772016 in Figur2016 in Figureses 99SStrtraattegyegy 10If P&C Insurance – Security and Stability 11Mandatum Life – an Expert in Money and Life 1313GrGroup Soup Structurtructuree 1414OrOrganizaganizationtion 1515BusinesBusinessesses 16If P&C Insurance 17Nordea 18Mandatum Life 2020PPersonnelersonnel 22Personnel at If P&C
28Personnel at Mandatum Life 3333CCorpororporaatte Re Responsibilityesponsibility 33Corporate Responsibility at If P&C Insurance 39Corporate Responsibility at Mandatum Life
In 2016, the investment market was something of a bumpy road indeed. At the beginning of the year, stock prices crashed following weakened growth expectations in China. Meanwhile, in the summer, markets were hit by the Brexit referendum results which also pushed sterling on a downward slide. In the fall of 2016, stock markets were shaken by fears regarding the results of the US presidential election and when the votes were cast and the result announced, markets plunged although they then swiftly recovered. Finally, investment markets returns were good during the last quarter of the year.
As big a surprise as it was, the US presidential election result did spark a glimmer of hope for the financial services industry. The hope is for deregulation in the sector or at the very least the postponement of new plans for additional regulation. The outcome of this potential deregulation is yet to be seen. However, it is clear that if the United States will begin revoking regulations, the European Union will also have to take similar action in order to maintain a level playing field.
Europe should respond in such a manner as it would be imprudent to give American banks a clear competitive advantage through there being stricter regulations in Europe. This would be an absolutely necessary action as our industry has become clearly overregulated in many areas following the political bidding game of the past few years. As a first step in deregulation, financial services companies should be given clear incentives for strengthening their capital bases. As an example, why not reward the industry for capital generating by releasing those banks with the strongest solvency levels from some of the current regulation? Without an explicit mechanism and goals for deregulation there is not a chance for Europe to get rid of the current overregulation that exists.
Our property and casualty insurance customers want a comprehensive online service. More than one-third of claims are currently reported via our online channels and an ever increasing share of our claims handling takes place online. In addition, an increasing share of sales is internet based: Our online sales increased by 25 per cent last year. In summary, our insurance subsidiary If P&C is the indisputable forerunner in taking advantage of internet in its own sector in the Nordic countries.
Premium income development in life insurance was strong towards the end of the year. During the fourth quarter of 2016, premium income increased by 46 per cent. Premium income in the main focus area of unitlinked insurance reached a new record, while unitlinked technical provisions also achieved a record level.
In September 2016, we made a non-premium mandatory offer for the Danish P&C insurer Topdanmark. The bid was made after we had crossed the applicable threshold for the mandatory offer. It proved to be successful: As a result of the offer, our ownership exceeded 41 per cent of the total of Topdanmark shares.
After the end of the reporting period, we proposed to Topdanmark’s Annual General Meeting of April 2017 a change to the company’s distribution policy. Based on our proposition, Topdanmark should move from share buy-backs to dividends only. Simultaneously, we proposed that three representatives of Sampo Group, which would make up half of the total number of Board members, be elected to Topdanmark’s Board of Directors.
We at Sampo are well-prepared for potential interest rate increases: The duration of our fixed-income portfolio is shorter than that of our competitors and the technical provisions of our insurance subsidiaries have in many areas been discounted with lower discount rates than those of our peers. Furthermore, higher rates would benefit banks, including Nordea. Thus, in the event of rising interest rates, we should outperform our peers.
Our Dividend WOur Dividend Will Incrill Increase fease for theor the Eighth CEighth Consecutivonsecutive Ye Yearear
At Sampo, we have been aiming at steadily increasing profit distribution. To this end, we have managed to increase the dividend every year since 2009 and this spring will see Sampo’s dividend proposal increase for the eighth consecutive time. The Board’s dividend proposal for the AGM is EUR 2.30 per share. The dividends to be paid amount to almost EUR 1.3 billion in total, which makes this our biggest ever dividend proposal. All in all, we have paid out dividends totaling EUR 10.9 billion so far in the 21st century.
Increasing shareholder value will also be our main task at Sampo during 2017. And whilst I naturally do not want to predict the level of future dividends, we will continue to aim at steadily increasing profit distribution.
Sampo Group's business areas are P&C insurance and life insurance, under If brand and Mandatum Life brand, respectively. The Group is also the largest shareholder in Nordea Bank, the leading Nordic banking franchise. On a Group level Sampo has no stated strategy but the business areas have welldefined strategies based on return on equity targets.
Sampo Group creates value for its shareholders through efficient and highly profitable operating units and by investments in situations offering significant upside potential with manageable downside risk. Shareholders benefit from the value creation through a high and stable dividend yield as Sampo plc upstreams the dividends it receives from its subsidiaries and associates to its shareholders.
If’s operations are divided into Nordic Business areas by customer segments. The Baltic countries constitute a separate business area and operates on one business platform across all three Baltic countries.
• The BalticBaltic business area offers property and casualty insurances for both private individuals and corporate customers. If is the second largest P&C insurer in the Baltic region and market leader in Estonia, with approximately 350,000 customers.
• EurEurope’ope’s moss most prt profofesessional and innosional and innovvaativtive Pe P&C&C insurinsurancance peoplee people If continues to strengthen its underwriting competences within the “Best in Risk” concept. The concept focuses on understanding all aspects of risk management, including product, pricing and risk quality, throughout the organisation.
• SStable prtable profitability throfitability through underwritingough underwriting eexxccellencellence and opere and operaational efficienctional efficiencyy Profitability in the core business by accurate pricing of risk. Continuous focus on cost efficiency, an investment strategy based on balanced risk and creditworthiness also contribute to a strong and stable profitability.
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 offers its customers comprehensive services that include tailored unit-linked 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 the Mandatum Life Group is Mandatum Life Insurance Company Limited, the subsidiaries of which are Mandatum Life Services Ltd., Mandatum Life Investment Services Ltd., Mandatum Life Fund Management S.A., Innova Services Ltd. and Mandatum Life Insurance SE Baltic.
The focal point of Mandatum Life’s new sales business is unit-linked insurance, capital redemption contracts and group pension insurance and risk insurance covering personal risks. For these, Mandatum Life has three of its own sales channels in Finland: sales groups specialized in corporate sales, wealth managers focused on wealth management, and Customer Service that focuses on additional services offered to existing clientele. In addition to these sales channels, Mandatum Life and Danske Bank have had a distribution agreement in effect since 2007. In the same year, it was also agreed that Mandatum Life would have the right to sell the insurance portfolio to Danske Bank. In October 2016, Mandatum Life announced that it would exercise that right, as a result of which, it is estimated that the insurance portfolio acquired through Danske Bank will transfer to Danske Bank at the end of 2017.
In terms of the existing insurance portfolio with guarantees, the company’s strategy is to maintain a sufficiently strong solvency position, which makes it possible to seek a higher long-term investment return than that offered by low-risk fixed income instruments. The goal will be to actively accelerate the downward trend of the with profit portfolio. The transitional provisions of the Solvency II framework, together with the downward trend of this insurance portfolio, will enable the company to carry out effective capital management in future. The company also seeks growth in the area of new with profit contracts, provided that this takes place on favourable terms, taking into account profitability, risk management and Solvency II, and brings added value to both customers and the company.
Sampo plc Sampo plc, the parent company, is listed in the Nasdaq Helsinki since January 1988. It has no business activities of its own but administers the subsidiaries and is responsible for centralized functions in Sampo Group such as investments, Group Finance, risk management and investor relations.
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 Group reporting Nordea is treated as an associate and included in the segment Holding. At the end of 2016 Sampo plc held 21.2 per cent of shares in Nordea.
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 all the Baltic countries.
AB and Topdanmark A/S, a Danish insurance company. Sampo plc is the largest shareholder in both Nordea Bank AB and Topdanmark A/S.
These financial results were achieved in a competitive market with continued low and even negative interest rates and weaker macroeconomic conditions, contributing to a generally lower economic growth. Financial markets were further characterized by volatility and uncertainty. If’s balanced and conservative investment policy remained unchanged during the year.
In 2016, If remained focused on digitalization. Internet sales increased by yet another 20 per cent, approximately 40 per cent of claims are filed online and more than 40 per cent of all customers are eCustomers, ie. customers with digital payment and digital policy letter on all their policies.
In addition, If continued its investments in IT with the ongoing deployment of a Nordic IT core system. At the end of the year business areas Commercial and Industrial were mostly running on one Nordic production system.
If’s positive development during the year is also a result of a long-term strategy with consistent focus on underwriting excellence as well as operational efficiency. During the year If’s cost ratio decreased further by 0.2 percentage points (excluding nonrecurring items) which is a result of If’s continuous work to improve processes.
The Retail Banking business area was divided into two new business areas, Personal Banking and Commercial & Business Banking to adjust the organisation more clearly according to the different customer needs.
Digitalisation continued to be a main driver within the business areas and the customers’ usage of online and 2016 was probably the most eventful year in the history of Nordea. Continued negative interest rates, regulatory uncertainty and digital transformation were in focus for the banking sector, alongside with unexpected political events and geopolitical uncertainties.
In Wealth Management, total assets under management grew to an all-time high of above EUR 300 billion and Nordea is by far the largest wealth manager in the Nordics. Nordea also continued to be successful in the European fund markets, marketing financial services outside the Nordics. During the main part of 2016, Nordea Asset Management was the most popular fund provider in Europe, attracting the highest amount of net inflow to its funds.
Mandatum Life’s investment returns exceeded the return requirement for technical provisions, especially due to the excellent return on equity investments. Low-risk, long-term interest rates remained at a low level, which means maturing fixed income investments continue to present a considerable re-investment risk, as in previous years. As a result of the low interest rate levels, the company continued to supplement the reserves for decreased discount rates. Consequently, the return requirement on technical provisions for 2017–2019 has been substantially lowered.
During the latter part of the year, Mandatum Life implemented organisational changes to increase the efficiency of the company’s operations in the Baltic countries. A special focus area in operations is increasing sales and profitability.
Sampo Group offers a work environment that supports the commitment of all employees. The continuous high results of regular employee satisfaction surveys show that Sampo has succeeded well in inspiring and engaging its employees.
The total reward package of Sampo Group also encompasses competitive remuneration and benefits such as private health care and broad insurance coverage, in addition to extensive competence development and sound corporate responsibility principles.
If P&C has more than 3 million customers. If P&C sells and renews close to 8 million insurances annually and handles 1.5 million claims. If P&C’s success is entirely dependent on how well the company does in all of these customer interactions. First class customer focus through dedicated employees with professional insurance competence is therefore the main determinant of success.
The cornerstones of If P&C’s HR Strategy are; Competence Development & Innovation, Right Person in the Right Place, Leadership the If way, and Employeeship & Performance Culture. HR plays a key role in ensuring that If P&C can attract the best employees, that competence building is strong and that both leadership and employeeship are first class. Employeeship refers to the employees’ own responsibility for their development, customer service, and performance.
CCompetompetencence Dee Devvelopment andelopment and Right PRight Person in the Right Placerson in the Right Placee
In the mature insurance industry, having the industry’s most competent employees is the main source of sustainable competitive advantage. If P&C’s competence development unit – If Academy – supports the business units and ensures efficient planning and delivery of competence development across the company. During 2016 If Academy began a journey to ensure that all training activities derive from prioritized business goals. Senior competence partners have been appointed and are working in close cooperation with business leaders in setting the competence development agenda. To increase efficiency, If Academy is centralizing its digital activities to a common hub where trainings for all of If P&C will be created.
Implementing Employeeship in If P&C and making it a cornerstone of the company’s culture is a key priority. To support this effort If P&C has developed an Employeeship Model based on the If leadership model and is implementing it in the organization via intranet articles, workshops and presentations and also in development discussions, appraisals and employee surveys.
• In 2016, Always the Right Age has been supported with a series of intranet articles presenting role models of different age and in different phases of their employment life (e.g. starting your career, changing position, taking care of children or parents, recovering from sickness, retiring).
• HR has conducted a survey regarding age-related myths. The results were presented on the intranet in order to start a discussion and to dispel myths around age.
• HR has also arranged seminars and workshops on intrinsic motivation for employees and leaders.
Sickness statistics are based on If P&C’s internal reporting standards and may deviate from locally published statistics.
In Denmark, management teams, union, and HR have cooperated closely around promoting health. Dialogue and closer follow up around the topic have resulted in clear improvements. In Sweden, a wellbeing pilot project was run in Business Area Private in 2016 and HR has also run mandatory training sessions to implement the new occupational health laws. In Norway, HR has been part of arranging “Health Days”, where lectures on life style change, how to deal with addiction, and mini health checks were appreciated. In Finland, HR has utilized modern tools and ways of working, e.g. moved from physical age group health checks to digital surveys. Based on the surveys, HR has been able to allocate needed actions more efficiently and coach employees where needed.
Managers (male 56.3%, female 43.7%) All employees (male 46.5%, female 53.5%)
HR strives to provide the leaders and employees of If P&C with great service. During 2016 HR invested in the implementation of a modern, fully integrated HR system that will improve service to the employees and leaders of If P&C through harmonized HR processes across country borders, better onboarding and learning management, facilitated feedback discussions, improved compliance work, and enhanced work force analytics. During 2016 the new HR system went live in Finland, Norway and Sweden. Managers and employees are very satisfied.
Mandatum Life’s business involves improving its customers’ financial security, growing its customers’ wealth, supporting the success of Finnish companies and providing protection against entrepreneurs’ and companies’ personal risks. Mandatum Life is a financial services provider with more than 500 employees in Finland and the Baltic countries. The satisfaction and well-being of employees and the development of their competence are investments that reflect the company’s values and make good business sense.
Ten per cent of competence development stems from training programs. In 2016, Mandatum Life focused particularly on developing business competence. In collaboration with Hanken & SSE, the company launched the Mandatum Life Business School under the theme of Turning Expertise into Business. The program was aimed at specialists and supervisors who hold a leadership role. Its objective was to develop competence in the insurance & finance business, in the latest trends and in changes in customer behavior, and to give the participants tools for network management.
In their first year of working for the company, all new managers participate in the Mandatum Life Management School – a coaching program that aims to examine the role and tools of managers, as well as interaction in situations involving managerial work. The coaching provides a foundation for analyzing and developing one’s own supervisory work and for managing the team’s activities. The goal is to build and maintain a consistent leadership culture at Mandatum Life. The program was arranged for the sixth time in 2016, and more than 95 per cent of the company’s 75 managers have taken part in it. The program includes a manager profile assessment, which helps the manager to develop in his/her work. In addition, leadership in the company was developed during 2016 using various evaluation tools.
Among Mandatum Life’s goals is to offer its customers quality employee reward solutions. We also want to offer our personnel the same services. As the company places great importance on the future and preparing for retirement, performance bonuses are paid into the personnel’s Sesam group pension insurance annually in accordance with the company’s realized financial result.
The employees are additionally given the opportunity to fund part of their personal performance bonuses. The Personnel Fund was introduced in 2014. In 2016, close to 90 per cent of Mandatum Life’s entire personnel took advantage of the fund.
Well-functioning and effective employee rewards are a success factor for Finnish companies. It is a matter that Mandatum Life is passionate about. A successful company knows what to pay its employees and why. The most important consideration is that the rewards are perceived as fair. An effective reward scheme calls for clear communication.
Sick-leace statistics are based on Mandatum Life's internal reporting standards and may deviate from locally published statistics. Until 2014 the figures do not include Innova or Kaleva. Since 2015 figures include Innova but not Kaleva.
In the Refinery, the employees can create their own profile and thereafter share an idea or inspiration or present a problem to be solved by the work community. During the brainstorming stage, key words that are linked to the company’s long-term targets are used. Thus, for every idea, the building of a business perspective is encouraged already at the brainstorming stage. In the Refinery, ideas are discussed and commented on with the goal of developing them into viable solutions. After they are collectively worked on, the ideas proceed to the experts that are responsible for the matter or to individuals who are interested in promoting the matter.
If P&C is committed to promoting safety and economic security in society. In 2016 If P&C dealt with more than 1.8 million insurance claims covering a huge range of events from minor water damages to traffic accidents and earthquake damages faced by companies. Half of the claims are processed within 24 hours. The company paid out almost EUR 3 billion in claims over the past year.
If P&C wants to contribute to a sustainable environment. It has been a climate-neutral company since 2011 and it compensates its emissions through various projects. If actively takes part in public discussions and increases the awareness of decision makers when it comes to security and safety related topics. One important topic for If P&C is traffic safety. If P&C’s researchers analyze the company's extensive injury statistics and publish the information for use in order to increase traffic safety for motorists, cyclists and pedestrians alike.
