In such a difficult situation, the only option is to exercise even stricter discipline: reduce risks, boost operational efficiency and put in the extra hours needed. There is no sense in waiting for better times ahead – we must act now.
The vast transfer of services to the internet and the digitization of society in general are changing the very foundations of our industry. Consequently, understanding the ever-evolving needs of our customers will be the key to building a sustainable competitive edge. As the market leaders in our businesses, we are – and must continue to be – in a better position than our peers in terms of responding to the challenges brought on by these structural changes.
Despite the weak operating environment in 2013, Sampo recorded an excellent year. In December, our share price peaked at almost EUR 36 - its highest level ever. And the increases have continued into the new year - in February 2014 the share price passed EUR 37.
to EUR 929 million, once again the highest total recorded in Sampo’s history, while the combined ratio reached a new record of 88.1 per cent. Furthermore, customer service was improved in a number of ways. A particularly noteworthy development was the launch of distribution co-operation with the largest bank in the Nordic countries - Nordea - in Sweden, Finland and the Baltics.
The value of our stake in our associated company Topdanmark has nearly doubled, and also reached a new high in 2013. Our holding, which covers 28 per cent of the voting rights, is also now at its highest ever level. Our stake is likely to continue growing in the future as Topdanmark intends to buy back and subsequently cancel its own shares.
The stable profitability of our associated company Nordea was also reflected in the company’s market value: its valuation of EUR 42.5 billion as at January 2014 represented yet another new record.
Unit-linked Premium Income Reaches Historical High 2013 was also a record year in the area of life insurance: the unit-linked premium income of EUR 909 million was the highest in the company’s history, while the distribution co-operation with Danske Bank was more successful than ever before. At the same time, Mandatum Life recorded its best ever technical result, which was measured as the sum of the risk and expense result. Pleasingly, the improved levels of customer satisfaction that we have seen in previous years continued in 2013.
Sampo Group's business areas are P&C insurance and life insurance under If and Mandatum Life brands, 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 well-defined strategies based on return on equity (RoE) targets.
The parent company Sampo plc’s A shares are listed on the Nasdaq OMX Helsinki. The parent company sets financial targets for the subsidiaries. For both P&C and life insurance operations the return on equity target is a minimum of 17.5 per cent. In addition, a separate target has been set for the combined ratio in the P&C insurance operation, i.e. the annual combined ratio to be below 95 per cent each and every year.
If's mission is to offer insurance solutions that provide customers security and stability in their business operations, housing and daily life. The company's vision is to be the leading property and casualty insurance company in the Nordic and Baltic regions with the most satisfied customers, leading edge insurance expertise and superior profitability.
• FFocused Insurocused Insurancance Expertisee Expertise – If will purposefully strengthen the organization's skills in developing, pricing and distributing insurance products, as well as, in the areas of liability loss prevention and claims management.
In Finland, Mandatum Life relies on three sales channels: in-house corporate sales teams, wealth management focusing on high-net-worth individuals, and Danske Bank’s network.
Mandatum Life estimates that there is still a growing need for Finns to secure their income during retirement and to prepare for health and life risks. The company believes that voluntary corporate pension schemes will play an increasingly important role in complementing statutory earnings-related pension. As far as the corporate sales channel is concerned, greater emphasis will also be placed on meeting the investment-related needs of customers. In addition, companies are believed to gain significant value by covering their employees’ life and health risks through voluntary insurance policies.
Mandatum Life’s result consists of three components: the investment result, risk result and expense result. The company’s strategy in investment activities is to maintain adequate solvency in relation to market risks in the balance sheet, which makes it possible to strive for a long-term return that is higher than the return requirement on with-profit technical provisions. In the expense and risk result, Mandatum Life seeks growth through both higher operational efficiency and volume growth. The company’s financial target is to produce an RoE of at least 17.5 per cent.
Businesses Sampo Group’s parent company, Sampo plc, has two fully owned subsidiaries, If P&C Insurance Holding Ltd (publ) and Mandatum Life Insurance Company. The former is the largest Nordic P&C insurer and the latter a leading Finnish life insurer. Both insurers also operate in the Baltics.
In addition, Sampo plc is the biggest shareholder in Nordea Bank AB. Nordea is the largest bank in the Nordic region. At the end of 2013
Sampo plc held 21.2 per cent of shares in the Bank, which is accounted for as an associate in the Group accounts.
 If P&C Insurance is the leading property and casualty insurer in the Nordic region, with operations in Finland, Sweden, Norway, Denmark and the Baltic countries. Danish insurance company Topdanmark, in which If P&C Insurance is the largest owner with more than 25 per cent of the shares, is accounted for as an associated company in the P&C insurance segment.
The result for 2013 was achieved in a period of very low interest rates. The low interest rate environment enables only a limited rate of return for insurance companies' investments, which are directed mainly to interest bearing debt instruments. Today, the industry is focusing more than ever on the profitability of the insurance business. This has been If’s key strategic theme for more than a decade. With the industry now following the example set by If, the company has to perform more efficiently to maintain its competitive edge.
If’s positive development is the result of a long-term strategy with a consistent focus on underwriting, meaning more efficient risk assessment and risk selection, and correct pricing of products, as well as, profitability and cost-effectiveness. Extensive work is currently being done to further strengthen the focus on underwriting. In order to improve efficiency, If is investing heavily in IT. An increasing number of customers are visiting If’s Internet pages to get information, file claims or buy insurance. The number of visits increased by 15 per cent since 2012 and online sales to individuals rose by 18 per cent. IT investments are also strengthening Nordic cooperation within If. Tasks are coordinated in a way that the best expertise is available cost-efficiently.
It seems that the repeatedly delayed EU reform of the regulatory system for the insurance industry, Solvency II, will be implemented in 2016. The Directive will provide a common European approach that will ensure financial stability and promote fair and efficient financial markets in Europe. Solvency II is very much in line with If’s approach to risk management and we are already working in accordance with the Directive.
The beginning of the year saw two changes in the management team of If. Morten Thorsrud was appointed Head of Business area Private and Niclas Ward took over as Head of Business area Industrial.
The relationship strategy continued to be instrumental to Nordea in 2013 and Nordea is developing the future relationship bank with the 2015 plan. Since 2007, Nordea has consistently followed this strategy, which is based on long-term customer relationships. It has proven superior when working with customers, as Nordea studies closely the situation and needs of each customer. In this challenging macro environment Nordea is committed to serving customers and thus supporting the economy.
Nordea’s vision is to be a Great European bank, acknowledged for its people, creating superior value for customers and shareholders. Nordea is making it possible for customers to reach their goals by providing a wide range of products, services and solutions within banking, asset management and insurance. Nordea has around 11 million customers, approximately 900 branch office locations and is among the ten largest universal banks in Europe in terms of total market capitalization. The Nordea share is listed on the NASDAQ OMX Nordic Exchange in Stockholm, Helsinki and Copenhagen.
By all key indicators, 2013 was a success for Mandatum Life. Unitlinked premium income was at a record-high level and the result improved, thanks to good investment returns. Positive development was also achieved in operating expenses, and, for the first time, unitlinked technical provisions exceeded the technical provisions related to with profit products.
In terms of new business, ten years ago Mandatum Life set unit-linked insurance and risk insurance as its core business areas. Back then, the company’s technical provisions were almost exclusively related to with profit products. In 2013, a significant shift took place in the structure of the technical provisions: unit-linked technical provisions exceeded the technical provisions related to with profit products. This was a consequence of two things: the strong growth in unitlinked technical provisions, and the decline of pensionfocused technical provisions related to with profit products. Technical provisions related to with profit products decreased to a lowest level ever in the history of the company in its current form.
Cost effectiveness becomes increasingly important as the weight given to unit-linked business grows. The company did, in fact, implement a cost-savings program in 2013, with the goal of keeping operating expenses, aside from those arising from sales and profit-linked operating expenses, at the 2012 level until 2015. Together with the growing insurance savings, the cost-saving measures are expected to improve the expense result over the next few years.
Demand for risk insurance grew in the Baltic countries, and with new insurance policies being taken out, there was significant growth in capital at risk. Unit-linked technical provisions grew compared to the previous year, but gross premium income fell slightly short of the 2012 figure. The organization’s operations were reinforced and adapted to better reflect the customer segments.
Personnel P&C insurance is Sampo Group’s largest business area and in 2013 it employed 91 per cent of the personnel, while life insurance had approximately 8 per cent of the work force. Less than one per cent worked for the parent company, Sampo plc.
Personnel by Company Sampo Group, 2013, average total 6,832 people (FTE)
The average number of Sampo Group’s employees (FTE) in 2013 amounted to 6,832 (6,823). In geographical terms Finland had 33 per cent of the personnel, Sweden 27 per cent and Norway 21 per cent. The share of Baltic countries, Denmark and other countries was 19 per cent.
Personnel by Country Sampo Group, 2013, average total 6,832 people (FTE)
From a HR perspective 2013 was an intensive year. Several parts of the organization were involved in major business development initiatives. These initiatives affect and rely on people. Consequently, the HR agenda was largely geared towards providing hands-on support to the organization for the processes of managing change, developing future ways of working, and identifying and meeting the requirements for new skills. The focus topics were: • LLeadership:eadership: A new leadership development concept was implemented with an increased focus on coaching and feedback to maximize each employee’s performance. A new cohort was recruited to If’s Future Leadership Programme.
attributable to Tryg redundancies and specific efficiency measures across the organization.
Overall, illness-related absenteeism is low (3.4 per cent). Norway continues to have a higher percentage of sickness absences (4.8 per cent) than If’s other countries. In 2013, If has focused on improving the situation in Norway.
