTotal financial asotal financial assessests measurts measured aed att ffair vair valuealue
TTotal financial asotal financial assets designasets designatted aed at ft fair vair value thralue through p/lough p/l 217 149
Changes in defChanges in deferrerred tax during the financial period 2015ed tax during the financial period 2015
DefDeferrerred tax ased tax assets in the balancsets in the balance sheete sheet 3535
Tax losses for which no deferred tax asset has been recognised 0 -1
Share of associate's other comprehensive income 16 - 16 -168 - -168 25 Other assets
The tables below show the cost trend for the claims for different years. The upper part of the tables shows how an estimate of the total claims costs per claims year evolves annually. The lower section shows how large a share of this is presented in the balance sheet. More information on P&C insurance's insurance liabilities in the Risk Management section of the Annual accounts.
Net liability aNet liability at 31 Dec. 2015t 31 Dec. 2015 4,9764,976 3636 5,0125,012
PP&C insur&C insurancancee, t, total financial liabilitiesotal financial liabilities 216216 373373
Holding, tHolding, totalotal 2,3142,314 2,2032,203 *) The determination and hierarchy of financial assets and liabilities at fair value is disclosed in note 17. Based on the principles of this determination, the bonds of the Holding Company fall under level 2.
EURm 17 of the provision consist of assets reserved for the development of efficient administrative and claims-adjustment processes and structural changes in distribution channels result in organisational changes that affect all business areas. In addition, the item includes a provision of about EURm 30 for law suits and other uncertain liabilities.
The pension benefits referred to are old-age pension and survivors’ pension in Sweden and old-age pension, survivors’ pension and disability pension in Norway. A common feature of all of the pension plans is that the employees and survivors encompassed by the plans are entitled to a guaranteed pension that depends on the employees’ service period and pensionable salary at the time of retirement. The dominating benefit is the old-age pension, which refers in part to temporary pension before the anticipated retirement age and in part to a life-long pension after the anticipated retirement age.
The anticipated retirement age in connection with life-long pension is 65 years for Sweden and 67 years for Norway. In Sweden, life-long old-age pension following a complete service period is payable at a rate of approximately 10% of the pensionable salary between 0 and 7.5 income base amounts, 65% of salary between 7.5 and 20 income base amounts and 32.5% between 20 and 30 income base amounts. In Norway, life-long old-age pension following a complete service period is payable at a rate of approximately 70% of the pensionable salary up to 12 National Insurance base amounts, together with the estimated statutory old-age pension. Paid-up policies and pension payments from the Swedish plans are normally indexed upwards in an amount corresponding to the change in the consumer price index. However, there is no agreement guaranteeing the value and future supplements in addition to the contractual pension benefit could either rise of fall. Pension payments from the Norwegian plans are were earlier indexed upwards in an amount corresponding to 80 - 100% of the change in the consumer price index. Instead, as of January 1, 2016, a paid-up policy is issued on retirement, whereby If is no longer responsible for and has no obligation in respect of future indexation of the insured plans.
Defined benefit plans aDefined benefit plans at 31 Dec.t 31 Dec. 303303 664664
RRececonciliaonciliation of plan astion of plan assets:sets: At the beginning of the year 399 385
There are other short-term staff incentive programmes in the Group, the terms of which vary according to country, business area or company. Benefits are recognised in the profit or loss for the year they arise from. An estimated amount of these short-term incentives, social security costs included, for 2015 is EURm 72.
If P&C Insurance Holding Ltd and If P&C Insurance Ltd have separately entered into contracts with Försäkringsaktiebolaget Skandia (publ.) and Tryg-Baltica Forsikrings AS whereby Skandia and Tryg-Baltica will be indemnified against any claims attributable to guarantees issued by Försäkringsaktiebolaget Skandia (publ.) and Vesta Forsikring AS, on behalf of Skandia Marine Insurance Company (U.K.) Ltd. (now Marlon Insurance Company Ltd.) in favor of the Institute of London Underwriters.
Marlon Insurance Company Ltd. was disposed during 2007, and the purchaser issued a guarantee in favour of If for the full amount that If may be required to pay under these guarantees.
Minimum lease paMinimum lease paymentsyments not later than one year 2 2 later than one year and not later than five years 8 9 later than five years 7 8
LLong-tong-term incerm incentiventive schemes 2011 I - 2014 Ie schemes 2011 I - 2014 I
The Board of Directors of Sampo plc has decided on the long-term incentive schemes 2011 I - 2014 I for the management and key employees of Sampo Group. The Board has authorised the CEO to decide who will be included in the scheme, as well as the number of calculated incentive units granted for each individual used in determining the amount of the incentive reward. In the schemes, the number of calculated incentive units granted for the members of the Group Executive Committee is decided by the Board of Directors. Some 130 persons were included in the schemes at the end of year 2015.