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.
Business Area Private has made an electronic customer account the default for all new customers, and also continues to make it easier for existing customers to move towards electronic communication. One challenge regarding this is that several markets require certain written contracts with customers, or a strong consent to communicate electronically.
CCorpororporaatte Te Taxaxes fes for the Yor the Year 2015ear 2015 If P&C, more than EUR 157 million in total
IncrIncrease in the Number of Privease in the Number of Privaatte eCuse eCusttomers during 2014–2016 on a Noromers during 2014–2016 on a Nordic Ldic Leevvelel If P&C
can also order e-invoices, adjust payment preferences and sign new agreements online.
As part of If P&C’s overall digitalization of communication, If Denmark uses E-box as an electronic postbox to communicate with its customers. The plan is to further increase electronic communication in all the Nordic countries.
Online filing of claims is becoming more common and represents a more environmentally responsible choice
SharShare of E-ine of E-invvoicoices in Ves in Vehicle Claims on a Norehicle Claims on a Nordic Ldic Leevvelel If P&C, 2012–2016
than traditional filing methods. The number of claims filed online increased by 6 per cent in 2016, and more than 37 per cent of all claims are filed online today.
Meetings and trMeetings and traavvel:el: The interest in video meetings has grown rapidly since their introduction in If P&C in 2003. Today, If P&C’s Nordic offices have 95 rooms with video meeting facilities. User friendliness, clear guidelines, and video support have contributed to the success. Almost 1,500 video meetings are held every month. All employees have Skype on their computer for instant messaging and virtual meetings. Being able to simultaneously converse and share documents makes online meetings a viable alternative to physical meetings.
ClimaClimatte:e: If P&C’s carbon dioxide emissions continued to decrease in 2016. In 2011, the company launched a carbon offsetting scheme whereby it compensates for its emissions of carbon dioxide in the Nordic region by distributing energy-efficient wood-burning 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 internationallyrecognized certification standard developed in collaboration with the World Wide Fund for Nature and other organizations. Not only do the woodburning 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 woodburning stoves. If P&C will be continuing with this offsetting program in 2017.
The total amount of direct and indirect carbon dioxide emissions from Nordic operations in 2016 was 8,389 tons. This is 59 per cent lower than in 2008, when the measurements were first taken. Purchased energy contributes 13 per cent and business travel (air, train and car) 85 per cent of the total. The total emissions from business travel were 7,131 tons. Of all the means of transportation used, air travel has the greatest impact per travelled kilometer, which makes it the most significant source of emissions. The carbon dioxide reduction is mainly due to a 34 per cent decrease in air travel and because the company now
If P&C's CO2 emissions have been offset through a Gold Standard VER project
• We are developing products, processes and damage prevention services in order to help our customers act in a more environmentally-friendly manner.
If P&C’s environmental program has three levels: • A governance group, led by a member of If P&C’s executive board, establishes and upholds the environmental strategy, policies and overall goals.
Corporate responsibility, which has been linked to the strategy, is a sustainable part of the company’s dayto -day operations. Mandatum Life strives to generate well-being in the surrounding society through its services and investment activities and as an employer.
Mandatum Life has identified three main themes for its corporate responsibility: responsible investment, promoting responsible personnel practices in working life and implementing them in Mandatum Life’s own work community. Financial responsibility – which means ensuring the continuity, profitability, earnings power and solvency of the company’s operations in all market situations – is a prerequisite for business.
Ensuring continuity lays the foundation for the sustainable management of customers’ insurancerelated liabilities and customers’ investments and pensions over the decades.
During 2016, Mandatum Life’s corporate responsibility work mainly focused on fostering responsible investment. Towards the end of the year, Mandatum Life Investment Services Ltd. measured the carbon footprint of the unit-linked equity and fixed income investment baskets under its management and its fullmandate wealth management.
Investors have an influential role in solving societal challenges and mitigating climate change. The investment assets flowing into more responsible
companies put these companies in a better position to succeed, while other companies feel the pressure to improve their ways of operating. Due to the rising cost of and limited access to financing, companies with less responsible operations have weaker long-term growth opportunities. This trend will further strengthen as investors are increasingly paying attention to sustainability issues.
Companies play a key role in achieving the goals of sustainable development. That is why promoting responsible investing and the sustainability of its own investment activities are at the heart of Mandatum Life’s corporate responsibility actions.
In the lead-up to the Paris Climate Change Conference in autumn 2015, Mandatum Life launched an annual seminar on responsible investment, which brings together opinion leaders in the sector from Finland and abroad to discuss the risks caused by climate change to investors. A total of around 150 opinion leaders from the business world and society participated in the event in 2015 and 2016. The speakers included institutional investors, major international asset management firms (Amundi, BlackRock) and international organizations, such as WWF and BSAG.
In 2016, Mandatum Life campaigned for a cleaner Baltic Sea jointly with the Baltic Sea Action Group (BSAG). As a result of the campaign, Mandatum Life donated 0.5 per cent of the amount invested in the ML Future Climate investment basket between June and the end of the year, i.e. a total of more than EUR 4,000, to BSAG.
Responsible investment 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
ML Future Climate, the first product in the Future product family launched by Mandatum Life in 2015, steers investment assets to companies with a smaller carbon footprint. The ML Future Quality Equity established in 2016 invests in high-quality, responsibly operating companies with higher-than-average performance stability, profitable business and moderate valuation. The investment basket includes companies that have received the best ESG scores in their sector. The analytics provider is Sustainalytics, which is specialized in sustainability data.
Mandatum Life Investment Services Ltd. has measured the carbon footprint of the unit-linked equity and fixed income investment baskets under its management and its full-mandate wealth management. The annual carbon footprint of the investments was 1,399,896 CO2 tons (tCO2), which is 22 per cent compared to the benchmarks. The result is positively impacted by the relatively small carbon footprint of fixed income investments in relation to the benchmarks. The combined carbon footprint of equity investments was 62 per cent in relation to the benchmarks. The measurement was carried out jointly with South Pole Group and it covered approximately 80 per cent of the investment assets managed by Mandatum Life Investment Services Ltd. as per 30 September 2016. The carbon footprint of the investee companies is based on South Pole Group’s data as per the end of 2015. Consultative wealth management or index investment baskets were not taken into account in the measurement. Going forward, Mandatum Life Investment Services Ltd. will measure its carbon footprint on an annual basis to monitor the carbon risk of its investments more comprehensively.
Mandatum Life wishes to ensure the financial security of its customers through voluntary risk insurance policies, by growing their wealth, securing entrepreneurship, supplementing pension cover and securing the competitiveness of Finnish companies. Well-managed business creates well-being in the surrounding society, while at the same time strengthening competitiveness.
Mandatum Life offers companies tools for good leadership and reward solutions, as well as a means of monitoring and assessing the employees’ impact on the company’s financial success and work satisfaction. Mandatum Life fosters good employee practices that benefit the company and personnel alike and makes use of the same solutions it offers its customers.
Employee well-being manifests itself as enthusiasm, caring and satisfaction and, in the longer term, as productive careers. Mandatum Life expects the importance of corporate culture in the company’s future success to further increase. When coupled with good leadership and effective rewards, the entire personnel’s motivation and enthusiasm have a quantifiable impact on the company’s earnings power.
Fair rewards also play an important role in risk management. Unfair dispersion and disparity in pay within the organization may present a legal risk to the employer. Mandatum Life offers companies the Pay Scale tool to assess the organization’s pay structure, competitiveness and fairness.
A growing number of Finns are concerned about their income in the face of financial adversity. According to the Insurance Survey series of the Federation of Finnish Financial Services, in 2016 only about a quarter of the respondents believed social security to
Mandatum Life’s risk insurance increases customers’ and their families’ financial security in case of serious illness, disability or death. The insurance helps to cover losses in income resulting from an illness. One out of five Finns falls seriously ill before the age of 65. In 2016 Mandatum Life commissioned a survey to determine what kind of risk takers Finns consider themselves to be, what risks they think about most and what they believe poses the biggest risks to their own finances. A total of 1,005 Finns aged between 15 and 79 responded to the survey.
When faced with a serious illness or short period of disability, an entrepreneur might have to take care of securing the continuity of his or her business in addition to getting better. Thanks to the insurance, the entrepreneur can focus on recovering, while in cases of death or permanent disability the entrepreneur, his or her family or possible other owner will receive financial assistance during a difficult time.
• Comprehensive insurance has been taken out for the entire personnel, not only against work injuries, but also against off-working-hours injuries. This protects the employees and their families in the case of a permanent injury or death caused by an accident. In addition, a significant proportion of personnel has disability and life insurance.
The future goal is to make even more effective use of employees’ competence and enthusiasm in developing Mandatum Life’s business. Leading by example is Mandatum Life’s vision for its responsibility in personnel matters, according to which the organizations that are able to make full use of their employees’ competence will be winners in the future. The flat hierarchy in the organization is also reflected in the results of the Great Place to Work survey: up to 90 per cent (88) of Mandatum Life employees feel that the management is easy to approach.
Mandatum Life pays particular attention to the benefits linked to work ability management and employee well-being. These long-term efforts have paid off: the sick-leave rate has been kept low for years by investing regularly in both preventive occupational health care and work atmosphere and supervisory work.
Mandatum Life supports also various forms of physical exercise and different work patterns and practices that facilitate daily work by offering, for example, possibilities for remote work and free assistance in caring for a sick child for three weekdays.
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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. In 2015, Mandatum Life was the 48th largest corporate tax payer in Finland, paying more than EUR 9 million in taxes.
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. Read more about our measures in the section ‘Responsible investment’.
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. Finland’s annual average temperature is rising close to twice as fast as that of the whole planet (Finnish Meteorological Institute 2016). The warming of Finland’s climate also affects the state of the Baltic Sea. One of the most serious problems is eutrophication. Climate change increases precipitation, which increases the quantity of eutrophying nutrients flowing into the sea and accelerates the growth of algal blooms. The increase of carbon dioxide in the air acidifies the Baltic Sea, posing a threat to its species.
Mandatum Life has made a five-year commitment to the Baltic Sea Action Group (BSAG) to promote the protection of the Baltic Sea. The commitment involves supporting the action group’s work through annual donations and promoting responsible investment operations among its stakeholders. BSAG is a non-profit foundation that co-operates with state heads, authorities and the private sector. In 2016, BSAG was the beneficiary of Mandatum Life’s Christmas donation, which totaled EUR 10,000.
The company strives to reduce the negative environmental impacts of its operations by, among other measures, developing its digital services and by reducing the use of paper in its customer communications. Mandatum Life uses the Baltic Sea -friendly DROPP spring water at its events and in its offices. The company favors locally produced food at its close to a hundred annual stakeholder events.
4747GoGovvernancernance Se Structurtructuree 4848BoarBoard of Dird of Directectorsors 51Board of Directors' Duties 52Election and Terms of Office of Board Members 5454BoarBoard-Appointd-Appointed Ced Committommitteesees 55Audit Committee 56Nomination and Compensation Committee 5757GrGroup Exoup Executivecutive Ce Committommitteeee 60Group Executive Committee's Duties 6161GrGroup CEO and Proup CEO and Presidentesident 6161RRemuneremuneraationtion 61Remuneration Statement 61Remuneration of the Members of the Board of Directors 62Remuneration of the Group CEO and Other Executives 6363IntInternal Aernal Auditudit 6363Insider AInsider Adminisdministrtraationtion 6363ExtExternal Aernal Audituditoror
Björn Wahlroos Chairman of the BoarChairman of the Boardd Born 1952Born 1952
Member of the Board of Directors of Sampo plc since 14 April 2011. Grate Axén holds 4,962 Sampo plc shares directly or through a controlled company.
Grate Axén has been determined by Sampo’s Board of Directors to be independent of the company and of major shareholders under the rules on Finnish Corporate Governance Code.
Veli-Matti Mattila PrPresident and CEO of Elisa Cesident and CEO of Elisa Corpororporaationtion Born 1961Born 1961
Member of the Board of Directors of Sampo plc since 7 April 2009. Mattila holds 5,155 Sampo plc shares directly or through a controlled company.
Risto Murto Chief ExChief Executivecutive Office Officer and Prer and President, Vesident, Varma Mutualarma Mutual PPension Insurension Insurancance Ce Companompanyy Born 1963Born 1963
PPositions of Tositions of Trusrust 12/31/2016t 12/31/2016 Wärtsilä Corporation, Board Member; Federation of Finnish Financial Services, Board Member (until 12/31/ 2016); The Finnish Pension Alliance TELA, I Vice Chairman of the Board; University of Oulu, Chairman of the Board; Finnish National Opera and Ballet, Member of the Supervisory Board
Member of the Board of Directors of Sampo plc since 16 April 2015. Murto holds 883 Sampo plc shares directly or through a controlled company.
Murto has been determined by Sampo’s Board of Directors to be independent of the company and of major shareholders under the rules on Finnish Corporate Governance Code.
PPositions of Tositions of Trusrust 12/31/2016t 12/31/2016 Umkomaas Lignin (Pty) Ltd, Chairman of the Board; Inspiria Science Center, Board Member
Member of the Board of Directors of Sampo plc since 12 April 2012. Sørlie holds 3,237 Sampo plc shares directly or through a controlled company.
Anne Brunila,Anne Brunila, born 1957 Member of the Board of Directors of Sampo plc from 9 April 2003 to 21 April 2016.
remuneration, compliance and internal control. It also takes responsibility for the proper organization of the Group's operations, defines the required internal minimum capitalization for Group companies and supervises Group’s profitability and liquidity position as well as capitalization. The Board also decides, within the framework of the company's business area, on other exceptional and far-reaching matters with respect to the scope and nature of Sampo Group.
In order to secure the proper running of operations, Sampo's Board of Directors has approved internal rules concerning general corporate governance, risk management, remuneration, compliance, internal control and reporting in Sampo Group.
The number of the Directors and the composition of the Board shall be such that they enable the Board of Directors to see its duties efficiently. Both genders shall be represented in the Board of Directors and the target is a share of at least 37.5 per cent of the total number of members for both genders. During 2016 the representation of both genders in the Board of Directors fulfilled the target.
According to the Policy on Diversity, Sampo’s Nomination and Compensation Committee shall identify, review and recommend candidates for the
At the Annual General Meeting the Nomination and Compensation Committee gives an account of how it has conducted its work and explains its proposals.
accordingly, the attendance of Board members at meetings was 98.6 per cent.
Members of the CMembers of the Committommittees,ees, 31 Dec31 December 2016ember 2016
The Audit Committee convened four times in 2016 and the attendance of members at the meetings was 100 per cent.
The Nomination and Compensation Committee is entrusted to prepare and present proposals for Sampo's Annual General Meeting on the composition of the Board, the remuneration of Board members and the principles on which this remuneration is determined. The Committee consults the largest shareholders in these matters.
As authorized by the Board of Directors, the Committee also decides on the fixed salaries of the members of the Group Executive Committee, excluding the Group CEO and his/her deputy.
PPositions of Tositions of Trusrust 12/31/2016t 12/31/2016 Nordea Bank AB (publ), Board Member, Board Risk Committee, Chairman; Nokia Corporation, Board Member; The Federation of Finnish Financial Services, Board Member (Vice Chairman of the Board 01/01/2017–); 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 12/31/2016t 12/31/2016 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
Member of Sampo Group Executive Committee since 2014. Alsaker holds 23,750 Sampo plc shares directly or through controlled companies or persons closely associated with him.
PPositions of Tositions of Trusrust 12/31/2016t 12/31/2016 If P&C Insurance Holding Ltd, Board Member; Mandatum Life Insurance Company Limited, Vice Chairman of the Board
Ivar Martinsen Head of BusinesHead of Business Ars Area Cea Commerommercial, If Pcial, If P&C Insur&C Insurancancee Born 1961Born 1961
Member of Sampo Group Executive Committee since 2005. Martinsen holds 43,643 Sampo plc shares directly or through controlled companies or persons closely associated with him.
PPositions of Tositions of Trusrust 12/31/2016t 12/31/2016 Alma Media Corporation, Deputy Chairman of the Board; BenCo Insurance Holding B.V., Board Member; Federation of Finnish Financial Services, Life Insurance Executive Committee, Chairman (Member 01/01/2017–); 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, Finance and Tax Commission, Chairman (Member 01/01/2017–)
Member of Sampo Group Executive Committee since 2001. Niemisvirta holds 73,524 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Morten Thorsrud Head of BusinesHead of Business Ars Area Privea Privaattee, If P, If P&C Insur&C Insurancancee Born 1971Born 1971
PPositions of Tositions of Trusrust 12/31/2016t 12/31/2016 Finance Norway (Finans Norge, FNO), Chairman of the Executive Committee of P&C Insurance
Member of Sampo Group Executive Committee since 2006. Thorsrud holds 44,160 Sampo plc shares directly or through controlled companies or persons closely associated with him.