Focus on further leveraging If’s Nordic synergies through cross-border personnel cost initiatives was seen in 2013. Cost-saving opportunities are opening up as information technology matures and processes and systems become more Nordic. These include taking into account the differences in personnel costs among the countries when hiring employees for staff and back office positions.
A personnel fund, established in 2012 for the employees of the subsidiary company Innova, was extended in 2013 to all Mandatum Life personnel. The employees can use their annual performance-based reward to save an amount equivalent to a maximum of half a monthly salary in the fund. Since contributions to the personnel fund are exempt from social costs, an extra 20 per cent reward is added to the transferred amount. All employees of Mandatum Life’s parent company are additionally covered by the company’s group pension insurance scheme.
Employee satisfaction has remained at a high level. A survey conducted in November showed that overall satisfaction was 76 per cent compared to 77 per cent in 2012. All in all, 81 per cent (83) of those surveyed said that Mandatum Life is a good place to work.
Over the past few years, processes have been developed to promote well-being at work. This has led to a steady decline in the levels of sickness absences. The absence percentage in 2013 was about 2.5 per cent (3.3). Mandatum Life’s employee pension insurance premium category also remained low in 2013.
 If has a basic commitment to promote a society in which everyone is able to live safely and securely. Along with the police, rescue services, judiciary and other public authorities, the property and casualty insurance companies play a key role in creating a safe and secure society.
If endeavors to take its social responsibility beyond its business operations. Its principal objective is to constantly act in a manner that satisfies or exceeds the ethical, legal, and commercial requirements placed upon the business.
If has a basic commitment to promote a society in which everyone is able to live safely and securely. Along with the police, rescue services, judiciary and other public authorities, the property and casualty insurance companies play a key role in creating a safe and secure society.
In 2013 alone, If dealt with more than 1.5 million insurance claims. These vary greatly, ranging from private clients injured in road accidents to companies whose production has been suspended, for example, due to fire. In total, If has paid out over EUR 3 billion in claims over the past year.
Environmental issues are of critical importance to everyone and often have an immediate impact on the operations of the non-life insurance companies.
Climate-related meteorological phenomena, such as heavy rainfalls and flooding, are becoming increasingly common. Populated areas along the coastlines of exposed regions are experiencing frequent flooding.
Share of E-invoices in Vehicle Claims on a Nordic Level If P&C, 2009–2013
ClimaClimatte impact:e impact: If’s carbon dioxide emissions have continued to decrease in 2013. In 2013, If 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. The scheme is a so-called "Gold Standard project", which is an internationally recognized certification standard developed in collaboration with the World Wide Fund for Nature and other organizations. Not only do the 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.
Other priority environmental issues are energy consumption (for example, If’s Gothenburg office has cut its energy use by 50 per cent over the last two years) and waste minimization.
A key issue for If is to get all the parties concerned involved in If's environmental efforts. The goal is to stimulate understanding, commitment and, ultimately, action.
If encourages and supports its suppliers and partners in their efforts to use more environmentally-friendly methods in their operations. If has a dialogue with its suppliers regarding If’s environmental goals and requirements. Owners receive regular environmental reports.
◦ If and the Nordic Centre of Excellence (NCoE) NORD–STAR initiate a research collaboration project on climate change adaptation and insurance.
◦ If in Finland and Denmark become the first members of the local Buy Ecolabelled Network.
• We must always provide information about environmental risks and participate actively in the public debate concerning climate change.
If’s environmental program basically has three levels: • A steering group, led by a member of If’s executive board, sets up and upholds If’s environmental strategy, policies and overall goals.
Mandatum Life strives to achieve these goals by applying responsible and open investment principles and by actively monitoring its progress in this area. Mandatum Life’s investment managers and analysts are in the best position to understand how various investment objects function and to communicate on them with the parties in charge of them. In reporting on and monitoring responsible investment operations, Mandatum Life’s Investment Management team is assisted by a dedicated risk management unit. Mandatum Life Wealth Management has signed the UN’s Principles for Responsible Investment (UN PRI).
Governance 29 Corporate Governance Statement 29 Governance Structure 30 Board of Directors 33 Board of Directors' Duties 33 Election and Terms of Office of Board Members 34 Board-Appointed Committees 34 Audit Committee 35 Nomination and Compensation Committee 36 Group Executive Committee 39 Group Executive Committee's Duties 39 Group CEO and President 40 Remuneration 41 Internal Audit 42 Insider Administration 42 External Auditor
Corporate Governance Statement Sampo complies in full with the Finnish Corporate Governance Code issued by the Securities Market Association, effective from 1 October 2010.
Acting in compliance with Recommendation 54 of 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
• Wahlroos was appointed to the Board of Directors of Sampo plc on 5 April 2001. • Wahlroos holds 11,863,141 Sampo plc shares directly or through a controlled company.
Board of Directors Sampo plc's Board of Directors, elected annually by the AGM of
The following persons served on Sampo plc's Board of Directors in 2013: Sampo Group's Annual Report 2013 Governance
Kone Corporation, Board Member; Sanoma Corporation, Board Member; Stora Enso, Board Member; The Research Institute of the Finnish Economy ETLA, Board Member; Finnish Business and Policy Forum EVA, Board Member; International Chamber of Commerce Finland, Chairman of the Board; Aalto University Foundation, Vice Chairman
Teleste Corporation, Board Member; Aktia plc and Aktia Bank, Board Member and Member of the Audit Committee (2012–2013); Kelonia (Private Equity holding company), Board Member; Veritas Pension Company, Member of the Supervisory Board; Hanken School of Economics, Board Member and Chairman of the Investment Committee; Swedish Society of Literature (Svenska litteratursällskapet i Finland), Member of the Investment Committee
• Member of the Board of Directors of Sampo plc since 14 April 2011. • Grate Axén holds 3,061 Sampo plc shares directly or through a controlled company.
• Member of the Board of Directors of Sampo plc since 7 April 2009. • Mattila holds 3,796 Sampo plc shares directly or through a controlled company.
• Member of the Board of Directors of Sampo plc since 15 April 2008. • Palin-Lehtinen holds 3,479 Sampo plc shares directly or through a controlled company.
Umkomaas Lignin (Pty) Ltd,South Africa, Chairman of the Board; Inspiria Science Center, Norway, Board Member
• Member of the Board of Directors of Sampo plc since 12 April 2012. • Sørlie holds 1,690 Sampo plc shares directly or through a controlled company.
Among other things, the Board of Directors decides on Sampo Group's strategy, approves the principles governing the Group's risk management, remuneration, compliance and internal control, 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.
The AGM of 2013 decided that the Board would consist of eight members until the close of the AGM to be held in 2014. The term of office of the Board members ends at the close of the AGM that first follows their election. The members of the Board elect a Chairman and Vice Chairman from among their members at their first meeting following the AGM.
The Board convened 8 times in 2013. The average attendance of Board members at meetings was 100 per cent.
In 2013, the Chairman of the Audit Committee was Anne BrunilaAnne Brunila, and the other members were JannicaJannica FFagerholm (as of 18 April 2013), Aagerholm (as of 18 April 2013), Adine Grdine Graatte Axe Axén,én, JukkJukka Pa Pekkekkarinen (until 18 April 2013)arinen (until 18 April 2013) and PPer Arthurer Arthur SørlieSørlie. Also participating in the meetings were the Auditor's representative, Group CEO, Group CFO, CFO of If P&C, Group Chief Risk Officer and Group Chief Audit Executive.
The Audit Committee convened five times in 2013 and the average attendance of members at the meetings was 100 per cent.
In 2013, the Nomination and Compensation Committee comprised the Chairman of the Board (who acted as the Committee's Chairman), the Vice Chairman of the Board and, as of 18 April 2013, two members elected from among the members of the Board.
The Chairman of the Nomination and Compensation Committee in 2013 was Björn WBjörn Wahlrahlroosoos, and the other members were VVeli-Maeli-Matti Matti Mattilattila, EirEira Pa Palin-Lalin-Lehtinenehtinen, ChrisChristtoffoffer Ter Taxaxellell (until 18 April 2013) and MaMattitti VVuoriauoria.
The Committee convened five times in 2013. The average attendance of members at meetings was 100 per cent.
Nordea Bank AB (publ), Board Member, Board Risk Committee, Chairman; Nokia Corporation, Board Member; Confederation of Finnish Industries EK, Vice Chairman of the Board 2011–2013; The Federation of Finnish Financial Services, Vice Chairman of the Board; If P&C Insurance Holding Ltd (publ), Sweden, Chairman of the Board; Mandatum Life Insurance Company Limited, Chairman of the Board; Kaleva Mutual Insurance Company, Chairman of the Board; Varma Mutual Pension Insurance Company, Board Member 2008–2013
• Member of Sampo Group Executive Committee since 2001. • Stadigh holds 268,711 Sampo plc shares directly or through controlled companies or persons closely associated with him.
• Member of Sampo Group Executive Committee since 2001. • Johansson holds 58,986 Sampo plc shares directly or through controlled companies or persons closely associated with him.