The amount of the performance-related bonus is based on the value performance of Sampo's A share and on the insurance margin (IM) and on Sampo's return on the risk adjusted capital (RORAC). The value of one calculated incentive unit is the tradeweighted average price of Sampo's A-share at the time period specified in the terms of the scheme, and reduced by the starting price adjusted with the dividends per share distributed up to the payment date. The pre-dividend starting prices vary between eur 18.37 - 43.38. The maximum value of one incentive unit varies between eur 33.37 - 62.38, reduced by the dividend-adjusted starting price. In all the schemes, the incentive reward depends on two benchmarks. If the IM is 6 per cent or more, the IM-based reward is paid in full. If the IM is between 4 - 5.99 per cent, half of the incentive reward is paid. No IM-related reward will be paid out, if the IM stays below these. In addition, the return on the risk adjusted capital is taken into account. If the return is at least risk free return + 4 per cent, the RORAC-based incentive reward is paid out in full. If the return is risk free return + 2 percent, but less than risk free return + 4 percent, the payout is 50 per cent. If the return stays below these benchmarks, no RORAC-based reward will be paid out.
Each plan has three performance periods and incentive rewards are settled in cash in three installments. The employee shall authorise Sampo plc to buy Sampo's A-shares with 60 per cent of the amount of the reward after taxes and other comparable charges. The shares are subject to transfer restrictions for three years from the day of payout. A premature payment of the reward may occur in the event of changes in the group structure or in the case of employment termination on specifically determined bases. The fair value of the incentive schemes is estimated by using the Black-Scholes pricing model.
Total cost for the financial period, meur (incl. social costs) 33 *) Grant dates vary **) Trade-weighted average for ten trading days from the approval of terms 37 Auditors' fees
40 Investments in shares and participations other than subsidiaries and associates
Broad Street Real Estate Credit Partners II Treaty Fund, L.P. Cayman islands 10
In the meeting of 10 Feb. 2016, the Board of Directors decided to propose at the Annual General Meeting on 21 April 2016 a dividend distribution of EUR 2.15 per share, or total EUR 1.204.000.000, for 2015. The dividends to be paid will be accounted for in the equity in 2016 as a deduction of retained earnings.
PrProfit fofit for the financial yor the financial yearear 1,2281,228 1,0501,050
Net cash frNet cash from operom operaating activitiesting activities 437437 821821
Net change in cash and cash equivNet change in cash and cash equivalentsalents -28-28 487487 *) Investments include both investment property and financial assets.
265265Notes to the assets 5–9 267267Notes to the liabilities 10–13 268268Notes to the income taxes 14 269269Notes to the liabilities and commitments 15–16 269269Notes to the staff and management 17–19 271271Notes to the shares held 20
CCosost at at beginning of yt beginning of yearear 325 321
Carrying amount aCarrying amount at end of yt end of yearear 296296 325325
6 Other shares and participations 20152015 FFair vair value changesalue changes 20142014 FFair vair value changesalue changes
Avalaible-for-sale equity securities 248 12 -12 85 1 4 7 Other investment receivables 20152015 FFair vair value changesalue changes 20142014 FFair vair value changesalue changes
Carrying amount aCarrying amount at 31 Dec. 2014t 31 Dec. 2014 9898 77 1,5271,527 273273 5,1105,110 7,0147,014
The basic and supplementary pension insurance of Sampo plc's staff is handled through insurances in Varma Mutual Insurance Company and in Mandatum Life Insurance Company Limited.
In addition to the above, the company has in accordance with the decision of the Annual General Meeting in 2015 compensated transfer tax of in total EUR 6,006.68 related to the acquisition of the company shares (EUR 1,276.33 pertaining to the Chairman, EUR 806.60 pertaining to the Vice Chairman and EUR 3,923.74 pertaining to the other Finnish members of the Board).
Harri Hollmen 1) According to the defined benefit pension agreement in force until 31 December 2015, the pension benefit of the Group CEO was 60 per cent of his pensionable salary. The pensionable salary included fixed salary, fringe benefits, holiday pay and short-term incentives and was calculated as an average of two out of the four last full years, where the best and the worst year were left out. The supplementary pension costs for 2015 includes the final premium of 2016 (525,183 euros) and the liability is now fully covered. The defined benefit supplementary pension agreement stipulated in the previous service contract for the Group CEO is replaced by a new defined contribution pension agreement entering into force on 1 January 2016. The annual cost of the agreement for Sampo is 400,000 euros.
We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of Sampo plc for the financial period 1.1. - 31.12.2015. The financial statements comprise the consolidated statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows, and notes to the consolidated financial statements, as well as the parent company’s balance sheet, income statement, cash flow statement and notes to the financial statements.
financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements.
Jarmo SalonenJarmo Salonen Head of Investor Relations and Group Communications jarmo.salonen@sampo.fi