PPositions of Tositions of Trusrust 12/31/2016t 12/31/2016 If P&C Insurance AS, Chairman of the Board; Kaleva Mutual Insurance Company, Board Member; Federation of Finnish Financial Services, Non-life Executive Committee, Member (Chairman 01/01/2017-)
Ricard Wennerklint Deputy MDDeputy MD, If P, If P&C Insur&C Insurancance Holding Le Holding Lttdd Born 1969Born 1969
In 2016, the Group Executive Committee convened four times at the request of Group CEO. The Group MD Committee, which assists the Group Executive Committee, met nine times.
The Board of Directors elects and releases the Group CEO, and decides on the terms of employment and other compensation. The Managing Director of the company and the Group CEO and President of Sampo Group is MrMr. K. Kari Sari Stadightadigh, M.Sc. (Eng.), BBA (Econ.).
Kari Stadigh is the Group CEO and President. His Group CEO Contract became effective as of 1 January 2016 and is in force until further notice. Under the terms of the Group CEO contract, the notice period for the Group CEO is six months, from which period the Group CEO is entitled to receive salary. The new contract does not include a severance compensation.
Sampo has published a Remuneration Statement on its website in accordance with the Corporate Governance Code.
In accordance with the decision of the Annual General Meeting in 2016, the following annual fees were paid to the members of the Board of Directors for their Board and committee work up to the close of the Annual General Meeting in 2017: EUR 160,000 to the Chairman, EUR 100,000 to the Vice Chairman, and EUR 80,000 to the other members of the Board. In accordance with the decision of the Annual General
Meeting, the members of the Board were obliged to acquire Sampo plc’s A shares at the price paid in public trading for 50 per cent of his/her annual fee excluding taxes and similar payments. The remaining part of the fee was paid in cash. Sampo plc paid the transfer tax related to the acquisition of the shares. In addition, statutory social and pension costs incurring to non-Finnish members according to applicable national legislation were borne by Sampo plc.
The Group CEO participates in a short-term incentive program, which is decided upon separately each year. The maximum amout that can be paid to the Group CEO from the program corresponds to nine months' fixed salary.
As part of the Group CEO contract which became effective 1 January 2016, Sampo has agreed on a supplementary defined contibution pension contract with the Group CEO. The annual cost of the agreement to Sampo is EUR 400,000.
The remuneration of the Group Executive Committee members includes fixed salary, fringe benefits and a pension contract, and may also include payments from short-term incentive programs and long-term incentive schemes.
The Group Executive Committee members participate in company-specific short-term incentive programs, which are decided upon separately each year. Shortterm incentives are determined on the basis of the Group result, business area result and individual performance. The maximum amount that can be paid for 2016 to members of the Group Executive Committee corresponds to nine months' fixed salary.
Part of the variable compensation payable to the Group CEO and to the members of the Group Executive Committee is deferred 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 of Directors decides whether the deferred variable compensations shall be paid out in full, partly or cancelled in whole.
Under the terms of their employment contracts, the Group Executive Committee members are covered by supplementary pension schemes. The retirement age for the Committee's members as set out in their contracts is 60, 65 or the age laid down in the employment pension system of their country of residence.
Insider Administration Given the nature of Sampo’s business areas, especially bearing in mind their extensive investment activities, Sampo’s Board of Directors has approved separate Guidelines for Insiders that is binding on all persons employed by Sampo Group as well as on members of Sampo’s Board of Directors. In addition to current supranational law, such as the market abuse regulation (MAR), applicable national law, including Nasdaq Helsinki’s Guidelines for Insiders and the Financial Supervisory Authority’s regulations, has been taken into account in compiling the Guidelines for Insiders.
In addition to regulatory supervision, compliance with the obligations under the Guidelines for Insiders and the underlying legislation is supervised by Insider Administration, which is a group function centralized in Sampo plc and led by the person in charge of insider matters.
Sampo Group’s Guidelines for Insiders is available on the group’s website at www.sampo.com/insiders.
External Auditor ErnsErnst & Yt & Young Oyoung Oy Authorised Public Accountant
Sampo Group Despite the low interest rate environment, 2016 was a very good year for Sampo Group as profit before taxes amounted to EUR 1,871 million (1,888) and the total comprehensive income for the period, taking changes in the market value of assets into account, rose to EUR
Earnings per share was almost unchanged at EUR 2.95 (2.96) but mark-to-market earnings per share improved significantly to EUR 3.14 (2.79). Return on equity for the Group amounted to 15.0 per cent (14.0) for 2016. Net asset value per share on 31 December
The Board proposes to the Annual General Meeting to be held on 27 April 2017 a dividend of EUR 2.30 per share (2.15). The proposed dividend payment amounts in total to EUR 1,288 million (1,204).
Profit before taxes for the P&C insurance was EUR 883 million (960). Insurance technical result was excellent and combined ratio for January - December 2016 reached a record of 84.4 per cent (85.4). Even adjusted for non-recurring items the combined ratio for 2016 was still best ever and amounted to 86.1 per cent and 86.5 per cent for 2015. Return on equity was 25.3 per cent (21.5). The contribution of Topdanmark’s net profit for 2016 amounted to EUR 65 million (43).
Sampo’s share of Nordea’s net profit for 2016 amounted to EUR 773 million (751). Nordea’s RoE, excluding non-recurring items, amounted to 11.5 per cent (12.3) and core Tier 1 ratio (excluding transition rules) was stronger than ever before at 18.4 per cent (16.5). In segment reporting the share of Nordea’s profit is included in the segment ‘Holding’. Nordea’s Board of Directors proposes to the AGM 2017 a dividend of EUR 0.65 per share (0.64). If the AGM
Profit before taxes in life insurance operations rose to EUR 210 million (181). Return on equity amounted to 15.9 per cent (12.7). Premium income on own account was EUR 1,116 million (1,144) as the premiums in the fourth quarter grew 46 per cent. The discount rates for with profit policies used for 2017, 2018 and 2019 are 0.25 per cent, 0.50 per cent, and 2.25 per cent, respectively. The discount rate reserve reached an alltime high of EUR 273 million.
Sampo Group’s total investment assets on 31 December 2016 amounted to EUR 20.7 billion (19.4), of which 79 per cent was invested in fixed income instruments (78), 16 per cent in equities (16) and 4 per cent in other assets (6). If P&C’s share of assets was 59 per cent (59), Mandatum Life’s 34 per cent (32) and Sampo plc’s 7 per cent (9).
Sampo Group’s equity as at 31 December 2016 amounted to EUR 11,934 million (11,411). Equity was strengthened mainly by the comprehensive income for the year of EUR 1,760 million and reduced by the EUR 1,204 million of dividends paid. Other changes were insignificant.
Balance sheet (at the end of period) 1.0513 1.0706 1.0133 0.9799 0.9570
Mainland economic growth has been weak over the past years in Norway, dragged down by a sharp drop in production in the industries delivering to the oil companies. Due to high price growth, real wages have been declining, dampening consumption growth. However, due to low interest rates, housing prices are now rising by a hefty 12 per cent year-on year. Unemployment remains at very low levels. Norges Bank has indicated that the current level of interest rates is appropriate in 2017 as well.
Construction sector has also performed well in 2016. Exports have been on a declining trend for several years, partly induced by falling prices and the low demand from Russia due to low oil prices. Some budding signs of growth are visible in the export sector as well, however the data is very sporadic.
Higher commodity prices started to support commodity-producing countries towards the end of 2016. Despite the increase in commodity prices, low interest rate regime in western countries will persist for a long time, with the exception of the US, which is already in a hiking cycle. The Federal Reserve started raising rates in December 2015 and hiked again in December 2016 while indicating three more 25bp rate hikes for 2017.
Profit before taxes for the year 2016 for the P&C insurance segment was EUR 883 million (960). Combined ratio improved to 84.4 per cent (85.4) and risk ratio to 62.3 per cent (66.6). In the first quarter of 2016 EUR 72 million was released from the Swedish MTPL reserves, following a review of mortality tables by the Swedish insurance federation. This improved the combined ratio for the full-year 2016 by 1.7 percentage points. The comparison figure contains two non-recurring items – the reform of the pension system in If Norway and the lowering of the interest rate used in discounting annuities in Finland from 2.0 per cent to 1.5 per cent. Their combined effect on 2015 combined ratio was 1.1 percentage points positive.
EUR 141 million, including the Swedish MTPL release, was released from technical reserves relating to prior year claims in January–December 2016. In the previous year the reserves were strengthened by EUR
On 31 December 2016, the total investment assets of If P&C amounted to EUR 12.2 billion (11.4), of which fixed income investments constituted 79 per cent (74), money market 8 per cent (12) and equity 13 per cent (13). Net income from investments amounted to EUR 173 million (304). Investment return marked-to-market for the full-year 2016 increased to 2.9 per cent (1.5). Duration for interest bearing assets was 1.4 years (1.2) and average maturity 2.8 years (2.6). Fixed income running yield as at 31 December 2016 was 1.7 per cent (1.8).
If P&C payed a dividend of SEK 5.8 billion (EUR 586 million) to Sampo plc in December 2016. In addition, If P&C paid an extra SEK 2.8 billion (EUR 293 million) dividend to Sampo plc in September 2016. If P&C’s solvency position is described in the section Solvency.
InInvvesestment Allocatment Allocationtion If P&C, 31 December 2016, Total EUR 12.2 billion
Nordea’s Board of Directors proposes to the AGM 2017 a dividend of EUR 0.65 per share (0.64). If the AGM approves the Board’s dividend proposal, Sampo plc will receive a dividend of EUR 559 million from Nordea on 27 March 2017.
Diluted earnings per share, EUR 0.93 0.91 * Excl. non-recurring items (Q4/2015: gain from divestment of Nordea’s merchant acquiring business to Nets of EUR 176 million before tax, Q2/2016: gain related to Visa Inc.’s acquisition of Visa Europe amounting to EUR 151 million net of tax, Q4/2016: additional gain related to Visa of EUR 22 million before tax). ** Excl. non-recurring items (Q4/2015: restructuring charge of EUR 263 million before tax; Q4/2016: gain in staff costs related to change in pension agreement in Norway of EUR 86 million before tax).
Total income was down 1 per cent in local currencies (-2 per cent in EUR) from the prior year and operating profit was down 8 per cent in local currencies (-9 per cent in EUR) from the prior year excluding nonrecurring items.
Cost performance and credit quality are in line with Nordea’s guidance. Total expenses were up 5 per cent
Nordea is among the ten largest universal banks in Europe in terms of market capitalization and has around 11 million customers, 31,500 employees and approximately 600 branch office locations. 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.
in local currencies (4 per cent in EUR) from the previous year excluding non-recurring items and amounted to EUR 4,886 million. Staff costs were down 1 per cent in local currencies excluding non-recurring items. The cost/income ratio increased to 50 per cent from 47 per cent.
Net loan loss provisions increased to EUR 502 million, corresponding to a loan loss ratio of 15 bps (14 bps for full-year 2015).
Nordea Group’s Basel III Common equity tier 1 (CET1) capital ratio increased to 18.4 per cent at the end of the fourth quarter 2016 compared to 17.9 per cent at the end of the third quarter 2016. REA decreased EUR 3.0 billion, mainly driven by reduced average risk weight in the corporate portfolio and reduced capital exposures in the CCR portfolio, while CET1 capital increased EUR 0.1 billion driven by continued strong profit generation net dividend and increase in intangible assets.
On 18 December 2016 Finansinspektionen stated that the authority have reached an agreement with the Nordic supervisory authorities and European Central Bank on how to supervise significant branches in Denmark, Finland, Norway and Sweden. On 2 January 2017, cross-border mergers between Nordea Bank AB (publ) and its subsidiary banks in Denmark, Finland and Norway were executed. Consequently, all assets and liabilities of the subsidiary banks have been transferred to Nordea Bank AB (publ), and each of Nordea Bank Danmark A/S, Nordea Bank Finland Plc and Nordea Bank Norge ASA has been dissolved. The banking business in Denmark, Finland and Norway will be conducted in branches of Nordea Bank AB (publ).
For more information on Nordea Bank AB and its results for 2016, see www.nordea.com.
Change in liabilities for inv. and ins. contracts -465 -462 1
Discount rate of segregated liabilities was lowered in November 2016 to 0.50 per cent from 0.75 per cent and discount rate reserve of segregated liabilities increased accordingly to EUR 275 million (257).
The assets covering Mandatum Life’s original with profit liabilities at the end of 2016 amounted to EUR 5.4 billion (5.5) at market values. 41 per cent (47) of
the assets are in fixed income instruments, 14 per cent (7) in money market, 30 per cent (29) in equities and 15 per cent (16) in alternative investments. The investment return marked-to-market for 2016 was 7.2 per cent (6.9). The duration of fixed income assets at the end of 2016 was 1.9 years (2.1) and average maturity 2.3 years (2.8). Fixed income running yield was 2.9 per cent (3.2).
The assets covering the segregated fund amounted to EUR 1.2 billion (1.2), of which 75 per cent (71) was in fixed income, 10 per cent (9) in money market, 8 per cent (12) in equities and 7 per cent (8) in alternative investments. Segregated fund’s investment return marked-to-market for January–December 2016 was 4.7 per cent (3.8). On 31 December 2016 the duration of fixed income assets was 2.4 years (2.3) and average maturity 3.5 years (3.8). Fixed income running yield was 1.8 per cent (1.4).
Sampo plc’s holding in Nordea Bank was booked in the consolidated balance sheet at EUR 7.6 billion. The market value of the holding was EUR 9.1 billion, i.e. EUR 10.60 per share, at 31 December 2016. In addition the assets on Sampo plc’s balance sheet included holdings in subsidiaries for EUR 2.4 billion (2.4).
Sampo plc owns and controls its subsidiaries engaged in P&C and life insurance. In addition Sampo plc held on 31 December 2016 approximately 21.2 per cent of the share capital of Nordea, the largest bank in the Nordic countries, and more than 41.7 per cent of the Danish P&C insurer Topdanmark. Nordea and Topdanmark are both associated companies to Sampo plc but Topdanmark’s result is reported in the P&C insurance segment.
The mandatory offer was made pursuant to the Danish Takeover Order (no. 562 of 2 June 2014) Section 2(1). The obligation to make the Mandatory Offer arose as a result of Sampo in the period from 6 September 2016 until 7 September 2016 having acquired 200,000
Topdanmark shares in the market with the highest purchase price being DKK 183 and thereby crossing the applicable Danish threshold of one third of the total outstanding voting rights of Topdanmark. In connection herewith, Sampo also acquired 31,476,920 Topdanmark shares at a price of DKK 183 per share, representing approximately 33.13 per cent of the entire issued share capital and of all voting rights of Topdanmark (including treasury shares), from its wholly owned subsidiary If P&C Insurance Holding Ltd. Following Sampo's acquisition of If's shareholding in Topdanmark, If P&C no longer holds any shares in Topdanmark.
Sampo plc’s share of Topdanmark’s profit will continue to be shown in the P&C insurance segment although Topdanmark is Sampo plc’s associate going forward. On 1 February 2017 Sampo plc held 39,579,226 Topdanmark shares corresponding to 41.7 per cent of all shares and 45.7 per cent of votes.
The valuation of the portfolio will be conducted by a third party in accordance with the terms and conditions of the bank transaction agreement referred to above. The valuation is estimated to take until the summer of 2017 and the transfer of the portfolio is estimated to take place during the fourth quarter of 2017 at the earliest. The transfer is subject to regulatory approvals.
Governance In 2016 Sampo complied in full with the Finnish Corporate Governance Code issued 1 October 2015 by the Securities Market Association and effective from 1 January 2016.
Acting in compliance with the Corporate Governance Code, Sampo has published a separate Corporate Governance Statement on its website in fulfillment of the requirement referred to in the Finnish Securities Markets Act (746/2012), chapter 7, section 7.
At its organizational meeting, the Board elected Björn Wahlroos as Chairman and Eira Palin-Lehtinen as Vicechairperson. Veli-Matti Mattila, Risto Murto, Eira PalinLehtinen and Björn Wahlroos (Chairman) were elected to the Nomination and Compensation Committee and Jannica Fagerholm (Chairperson), Christian Clausen, Adine Grate Axén and Per Arthur Sørlie to the Audit Committee. The compositions of the Committees fulfill the Finnish Corporate Governance Code's requirement for independence.