If P&C Insurance Ltd, Sweden, Chairman of the Board; If P&C Insurance Company Ltd, Finland, Chairman of the Board; Swedish Insurance Federation, Board Member; Swedish Insurance Employer Association (FAO), Board Member; AcadeMedia Aktiebolag, Sweden, Board Member; Insurance Europe, Vice President
Petri Niemisvirta Head of Life Insurance; MD of Mandatum Life Insurance Company Limited Born 1970
Alma Media Corporation, Board Member; BenCo Insurance Holding B.V., the Netherlands, Board Member; Federation of Finnish Financial Services, Life Insurance Executive Committee, Board Member; Kaleva Mutual Insurance Company, Board Member; Varma Mutual Pension Insurance Company, Board Member (2014–)
• Member of Sampo Group Executive Committee since 2006. • Thorsrud holds 23,628 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Timo Vuorinen Head of BA Baltic; Head of Private (Finland); MD of If P&C Insurance Company (Finland) Born 1964
If P&C Insurance Company Ltd, Finland, Board Member; If P&C Insurance AS, Estonia, Board Member; CJSC If Insurance, Russia, Board Member
Information as of 31 December 2013, unless stated otherwise. The CVs of members of the Group
Sampo Group Executive Committee supports the Group CEO in the preparation of strategic issues relating to Sampo Group, in the handling of operative matters that are significant or involve questions of principle, and in ensuring a good internal flow of information.
The Group MD Committee comprised KKari Sari Stadightadigh (Chairman), PPeteter Johanser Johanssonson, PPaatrick Laptrick Lapvveteteläineneläinen, TTorbjörn Magnusorbjörn Magnusson, Pson, Petri Niemisetri Niemisvirtavirta and RicarRicardd WWennerklintennerklint.
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 Mr. KKari Sari Stadightadigh, M.Sc. (Eng.), BBA (Econ.).
According to his current agreement the Group CEO is entitled to retire in December 2015 when he turns 60. However, at the request of Sampo's Board of Directors, Kari Stadigh will continue as Group CEO and President from January 2016 until further notice.
Under the terms of the Group CEO contract, the notice period for the Group CEO is six months. In addition to receiving salary for the period of notice, the Group CEO is entitled to severance compensation of 18 months' full salary, provided that the service contract has been terminated by Sampo. In the new service contract entering into force on 1 January 2016, Mr. Stadigh has relinquished the right to the aforementioned 18 months' severance compensation.
Sampo has published a Remuneration Report on its website in accordance with section 7 (Remuneration) of the Corporate Governance Code.
In accordance with the decision of the Annual General Meeting in 2013, the following annual fees will be 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 2014: EUR 160,000 to the Chairman, EUR 100,000 to the Vice Chairman, and EUR 80,000 to the other members of the Board, with approximately 50 per cent of each Board member's fee being paid, after taxes and corresponding charges, in Sampo A shares and the rest in cash. In addition, potential statutory social and pension costs incurring to non-Finnish members according to applicable national legislation will be borne by Sampo plc.
Nomination and Compensation Committee. However, the Nomination and Compensation Committee decides, upon authorization by the Board of Directors, on the salaries of the members of the Group Executive Committee, excluding the Group CEO and Deputy CEO.
Members of the Group Executive Committee are also participating in the long-term incentive program 2011 I for Sampo's management. The terms of the incentive programs are available on Sampo's website.
Based on his employment contract, the Group CEO will be paid a fixed monthly salary and a yearly shortterm incentive, which may be no more than an amount corresponding to nine months' fixed salary. The Group CEO is also participating in the long-term incentive program 2011 I for Sampo's management.
Mr. Kari Stadigh is the CEO of Sampo Group. For year 2013 the Group CEO was paid EUR 902,961 in fixed salary and EUR 288,996 in short-term incentive (excluding deferred compensation) and EUR 2,338,000 in long-term incentive, together totaling EUR 3,529,957.
More detailed information on compensation in Sampo Group during 2013 is available at the Remuneration Report published by Sampo.
The Audit Committee of Sampo's Board of Directors annually approves the Internal Audit's operating plan. The Internal Audit reports on the audits performed to the Group CEO and the Audit Committee. Companyspecific audit observations are reported to the respective companies' governing bodies and management.
The total fees paid to the auditor for services rendered and invoiced were EUR 2,241,568. In addition, Ernst & Young Oy were paid fees for non-audit services rendered and invoiced totaling EUR 300,695.
Board of Directors' Report 45 Sampo Group 47 Business Areas 47 P&C Insurance 50 Associated Company Nordea Bank AB
67 Outlook 68 Dividend Proposal 69 Key Figures 71 Calculation of the Key Figures 71 Group Key Figures 72 P&C Insurance Key Figures 74 Life Insurance Key Figures 75 Per Share Key Figures
Earnings per share amounted to EUR 2.59 (2.51). Mark-to-market earnings per share were EUR 2.54 (3.37) and return on equity for the Group decreased to 13.8 per cent for 2013 (19.9).
The Board proposes to the Annual General Meeting to be held on 24 April 2014 a dividend of EUR 1.65 per share (1.35) and an authorization to repurchase a maximum of 50 million Sampo A shares. The proposed dividend payment amounts in total to EUR 924 million (756).
Net asset value per share on 31 December 2013 increased to EUR 22.15 (17.38) supported by the increase in Nordea’s share price.
Profit before taxes in life insurance rose to EUR 153 million (136). The interest rate used to discount the with profit liabilities was lowered to 2.25 per cent for 2014 and 2.75 per cent for 2015. Premiums grew 9 per cent to EUR 1,063 million (977). Return on equity decreased to 18.3 per cent (28.5).
The Group’s equity as at 31 December 2013 amounted to EUR 10,643 million (10,020). Equity was strengthened mainly by the comprehensive income for the year of EUR 1,425 million and reduced by the EUR 756 million of dividends paid. Other changes were small.
Sampo Group’s own funds exceeded the minimum solvency requirements at the end of 2013 by EUR 3,935 million (3,379) and the conglomerate solvency ratio stood at 184.4 per cent (170.9).
Income statement items are compared on a year-onyear basis and comparison figures for balance sheet items are from 31 December 2012 unless otherwise stated.
If P&C is the leading property and casualty insurance group in the Nordic region, with insurance operations that also encompass the
Technical result improved to EUR 601 million (574) for the full year 2013. Technical result for Private business area increased to EUR 360 million (349) and for business area Industrial to EUR 43 million (28). The technical result for Commercial and Baltics remained stable at EUR 166 million (168) and EUR 15 million (17), respectively. The mild weather at the beginning and end of 2013 influenced the frequency claims development positively. Storm claims incurred in the fourth quarter of 2013 affected results at the same time negatively, the most significant storm amounted to approx. EUR 23 million. Insurance margin (technical result in relation to net premiums earned) improved to 13.3 per cent (13.1).
Return on equity (RoE) decreased to 24.4 per cent (36.9). Fair value reserve for If P&C rose to EUR 472 million (364) at the end of December 2013 because of the good equity market performance. Currency movements had a negative impact of EUR 153 million on the fair value reserve.
Gross written premiums increased 1.5 per cent to EUR 4,768 million (4,698). Adjusted for currency premiums increased 2.9 per cent. Premiums grew in all business areas except Industrial. In Private gross written premiums adjusted for currency increased 5.0 per cent, in Commercial 1.7 per cent and in the Baltic operations by 1.6 per cent. Gross written premiums in Industrial decreased by 4.4 per cent.
Duration for interest bearing assets was 1.3 year (1.1) and average maturity 2.3 years (2.3). Fixed income running yield as at 31 December 2013 was 2.9 per cent (3.6).
If P&C Insurance Company Ltd (Finland) signed an agreement to acquire the P&C insurance business of the Finnish branch of Tryg A/S in November 2012. Tryg’s Finnish branch had approximately 155,000 customers and a market share of around two per cent. The acquisition was closed in May 2013 after all necessary approvals had been obtained.
Nordea, the largest bank in the Nordic region, has around 11 million customers and is among the ten largest universal banks in Europe in terms of total market capitalization. In Sampo Group’s reporting Nordea is treated as an associated company and is included in the segment Holding.
The following text is based on Nordea’s full-year 2013 result release published on 29 January 2014.
The fourth quarter was characterized by some improvements in global economic data and a positive development in financial markets. In the Nordic economies, the latest developments have been weaker, although the overall picture still appears relatively robust.
Total income was down 1 per cent compared to last year and operating profit was up 2 per cent compared to the last year. Risk-adjusted profit increased by 1 per cent compared to the preceding year. The effect from currency fluctuations was a reducing effect of 1 percentage point on income and on expenses and approximately -3 percentage points on loan and deposit volumes compared to one year ago.
Total expenses were largely unchanged compared to 2012 in local currencies when excluding performancerelated salaries and profit sharing. For the 13th consecutive quarter, costs have been kept flat. Staff costs were also largely unchanged in local currencies when excluding performance-related salaries and profit sharing.
RWA were EUR 155.3 billion excluding transition rules, a decrease of EUR 4.3 billion, or 2.7 per cent, compared to the previous quarter. RWA reduction of EUR 3.2 billion has been realised in the quarter, driven by the IRB approval in Russia as well as other RWA initiatives. Currency fluctuation effects also contributed to a lower RWA.
Since Nordea foresees in the coming years a lower loan demand, lower customer activity and lower interest rates than previously expected it will increase the focus on cost efficiency. In the fourth quarter 2012 report Nordea launched efficiency initiatives with an effect of EUR 450 million during 2013 to 2015. Nordea sees many of these initiatives delivering better than expected and in addition it will also accelerate the efficiency programme. Thus, the ambition has been raised from EUR 450 million towards a level of EUR 900 million during 2013 to 2015, of which EUR 210 million has already been achieved. Part of this will be offset by reinvestments, but net Nordea expects to have a 5 per cent lower cost base in 2015 compared to 2013. This will be possible by reducing activity related expenses, adjusting distribution to meet changed customer behaviour, increasing the Product and IT platform efficiency, optimising processes and reducing cost in central functions, including downscaling the internal service levels.