The Annual General Meeting decided to pay the following fees to the members of the Board of Directors until the close of the 2017 Annual General Meeting: the Chairman of the Board will be paid an annual fee of EUR 160,000, the Vice Chairman of the Board will be paid EUR 100,000 and the other members of the Board of Directors will be paid EUR 80,000 each. A Board member shall in accordance with the resolution of the Annual General Meeting acquire Sampo plc's A shares at the price paid in public trading for 50 per cent of his/her annual fee excluding taxes and similar payments.
Ernst & Young Oy was elected as Auditor. The Auditor will be paid a fee determined by an invoice approved by Sampo. Tomi Englund, APA, was elected as the principally responsible auditor.
In geographical terms Finland had 32 per cent of the personnel, Sweden 27 per cent and Norway 20 per cent. The share of other countries was 21 per cent.
During 2016, the number of staff in P&C insurance remained stable. The number of employees decreased in Finland and Norway and increased in Sweden and
The total number of staff in life insurance increased nearly 3 per cent driven by staff growth in Finland and Estonia. Life insurance operations employed 542 persons at the end of 2016. As of 31 December 2016, the total number of staff in Sampo Group totaled 6,780 persons.
More detailed information on personnel in Sampo Group is available in the Personnel section of the Annual Report 2016.
Remuneration in Sampo Group is based on the Remuneration Principles that apply to all companies within Sampo Group. The Sampo Group Remuneration Principles, established by the Board of Directors, 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 starting point of any compensation mechanism shall be to encourage and stimulate employees to do their best and surpass their targets. Remuneration packages shall be designed to reward employees on all levels, compensating them fairly for prudent and successful performance. At the same time, however, in order to safeguard the interest of other stakeholders, compensation mechanisms shall neither entice nor encourage employees to excessive or unwanted risk taking. Thus, compensation mechanisms cannot be separated from risk management practices.
The different forms of remuneration used in Sampo Group are described in more detail at www.sampo.com/remuneration.
In 2016 EUR 37 million (34), including social costs, was paid on the basis of the long-term incentive schemes. EUR 38 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 three to five years starting from the issue of the respective scheme. The programs are subject to thresholds on share price development and company profitability, as well as caps for maximum payout. Furthermore, the programs are subject to rules requiring part of the paid incentive reward to be used to acquire Sampo A 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 2016 was EUR 15 million (33). The terms of the long-term incentive schemes are available at www.sampo.com/ incentiveterms.
Sampo Group companies operate in business areas where specific features of value creation are the pricing of risks and the active management of risk portfolios in addition to sound customer services. Successful management of underwriting risks and investment portfolio market risks is the main source of earnings for Sampo Group companies.
A more detailed description of Sampo Group’s risk management activities, governance, risks and capitalization is available in the Risk Management section of the 2016 Annual Report.
As at 31 December 2016, Sampo plc had 560,000,000 shares, which were divided into 558,800,000 A shares and 1,200,000 B shares. Total number of votes attached to the shares is 564,800,000. Each A share entitles the holder to one vote and each B share entitles the holder to five votes at the General Meeting of Shareholders. According to the company’s Articles of Association, A Shares must number at least 179,000,000 and no more than 711,200,000. Meanwhile, B shares must number at least zero and no more than 4,800,000. As at 31 December 2016 Sampo plc's share capital amounted to EUR 98 million (98) and the equity capital in total to EUR 11,934 million (11,411).
DeDevvelopment of the Number of Sharelopment of the Number of Shareses Sampo plc, 2007–2016
Sampo plc adopted a new trading code on 1 September 2016 in Nasdaq Helsinki. The new trading code (stock symbol) is SAMPO. The previous code was SAMAS.
SharShareholders beholders by the Number of Shary the Number of Shares Ownedes Owned Sampo plc, 31 December 2016
Sampo plc has received two proposals regarding the forfeiture of the rights of the shares in the joint bookentry account from shareholders. First a shareholder has proposed that the Annual General Meeting resolves, within the meaning of Chapter 4, Section 10(2) of the Finnish Companies Act, that the rights to shares in the book-entry system and the rights carried by the shares will be forfeited with regard to the shares in the joint book-entry account. On the basis of the proposal, the company’s Board of Directors should cancel the treasury shares to be held by the company as a result of such forfeiture.
According to Board’s proposal this would apply to shares remaining in the joint book-entry account, for which no claim for registration into the book entry system has been made before the General Meeting’s decision on 27 April 2017 at 2pm.
Proposals have been published in full and are available at www.sampo.com/agm.
Sampo plc has actively pursued to locate the holders of the shares in the joint book-entry account. Sampo has sent on 3 November 2016 a letter to 75,000 private persons, who had been registered as holders in the shareholder register dated 12 September 1997. The letter and widespread media attention following it has led to approximately hundred thousand contacts with potential shareholders.
Sampo plc made no repurchases during 2016 and has not purchased its own shares after the end of the reporting period.
SharShareholders beholders by Secty Sectoror Sampo plc (A and B shares), 31 December 2016
BoarBoard of Dird of Directectorsors 31 Dec 201631 Dec 2016 31 Dec 201531 Dec 2015
SharShares oes owned bwned by the Boary the Board of Dird of Directectors and bors and by the Gry the Group Exoup Executivecutive Ce Committommitteeee Sampo plc, 31 December 2016 and 31 December 2015
December 2016. In addition If P&C paid an extra SEK 2.8 billion (EUR 293 million) dividend to Sampo plc in September 2016.
On 15 December 2016 Moody’s upgraded the insurance financial strength ratings of If P&C to A1 from A2 with stable outlooks. In the same rating action, Moody’s has upgraded the senior debt rating of Sampo plc to Baa1 from Baa2. Moody’s has also (unsolicited) assigned a Baa2(hyb) rating to the dated subordinated notes issued in November 2016 by If P&C Insurance Holding Ltd.
In Sampo Group the operating entities do not capitalize each other, but rather the parent company provides the capitalization if needed. For this reason the parent company prefers to have a relatively low leverage and a good capacity to generate liquidity in case the business areas need support
As of 1 January 2016 insurance subgroups If P&C and Mandatum Life have applied Solvency II rules in their regulatory solvency calculations. Both companies report in accordance with standard formula for Solvency II.
If is investigating the possibility of extending the partial internal model to also cover the Finnish business. This would require the transformation of If’s Finnish subsidiary, If P&C Insurance Company Ltd. (Finland), into a branch office of the Swedish company.
On 31 December 2016 Mandatum Life’s solvency ratio after transitional measures is strong at 160 per cent (158). Own funds of EUR 1,893 million (1,913) exceed Solvency Capital Requirement (SCR) of EUR 1,182 million (1,212) by EUR 711 million. Without transitional measures, own funds would have amounted to EUR 1,441 and the solvency capital requirement to EUR 1,409 million leading to a solvency ratio of 102 per cent (103).
EURmEURm 31 Dec 201631 Dec 2016 31 Dec 201531 Dec 2015
Group’s solvency ratio (own funds in relation to minimum requirements for own funds) using Solvency
Group solvency is also calculated by Solvency II rules. More information on this method is available at the Risk Management section of the Annual Report 2016. The requirements calculated with the two methods differ very little from one another.
On 24 February 2016 Sampo plc repaid EUR 300 million senior notes maturing on that date. In connection to the repayment Sampo plc issued under its EMTN Programme senior unsecured fixed rate notes of EUR 500 maturing on 24 May 2019.
In connection to the mandatory bid on Topdanmark, Sampo plc increased the amount of commercial papers issued from EUR 338 million at the end of the second quarter 2016 to EUR 702 million on 30 September 2016. The amount of commercial papers amounted to EUR 671 million on 31 December 2016 (305).
On 24 November 2016 If P&C Insurance Holding Ltd (publ.), the holding company of If P&C Insurance Group, issued a dual tranche tier 2 notes of SEK 2,000 million, of which the floating rate tranche amounted to SEK 1,500 million and the fixed rate tranche to SEK 500 million. The rationale for the issuance was to refinance a hybrid loan of EUR 150 million called in 2015 and to optimize the capital structure. The first call date is 1 December 2021.
Senior Bond 2,000 SEKm Stibor3M + 1.45% Euribor3M + 1.375% 0.9990% 29 May 2018
Senior Bond 1,000 SEKm 1.2500% EUR 1.007% 1.0070% 28 May 2020
Sampo Group’s business areas are expected to report good operating results for 2017.
The P&C insurance operations are expected to reach their long-term combined ratio target of below 95 per cent in 2017 by a margin.
Uncertainties in the form of major unforeseen events may have an immediate impact on the Group’s profitability. Identification of unforeseen events is easier than estimation of their probabilities, timing and potential outcomes. Currently there are a number of widely identified macro-economic, political and other sources of uncertainty which can in various ways affect financial services industry negatively. Especially the political risks are at the elevated level at the moment.
Other sources of uncertainty are unforeseen structural changes in the business environment and already identified trends and potential wide-impact events. These external drivers may also have a long-term impact on how business shall be conducted.
The dividend will be paid to shareholders registered in the Register of Shareholders held by Euroclear Finland Ltd as at the record date of 2 May 2017. The Board proposes that the dividend be paid on 9 May 2017.
Loss ratio excl. unwinding of discount ²) % 67.8 72.4 70.9 71.4 72.0
Premiums written before reinsurers' share EURm 1,122 1,149 1,110 1,068 983
Return on equity (at fair values) % 15.9 12.7 11.4 18.3 28.5
Average adjusted number of shares 1.000 558,800 558,800 558,800 558,800 558,800
+ total balance sheet (average of values on 1 Jan. and 31 Dec.) x 100%
Effective dividend yield, % dividend per share adjusted number of shares at balance sheet date x 100%
Market capitalisation number of shares at balance sheet date x closing price at balance sheet date
103103Sampo GrSampo Group’oup’s Risks Risks and Cs and Corore Risk Managemente Risk Management AActivitiesctivities 103Group’s Risks 105Core Risk Management Activities 107107PrProfitabilityofitability, Risk, Risks and Capitals and Capital 108Capitalization at the Sub-Group Level 114Capitalization at Group Level 121121Underwriting RiskUnderwriting Riskss 121Non-Life Insurance Underwriting Risks 127Life Insurance Underwriting Risks 133133InInvvesestment Ptment Portfortfolio Markolio Market Risket Riskss 134Asset Allocations and Investment Performance 138Interest Rate and Currency Risks 140Equity and Spread Risks 148148CCountounterparty Deferparty Default Riskault Riskss 150150ALM RiskALM Riskss 153153OperOperaational Risktional Riskss 153If P&C
Management Process 163Appendix 2: Risk Definitions 173Appendix 3: Principles of Investment Portfolio Management 175Appendix 4: Valuation for Solvency Purposes
Sampo Group (“Group”) is engaged in non-life insurance, life insurance and banking.
As a Nordic insurance group, If P&C underwrites policies that cover various risks for both individuals and corporations over a geographically diverse area. If P&C underwrites risks in the Nordic and Baltic countries. It also underwrites policies for its Nordic clients’ activities outside of the Nordic countries. In addition to geographical diversification, the underwriting business itself is well-diversified over lines of business and clients. All in all diversification is a major value driver of If P&C.
Mandatum Life operates in Finland and in the Baltic countries and offers savings and pension policies with life risk features as well as policies covering mortality, morbidity and disability risks. The focus for many years now has been on unit-linked products.
• The persons responsible for managing the subsidiaries’ investments report directly to Sampo Group’s Chief Investment Officer which ensures day-to-day coordination.
• IT systems in investment activities are common throughout the Group, facilitating consistent analysis and reporting of risks both at the company and group level.
Sampo as a holding company manages its group and associated companies independently of each other. The major management tools include the work of the companies’ Boards of Directors and the guidance given to subsidiaries in terms of group-wide principles, targets and capitalization.
Strategic risk is the risk of losses due to changes in the competitive environment or lack of internal operational flexibility. Unexpected changes in the general business environment can cause larger than expected fluctuations in the financial results and in the long run these can endanger the existence of Sampo Group’s business models. External drivers behind such changes are varied, and include for instance general economic development, development of the institutional environment and technological innovations. As a result of these external drivers, business models of the industry can change, new competitors may appear and customer demand and behaviour can change.
Some risks such as interest rate, currency and liquidity risks are by their nature simultaneously linked to various activities. In order to manage these risks efficiently, Sampo Group companies have to have a detailed understanding of expected cash flows and their variance within each of the company’s activities. In addition, a thorough understanding is needed of
To create value for all stakeholders in the long run, Sampo Group companies must have the following forms of capital in place: • Financial flexibility in the form of adequate capital and liquidity.
AAt the ct the companompany ley levvel,el, these resources are continuously developed. They are in use when the following core activities related to risk pricing, risk taking and active management of risk portfolios are conducted.
• Counterparty default risks are mitigated by carefully selecting counterparties, applying collateral agreements and assuring adequate diversification.
• The Group’s parent company is able to provide liquidity for the strategic arrangements and capital injections, if needed. Hence, the parent company prefers to have a relatively low leverage and adequate liquidity buffers to ensure its ability to generate liquidity.
However, in this Risk Management Disclosure, If P&C’s and Mandatum Life’s risk figures are disclosed first, as they are managed separately within Sampo Group. After these sub-group level figures, the figures on conglomerate solvency reporting at Sampo Group Level are disclosed. Because conglomerate reporting does not take into account any diversification benefit between the business areas the risk management disclosure also includes Sampo Group’s internal analysis of diversifications between business areas, as well as an analysis of the leverage and liquidity of the parent company.
As noted earlier, in Sampo Group the first priority is to maintain a balanca balance betwe between preen profits, riskofits, riskss andand capitalcapital in each of the separate business areas.
through their decisions on risk profiles, dividend payments, capital instrument issuances and technical provisions. In the long run a sound profitability and satisfied clients are the most important factors in maintaining an adequate capitalization.
• More ability and capacity tcapacity to iso issue SII csue SII compliantompliant capital inscapital instrumentstruments means that a lower buffer is needed.
When the balance between profits, risks and capital is met, the following three goals of Sampo Group are simultaneously obtainable: i. The business activities can be conducted without supervisory intervention.
SolvSolvencency as of 31 Decy as of 31 December 2016:ember 2016: If PIf P&C&C calculates its capital need by several measures.
• The Swedish company If P&C Insurance Ltd (publ), covering the business in Sweden, Norway and Denmark, is using a Partial Internal Model approved by Swedish supervisors for its solo SCR calculations. In its Partial Internal Model an internal model is used for underwriting risk while the standard formula is used for other risks. The other insurance companies within If P&C are using the SF for their solo calculations.
• The economic capital, based on the internal model for insurance and market risks, covers If P&C as a group. Economic capital is used to estimate the capital need to cover separate risks and is an internal basis for capital allocation.
Because capital need based on rating agency criteria – Total Target Capital (“TTC”) for Single-A – is higher than capital need based on SCR, If P&C’s internally set capital floor is based on TTC being EUR 2,967 million (3,058) as of 31.12.2016. Therefore the buffer between OF and the SCR as well as the regulatory solvency ratio (=OF/SCR) are adequate.
If P&C’s structure of OF as presented in table If P&C’s Own Funds, 31 December 2016 is strong. Tier 1 items are covering 83 per cent of OF and the role of Tier 3 items is immaterial. Norwegian Natural Perils Fund (“NNPF”) is a material part of Tier 2 untaxed reserves covering 33 per cent. Over the latest years If P&C has paid over 80 per cent of its net profit as dividends to Sampo plc. As a result the retained earnings – part of the reconciliation reserve – have consistently been a source of Tier 1 growth.
MandaMandatum Liftum Lifee applies the Solvency II standard formula with transitional measures on equity to the calculation of SCR. OF is also affected by transitional measures, because Mandatum Life applies transitional measures on its technical provisions in regards to its original pension policies with 3.5 per cent and 4.5 per cent guarantees. Also, a volatility adjustment is applied when technical provisions are calculated. The size of SII liabilities with transitional measures of EUR 10,644 million is less than the respective figure without transitional measures (EUR 11,208 million). Hence the transitional measures increase the amount of OF. Mandatum Life does not apply any undertakingspecific parameters in the underwriting risk modules or apply simplified calculations for any of the risk modules of the standard formula.
The SII OF of Mandatum Life was EUR 1,893 million while the SCR was EUR 1,182 million. The solvency ratio (OF/SCR) was 160 per cent and the buffer was EUR 711 million. OF without transitional measures on
technical provisions would be EUR 1,441 million, and the SCR without transitional measures on equity risk would be EUR 1,409 million.