Mandatum Life Group consists of Mandatum Life, a wholly-owned subsidiary of Sampo plc, operating in Finland, and its subsidiary
Mandatum Life Insurance Baltic SE. Mandatum Life Insurance Baltic SE has the form of a European company and is headquartered in
Change in liabilities for inv. and ins. contracts -648 -642 1
Profit before taxes in life insurance operations in 2013 increased by 12 per cent to EUR 153 million (136). The total comprehensive income for the period reflecting the changes in market values of assets was EUR 220 million (286). Return on equity (RoE) amounted to 18.3 per cent (28.5).
Net investment income, excluding income on unitlinked contracts, increased to EUR 299 million (280) boosted in particular by excellent yield on equity investments. Net income from unit-linked contracts was EUR 270 million (294). In 2013, fair value reserve increased by EUR 101 million to EUR 492 million.
Majority of Mandatum Life’s traditional policies carry a guaranteed interest of 3.5 per cent. Individual policies sold in Finland before 1999 carry a guaranteed interest of 4.5 per cent. The discount rate for these policies has been lowered to 3.5 per cent and subsequently technical reserves have been supplemented with EUR
75 million (71). In addition, EUR 71 million has been reserved to lower the interest rate of all with profit liabilities to 2.25 per cent in 2014 and to 2.75 per cent in 2015. All in all, Mandatum Life has increased its technical reserves with EUR 146 million (118) due to low level of interest rates.
The various measures introduced during the last few quarters to improve the cost efficiency are beginning to show, and together with growing fee income, the expense result for life insurance segment increased to EUR 14 million (6). Risk result was excellent at EUR 24 million (19) in 2013. The expense result is expected to further improve during 2014 due to increased unitlinked savings and efficiency measures.
Despite high premium income, Mandatum Life’s unitlinked market share in Finland decreased to 19.3 per cent (26.2) due to the strong growth in overall life insurance premium income in Finland. Mandatum Life’s overall market share in Finland decreased to 19.2 per cent (24.5). Market share in the Baltic countries decreased to 10 per cent (11).
Holding segment’s profit before taxes amounted to EUR 589 million (623), of which EUR 635 million (653) relates to Sampo’s share of Nordea’s 2013 profit. Segment’s profit excluding Nordea was EUR -45 million (-30).
At its organizational meeting, the Board elected Björn Wahlroos as Chairman and Matti Vuoria as Vice Chairman. The following members were elected to the
Nomination and Compensation Committee: Veli-Matti Mattila, Eira Palin-Lehtinen, Matti Vuoria, and Björn Wahlroos (Chairman). Anne Brunila (Chairman), Jannica Fagerholm, Adine Grate Axén, and Per Sørlie were elected to the Audit Committee.
The Annual General Meeting decided to pay the following fees to the members of the Board of Directors until the close of the 2014 Annual General Meeting: the Chairman of the Board will be paid EUR 160,000 per year, the Vice Chairman EUR 100,000 per year and the other members EUR 80,000 per year. 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. Heikki Ilkka, APA, will continue as the principally responsible auditor.
As a listed company, Sampo plc has the responsibility of acting in the best interests of its shareholders, in compliance with legislation and in accordance with sound business practices. Sampo Group's companies follow the common values of ethicality, loyalty, transparency and enterprise in their business operations and contacts with all stakeholders.
Insurance is a business where responsibility and trust are inherent in daily customer contacts.
All of If P&C's activities are governed by a strict environmental policy. The essence of this policy is that If P&C will always endeavor to find the most environmentally viable solution for If P&C, its clients, suppliers and partners. Further details on If P&C’s environmental activities can be read from The If Environmental Report 2012 published in March 2013 available at www.sampo.com/materials/annualreports /2012.
Mandatum Life’s corporate responsibility is based on the cornerstones of its operations: increasing and securing the financial welfare of its customers and the company’s business success. In 2013, Mandatum Life paid out a total of approximately EUR 320 million in pensions to 61,000 pensioners, as well as other indemnities totaling EUR 415 million to 38,000 insured.
During the year 2013, approximately 91 per cent of the staff worked in P&C insurance, 8 per cent in life insurance and less than 1 per cent in the Group’s parent company Sampo plc. Geographically, 33 per cent worked in Finland, 27 per cent in Sweden, 21 per cent in Norway and 19 per cent in the Baltic and other countries. The average number of employees during the year 2013 was 6,832. A year earlier the corresponding figure was 6,823.
The different forms of remuneration used in Sampo Group are the following: (a) Fixed Compensation Fixed compensation is customarily the basis of an employee’s remuneration package. Fixed salaries shall support financial stability, represent a sufficiently high share of the total remuneration and be competitive but not leading in the market. As a rule, fixed salary shall be based on the employee’s general responsibility level and position in the organization.
(b) Variable Compensation Variable compensation can be divided into two main groups, based on the underlying motivation of the compensation.
• (i) Variable compensations based on the contribution to the company’s profitability. In this compensation group compensation shall be based on the individual employee´s contribution to the company´s profitability. In addition to individual performance criteria, a combination of the assessment of the performance of the company, business area and/or business unit concerned and of the overall result of the division or Group define the overall ability of Sampo Group companies to pay out certain forms of variable compensation.
• (ii) Variable compensations linked to committing employees to the Group. As part of the total remuneration package, in addition to fixed compensation and different forms of other variable compensation, Sampo Group may, at the sole discretion of Sampo plc’s Board of Directors, use long-term incentive programs to commit Executive Management and Key Persons to the Group for a longer period of time. The programs are designed to also align the participants’ interests with those of the shareholders in a longer perspective by linking the payout of the programs not only to certain performance criteria but also to the positive development of Sampo’s share price. The payout of the programs is always capped i.e. the size of payment is limited to a maximum amount.
In 2013 EUR 27 million (17), including social costs, was paid on the basis of the long-term incentive scheme 2009:1. EUR 34 million (28), including social costs, was paid as short-term incentives during the same period. The outcome of the long-term incentive schemes is determined by Sampo’s share price development over a period of approximately three years starting from the issue of the respective program. The programs are subject to thresholds on share price development and company profitability, as well as ceilings for maximum payout. Furthermore, the programs are subject to rules requiring part of the paid incentive reward to be used to acquire Sampo shares, which must in turn be held for a specified period of time.
The terms of the long-term incentive schemes are available at www.sampo.com/remuneration. During 2013 Sampo plc's Board did not adopt new long-term incentive schemes.
Sampo Group will also publish a Remuneration Report in March 2014. The report is drawn up in accordance with section 7 (Remuneration) of the Corporate Governance Code. The report will be available at www.sampo.com/remuneration.
risks, capitalization, liquidity and profitability in these business areas can be summarized as follows: 1. Appropriate selection and pricing of insurance risks 2. Effective management of insurance exposures 3. Careful selection and execution of investment transactions 4. Effective management of investment portfolios and balance sheet 5. Effective management of consequential risks
As a diverse financial institution, Sampo Group is exposed to a variety of different risks, both financial and non-financial. The most significant risk arising from the operations of the insurance subsidiaries in 2013 was market risk. The main market risks of Sampo
Group during 2013 were equity, interest rate, credit spread and currency risks.
On the Group level, the most significant risks were market risk and credit risk. The latter due to Sampo plc’s sizeable holding in Nordea Bank.
Sampo plc made no repurchases during 2013 and has not purchased its own shares after the end of the reporting period.
The number of Sampo plc’s shareholders remained stable and amounted to 82,092 (82,216) as at 31 December 2013. Approximately 1.3 per cent of shares had not been transferred to the book-entry system. The holdings of nominee-registered and foreign shareholders grew to 56.79 per cent (54.65) of the shares and 56.31 per cent of the votes (54.19).
During 2013 Sampo did not receive notifications of change in holdings pursuant to Chapter 9 of the Securities Markets Act.
Shareholders by Sector Sampo plc, 31 December 2013 (A and B shares)
BoarBoard of Dird of Directectorsors 31 Dec 201331 Dec 2013 31 Dec 201231 Dec 2012
Group Executive Committee's ownership of votes, % 0.1 % 0.1 %
Sampo Group’s parent company Sampo plc received almost EUR 900 million in dividends from its subsidiaries and associated company Nordea Bank AB during 2013. The following dividend payments were received during 2013: • 26 March 2013; Nordea Bank AB; EUR 293 million; • 25 April 2013; Mandatum Life; EUR 100 million and • 5 December 2013; If P&C; SEK 4.3 billion (approx.
Nordea Bank AB (publ) has been Sampo plc’s associated company since 31 December 2009. Under the Act on the Supervision of Financial and Insurance Conglomerates (2004/699), Sampo Group is therefore treated as a financial and insurance conglomerate.
Sampo Group’s strong profit generation. Changes in other items were relatively small, except for the increased dividend assumption.
The economic capital tied up in Group’s operations on 31 December 2013 was EUR 5,361 million (4,560) and adjusted solvency capital was EUR 9,417 million (8,197).
On 28 May 2013 Sampo plc bought back SEK 3,391 million of SEK 4,000 million senior notes maturing 16
On 20 June 2013 If P&C Insurance Company Ltd., issued a capital loan of EUR 90 million. The first call date for the floating rate perpetual capital loan is 26 November 2018.
Senior Bond 2,000 SEKm Stibor3M + 0,75% - 1.8450% 28 May 2015
Sampo Group’s business areas are expected to report good operating results for 2014. However, the markto -market results are, particularly in life insurance, highly dependent on capital market developments. The continuing low interest rate level also creates a challenging environment for reinvestment in fixed income instruments.
The P&C insurance operations are expected to reach their long-term combined ratio target of below 95 per cent in 2014 by a margin. Nordea’s contribution to the Group’s profit is expected to be significant.