In the figure Mandatum Life’s Solvency, 31 December 2016 SCR is divided into risk contributions. The diversification benefit between risks is also presented in the figure.
In regards to NorNordeadea, the Swedish requirements for banks’ 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. 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 2016, the communicated Common Equity Tier 1 (“CET1”) ratio requirement for Nordea was 17.3 per cent.
The CET1 ratio of Nordea increased to 18.4 per cent (16.5) in 2016. The CET1 capital amounted to EUR 24.5 billion and its own funds were EUR 32.9 billion. Nordea’s capital requirement based on the transitional rules was EUR 17.3 billion; without the transitional rules it was EUR 10.7 billion. Sampo consolidates its share of all Nordea’s own funds items and minimum capital requirement to Group solvency under both Solvency II and conglomerate rules. From the view point of Sampo Group solvency Nordea is strongly capitalized and its contribution to Group’s own funds and capital requirement is significant.
Sampo applies the deduction and aggregation method as defined in Solvency II to its holding in Topdanmark based on the latest publicly disclosed figures. This means that the book value of the holding is fully deducted from the own funds after which Sampo’s share of Topdanmark’s own funds is added up to the level of its share of Topdanmark’s SCR. As a result, Group’s own funds are almost neutral to changes in Topdanmark’s solvency position or profitability.
GrGroup’oup’s capital rs capital requirequirementement is dependent mainly on the capital requirements of the business areas. The parent company’s contribution to Group capital need is minor, because Sampo plc does not have any business activities of its own other than the management of its capital structure and liquidity portfolio.
Due to the use of the same sectoral rules in both Solvency II and financial conglomerate calculations, there is no material difference between Sampo’s Solvency II or FICO own funds.
GrGroup leoup levvel buffel bufferer is the difference between the amount of Group’s own funds and the Group capital requirement. In addition to the sub-group level factors – expected profits and their volatility, business growth prospects and ability to issue Solvency II compliant capital instruments – there are Group level factors that are also relevant when considering the size of the Group level buffer. The most material Group level factors affecting the size of buffer are (i) correlation of sub-groups’ reported profits; (ii) parent company’s capacity to generate liquidity; (iii) probability of strategic risks and arrangements within industry; and (iv) shareholders dividend expectations.
Sampo Group’s capital requirement by SolvSolvencency IIy II rulesrules is called GrGroupoup SCRSCR. It is calculated in two phases: i. The diversified capital requirement is calculated for the consolidated group including the parent company Sampo plc, If P&C and Mandatum Life. There is also capital requirement for the translation risk related to SEK denominated equity of If P&C and DKK denominated equity of Topdanmark.
ii. Sampo plc’s share of Nordea’s, Topdanmark’s and Mandatum Life’s other sectors’ capital requirements are added to the consolidated group’s capital requirement.
The GrGroup’oup’s os own fundswn funds under Solvency II rules is the excess of assets over liabilities (including any subordinated liabilities which may be called up in order to absorb losses). Assets and liabilities are valued at market value and all intra-group transactions are eliminated. The excess of assets over liabilities is classified into tiers 1-3. The tiers reflect the degree of loss absorbency of own funds in the event of a winding up. Adjustments are made if all own funds are not available or eligible at the Group level. In addition, associated companies’ additional tier 1 and tier 2 capital instruments are included in own funds. Group’s own funds and SCR are calculated by combination of consolidation and deduction and aggregation methods.
As earlier described, the Group level capital requirement is sum of the parts presented in the above figure and no diversification benefit between business areas is taken into account. As of 31.12.2016 the total minimum requirements for own funds were EUR 7,088 million (7,114). Group solvency (Group’s own funds – minimum requirements for own funds) were EUR 3,849 million (3,180).
GrGroup’oup’s Own Funds and Solvs Own Funds and Solvencencyy PPosition Aosition Accccorording tding to Solvo Solvencency IIy II 31.12.201631.12.2016
The following table Sampo Group’s Own Funds, 31 December 2016 and 31 December 2015 presents Sampo Group’s Own Funds by tiers.
Reserves, retained earnings and net income for the year (before SII adjustments) 11,836 11,312
Own funds items included in Sampo Group’s Tier 2 capital consists of subordinated debt instruments held by external investors being EUR 230 million as of 31.12.2016.
Tier 3 own funds include net deferred tax assets (i.e. those deferred tax asset items which cannot be netted against available deferred tax liabilities, “DTL”) from the Solvency II balance sheet.
The Group’s own funds have increased by EUR 398 million over the reporting period. The change is mainly explained by the good result that was not completely paid out as dividends and the issuance of subordinated debt issues. No own funds items were redeemed over the reporting period. There were no restrictions affecting the availability or transferability of own funds at the group level during the period.
Group SCR is calculated in two phases. First the SCR is calculated for the consolidated group including diversification benefit between companies. Then associated companies capital requirements are added to this diversified figure.
When Sampo is considering the Group Solvency based on the adequacadequacy of buffy of buffer aer at Grt Group leoup levvelel it is assessed that the buffer is more than adequate in light of the facts below.
• Due tDue to the busineso the business entities’ adequas entities’ adequattee capitalizacapitalization, good prtion, good profitability and loofitability and loww vvolaolatilities, thertilities, there is no need fe is no need for eor extrxtra buffa buffers aers att GrGroup leoup levvel.el. If P&C and Nordea have strong capitalization and sound profitability. OF of If P&C is maintained above the capital level based on the Single-A rating target. Nordea’s amount of capital is governed by Swedish rules which are some of the strictest within European jurisdictions. In addition, both If P&C and Nordea have maintained high profitability and low volatility of profits. In Sampo plc’s opinion, If P&C and Nordea have themselves relatively high buffers included in their capital, then the parent company needs only minor additional reserves, if any.
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 run-off mode. Hence the capital need is decreasing over time.
• TTherhere are are dive diversificaersification benefits within Grtion benefits within Group:oup: The correlation of the business areas’ reported profits are quite modest as presented in the table Diversification Benefit and Group's Internal Capital Adequacy Assessment, 31 December 2016. 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 2016 and 31 December 2015.
The parent company’s financial lefinancial levvererageage measured as the portion of debt within all liabilities was 32 per cent (24). Increase of leverage has two reasons. When purchasing Topdanmark shares, Sampo increased its debt by EUR 400 million. Sampo also refinanced its EUR 500 million bond maturing in February 2017 already in November 2016 without redeeming the bond maturing in 2017. The leverage ratio is expected to normalize below 30 per cent during first quarter of 2017. Sampo’s net debt of EUR 1,443 million is also quite modest when compared to Sampo’s equity holdings and financial assets. If the gross debt would be divided by estimated market value of equity holdings, the ratio would be around 15 per cent. From this perspective leverage is low as well.
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 liquid funds.
Sampo Group has a buffer for own funds. Because subordinated loans presented in the table Sampo plc Balance Sheet Structure, 31 December 2016 and 31 December 2015 are issued by If P&C, Mandatum Life, Nordea and Topdanmark, they are eliminated from Group’s own funds. In case these assets would be sold, in addition to liquidity in Sampo plc, also own funds would be created and Sampo Group Solvency ratio would increase slightly.
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 different in nature. 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 in the normal course of business. Consequently, business lines as such are contributing diversification benefits rather than a concentration of risks, which is why underwriting risks can be described only at the subgroup level.
If P&C is one of the leading insurers in Sweden, Norway and Finland with market shares of 18.2 per cent, 21.0 per cent and 23.6 per cent respectively. In the Danish market If P&C is the sixth largest insurer (by market share) with a market share of 5.7 per cent.
In the Nordic region customer retention is high, with renewal rates of approximately 80 to 90 per cent. The market is characterized by low expense ratios in the range of 15 to 20 per cent.
In addition to traditional distribution channels, the internet continues to grow in importance both as a distribution channel as well as a service channel. Additionally, distribution through partnerships (e.g.
During 2016, Business Area Private delivered strong results with a positive net inflow of customers. The strong focus on customer experience was evidenced by a strong Net Promoter Score improvement, due to initiatives like digital health declaration and selfservice options.
Business Area Commercial’s performance was somewhat better than in 2015, partly affected by low interest rates with an 86.3 combined ratio.
At the moment all four Business Areas are responding to customers’ increased demands to incorporate modern digital solutions into the insurance services process. The Business Areas remain committed to the target of being the market leader in the digital channels and they are continuously developing their web-sites, claims handling and service interfaces, while at the same time utilizing benefits from Big Data analytics.
The table If P&C Underwriting Performance, 31 December 2016 presents the development of If P&C’s premiums, claims, operating expenses, reinsurer’s share and technical result per Solvency II Lines of Business. The figures are segmented in accordance with Solvency II defined Lines of Business, which differ from the insurance class segmentation according to local GAAP or IFRS requirements that are used in other tables.
Annuities stemming from non-life insurance contracts and relating to insurance obligations other than health insurance obligations
PrPremium and Caemium and Catastastrtrophe Risk andophe Risk and TTheir Management and Cheir Management and Controntrolol
BrBreakeakdodown of Grwn of Grososs Ws Writtritten Pren Premiums bemiums by Businesy Business Ars Areaea If P&C, 2016, total EUR 4,476 million
BrBreakeakdodown of Grwn of Grososs Ws Writtritten Pren Premiums bemiums by Cy Countryountry If P&C, 2016, total EUR 4,476 million
Despite the diversified portfolio, risk concentrations and consequently severe claims may arise through, for example, exposures to natural catastrophes such as storms and floods. The geographical areas most exposed to such events are Denmark, Norway and
Sweden. In addition to natural catastrophes, single large claims could have an impact on the insurance operations’ result. The negative economic impact of natural disasters and single large claims is effectively mitigated by having a well-diversified portfolio and a group wide reinsurance program in place.
Combined ratio, business area Private 83.2% +/- 1 percentage point +/- 26 +/- 26
Combined ratio, business area Industrial 88.6% +/- 1 percentage point +/- 4 +/- 4
Net claims incurred (EURm) 2,904 +/- 1 per cent +/- 29 +/- 32
BrBreakeakdodown of Grwn of Grososs Ws Writtritten Pren Premiums bemiums by Line of Businesy Line of Business*s* If P&C, 2016, total EUR 4,476 million
The Business Areas manage the underwriting risk on a day-to-day basis. A crucial factor affecting the profitability and risk of non-life insurance operations is the ability to accurately estimate future claims and expenses and thereby correctly price insurance contracts. The premiums within the Private Business Area and the premiums for smaller risks within the Commercial Business Area are set through tariffs. The underwriting of risks in the Industrial Business Area and of more complex risks within the Commercial Business Area is based to a greater extent on principles and individual underwriting than on strict tariffs. In general, pricing is based on statistical analyses of historical claims data and assessments of the future development of claims frequency and claims inflation.
RReserveserve Risk and Its Managemente Risk and Its Management and Cand Controntrolol
In the table Technical Provisions by Line of Business and Major Geographical Area, If P&C, 31 December 2016 below, If P&C’s technical provisions and durations are presented by Line of Business and Major Geographical Area. When the breakdown of technical provisions is compared to the breakdown of gross written premiums it can be seen that Finland’s and Sweden’s share of technical provisions is larger than the share of gross written premiums. This is mainly due to Sweden and Finland having a long duration of Motor other and motor third party liability and Finland also having a long duration of Workers compensation. The long duration is mainly due to annuities in these lines of business, which increases the amount of technical provisions. The duration of the provisions, and thus the sensitivity to changes in interest rates, varies with each product portfolio. The weighted average duration for 2016 across the product portfolios was 6.5 years.
Reserves are exposed mainly to inflation and discount rates and to some extent to life expectancy. The sensitivity of If P&C’s technical provisions to an increase in inflation, an increase in life expectancy and a decrease in the discount rate is presented in the table Sensitivities of Technical Provisions, If P&C, 2016.
Nominal provisions Inflation increase Increase by 1%-point Sweden Denmark Norway Finland
The anticipated inflation trend is taken into account when calculating all provisions and is of the utmost importance for claims settled over a long period of time, such as Motor other and motor third party liability and Workers’ compensation. 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 Motor other and motor third party liability and Workers’ compensation, legislation differs significantly between countries. Some of the Finnish, Swedish and Danish technical provisions for these lines include annuities which are sensitive to changes in mortality assumptions and discount rates. The proportion of technical provisions related to Motor other and motor third party liability and Workers’ compensation was 67 per cent.
The Board of Directors of If P&C decides on the guidelines governing the calculation of technical provisions. If P&C’s Chief Actuary is responsible for developing and presenting guidelines on how the technical provisions are to be calculated and for assessing whether the level of total provisions is sufficient. On If P&C group level, the Chief Actuary issues a quarterly report on the adequacy of technical provisions.
The unit-linked business has been Mandatum Life’s main focus since 2001. Since then the trend of unitlinked technical provisions has been upward and the average annual growth in unit-linked technical provisions has been 23 per cent per annum. Due to the nature of the unit-linked business, volatility between the years has been relatively high. Around EUR 3,000 million of current unit-linked liabilities totaling EUR 6,440 million are sold through Danske Bank. These liabilities, together with around EUR 200 million of with profit liabilities, will be transferred to Danske Bank A/S. Transfer date is expected to be at earliest 31.12.2017.
The above mentioned group pension portfolio transferred from Suomi Mutual and related assets are separated from the rest of the Mandatum Life balance sheet into a segregated group pension portfolio. The segregated group pension portfolio has its own profit sharing rules, investment policy and asset and liability management committee. The with profit liabilities other than in the segregated group pension portfolio are hereafter referred to as the “original” with profit liabilities.
DeDevvelopment of Welopment of With Prith Profit and Unit-Linkofit and Unit-Linked Ted Technical Prechnical Proovisionsvisions Mandatum Life, 2007–2016
Individual pension insurIndividual pension insurancancee 973973 1212 -144-144 -6-6 3636 00 2727 899899 8%8%
Capital rCapital redemption operedemption operaationstions 3636 00 00 00 00 00 -8-8 2828 0%0%
RReserveserve fe for decror decreased disceased discount rount raattee 244244 00 00 00 00 00 2828 273273 2%2%
AnalyAnalysis of the Change in Prsis of the Change in Proovisions befvisions beforore Re Reinsureinsurancancee Mandatum Life, 31 December 2016
Longevity risk is the most critical biometric risk in Mandatum Life. Most of the longevity risk arises from the with profit group pension portfolio. With profit group pension policies have mostly been closed for new members for years and due to this the average age of members is relatively high, i.e. for the segregated group pension portfolio the average age is around 68 years and for the other (original) group pension portfolios it is around 69 years. In the unitlinked group pension and individual pension portfolio the longevity risk is less significant because most of these policies are fixed term annuities including death cover compensating the longevity risk.
The table Claim Ratios after Reinsurance, Mandatum Life, 2016 and 2015 shows the insurance risk result in Mandatum Life’s Finnish life insurance policies. The ratio of the actual to expected claims costs was 79 per cent (72) in 2016. 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 12 million to EUR 24 million.
In general biometric risks are managed by careful risk selection, by setting prices to reflect the risks and costs, by setting upper limits for the protection granted and by use of reinsurance. Mandatum Life’s
Underwriting Policy sets principles for risk selection and limits for sums insured. The Reinsurance Policy governs the use of Reinsurance. The Board approves the Underwriting policy, Reinsurance Policy, pricing guidelines and the central principles for the calculation of technical provisions.
Claim RaClaim Ratios afttios after Rer Reinsureinsurancancee Mandatum Life, 2016 and 2015
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.
Technical provisions are analyzed and the possible supplemental needs are assessed regularly.
Assumptions related to technical provisions are reviewed annually. The adequacy of the technical provisions is tested quarterly. Tariffs for new policies are set and the Underwriting Policy and assumptions used in calculating technical provisions are updated based on adequacy tests and risk result analysis. Tariffs and prices, as well as the reinsurance principles and reserving principles are reviewed and approved annually by the Board of Directors of Mandatum Life.
From an asset and liability management point of view surrender risk is not material because in Mandatum Life around 90 per cent of with profit technical provisions consist of pension policies in which surrender is possible only in exceptional cases. Surrender risk is therefore only relevant in individual life and capital redemption policies of which the related technical provisions amounts to only 5 per cent (EUR 208 million) of the total with profit technical provisions. Furthermore, the supplements to technical provisions are not paid out at surrender which also reduces the surrender risk related to the with profit policies. Hence, the future cash flows of Mandatum Life’s insurance liabilities are quite predictable.