Uncertainties in the form of major unforeseen events or structural changes in the business environment may have an immediate impact on the Group’s profitability or long-term impact on how business shall be conducted. Identification of uncertainties is easier than estimation of their probabilities, timing and potential outcomes.
The dividend will be paid to shareholders registered in the Register of Shareholders held by Euroclear Finland Ltd as at the record date of 29 April 2014. The Board proposes that the dividend be paid on 7 May 2014.
Key Figures GrGroup koup keey figury figureses 20132013 20122012 20112011 20102010 20092009
Return on equity (at fair values) % 13.813.8 19.9 7.7 21.8 55.7
Premiums written before reinsurers' share EURm 4,7684,768 4,698 4,414 4,189 3,888
Loss ratio excl. unwinding of discount ²) % 71.471.4 72.0 74.7 75.6 74.6
Return on equity (at fair values) % 18.318.3 28.5 -11.7 36.2 97.6
Adjusted number of shares at 31 Dec. 1 560,000560,000 560,000 560,000 561,282 561,282
Weighted average number of shares, incl. dilutive potential shares 1 560,000560,000 560,000 560,863 561,321 561,370
Average adjusted number of shares 1 558,800558,800 558,800 559,663 560,121 560,170
Share trading volume during the financial year 1 188,402188,402 252,821 399,759 381,863 452,367
Adjusted number of shares at 31 Dec. 1 1,2001,200 1,200 1,200 1,200 1,200
Average adjusted number of shares 1 1,2001,200 1,200 1,200 1,200 1,200
³) The Board of Director's proposal to the Annual General Meeting for the accounting period 2013.
Profit before taxes Property & casualty insurance profit before taxes + life insurance profit before taxes
PrProperty & Casualty and Lifoperty & Casualty and Life Insure Insurancancee
+ sectoral items intangible assets and sectoral deductibles own funds, total minimum requirements for own funds, total group solvency
- reinsurers’ share of insurance liabilities - 75 % x technical provisions relating to unit-linked insurance
Effective dividend yield, % dividend per share adjusted closing share price at 31 Dec. x 100%
Sampo Group is engaged in three business areas. Nonlife insurance and life insurance are conducted by subsidiaries If P&C Insurance Holding Ltd and Mandatum Life Insurance Company Ltd that are wholly owned by parent company Sampo plc. In addition to the insurance subsidiaries, Group’s parent company Sampo plc held, as at 31 December 2013, an equity stake of 21.25 percent in Nordea Bank AB (publ) through which Sampo Group is engaged in banking business and exposed to respective risks. Nordea is Sampo plc’s associated company and thus has a material effect on the Group’s profits and risks. However, Nordea operates independently and the company’s risk management is therefore not covered in Sampo Group’s Annual Report.
As a Nordic insurance group If P&C underwrites policies that cover various risks of individuals and corporations on a geographically diverse area. If P&C mainly underwrites risks in the Nordic and Baltic countries but it underwrites also policies for Nordic clients’ activities outside the Nordic countries. In addition to geographical diversification, the business is well-diversified over lines of business. Mandatum Life operates in Finland and Baltic countries and offers savings and pension policies with life risk features as well as policies covering mortality, morbidity and disability risks.
There are virtually no overlaps between the subsidiaries’ insurance businesses’ risks and therefore the subsidiaries’ underwriting activities can be managed and developed as separate units supported by only limited group wide coordination. Investment activities, on the other hand, are centralized to manage risks at group level as well. The persons responsible for managing the subsidiaries’ investments report directly to Sampo Group’s Chief Investment Officer. Also the IT system architecture used in investment activities is the same throughout the Group facilitating consistent analysis and reporting of investment risks and assessment of risks at group level. Furthermore, the same basic principles are primarily followed in the investment activities of both subsidiaries, although the risk level of If P&C’s investment portfolio is held significantly lower than the risk level of Mandatum Life’s investment portfolio due to different features of their insurance liabilities and general risk appetites.
In Sampo Group the risks associated with business activities fall by definition into two main categories: strategic risks associated with external drivers affecting the business environment and risks inherent in business operations.
flexibility to be able to adjust the business model and cost structure when needed is an efficient tool in managing strategic risks. Although strategic risks are not covered by the economic capital model in Sampo Group they may, however, have an effect on the amount of actual capital base, if deemed prudent in existing business environment.
Successful management of underwriting and investment risks is the main source of earnings for Sampo Group companies. Day-to-day management of these risks, i.e. maintaining them within given limits and authorisations is the responsibility of the business areas and the investment unit.
Biometric risks refer to the risk that the company has to pay more mortality, disability or morbidity benefits than expected, or the company has to keep paying pension payments to the pension policy holders for a longer time (longevity risk) than expected when pricing the policies. When a low frequency, high severity event leads to a significant deviation in actual benefits and payments from the total expected payments, catastrophe risk has realized.
Some risks, such as counterparty credit risks and operational risks are indirect consequences of Sampo’s business activities. They are one-sided risks, with no earnings potential related to them. Accordingly, the risk management objective is to mitigate these risks efficiently. Management of consequential risks is the responsibility of the business areas and the investment unit and the capital need for these risks is measured by independent risk management functions.
Counterparty risk is part of credit risk. In general credit risk refers to losses arising from occurred defaults of debtors (issuer risk) or other counterparties (counterparty risk) or from increases in assumed probability of defaults.
In the case of issuer risk the final loss depends on the investor’s holding of the security at the time of default, mitigated by the recovery rate. In most cases issuer risk has already been fully priced as a lower market value before the event of default has occurred. In essence credit spread is the market price of credit risk. Similarly as other earnings risks, spread risk can be actively managed. Therefore, it is categorized in Sampo Group under investment portfolio market risks.
In the case of counterparty risk, the final loss depends on the positive mark-to-market value of derivatives or reinsurance recoverables at the time of default and on the recovery rate. Counterparty credit risk 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.
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 legal 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 as far as customers, products or business activities are concerned; • damage to physical property; • interruption of activities and system failures; and • defects in the operating process.
When changes in different market risk variables (interest rates, inflation, foreign exchange rates) cause a change in the fair values of investment assets and derivatives that is of different size than the respective change in the economic value of insurance liabilities, the company is exposed to ALM risk. It is crucial to remember that the cash flows of insurance liabilities are modelled estimates and therefore uncertain in relation to both their timing and amount. This uncertainty is a central component of ALM risk as well.
On balance sheet level, ALM risks contribute considerably to economic values, risks and capital need. Sampo Group companies analyse ALM risks and monitor ALM exposures actively and the risks are taken into account when managing investments and developing insurance products.
In addition to the risks relating to fluctuations in market values and economic values, ALM risks include liquidity risk. Liquidity risk is the risk that group companies are, due to lack of available liquid funds and/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. Liquidity risk includes potential illiquidity of investments and unexpected non-renewal of insurance policies. Moreover, the availability and cost of refinancing and prices of financial derivatives affect the Group companies’ ability to carry out normal business activities.
Direct concentrations can evolve within separate activities – large single name or industry specific insurance or investment exposures – or across the activities when a single name or an industry is contributing widely on profitability and risks of the company through both insurance and investment activities.
Sampo Group companies operate in business areas where profit generation based on risk taking and active management of risks are key components of earnings logic. Core competencies in managing the balance between risks, capitalization, liquidity and profitability in Sampo’s business areas can be summarized as follows: ApprAppropriaopriatte selection and pricing of underwritinge selection and pricing of underwriting riskriskss
• Counterparty credit risks are mitigated by selecting counterparties carefully, using risk mitigation techniques and increasing diversification.
Employees’ knowledge and skills are continuously developed to maintain the core competencies. In Sampo Group’s businesses data, analytical tools converting the data into information to be used in different business areas and risk management processes are particularly important as well. When the above-mentioned core competencies are in place, a balance between earnings, risks and capitalization can be achieved on a company level.
At group level the focus is on group wide capitalization and liquidity. In addition to the company level core competencies, at group level it is essential to identify potential risk concentrations and to have a thorough understanding of how reported profits of companies would behave under different scenarios in general. These concentrations and correlations have an effect on group level capitalization and liquidity and they may have an effect on group level management actions.
Sampo Group’s steering model as well as the legal structure of the Group is straightforward and simple.
1. The Group’s parent company Sampo plc steers the subsidiaries by setting capital and return on equity (RoE) targets for the subsidiaries and by defining preconditions for the subsidiaries’ operations in the form of the group wide principles. In addition to the opinions of the Sampo plc Board of Directors, the stakeholders’ expectations and external regulations affect the principles set by Sampo plc.
2. Subsidiaries organize their activities independently taking into account the specific characteristics of their own operations and the group wide principles. The stakeholders’ expectations and external regulations affect the subsidiaries’ activities directly as well.
The Board of Directors of the parent company decides on the main guidelines governing the subsidiaries’ business activities and risk management. Of these guidelines the most significant are Code of Conduct, Risk Management Principles, Remuneration Principles and Compliance Principles. In addition, for example Disclosure Policy is followed in order to prevent reputational and compliance risks.
Sampo Group’s subsidiaries independently decide on the governance structure of their own operations as well as on the policies, limits, authorizations and instructions relating to specific areas in accordance with the guidelines defined by the parent company.
The risk management process consists of continuous activities that are partly a responsibility of the personnel involved in business activities and partly a responsibility of independent risk management specialists. The responsibilities of business lines and independent risk management are clear. In addition in Sampo Group these functions are in a continuous dialogue.
Parties independent of business activities are responsible for the risk management governance framework, risk policies, risk limits and authorizations, which form the structure that sets the limits for business and investment units’ risk taking and principles for risk monitoring. These structures are one prerequisite for the risk management process and they reflect capital adequacy targets and risk appetite in general.
The central prprererequisitequisiteses for facilitating successful risk management include the following: • Risk management governance structure and authorizations (see Risk Governance section)
The tasktaskss included in the risk management process can be classified as follows: Financial and risk management functions are explicitly responsible for independent measurindependent measurement andement and ccontrontrolol, including monitoring of operations in general as well as profitability, risk and capitalization calculations.
In addition to the statutory financial statements and solvency figures, Sampo Group companies also use internal performance, risk and capital measures based generally on fair values of assets and liabilities. Capital adequacy is assessed internally by comparing the available capital (adjusted solvency capital “ASC”) to the amount of capital needed. ASC includes, in addition to the capital components included in the Solvency I framework, other loss absorbing items
Independent Measurement and Control - Output Examples: • Detailed reporting on risks to subsidiaries’ and Sampo plc’s Risk Committees and the Boards of Directors.
• EC and ASC is reported internally at least on a quarterly basis. • Regulatory and rating agency capital charges and capital positions are reported internally on a quarterly basis. • Internal and regulatory capitalization figures are disclosed quarterly as well.
• Plans for intra-group and external dividends. • Initiatives on hybrid and senior debt issuance.
AActionsctions, i.e. transactions representing the actual insurance and investment operations are performed in accordance with the given authorizations, risk policies and other instructions. These actions are the responsibility of business and centralized functions such as the investment unit. Activities related to capitalization and liquidity positions are included in this part of the process. In Sampo Group, proactive profitability, risk and capital management actions are seen as the most important phase in the risk and capital management process. Hence, risk policies, limits and decision making authorizations are set up in a way that they, together with profitability targets, facilitate business and investment units to take carefully considered risks.
• External risk drivers and potential strategic risks are identified and the company is in a good position, in terms of capital structure and management, to react to changes in business environment; • Corporate structure, knowledge and processes in companies facilitate effective implementation of changes.
When the above targets are met, risk management is contributing positively on return on equity and mitigating the yearly fluctuations in profitability. The risk management process is therefore considered to be one of the contributors in creating value for the shareholders of Sampo plc.
operations as well as the Group’s capitalization and liquidity position. The parent company is also projecting and analyzing the Group companies’ profitability, risks and capitalization with uniform scenarios to have company specific forecasts that are additive at group level.
Based on both company and group level information, the Board of Directors of Sampo plc decides on the Group’s capitalization as well as sets the guidelines on the parent company’s debt structure and liquidity reserve. The underlying objective for Sampo plc is to maintain a prudent debt structure and strong liquidity in order to be able to arrange financing for strategic projects if needed. Strong liquidity and the ability to acquire financing are essential factors in maintaining Sampo Group’s strategic flexibility.
This section describes Sampo Group’s and its subsidiaries’ governance framework 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 main risk steering mechanism used by the Boards of Directors is the policy framework. As part of their responsibilities the Boards of Directors approve the Risk Management Policy and the other risk steering documents, ensure that the management and followup of risks are satisfactory, monitor risk reports and approve risk management plans. The reporting lines of different governing bodies in If P&C are described in the figure Risk Governance in If P&C.
The If Risk Committee (IRC) assists the Chief Executive Officers (CEOs) and the Boards of Directors of If P&C in fulfilling their responsibilities pertaining to the risk management process. The IRC reviews, discusses and gives input on risk issues raised from the relevant risk committees, experts and line organization. Furthermore, the IRC also monitors that If P&C’s short-term and long-term aggregate risk profile is aligned with its risk strategy and capital adequacy requirements. The Risk Control unit within the Risk Management department is, on behalf of the Chief Risk Officer (CRO), responsible for coordinating and analyzing the information reported to the IRC.
The responsibility to identify, evaluate, control and mitigate risks lies within the line organization. There are separate committees in place for key risk areas. These committees have the responsibility to monitor that risks are managed and controlled as decided by the Boards of Directors. The chairmen of the committees are responsible for the reporting to the IRC. The risk committees in If P&C do not have a decision mandate.
Policies are in place for each risk area specifying restrictions and limits chosen to reflect and secure that the risk level at all times complies with the overall risk appetite and capital adequacy constraints of If
P&C. The committees shall also monitor the effectiveness of policies and give input to changes and updates if needed.
The responsibilities of the respective risk committees are: • The Investment Control Committee (ICC) is responsible for monitoring the implementation of and compliance with the Investment and Asset Coverage Policies. The committee shall consider and propose changes to the policies. The Chairman is responsible for the reporting of policy deviations and other issues dealt with by the committee.
• The Reinsurance Committee (RC) is a collaboration forum for reinsurance related issues and shall give its opinion on and propose actions in respect of such issues. The committee shall consider and propose changes to the Reinsurance Policy and the Internal Reinsurance Policy. The Chairman is responsible for the reporting of policy deviations and other issues dealt with by the committee.
• The Reinsurance Security Committee (RSC) shall give input and suggestions to decisions in respect of various issues regarding reinsurance credit risk and risk exposure, as well as proposed deviations from the Reinsurance Security Policy. The Chairman is responsible for the reporting of policy deviations and other issues dealt with by the committee.
• The Operational Risk Committee (ORC) is responsible for preparing a comprehensive overview of the operational risk status in If P&C. The committee shall consider and propose changes to policies and instructions regarding operational risks. The Chairman is responsible for the reporting of issues dealt with by the committee.
• The Ethics Committee (EC) discusses and coordinates ethics issues in If P&C. The committee gives recommendations on ethical issues and proposes changes to the Ethics Policy. The Chairman is responsible for the reporting on ethics risk and other issues dealt with by the committee.
• The Insurance Risk Committee is responsible for maintaining the Underwriting Policy and monitoring the functioning of the risk selection and claims processes. The Committee also reports all deviations from the Underwriting Policy to the RMC. The Insurance Risk Committee is chaired by the Chief Actuary who is responsible for ensuring that the principles for pricing policies and for the calculation of technical provisions are adequate and in line with the risk selection and claims processes. The Board approves the insurance policy pricing and the central principles for the calculation of technical provisions. In addition, the Board defines the maximum amount of risk to be retained on the company’s own account and approves the reinsurance policy annually.
Risk Management Process. The risk exposures and capitalization reports of the subsidiaries are consolidated at group level on a quarterly basis and reported to the Board and to the Audit Committee of Sampo plc.
The Audit Committee (AC) is responsible, on behalf of the Board of Directors, for the preparation of Sampo Group’s risk management principles and other related guidelines. The AC shall ensure that the operations are in compliance with these, control Sampo Group’s risks and risk concentrations as well as control the quality and scope of risk management in the Group companies. The committee shall also monitor the implementation of risk policies, capitalization and the development of risks and profit. At least three members of the AC must be elected from those members of the Board, who do not hold management positions in Sampo Group and are independent of the company. The AC meets on a quarterly basis.
The Group Chief Risk Officer (CRO) is responsible for the appropriateness of risk management on Sampo
Group level. The CRO’s responsibility is to monitor Sampo Group’s aggregated risk exposure as a whole and coordinate and monitor company specific and group level risk management.
The Underwriting Policy (UW Policy) is the principal document for underwriting, and sets general principles, restrictions and directions for the underwriting activities. The Board of Directors of If P&C approves the UW Policy at least once a year.
Breakdown of Gross Written Premiums by Business Area If P&C, 2013, total 4,768 EURm
Breakdown of Gross Written Premiums by Country If P&C, 2013, total 4,768 EURm
Breakdown of Gross Written Premiums by Line of Business If P&C, 2013, total 4,768 EURm
Despite the diversified portfolio, risk concentrations and thereby 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, single large claims could have an impact on the insurance operations’ result. The economic impact of natural disasters and single large claims is managed using reinsurance and through diversification.
A group wide reinsurance program has been in place in If P&C since 2003. In 2013, retention levels were between SEK 100 million (approximately EUR 11.3 million) and SEK 250 million (approximately EUR 28.2 million) per risk and SEK 200 million (approximately EUR 22.6 million) per event.
Sensitivity of underwriting result and hence underwriting risk is presented by changes in certain key figures in the table Sensitivity Test of Underwriting Result, If P&C, 31 December 2013 and 31 December 2012.
KKeey figury figuree CurrCurrent leent levvel (2013)el (2013) Change in currChange in currentent
Combined ratio, business area Industrial 91.5% +/- 1 percentage point +/- 5 +/- 4
Net premiums earned 4,505 +/- 1 per cent +/- 45 +/- 44
Net claims incurred 3,215 +/- 1 per cent +/- 32 +/- 31
Ceded written premiums 208 +/- 10 per cent +/- 21 +/- 26
As part of the claims provisions are annuities, If P&C is exposed to revision risk, which is defined as the risk of loss, or of adverse change in the value of insurance and reinsurance liabilities, resulting from fluctuations in the level, trend, or volatility of revision rates applied to annuities, due to changes in the legal environment or in the state of health of the person insured. Revision risk is part of reserve risk.
Technical provisions always include a degree of uncertainty as the provisions are based on estimates of the size and the frequency of future claim payments. The uncertainty of technical provisions is normally greater for new portfolios for which complete run-off statistics are not yet available, and for portfolios including claims that take a long time to settle. Workers’ Compensation (WC), Motor Third Party Liability (MTPL), Personal Accident and Liability insurance, are products with the latter characteristics.
The Actuarial Committee is a preparatory and advisory board for If P&C’s Chief Actuary. The committee makes recommendations concerning guidelines for technical calculations. The committee also monitors technical provisions and provides advice to If P&C’s Chief Actuary regarding the adequacy of these provisions.
If P&C’s actuaries analyze the uncertainty of technical provisions. The actuaries continuously monitor the level of provisions to ensure that they comply with established guidelines. The actuaries also develop methods and systems to support these processes.