With respect to with profit policies with the 4.5 per cent guaranteed rate, the maximum discount rate used when discounting technical provisions has been decreased to 3.5 per cent over the lifetime of these policies. As a result, technical provisions were supplemented by a reserve of EUR 48 million (55) at the end of 2016.
• EUR 37 million for the year 2019 to lower the interest rate to 2.25 per cent.
In total, Mandatum Life has set up an extra reserve of EUR 273 million as part of the original insurance portfolio’s technical provisions.
The guaranteed interest for the segregated group pension policies is mainly 3.5 per cent. More important from a risk management point of view is that the discount rate of liabilities is 0.50 per cent. The discount rate was decreased on 31 December 2016 from 0.75 per cent to 0.50 per cent which increased the reserve for decreased discount rate to EUR 275 million (257). The reserve for future bonuses has an important role in the risk management of the segregated group pension portfolio. The reserve amounts to EUR 153 million, which can be used to cover possible investment losses or to finance possible changes in the discount rate of segregated technical provisions.
The decreasing trend of with profit liabilities is expected to continue. Liabilities with the highest guarantees and highest capital consumption are expected to decrease from EUR 2,861 million to around EUR 1,000 million during the Solvency II transitional period of the technical provision (1 January 2017–31 December 2031). Duration of segregated group pension portfolio is around 10 years and duration of original with profit portfolio is around 9 years.
FFororecasecast of Wt of With Prith Profit Liabilitiesofit Liabilities Mandatum Life, 31 December 2016–31 December 2031
The total amount of Sampo Group’s investment assets as at 31 December 2016 was EUR 20,708 million (19,373). Mandatum Life’s investment assets presented here do not include assets which cover unitlinked contracts. The composition of the investment portfolios by asset classes in If P&C, Mandatum Life and Sampo plc at year end 2016 and at year end 2015 are shown in the figure Development of Investment Portfolios, If P&C, Mandatum Life and Sampo plc, 31 December 2016 and 31 December 2015.
More detailed investment allocations and average maturities of fixed income investments of If P&C, Mandatum Life, Sampo plc and Sampo Group as at year-end 2016 are presented in the table Consolidated Investment Allocation, If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2016.
FixFixed inced income tome totalotal 10,62410,624 2.82.8 3,9383,938 2.72.7 1,8121,812 0.60.6 16,37416,374 79%79% 2.52.5
Credit bonds, funds and loans 8,401 3.1 3,009 3.3 372 3.1 11,782 57% 3.1
AltAlternaernativtive ine invvesestments ttments totalotal 4444 -- 907907 -- 2222 -- 973973 5%5% --
AsAsset classet classes tses totalotal 12,19212,192 -- 6,5826,582 -- 1,9331,933 -- 20,70820,708 100%100% --
FX ExposurFX Exposuree, gr, grososs positions position 9999 -- 833833 -- 1,1111,111 -- 2,0432,043 -- -- *) Private Equity also includes direct holdings in non-listed equities
The parent company’s asset portfolio includes subordinated debt instruments issued by the Group companies, but they are not included in the consolidated figures presented above. The portion of short-term money market instruments is substantial, because Sampo prefers to have high liquidity. 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 are Sampo’s most significant market risk together with refinancing risk related to gross debt.
Fixed income investments and listed equity instruments form a major part of the subsidiaries’ investment portfolios. Money market securities, cash and investment grade government bonds form a liquidity buffer within fixed income investments. The average maturity of fixed income investments was 2.8 years in If P&C and 2.7 years in Mandatum Life.
Both If P&C and Mandatum Life are exposed to interest rate and currency risks as well as to equity and spread risks.
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 2016, the combined share of the above mentioned investments was 4.7 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 13.8 per cent. These asset classes are managed, in most cases, by external asset managers with the exception of the 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.
The insurance liabilities as well as the risk appetite of Mandatum Life and If P&C differ, and as a result the structures and risks of the investment portfolios of the two companies are often different, as can be seen in the table Consolidated Investment Allocation, If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2016 presented earlier. This is reflected also in the companies’ investment returns. Mandatum Life has had, on average, higher returns and higher volatility. The figures Annual Investment Returns at Fair Values, If P&C and Mandatum Life, 2007–2016 present the historical development of investment returns.
Annual InAnnual Invvesestment Rtment Returns aeturns at Ft Fair Vair Valuesalues Mandatum Life, 2007–2016
Interest rate sensitivity in terms of the average duration of fixed income investments in If P&C was 1.4 years and in Mandatum Life 2.0 years. These duration figures include the effect of hedging derivatives. The respective durations of insurance liabilities in If P&C and Mandatum Life were 6.5 and 9 years. Interest rate risk is managed at the balance sheet level by changing the duration of assets and interest rate derivatives. This is described in detail in section ALM Risks.
In addition, derivatives are used to utilize market view or to mitigate risks at the balance sheet level. In both cases, derivatives are booked as trading derivatives at fair value through profit and loss statement in financial accounting.
In Sampo Group companies the net foreign currency exposure is considered as a separate asset class and is managed within investment portfolio activities. Open transaction risk positions are identified and measured separately for each subsidiary. The net position in each currency consists of the assets, liabilities and foreign exchange transactions denominated in the particular currency.
The transaction risk positions of If P&C and Mandatum Life against their base currencies are shown in the table Transaction Risk Position, If P&C and Mandatum Life, 31 December 2016. The table shows the net transaction risk exposures and the changes in the value of positions given a 10 per cent decrease in the value of the base currency.
TTotal trotal transaction risk, net position, If Pansaction risk, net position, If P&C&C -36-36 -2-2 00 44 33 3636 -1-1 -4-4 -28-28 -27-27
Most of Sampo Group’s investments in fixed income securities and listed equities are tradable and hence subject to daily mark-to-market valuation. Moreover, Sampo Group has also some illiquid investments – loan instruments and private equity – for which market prices are not frequently available, but whose fair values can change adversely when the financial strength or future prospects of the issuer deteriorates or the value of collaterals decreases.
ExposurExposures in Fixes in Fixed Inced Income andome and EEquity Insquity Instrumentstruments
ExposurExposures bes by Secty Sectors, Asors, Asset Classet Classes and Rases and Ratingting If P&C, 31 December 2016
ExposurExposures bes by Secty Sectors, Asors, Asset Classet Classes and Rases and Ratingting Mandatum Life, 31 December 2016
EURmEURm AAAAAA AAA+A+ - A- AAA-A +A+ - A- A-BBB +BBB+ - BBB-- BBBBB +BB+ - C- C DD
ExposurExposures bes by Secty Sectors, Asors, Asset Classet Classes and Rases and Ratingting Sampo Group, 31 December 2016
December 2016. The public sector has had a relatively minor role in Sampo Group’s portfolios and these exposures have been mainly in the Nordic countries.
BrBreakeakdodown of Liswn of Listted Eed Equity Inquity Invvesestments btments by Geogry Geographical Raphical Regionsegions Mandatum Life, 31 December 2016, total EUR 1,737 million
The sector allocation of direct listed equity investments in Sampo Group is presented in the tables Exposures by Sectors, Asset Classes and Rating, If P&C, Mandatum Life and Sampo Group, 31 December 2016. The largest allocations are to capital goods, consumer products and basic industry. Listed equity investments made through mutual funds and ETF investments accounted for 36.3 per cent of the entire equity portfolio.
The largest exposures by individual issuers and counterparties are presented in the table Largest Exposures by Issuer and by Asset Class, Sampo Group,
Counterparty Default Risks Counterparty Default Risk (“Counterparty Risk”) is one type of consequential risk, which Sampo Group is exposed to through its activities. In Sampo Group the major three sources of counterparty risk are reinsurance, financial derivatives and other receivables.
The distribution of reinsurance receivables and reinsurers’ portion of outstanding claims on 31 December 2016 per rating category is presented in the table Reinsurance Recoverables and Pooled Solutions, If P&C, 31 December 2016 and 31 December 2015.
Reinsurance Security Policy. The Chairman is responsible for reporting policy deviations and other issues dealt with by the committee. If P&C has a Reinsurance Security Policy that sets requirements for the reinsurers’ minimum credit ratings and the maximum exposure to individual reinsurers. Also, the own credit-analysis plays a central role when counterparties are selected.
As seen from above table most of the reinsurers are having either AA- or A- rating. The ten largest individual reinsurance recoverables amounted to EUR 168 million, representing 68 per cent of the total reinsurance recoverables. If P&C’s largest individual reinsurer is Munich Re (AA-). They account for 18 per cent of the total reinsurance recoverables.
The counterparty risk of bilaterally settled derivatives is mitigated by careful selection of counterparties; by diversification of counterparties to prevent risk concentrations and by using collateral techniques, e.g. ISDA Master Agreements backed by Credit Support Annexes. During 2016 Sampo Group companies started to settle interest rate swaps in central clearing houses, which while further mitigating bilateral counterparty risk also exposes Sampo Group companies to the systemic risk related to centralized clearing parties.
In Sampo Group, insurance liabilities are the starting point for investment management. Insurance liabilities are modelled and analyzed 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.
In the financial accounts most of the technical provisions are nominal, while a significant part, namely the annuity and annuity IBNR reserves, are discounted using interest rates in accordance with regulatory rules. Thereby If P&C is, from an accounting perspective, mainly exposed to changes in inflation and the regulatory discount rates. From an economic perspective, in which the cash flows of insurance liabilities (technical provisions) are discounted with prevailing interest rates, If P&C is exposed to changes both in inflation and nominal interest rates. For more information see the table Sensitivities of Technical Provisions, If P&C, 2016 in the Non-life Underwriting Risks section.
takes responsibility for the decisions related to the capitalization and the market risks in the balance sheet.
The cash flows of Mandatum Life’s with profit technical provisions are relatively predictable, because in most of the company’s with profit products, surrenders and premiums are restricted. The company’s claims costs do not contain a significant inflation risk element.
Life’s strategic balancing factor has been the increasing proportion of non-interest rate sensitive Wealth-management business. At Group level interest rate risks have been partly mitigated by having the major portion of Sampo’s debt tied to short term interest rates.
In Mandatum Life, a large change in surrender rates could influence the liquidity situation. However, only a relatively small part of the insurance policies can be surrendered and it is therefore possible to forecast short-term cash flows related to claims payments with a very high accuracy.
MandaMandatum Liftum Lifee of which interest rate swaps 1 0 1 0 0 0 0 0 0 0 of which interest rate swaps 0 0 0 0 0 0 0 0 0 0
In the table, financial assets and liabilities are divided into contracts that have an exact contractual maturity profile, and other contracts. Only the carrying amount is shown for the other contracts. In addition, the table shows expected cash flows for net technical provisions, which by their nature, are associated with a certain degree of uncertainty. In the investment assets of Mandatum Life, the investments of the Baltic subsidiary are included in the carrying amount but excluded from the cash flows.
Sampo Group has a relatively low amount of financial liabilities and thus Group’s respective refinancing risk is relatively small. During 2016, Sampo issued two public bonds amounting to EUR 1.05 billion and several private placements targeted to Mandatum Life’s retail clients. If also issued two tranches of subordinated liabilities amounting to SEK 2 billion in 2016. Sampo Group companies have business relationships with several creditworthy counterparties which mitigate the risk that Group is not able to enter into reinsurance or derivative transactions when needed.
Since there is no unambiguous technique to quantify the capital need for liquidity risk, it is not directly taken into account in the capital need estimates. Thus only the interest rate risk part of the ALM risks is accounted for in the economic capital framework.
Operational Risks The effects of operational risks have their general causes in external and internal drivers. For example the operational risks may realize as a result of inadequate or failed processes or systems, from personnel or from external events (for further details, see Appendix 2, Risk Definitions - Operational Risks). Group companies have their own specific risk sources which are causes of events that may have negative impacts on different processes, personnel or fixed assets.
The continuity of operational risk management in If P&C is secured through the Operational Risk Committee (“ORC”). The task of the ORC is to provide opinions, advice and recommendations to the committee’s chairman. The ORC is responsible for preparing a comprehensive overview of the operational risk status in If P&C. The status is based on the self-assessments performed by the organization, reported incidents and other additional risk information. External operational risks are identified in the strategy risk process which is performed on a yearly basis, during which the most important trends affecting the insurance industry are identified and their effects on If P&C are assessed. The chairman of the ORC reports a forward looking assessment of the operational risk status to the Own Risk Solvency Assessment Committee (ORSAC). The chairman also proposes changes to policies and instructions.
The line organization and corporate functions have the responsibility to identify, assess, monitor and manage their operational risks. Risk identification and assessments are performed by the line organization twice a year and by corporate functions yearly. Identified risks are assessed from a probability and impact perspective.
Incident reporting and analysis are managed differently depending on the type of incident. All employees are required to report incidents via the intranet.
When Sampo Group is organizing its business and risk management activities, clear responsibilities and simple and flat operational structures are the fundamental 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.
The parent company assesses the adequate level of capitalization and the suitability of the capital structure as described in the section “Capitalization at the Sub-Group Level”. Based on this analysis, the parent company estimates the amount of dividends distributed by the subsidiaries to the parent company. In Sampo Group, the excess capital from an operational point of view is held by the parent company which capitalizes the subsidiaries if needed.
Moreover, Sampo plc’s Board of Directors’ decisions and thereby also the guidance given to subsidiaries may be impacted by the external regulatory environment and expectations of different stakeholders on Sampo Group’s operations. Further information on Sampo Group’s relations with its stakeholders is available within the Code of Conduct at www.sampo.com/steeringsystem.
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.
Since only the main guidelines are prepared by the parent company, the subsidiaries’ management have the power and responsibility to incorporate the specific characteristics of their own operations into the company specific policies, limits, authorizations and guidelines.
The risk management process consists of continuous activities that are partly the responsibility of the personnel involved in business activities and partly the responsibility of independent risk management specialists. Although the responsibilities of business lines and independent risk management are clearly segregated in Sampo Group, these functions are in continuous dialogue with each other. In Internal Control Policy Sampo Group has defined the roles and responsibilities of different internal stakeholders.
The tasks included in the risk management process can be classified as follows: Independent Risk Management
Financial and risk management functions are explicitly responsible for preparing the above prerequisites of risk management. Operationally they are responsible for independent measurement and control, including the monitoring of operations in general as well as profitability, risk and capitalization calculations. The following items are examples of these responsibilities: • Detailed reporting on risks to subsidiaries’ and Sampo’s Risk Committees and the Boards of Directors
CCompanompany Ly Leevvel Financial and Risk Management Prel Financial and Risk Management Prococesesss
• The risks affecting profitability as well as other material risks are identified, assessed and analyzed.
• Continuity of operations is ensured and in the case of a discontinuity event, recovery is fast and comprehensive.
Sampo reviews quarterly the performance of Sampo Group both on a company level and on a Group level based on the reporting provided by the subsidiaries and the associated companies. The information on associated companies is, however, based on publicly
Based on the above sub-group level work and Sampo Group level internal work Sampo Group prepare an annual Single Own Risk and Solvency Assessment document (“Single ORSA report”) that is supplied to Sampo Group’s main supervisor, the Finnish FSA. The Single ORSA report has virtually same structure and contents as quarterly Audit Committee reporting. The only substance difference is the addition of Groupwide solvency forecasts, which are not normally part of the quarterly reporting.
This section describes the governance framework of Sampo Group and its subsidiaries from a risk management perspective. A more detailed description of Sampo Group’s corporate governance and internal control system is included in the Corporate Governance section.
The reporting lines of different governing bodies at group level are described in the figure Risk Governance in Sampo Group.
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 which coordinates and monitors all risks in
Mandatum Life. The risks are divided into 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.
• The Baltic subsidiary has its own risk management procedures. All major incidents are also reported to Mandatum Life’s Risk Management Committee.
• Internal Audit, through its audit recommendations, has a role to ensure that adequate internal controls are in place and provides Internal Audit’s annual review to the Board of Directors.
In general, the book value of insurance liabilities (technical provisions) and economic value of insurance liabilities are dependent on (i) the size and timing of future claims payments including expenses and (ii) the interest rates used to discount these claims payments to the current date.
Underwriting risk can be generally defined as a change in the value of insurance liabilities caused by variance between the final costs for full contractual obligations and the assumed costs 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 from the actual payments.
Non-life insurance underwriting risks are often divided into premium and catastrophe risks and reserve risk in order to separate the risks related to future claims of current insurance contracts from already incurred claims. The division of non-life insurance underwriting risks is illustrated in the figure Non-life Insurance Underwriting Risks below.
In general, market risks refer to fluctuations in the financial results and capital base caused by changes in market values of financial assets and liabilities, as well as by changes in the economic value of insurance liabilities.