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 Third Party Liability (MTPL) and Workers’ Compensation (WC). The anticipated inflation is based on external assessments of the inflation trend in various areas, such as the consumer price index and payroll index, combined with If P&C’s own estimation of cost for various types of claims. For lines of business such as MTPL and WC, legislation differs significantly between countries. Some of the
If P&C’s technical provisions are further analyzed by claims years. The outputs of this analysis are illustrated both before and after reinsurance in the claims cost trend tables. These are disclosed in the Note 27 to the Financial Statements.
Life insurance risks encompass underwriting risk and discount rate risk in technical provisions. Underwriting risk includes biometric, policyholder behavior and expense risks.
If the premiums turn out to be inaccurate and pricing cannot be changed afterwards, technical provisions have to be supplemented with an amount corresponding to the expected losses.
The insurance risk result of other biometric risks has been profitable in total, although the different risk results differ considerably. In a longer term, disability and morbidity risks are mitigated by the company’s right to raise insurance premiums for existing policies in case the claims experience deteriorates.
New gender neutral pricing is fully in-force for all new retail policies with biometric risks. This creates more uncertainty for the future, although changes are not expected to have a significant impact on risk result.
The insurance portfolio of Mandatum Life is relatively well diversified and does not include major concentration risks. To further mitigate the effects of possible risk concentrations, Mandatum Life has the catastrophe reinsurance in place.
From ALM point of view surrender and lapse risks are less significant because in Mandatum Life, over 90 per cent of with profit policies are pension policies in which surrender is possible only in exceptional cases. For ALM risk, surrender risk is therefore only relevant in individual life and capital redemption policies of which the related technical provisions amounts to only 6 per cent (EUR 237 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. Surrender and lapse risks are taken into account when the company is analyzing its ALM risk.
In most with profit policies, the guaranteed interest rate is 3.5 per cent. In individual policies sold in Finland before 1999, the guaranteed interest rate is 4.5 per cent, which is also the statutory maximum discount rate of these policies. With respect to these policies, the maximum discount rate used when discounting technical provisions has been decreased to 3.5 per cent. As a result, technical provisions have been supplemented with EUR 75 million in 2013 (EUR 71 million in 2012). In addition, EUR 44 million has been reserved to lower the interest rate of with profit liabilities to 2.25 per cent in 2014 and EUR 26 million for the year 2015 to lower the interest rate of with profit liabilities to 2.75 per cent, i.e. Mandatum Life has set up an extra reserve of EUR 146 million as part of technical provisions.
The provisions related to each product type and guaranteed interest rates are shown in the table Analysis of the Change in Provisions before Reinsurance, Mandatum Life, 2013. The table also shows the change in each category during 2013.
Unit-linkUnit-linked ted totalotal 3,6993,699 880880 -323-323 -52-52 00 00 271271 4,4754,475 5252
Individual pension insurIndividual pension insurancancee 1,2161,216 2121 -156-156 -6-6 5151 00 1616 1,1411,141 1313
Individual lifIndividual life insure insurancancee 253253 3232 -36-36 -10-10 88 00 -14-14 233233 33
Unit linked business has been Mandatum Life’s main focus area since year 2001. Since that the trend of unit linked technical provisions have been upward and annual average change in technical provisions has been + 26 per cent per annum. Due to the nature of unit linked business, volatility between years is relatively high.
In contrast, the trend of with profit technical provisions is downward, especially portfolios with highest 4.5 per cent and 3.5 per cent guarantees.
Technical provisions with highest guarantees fell by EUR 197 million. In total, with profit technical provisions decreased by EUR 143 million including a strengthening of the discount rate reserves by EUR 28 million.
figure Development of With Profit and Unit-linked Technical Provisions, Mandatum Life, 2004–2013.
Development of With Profit and Unit-linked Technical Provisions Mandatum Life, 2004-2013
Unit-linkUnit-linked ted totalotal 8.6 759 688 1,254 884 785 357 429
WWith-prith-profit and others tofit and others totalotal 8.68.6 870870 699699 1,2801,280 867867 589589 395395 604604
Individual pension insurIndividual pension insurancancee 6.4 302 278 430 230 122 55 57
Capital rCapital redemption operedemption operaations *)tions *) 6.9 1 0 1 1 1 0 0
MandaMandatum Liftum Life pare parent cent companompany ty totalotal 8.68.6 1,6291,629 1,3861,386 2,5342,534 1,7511,751 1,3741,374 752752 1,0331,033
Biometric risks are managed by careful risk selection, by pricing to reflect the risks and costs, by setting upper limits for the protection granted and by use of reinsurance.
Reinsurance is used to limit the amount of individual mortality and disability risks. The Board of Directors annually determines the maximum amount of risk to be retained on the company’s own account, which for
Mandatum Life is EUR 1.5 million per insured. To mitigate the effects of possible catastrophes, Mandatum Life participates in the catastrophe reinsurance bought jointly by Finnish life insurance companies.
Investment Portfolio Market Risks In general, market risks refer to fluctuations in the financial results and capital position caused by changes in market values of financial assets and liabilities as well as economic value of insurance liabilities.
The risks caused by changes in interest rates, foreign exchange rates and inflation together with general trend of credit spreads and equity prices are defined as general market risks. When the risk is related to debt and equity instruments issued by a specific issuer, it can be defined as issuer specific market risk.
Market risk control is separated from portfolio management activities in two ways. Firstly, the persons independent from Investment Unit prepare Investment Policies for the Board approval. Secondly, Middle Office units that are independent from Investment Unit as well, measure risks and performance and control limits set in Investment Policies on a daily basis. Market risks and limits are also controlled by the ICC in If P&C and ALCO in Mandatum Life on a monthly basis at a minimum. These committees are responsible for the control of investment activities within the respective legal entity.
The aggregated market risks and concentrations at Sampo Group level are controlled by the Group’s Audit Committee quarterly at a minimum.
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 investment portfolios of the two companies often are different. This is reflected also in the companies’ investment returns. Mandatum
Investment Allocation If P&C, Mandatum Life, Sampo plc and Sampo Group, 31 December 2013
Parent company Sampo plc’s asset portfolio is a liquidity reserve including mainly short-term money market instruments and hence its market risks are limited. Interest rate risk arising from gross debt and the liquidity reserve is Sampo plc’s most significant market risk together with refinancing risk related to gross debt. Most of the parent company’s debt is tied to short-term reference rates as a consequence of interest rate swaps used. This mitigates group level interest rate risk because, while lower interest rates
would reduce subsidiaries’ investment returns in the long-term, the interest expense in the parent company would also be lower.
In addition to hedging purposes, derivatives are used to utilize market view or to mitigate risks at balance sheet level. In both cases derivatives are booked as trading derivatives at fair value through profit or loss in financial accounting.
Currency risk can be divided into transaction and translation risk. Transaction risk refers to currency risk arising from contractual cash flows in foreign currencies related to insurance activities, investment
In Mandatum Life, transaction risk arises mainly from investments in other currencies than euro as the company’s technical provisions are almost completely denominated in euro. Mandatum Life’s currency risk strategy is based on active management of the currency position. The objective is to achieve a positive return relative to a situation where the currency risk exposure is fully hedged.
If P&C's transaction risk position in SEK represents exposure in foreign subsidiaries/branches within If with base currency other than SEK.
In Sampo Group, the selection of direct fixed income and equity investments is based primarily on stock and bond-picking and secondarily on top-down allocation. This investment style ensures that the portfolio includes thoroughly analyzed investments with adequate risk return ratios, although the portfolio might not be necessarily as diversified as the finance or portfolio theory suggests.
Decision making, limit system and monitoring 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 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.
The public sector (governments, government guaranteed, public sector, other) has had relatively minor role in Sampo Group’s portfolios and these exposures have been mainly in the Nordic countries.
Fixed Income Investments in Public Sector Sampo Group, 31 December 2013
The exposures in non-rated and high-yield fixed income instruments are significant, because relatively small number of Nordic companies are rated. The largest high-yield and non-rated fixed income investment exposures are presented in the table Ten Largest Direct High Yield and Non-rated Fixed Income Investments, Sampo Group, 31 December 2013.
At the end of year 2013, the equity exposure of If P&C was EUR 1,283 million (EUR 1,248 million in 2012). The proportion of equities in If P&C’s investment portfolio was 11.0 per cent. In Mandatum Life, the equity exposure was EUR 1,448 million at the end of year 2013 (EUR 1,578 million in 2012) and the proportion of equities was 26.6 per cent of the investment portfolio. The equity portfolio consists of Nordic companies’ shares as well as mutual fund and ETF investments outside the Nordic countries.
Breakdown of Equity Investments by Geographical Regions Sampo Group, 31 December 2013, total 2,749 EURm
Breakdown of Equity Investments by Geographical Regions If P&C, 31 December 2013, total 1,283 EURm
Breakdown of Equity Investments by Geographical Regions Mandatum Life, 31 December 2013, total 1,448 EURm
The sector allocation of direct equity investments in Sampo Group is presented in table Credit exposures by sectors, asset classes and rating, If P&C, Mandatum Life and Sampo Group, 31 December 2013. The largest allocations are to capital goods, consumer products and basic industry sectors. Equity investments made through mutual funds and ETF investments accounted for 40 per cent of the entire equity portfolio.
Counterparty Credit Risks Sampo Group is exposed to counterparty credit risk through financial derivatives or reinsurance transactions. The risk realizes when counterparties fail to meet their financial obligations towards Sampo Group companies.