Liquidity risk is the risk that Group companies are, due to a lack of available liquid funds or access to relevant markets, unable to conduct their regular business activities in accordance with the strategy, or in extreme cases, are unable to settle their financial obligations when they fall due.
Operational risk refers to the risk of loss resulting from inadequate or failed processes or systems, from personnel or from external events. This definition includes compliance risk but excludes risks resulting from strategic decisions. The risks may realize for instance as a consequence of: • Internal misconduct; • External misconduct; • Insufficient human resources management; • Insufficiencies in operating policies with regard to customers, products or business activities; • Damage to physical property; • Interruption of activities and system failures; or • Defects in the operating process.
Investments (excluding Mandatum Life’s investments covering unit-linked policies) are managed according to the subsidiaries’ Investment Policies which are focused on insurance liabilities and solvency.
Sampo Group’s Chief Investment Officer is responsible for managing investments within the limitations of the Investment Policies prepared by Group companies and approved by Group companies’ Boards of Directors. The insurance subsidiaries and the parent company have a common Group-wide infrastructure for investment management as well as for performance and risk reporting which facilitates simultaneous company and Group level reporting. These create cost efficiency in Investment activities and also facilitate Group-wide monitoring of portfolios.
The main steps in decision making, limit and monitoring process are as follows: 1. Potential investments are analyzed 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.
Sampo Group does not have Asset Backed securities in its portfolios.
Market risk control is separated from portfolio management activities in two ways. Firstly, 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.
The ICC is responsible for monitoring the implementation of and compliance with the
Investment and Asset Coverage Policies. The committee considers and proposes changes to the policies. The Chairman is responsible for the reporting of policy deviations and other issues dealt with by the committee.
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.
Sampo Group Solvency II balance sheet is derived from Sampo’s consolidated IFRS financial statements, which are adjusted in accordance with Solvency II regulation. The IFRS accounting principles “Summary of significant accounting policies” are presented in Sampo Group’s Financial Statements in the Notes to the Accounts.
Goodwill, intangible asGoodwill, intangible assets and defsets and deferrerred aced acquisition cquisition cosostt 825825 -- -825-825
PrPropertyoperty, plant & equipment held f, plant & equipment held for oor own usewn use 2020 2121 11
Provisions other than technical provision, Pension benefit obligations 114 114 -
Financial liabilities other than owned to credit institutions 3,548 3,548 -
Participations are reported in Sampo’s SII consolidated balance sheet using the adjusted equity method, or where applicable, the IFRS equity method, with the exception of Topdanmark. Participations refers to undertakings in which Sampo Group directly or indirectly has significant influence, which is normally the case when the shareholding amounts to a minimum of 20 per cent of the capital or voting rights for all shares in the company. The carrying amount of Topdanmark is deducted from consolidated group balance sheet and instead replaced with Group’s share of Topdanmark’s Solvency II own funds. Sampo Group’s share of Topdanmark’s own funds is EUR 247 million. This corresponds with the value that would be recognized in line with article 233 of the Directive, being the proportional share of Topdanmark’s own funds eligible for its SCR.
Reinsurance recoverables represent the reinsurers’ share of the best estimate, less expected counterparty default. Consistently with technical provisions, these amounts are calculated in line with the SII requirements.
The adjustment of receivables (trade receivables, not insurance receivables) relates to netting of receivable amounts in relation to the Finnish medical malpractice pool (“MMP”), public sector, which are treated as part of the SII best estimate technical provisions, whereas in Sampo Group’s consolidated accounts the MMP provision public sector is recognized as other assets or other liabilities. Receivables of EUR 118 million are reclassified from trade receivables to the insurance obligation.
In Solvency II, the value of technical provisions is equal to the sum of a best estimate and a risk margin. The calculation of technical provisions according to Solvency II is described in the following chapters.
Cash-flow projections used in the calculation of the best estimate include all claims payments that will be paid to policyholders and beneficiaries, as well as payments to builders, repair shops etc. for services rendered and expected recoveries from reinsurance contracts. Recoveries and payments for salvage and subrogation are taken into account. Cash flows for premium provision include future premium payments
on existing contracts where this has a material effect on the result.
Development of with profit claims provisions are taken into account implicitly since they are part of the historical claims data and they are allocated to each claim. Claims handling expenses for incurred claims are taken into account when estimating the Claims Adjustment Reserve, while all expenses for nonincurred claims are taken into account when estimating the premium reserve.
The calculation of the best estimate should be done separately for each currency. If P&C’s business is exposed to a number of different currencies. Case reserves are determined in the currency in which the claim is assumed to be paid and where the effect is material.
Actuarial and statistical methods used for calculating best estimates of technical provisions are based on recognized actuarial and statistical techniques. Reserves are calculated in a transparent manner and would be possible to be reviewed by a qualified expert.
Risk free rates without volatility adjustment are used for valuing Solvency II technical provisions.
The nature of technical provisions means that there is always uncertainty associated with the calculations since it inevitably involves assumptions about future events.
Different principles are used for calculating the technical provisions in Solvency II and in the IFRS financial statements, the latter of which rely on statutory and national requirements as defined in both national law and in IFRS and national GAAP regulations. As a result, material valuation differences mainly exist with regards to: • Definition of premium provision in Solvency II compared with the Unearned Premium Reserve of the statutory accounts; • Application of discounting; • In addition to the best estimate calculations, there is also an additional requirement in Solvency II of calculating an explicit risk margin; and
Some of the more important changes affecting If P&C’s business as a result of using these different principles are included below: • Movement to a cash flow basis for valuation of both gross and ceded business.
• The technical provisions should give a “true best estimate”, defined as the mean of the full range of possible future outcomes, meaning the removal of existing statutory or other legal requirements to include explicit risk margin/other safety margins within the technical provisions.
• The basis for recognizing existing contracts will also impact reinsurance contracts and their expected cash-flows.
• Liabilities are segmented in accordance with Solvency II defined lines of business, as opposed to current insurance class segmentation according to local GAAP or IFRS requirements.
The largest effect is due to the revaluation of the Premium Provision which is in large part offset by the netting of the premium receivable after it has been reclassified into the best estimate provision cash inflows as well as removal of Deferred Acquisition Costs. This reduces the technical provisions by EUR 245 million. The majority of technical provisions, with the exception of vested annuities in the Claims Provision Reserves and the Annuity IBNR Provision in Finland, are not discounted in the IFRS. As a result of discounting, on the assets side ceded provisions decrease while on the liabilities side, gross provisions decrease.
The introduction of a risk margin calculation offsets the positive differences presented above.
TTechnical Prechnical Proovisions Avisions Accccorording tding too SolvSolvencency II in Manday II in Mandatum Liftum Lifee
Recognition of insurance liabilities in life insurance business is analogical to insurance contracts recognized under IFRS 4.
Net cash flows are produced using risk neutral market consistent economic scenarios together with parameters and assumptions derived from historical observations related to Mandatum Life’s insurance policies. Market consistent scenarios are particularly needed for the valuation of economic guarantees and policyholder options embedded in insurance contracts. The best estimate for the unit-linked policies is the sum of the savings in these policies deducted with the present value of future underwriting and expense result stemming from these policies.
Risk margin is calculated based on the 6 per cent cost of capital defined in Solvency II regulation. This cost of capital is applied to the capital requirements of life and operational risks.
Technical provisions on financial statements include also reserves for decreased discount rates and longevity reserves.
Accounting principles of life insurance contracts are presented in Sampo’s Financial Statements in the Notes to the Accounts in section Summary of Significant Accounting Policies/Life insurance business.
Other liabilities than technical provisions are valued by discounting future cash flows with the government yield plus calculated spread at inception.
183183GrGroup's IFRS Financial Soup's IFRS Financial Statattementsements 183Statement of Profit and Other Comprehensive Income, IFRS
187Notes to the Accounts 187Summary of Significant Accounting Policies 202Segment Information 208Notes to the Group’s Financial Statements 273273Sampo plcSampo plc’’s Financial Ss Financial Statattementsements 273Sampo plc’s Income Statement 274Sampo plc’s Balance Sheet 275Sampo plc’s Statement of Cash Flows 276Summary of Sampo plc’s Significant Accounting Policies 277Notes to Sampo plc’s Financial Statements 285285ApprApproovval of the Financial Sal of the Financial Statattements and the Boarements and the Board ofd of DirDirectectors’ Rors’ Reporteport 286286AAudituditor's Ror's Reporteport
TTotal itotal items rems reclaseclassifiable tsifiable to pro profit or losofit or loss, net of taxs, net of tax 115115 -103-103
2) The total comprehensive income includes also the share of the associate Nordea's other comprehensive income, in accordance with the Group's share holding. The retained earnings thus include EURm -34 (80) of Nordea's actuarial gains/losses The exchange differences include the share of Nordea's exchange differences EURm 33 (-37). Respectively, available-for-sale financial assets include EURm 19 (-26) of Nordea's valuation differences.
The amount included in the translation and available-for-sale reserves represent other comprehensive income for each component, net of tax.
Net cash frNet cash from operom operaating activitiesting activities 195195 323323
AAdditional infdditional informaormation ttion to the so the statattement of cash floement of cash flowws:s: 20162016 20152015
Sampo Group has prepared the consolidated financial statements for 2016 in compliance with the International Financial Reporting Standards (IFRSs). In preparing the financial statements, Sampo has applied all the standards and interpretations relating to its business, adopted by the commission of the EU and effective at 31 December, 2016.
The consolidated financial statements combine the financial statements of Sampo plc and all its subsidiaries. Entities qualify as subsidiaries if the Group has the controlling power. The Group exercises control if its shareholding is more than 50 per cent of the voting rights or it otherwise has the power to exercise control over the financial and operating policies of the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group, and cease to be consolidated from the date that control ceases.
The accounting policies used throughout the Group for the purposes of consolidation are consistent with respect to similar business activities and other events taking place in similar conditions. All intra-group transactions and balances are eliminated upon consolidation
Associates are entities in which the Group has significant influence, but no control over the financial management and operating policy decisions. Unless otherwise demonstrated, this is generally presumed when the Group holds in excess of 20 per cent, but no more than 50 per cent, of the voting rights of an entity. Investments in associates are treated by the equity method of accounting, in which the investment is initially recorded at cost and increased (or decreased) each year by the Group’s share of the post-acquisition net income (or loss), or other 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.
the income statement. The Group’s share of associate’s changes in other comprehensive income is presented in the Group’s other comprehensive income items.
When assessed that there is objective evidence of impairment in debt or equity securities classified as financial assets available-for-sale, the cumulative loss
Assets in which the lessor retains substantially all the risks and rewards of ownership are classified as operating leases and they are included in the lessor’s balance sheet. Payments made on operating leases are recognised on a straight-line basis over the lease term as rental expenses in profit or loss.
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
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 20-60 years
Depreciation of property, plant or equipment will be discontinued, if the asset in question is classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. The value in use is calculated by estimating future net cash flows expected to be derived from an asset or a cashgenerating unit, and by discounting them to their present value using a pre-tax discount rate. If the carrying amount of an asset is higher than its recoverable amount, an impairment loss is recognised in profit or loss. In conjunction with this, the impaired asset’s useful life will be re-determined.
Policies issued by the life insurance business are classified as either insurance contracts or investment contracts. Insurance contracts are contracts that carry significant insurance risk or contracts in which the policyholder has the right to change the contract by increasing the risk. As capital redemption contracts do not carry insurance risk, these contracts are classified as investment contracts.
The discretionary participation feature (DPF) of a contract is a contractual right held by a policyholder to receive additional benefits, as a supplement to the guaranteed minimum benefits. The supplements are
bonuses based on the reserves of policies credited to the policy reserve, additional benefits in the case of death, or lowering of insurance premiums. In Mandatum Life, the principle of fairness specifies the application of this feature. In unit-linked contracts the policyholder carries the investment risk by choosing the investment funds linked to the contracts.
Liabilities arising from insurance and investment contracts consist of provisions for unearned premiums and outstanding claims. In the life insurance business, various methods are applied in calculating liabilities which involve assumptions on matters such as mortality, morbidity, the yield level of investments, future operating expenses and the settlement of claims.
In direct insurance, the insurance liability is calculated by policy, while in reinsurance it is calculated on the basis of the reports of the ceding company or the company’s own bases of calculation.
company (the “IBNR” provision). The provision for claims outstanding includes claim payments plus all costs of claim settlements.
Defined benefit plans are both funded and unfunded. The amounts reported as pension costs during a financial year consist of the actuarially calculated earnings of old-age pensions during the year, calculated straight-line, based on pensionable income at the time of retirement. The calculated effects in the form of interest expense for crediting/appreciating the preceding years’ established pension obligations are then added. The calculation of pension costs during the financial year starts at the beginning of the year and is based on assumptions about such factors as salary growth and price inflation throughout the
duration of the obligation and on the current market interest rate adjusted to take into account the duration of the pension obligations.
The current year pension cost and the net interest of the net liability is recognised thru p/l in pension costs. The actuarial gains and losses and the return of the plan assets (excl. net interest) are recognised as a separate item in other comprehensive income.
AAccccounting policies rounting policies requiringequiring management judgement and kmanagement judgement and keeyy soursourcces of eses of estimatimation unction uncertaintiesertainties
The actuarial assumptions applied to life insurance liabilities are discussed in more detail under 'Insurance and investment contract liabilities and reinsurance assets'.
ApplicaApplication of netion of new or rw or reevised IFRSvised IFRS and intand interprerpretaetationstions
IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on 1 Jan 2018 or after). The new standard will supersede IAS 18 and IAS 11 and related interpretations. The central
criterion for revenue recognition is the passing of control. The adoption of the new standard will not have a material impact on the Group’s financial statements reporting.
As the upcoming and IFRS 4 superseding new standard IFRS 17 Insurance Contracts (estimated effective for annual periods beginning on 1 Jan 2021 or after) will have an impact on the insurance liabilities valuation, the insurance companies have been given additional options regarding the adoption of IFRS 9. If certain preconditions regarding the insurance liabilities are met, the company may apply the socalled temporary exception option and defer the implementation until the adoption of IFRS 17. Another allowed option is to apply IFRS 9 from 1 Jan 2018 on, but to remove from the income statement some of the accounting mismatches caused by the different valuation methods of assets and liabilities.
Sampo Group is going to apply the temporary exemption and adopt IFRS 9 simultaneously with IFRS 17.
The adoption will have an impact on the Group’s financial statements reporting.
The Group’s business segments comprise P&C insurance, Life insurance and Holding company.
Consolidated income statement by business segment for year ended 31 December 2016
PrProfit fofit for the yor the yearear 705705 168168 777777 00 1,6501,650
TTotal itotal items not rems not reclaseclassifiable tsifiable to pro profit or losofit or loss,s, net of taxnet of tax -5-5 -- -- -- -5-5
Consolidated income statement by business segment for year ended 31 December 2015
PrProfit fofit for the yor the yearear 765765 144144 749749 -1-1 1,6561,656
1 Insurance premiums written ................................................................................................................... 209 2 Net income from investments ................................................................................................................ 211 4 Change in liabilities for insurance and investment contracts ......................................................... 217 5 Staff costs.................................................................................................................................................... 218 6 Other operating expenses ....................................................................................................................... 219 7 Result analysis of P&C insurance ........................................................................................................... 220 8 Performance analysis per class of P&C insurance ............................................................................. 221 9 Earnings per share..................................................................................................................................... 222 10 Financial assets and liabilities .............................................................................................................. 222 11 Property, plant and equipment ............................................................................................................ 223 14 Investments in associates...................................................................................................................... 229 17 Determination and hierarchy of fair values....................................................................................... 237 18 Movements in level 3 financial instruments measured at fair value............................................ 240 19 Sensitivity analysis of level 3 financial instruments measured at fair value ............................. 242 20 Investments related to unit-linked insurance contracts................................................................. 242 21 Deferred tax assets and liabilities ....................................................................................................... 243 23 Components of other comprehensive income................................................................................. 245 24 Tax effects relating to components of other comprehensive income ....................................... 245 26 Cash and cash equivalents.................................................................................................................... 247 27 Liabilities from insurance and investment contracts ...................................................................... 248 28 Liabilities from unit-linked insurance and investment contracts................................................. 253 31 Employee benefits................................................................................................................................... 255 33 Contingent liabilities and commitments............................................................................................ 260 34 Equity and reserves ................................................................................................................................ 262 35 Related party disclosures ...................................................................................................................... 263 37 Assets and liabilities related to assets held for sale ....................................................................... 265 39 Legal proceedings................................................................................................................................... 265 40 Investments in subsidiaries ................................................................................................................... 266 41 Investments in shares and participations other than subsidiaries and associates ................. 267 42 Events after the balance sheet date ................................................................................................... 272
ANNUANNUAL REPORT 2016AL REPORT 2016 Notes to the Group’s Financial Statements
Change in unearned prChange in unearned premium premium proovision, netvision, net -6-6 -34-34
GrGroupoup, t, totalotal 5,3755,375 5,5225,522 1) The change in unearned premiums is presented in note 4, The change in insurance and investment liabilities.
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 12 (83) transferred from the fair value reserve.
Financial asFinancial assets designasets designatted as aed as at ft fair vair value thralue through p/lough p/l
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 106 (259) transferred from the fair value reserve.
Included in gains/losses from financial assets available for-sale is a net gain of EURm -27 (12) transferred from the fair value reserve.
Change in claims provision for annuities -8 - -8 -8 - -8
Change in claims provision for annuities 44 - 44 -11 0 -11
The provision for annuities is valued in accordance with normal actuarial principles taking anticipated inflation and mortality into consideration, and discounted to take the anticipated future investment return into account. To cover costs for the costs for the upward adjustment of annuity provisions required for the gradual reversal of such discounting, an anticipated return is added to the annuity results. Provisions for incurred but not reported losses pertaining to annuities in Finland are discounted. The provisions in 2016 amounted to EURm 277 (261). The non-discounted value was EURm 367 (351). The exchange effect on the discounted provisions was a decrease of EURm 10. The real increase was EURm 9.
InInvvesestment ctment controntracts, tacts, totalotal -355-355 -358-358 -- -- -355-355 -358-358
Change in liabilities fChange in liabilities for insuror insurancance and ine and invvesestment ctment controntracts in tacts in total, netotal, net -465-465 -462-462
Pension costs - defined contribution plans -66 213 - defined benefit plans (Note 31) 5 -137
Item Other includes e.g. consultancy fees and rental and other administrative expenses.
TTechnical rechnical result befesult beforore ine invvesestment rtment returneturn 1) Activity-based operating costs EURm 235 (249) have been allocated to claims incurred.
Profit or loss attributable to the equity holders of the parent company 1,650 1,656
Non-cancNon-cancellable minimum rellable minimum rentalental - not later than one year 1 1 - later than one year and not later than five years 1 1
Net carrying amount aNet carrying amount at 1 Jan.t 1 Jan. 180180 179179
Net carrying amount aNet carrying amount at 31 Dec.t 31 Dec. 201201 180180
FFair vair value of inalue of invvesestment prtment property aoperty at 31 Dec.t 31 Dec. 222222 203203
Net carrying amount aNet carrying amount at 31 Dec.t 31 Dec. 547547 1717 564564 *) The change in the cost is due to exchange differences.
Net carrying amount aNet carrying amount at 1 Jan.t 1 Jan. 153153 77 160160 153153 77 160160
Net carrying amount aNet carrying amount at 31 Dec.t 31 Dec. 153153 66 159159 153153 77 160160
The recoverable amounts for If have been determined by using a discounted cash flow model. The model is based on Sampo’s management’s best estimates of both historical evidence and economic conditions such as volumes,interest rates, margins, capital structure and income and cost development. The value in use model for Mandatum Life is greatly influenced by the long-term development of insurance liabilities, affecting e.g. the required solvency capital and thus the recoverable amount. That is why the forecast period is longer for Mandatum Life, 10 years. The derived cash flows were discounted at the pre-tax rates of the weighted average cost of capital which for If was 7.2% and for Mandatum Life 7.6%. These are lower than last year due to the decrease in the interest rates of Nordic bonds.
Forecasts for If, approved by the management, cover years 2017 – 2019. The cash flows beyond that have been extrapolated using a 2% growth rate. A 2% growth rate for years beyond 2026 has been used for the for Mandatum Life as well, as it is believed to be close to the anticipated inflation.
Associates that have been accounted for by the equity method at 31 Dec. 2015
The carrying amount of investments in associates included goodwill EURm 1,201 (1,101), including goodwill from the Nordea acquisition EURm 978 (978).
Sampo's share of Nordea's loss/profit consists of the following as of 31 Dec. 2016
SharShare of the lose of the loss/prs/profit of an asofit of an associasociattee 773773 751751
Currency options, bought and sold 63 0 0 156 1 1
TTotal derivotal derivaativtives held fes held for hedgingor hedging 534534 22 00 602602 22 99
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 19 (-69). Net result from hedged risks in fair value hedges of available for sale financial assets amounted to EURm -19 (68).
TTotal financial asotal financial assets designasets designatted as aed as at ft fair vair valuealue thrthrough p/lough p/l 2424 4848
Financial assets available-for-sale for life insurance include impairment losses EURm 15 (19).
LifLife insure insurancancee, t, total financial asotal financial assetssets 5,4595,459 6,0396,039
Financial asFinancial assets asets avvailable failable for sale / debt securities:or sale / debt securities: Debt securities available for sale include EURm 2,925 (3,334) investments in bonds and EURm 180 (95) investments in money market instruments.
TTotal financial asotal financial assessests measurts measured aed at ft fair vair valuealue 17,13217,132 5,7135,713 1,0571,057 23,90223,902
TTotal financial liabilities measurotal financial liabilities measured aed at ft fair vair valuealue -- 8181 -- 8181
Financial asFinancial assets designasets designatted aed at ft fair vair value thralue through prough profit or losofit or losss
TTotal financial asotal financial assessests measurts measured aed at ft fair vair valuealue 16,75916,759 4,9014,901 1,0261,026 22,68622,686
FINANCIAL LIABILITIES AFINANCIAL LIABILITIES AT 31 DEC. 2015T 31 DEC. 2015
The sensitivity of financial assets and liabilites to changes in exchange rates is assessed on business area level due to different base currencies. In P&C insurance, 10 percentage point depreciation of all other currencies against SEK would result in an increase recognised in profit/loss of EURm 10 (9) and in a decrease recognised directly in equity of EURm 8 (3). In Life insurance, 10 percentage point depreciation of all other currencies against EUR would result in an increase recognised in profit/loss of EURm 12 (23) and in a decrease recognised directly in equity of EURm 94 (79). In Holding, 10 percentage point depreciation of all other currencies against EUR would have no impact in profit/loss, but a decrease recognised in equity of EURm 163 (68).
OtherOther financialfinancial ininvvesestmentstments 1% parallel shift down 1% parallel shift up 20% fall in prices 20% fall in prices
TTotal gains/otal gains/ loslossesses rrececororded inded in otherother ccompromprehensivehensivee incincomeome PurPurchaseschases SalesSales
Total gains or losses included in profir or loss for the financial year -5 -22 -26-26
Total gains or losses included in profit and loss for assets held at the end of the financial year
Total gains or losses included in profir or loss for the financial year 51 6 5757
TTotal financial asotal financial assets designasets designatted aed at ft fair vair value thralue through p/lough p/l 330 217
TTotal defotal deferrerred tax liabilities in the balanced tax liabilities in the balance sheete sheet 468468
Tax losses for which no deferred tax asset has been recognised 2 0
TTotal protal proovision rvision reporteporteded in the BSin the BS 7,3387,338
TTotal protal proovision rvision reporteporteded in the BSin the BS 7,1467,146
Net liability aNet liability at 31 Dec. 2016t 31 Dec. 2016 4,7914,791 2828 4,6084,608
Liabilities fLiabilities for insuror insurancance and ine and invvesestment ctment controntracts tacts total, lifotal, lifee
Preferred capital note, 2016 (nominal value 500 MSEK) 30 years 2.42% 52 -
The purpose of the loans is to secure the good financial standing. All loans and their terms are approved by supervisory authorities and they are utilised for solvency purposes.
DerivDerivaativtive financial inse financial instruments (nottruments (note 15)e 15) 3 12
In addition to statutory retirement pension insurance, the Group has certain voluntary defined benefit plans. The voluntary defined benefit plans are intra-Group and included in the insurance liabilities of Mandatum Life. The amount is negligible and they have no material impact on the Group profit or loss or equity.
Net pension obligaNet pension obligation rtion rececognised in theognised in the balancbalance sheete sheet 7979 9090
The pension benefits referred to are old-age pension and survivors’ pension in Sweden. For Norway, old-age pension and survivors’ pension are included, as well as disability pension up to July, 1, 2016. Following an amendment to the plan, all employees will instead be covered by a defined-contribution plan for disability pension. A common feature of the defined-benefit 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 retirement age for receiving premature pension is normally 62 years in Sweden and normally 65 years in Norway. In Sweden, premature old-age pension following a complete service period is payable at a rate of approximately 65% of the pensionable salary and applies to all employees born in 1955 or earlier and who were covered by the insurance sector’s collective bargaining agreement of 2006. In Norway, premature old-age pension following a complete service period is payable at a rate of approximately 70% of the pensionable salary and applies to all employees born in 1957 or earlier and who were employed by If in 2013.
Remeasurement of the net pension liability 8 -2 6 -9 -4 -14
TTotal in cotal in compromprehensivehensive ince income some statattementement 1515 -4-4 1111 -2-2 -148-148 -150-150
Sensitivity analySensitivity analysis of effsis of effect of rect of reasonably poseasonably possiblesible changeschanges SSwwedeneden NorwNorwaayy TTotalotal SSwwedeneden NorwNorwaayy TTotalotal
Defined benefit plans aDefined benefit plans at 31 Dec.t 31 Dec. 294294 303303
RRececonciliaonciliation of plan astion of plan assets:sets: At the beginning of the year 213 399
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 2016 is EURm 48.
The pledged assets are included in the balance sheet item Other assets.
Minimum lease paMinimum lease paymentsyments not later than one year 31 32 later than one year and not later than five years 103 98 later than five years 45 48
Minimum lease paMinimum lease paymentsyments not later than one year 2 2 later than one year and not later than five years 7 8 later than five years 6 7
Minimum lease paMinimum lease paymentsyments not later than one year 1 1 later than one year and not later than five years 4 0 later than five years 1 -
The number of Sampo plc’s shares at the end of the financial year was 560,000,000, of which 558,000,000 were A-shares and 1,200,000 B-shares. There was no change in the company's share capital of EURm 98 during the financial year.
In addition, deferred compensation EUR 66,786 (119,269) was paid to former members of the Group Executive Committee during the financial year.
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 trade-weighted 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 per cent, the payout is 50 per cent. If the return stays below these benchmarks, no RORAC-based reward will be paid out.
Total cost for the financial period, meur (incl. social costs) 15 *) Grant dates vary **) Trade-weighted average for ten trading days from the approval of terms
In October 2016, Mandatum Life Insurance Company announced that it will not continue the distribution agreement of insurance policies with Danske Bank Plc after 31 December 2016 and that it will use its right to sell the insurance portfolio acquired via Danske Bank to Danske Bank A/S. The value evaluation will last approximately until the summer 2017. The porfolio transfer requires the approval of the authorities, expected to take place at the earliest at the end of year 2017.
The insurance porfolio targeted in the agreement is mainly included in the 'Unit-linked contracts' segment. Assets and liabilities are valued at book value. The effect of the with profit insurance portfolio on the investment result in the 'Other contracts' segment is deemed insignificant. The insurance risk result in the 'Other contrats' segment also consists mainly of other insurance portfolio than that targeted in the agreement. The effect of the transfer of the insurance portflio is expected to weaken the result significantly and this will mainly show in the 'Unit-linked contract' segment. The premium income of the insurance porflio in 2016 was EUR 304 and claims cost EUR 253.
There are a number of legal proceedings against the Group companies outstanding on 31 Dec. 2016, arising in the ordinary course of business. The companies estimate it unlikely that any significant loss will arise from these proceedings.
Comgest Growth Asia Ex Japan USD I Acc Class Ireland 62
Kingdom iShares Core S&P 500 ETF United States 251 iShares SMI ETF Switzerland 56
LifLife insure insurancancee, t, total sharotal shares and participaes and participationstions 2,5092,509
Holding, tHolding, total sharotal shares and participaes and participationstions 148148 42 Events after the balance sheet date
PrProfit fofit for the financial yor the financial yearear 1,5651,565 1,2281,228
Change (+/-) in asChange (+/-) in assets of opersets of operaating activitiesting activities
Net cash frNet cash from operom operaating activitiesting activities 1,0441,044 437437
Additional information to the statement of cash flows: Interest income received 84 63
Carrying amoun aCarrying amoun at 1 Jan. 2015t 1 Jan. 2015 9898 77 1,5271,527 273273 5,1105,110 7,0147,014
Carrying amount aCarrying amount at 31 Dec. 2015t 31 Dec. 2015 9898 88 1,5271,527 273273 5,2545,254 7,1597,159
Carrying amount aCarrying amount at 1 Jan. 2016t 1 Jan. 2016 9898 88 1,5271,527 273273 5,2545,254 7,1597,159
Carrying amount aCarrying amount at 31 Dec. 2016t 31 Dec. 2016 9898 2828 1,5271,527 273273 5,6245,624 7,5497,549
Guarantees for derivate contracts 17 38 13 Accruals and deferred income
EUR thousandEUR thousand SupplementarySupplementary pension cpension cosoststs SStatatuttutoryory pension cpension cosoststs TTotalotal
2) Group pension agreement with a retirement age of 60 years and a pension benefit of 66 per cent of the pensionable TyEL-salary (TyEL: Employee's Pension Act). No annual index adjustment in 2016.
3) Group pension agreement with a retirement age of 60 and a pension benefit of 60 per cent of the pensionable TyEL-salary. No annual index adjustment in 2016.
Auditor's Report To the Annual General Meeting of Sampo plc (Translation of the Finnish original)
We have audited the financial statements of Sampo plc (business identity code 0142213-3) for the year ended 31 December 2016. The financial statements comprise the consolidated balance sheet, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary of significant accounting policies, as well as the parent company’s balance sheet, income statement, statement of cash flows and notes.
• the consolidated financial statements give a true and fair view of the Group’s financial position as well as its financial performance and cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.
1. VValuaaluation of insurtion of insurancance ce controntract liabilities (2016:act liabilities (2016: EURm 20,600; 2015: EURm 20,288)EURm 20,600; 2015: EURm 20,288)
The estimation of non-life insurance contract liabilities involves significant assumptions to be made in provisions for claims outstanding. Key assumption areas include inflation rate and life expectancy of beneficiaries. The liabilities are
2. VValuaaluation of financial astion of financial assets (2016: EURm 24,087;sets (2016: EURm 24,087; 2015: EURm 23,036)2015: EURm 23,036)
Refer to the Summary of significant accounting policies, Accounting policies regarding management judgment and key sources of estimation uncertainties and Notes 10 and 15 - 20.
The Group’s investment portfolio excluding investments in associates represents 63% of the Group’s total assets. Fair value measurement can be subjective, specifically for areas where fair value is based on a model based valuation. Valuation techniques for private equity funds, nonlisted bonds and non-listed equities involve setting various assumptions regarding pricing factors. The use of different valuation techniques and assumptions could lead to different estimates of fair value. Specific areas of audit focus include the valuation of level 2 and 3 assets according to IFRS where valuation techniques use unobservable inputs. Of financial assets level 2 assets amount to EURm 5,713 and level 3 assets to EURm 1,057 (refer to note 17).
Our audit procedures included testing the effectiveness of controls in place over recording fair values of assets using unobservable input. We performed additional procedures for areas of higher risk and estimation, involving our valuation specialists. In respect of the investments in private equity funds, we evaluated and tested the procedures of the Group to determine the fair value of these investments. The procedures include assessment of fund net asset value based on the fair value of underlying investment, independent broker valuations and evidence of underlying financial data. We assessed the adequacy of disclosures relating to the financial assets.
Our audit procedures included testing the effectiveness of controls in place over recognizing the Group’s share of Nordea’s financial information, and assessing a potential indicator of impairment by comparing the book value of the Nordea holding to the market value of the Group’s ownership at the reporting date. We assessed the adequacy of disclosures relating to associated companies.
In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and the Group’s ability to continue as going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the Group or cease operations, or there is no realistic alternative but to do so.
Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations
If, based on the work we have performed, we conclude that there is a material misstatement in the information included in the report of the Board of Directors, we are required to report this fact. We have nothing to report in this regard.
Sampo plc’s Annual General Meeting will be held on 27 April, 2017 at 2 pm, at the Helsinki Exhibition and Convention Centre , address Messuaukio 1, Helsinki. The listing of persons who have registered for the meeting will commence at 12.30 pm.
IntInterim Serim Statattement fement foror the Pthe Period of Januaryeriod of January - Mar- March 2017ch 2017
IntInterim Serim Statattement fement foror the Pthe Period of Januaryeriod of January - Sept- September 2017ember 2017