When financial derivatives are considered the situation is opposite. Mandatum Life and parent company Sampo plc are frequent users of long-term interest rate derivatives and are therefore inherently more exposed to credit risk of derivative counterparties
than If P&C, which is mainly using short-term foreign exchange derivatives.
Distribution of reinsurance receivables and reinsurers’ portion of outstanding claims in If P&C on 31 December 2013 per rating category is presented in the table Reinsurance Recoverables, If P&C, 31 December 2013 and 31 December 2012. In the table, EUR 140 million (EUR 157 million in 2012) are excluded, which mainly relates to captives and statutory pool solutions.
Reinsurance Recoverables If P&C, 31 December 2013 and 31 December 2012
At the inception of the reinsurance, the credit risk of the reinsurer is considered and the credit risks of reinsurance assets are monitored.
In order to limit and control credit risk associated with ceded reinsurance, If P&C has a Reinsurance Security Policy that sets requirements for the reinsurers’ minimum credit ratings and the maximum exposure to individual reinsurers. Credit ratings from rating agencies are used to support the assessment of the creditworthiness of reinsurance companies similarly to the assessment of credit risk of investment assets.
The market risk related to economic value of balance sheet is not reflected in financial results of insurance companies, as insurance liabilities are not carried at fair value in the financial statements. In order to have a comprehensive, economic view on risks and capitalization, Sampo Group companies calculate the economic value of insurance liabilities with market rates and adjust their capital bases in the internal Economic Capital framework accordingly.
The ALM risk in If P&C is managed in accordance with Sampo Group wide principles. ALM is taken into account through the risk appetite framework and is governed by If P&C’s Investment Policies.
In accounting the major part of the technical provisions is nominal, whereas a still significant part, being the annuity and so called annuity IBNR reserves, are discounted with 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, 2013 in Non-life Underwriting Risks section.
The Board of Directors of Mandatum Life approves annually the Investment Policy, which sets principles and limits for investment portfolio activities. The Investment Policy also includes control levels for maximum acceptable risk for the whole balance sheet and respective measures to manage the risk. These measures and control levels are based on both Solvency I and Solvency II type of approaches.
Sampo Group calculates the economic value of insurance liabilities for internal purposes by discounting expected liability cash flows with market rates. The difference between technical provisions and the economic value of insurance liabilities is a major component of the liability side adjustment and it is part of reported adjusted solvency capital. Hence,
Sampo Group is reporting the market based capital base as adjusted solvency capital.
EffEffect on adjusect on adjustted solved solvencency capitaly capital -731-731 564564 -540-540 -168-168
Liquidity risk is the risk that insurance undertakings are unable to conduct their business activities in accordance with the defined strategy, or in extreme cases, are unable to settle their financial obligations when they fall due. Sources of liquidity risk in Sampo Group include, for instance, non-renewal of insurance policies, large claims, market illiquidity risk of investments, and refinancing risk of debt. Also the availability and price of refinancing, financial derivatives and reinsurance can be identified as potential liquidity risks affecting the company’s ability to conduct on-going business.
Liquidity risk is relatively immaterial in Sampo Group’s businesses because substantial share of the investment assets are short-term money market instruments and liquid government bonds and, on the other hand, liabilities are fairly stable and predictable.
In If P&C, liquidity risk is limited, since premiums are collected in advance and large claims payments are usually known a long time before they fall due. Liquidity risks are managed by cash management functions that are responsible for liquidity planning. Liquidity risk is reduced by having investments that are readily tradable in liquid markets. The available liquid financial assets, which are the part of the assets that can be converted into cash at a specific point in time, is analyzed and reported to the IRC on a quarterly basis.
In Mandatum Life, a large change in surrender rates could influence the liquidity situation. However, only a relatively small part of 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.
In Sampo Group, liquidity risks are managed by the legal entities, which are responsible for liquidity planning. Liquidity risk is monitored based on the expected cash flows resulting from assets, liabilities and other business. At the end of 2013, the liquidity position in each legal entity was in accordance with internal requirements.
The maturities of technical provisions and financial assets and liabilities are presented in the table Cash Flows According to Contractual Maturity, If P&C, Mandatum Life and Sampo plc, 31 December 2013. The table shows the financing requirements resulting from expected cash inflows and outflows arising from financial assets and liabilities as well as technical provisions.
In the table, financial assets and liabilities are divided into contracts that have an exact contractual maturity profile, and other contracts.
Sampo Group companies have business relationships with several creditworthy counterparties which mitigate the risk that Sampo Group is not able to enter into reinsurance or derivative transactions when needed.
In Sampo Group, the parent company Sampo plc sets the following goals of operational risk management to subsidiaries: • To ensure simultaneously the efficiency and the quality of operations; • To ensure that operations are compliant with laws and regulations; and
The continuity of operational risk management in If P&C is secured through the Operational Risk Committee (ORC), which coordinates the operational risk process. The committee’s task is to give opinions, advice and recommendations to the If Risk Committee (IRC) as well as to report the current operational risk status. The status assessment is based on the selfassessments performed by the organization, reported incidents and other additional risk information. A trend analysis is being performed annually, whereby the most important trends affecting the insurance industry are identified and the effects on If P&C assessed.
The business organization and corporate functions have the responsibility to identify, assess, monitor and manage their operational risks. Risk identification and assessments are performed quarterly. Identified risks are assessed from a probability and impact perspective. The control status for each risk is assessed using a traffic light system: green – good control of risk, yellow – attention required, red – attention required immediately. Severe risks with control status yellow or red are reported to the ORC.
In order to manage operational risks, If P&C has issued a number of different steering documents: Operational Risk Policy, Continuity Plans, Business Continuity Policy, Security Policy, Outsourcing Policy, Complaints Handling Policy, Claims Handling Policy, Underwriting Guidelines, Internal Control Policy and other steering documents related to different parts of the organization. These documents are being reviewed and updated at least annually.
The objective of operational risk management in Mandatum Life is to enhance the efficiency of internal processes and decrease negative impact on Mandatum Life. The aim is to minimize operational risks subject to cost-benefit considerations.
Business units are responsible for the identification, assessment and management of own operational risks, including organizing adequate internal control. Operational Risk Committee (ORC) monitors and coordinates risk management issues regarding operational risks within Mandatum Life, such as policies and recommendations concerning operational risk management. The committee ensures that risks are identified and internal control and risk management have been organized in a proper way. The committee also analyses deviations from operational risk management policies and monitors operational risks identified in the self-assessments as well as the occurred incidents. The committee meets at minimum three times a year. Significant observations on operational risks are submitted to the Risk Management Committee and Board of Directors on a quarterly basis.
In order to limit operational risks, Mandatum Life has approved a number of policies including e.g. Internal Control Policy, Compliance Policy, Security Policies, Continuity Plan, Procurement and Outsourcing Policy, Complaints Handling Policy and a number of other policies related to ongoing operative activities. Deviations against different policies are followed up independently in each business unit and reported to Compliance Officer and ORC.
• The external asset managers and funds managed by them are selected for both companies by the same members of Sampo Group’s Investment Unit. The funds are mostly allocated to areas outside the Nordic countries. Consequently, the risk of unidentified or unwanted concentrations is relatively low.
• Furthermore, concentrations at group level are actively monitored and, if deemed necessary, further managed by deploying group level exposure restrictions, for instance by industries or by individual issuers.
Concentrations by sectors, asset classes and rating are illustrated in table Credit exposures by sectors, asset classes and rating, If P&C, Mandatum Life and Sampo Group, 31 December 2013 in Equity and Spread Risks section. Financial sector is the largest concentration at Sampo Group level. Most of the investments in financial sector are in the Nordic countries and the exposure consists of mainly covered bonds and short-term money market investments. Conversely, the significance of public sector bonds is minor and Sampo Group does not have investments in government bonds of the distressed countries. The public sector exposure includes government bonds, government guaranteed bonds and other public sector investments.
Fixed income investments in financial and public sector are shown, respectively, in the tables Fixed income investments in financial sector, Sampo Group, 31 December 2013 and Fixed income investments in public sector, Sampo Group, 31 December 2013 in Equity and Spread Risks section.
á vis with If P&C and Mandatum Life. The historical correlation between If P&C’s and Nordea’s, as well as Mandatum Life’s and Nordea’s, quarterly profits since 2005 is very low. Sampo Group also forecasts profits based on similar scenarios for all the companies.
Correlations of Quarterly Reported Profits If P&C, Mandatum Life and Nordea, 1 January 2005 - 31 December 2013
Both legal and reporting structures of Sampo Group are simple, straightforward and transparent, which effectively mitigate any risks related to complex structures. Structural simplicity and transparency together with a limited amount of intercompany exposures within Sampo Group (i.e. direct or indirect claims between different companies excluding normal course of business transactions with Nordea) and diligently managed capitalization of subsidiaries also effectively protects Group companies from contagion risks.
In the internal capitalization assessment, the economic capital (“EC”) is the starting point for assessing the amount of adjusted solvency capital (“ASC”).
• EC is considered to be a good estimate of the capital required to cover risks that can be measured in a reliable way and within a normal business environment. However, some of the risks are not measurable and there is uncertainty in business environment. Hence, when assessing the need of total capital, a buffer will be added over the EC reflecting the uncertainty in the business environment as well as the effects of low probability and less measurable risks.
Updates and refinements are done frequently both to the models and the assumptions used for calculating the economic capital. Thus, the economic capital figures may not be fully comparable between years.
Sampo Group’s economic capital increased during the year and amounted to EUR 5,361 million at the end of 2013 (EUR 4,560 million in 2012). The amount of adjusted solvency capital at group level increased during the year to EUR 9,417 million (EUR 8,197 million in 2012) due to strong fair value results and increase in interest rates. The adjusted solvency capital exceeded the economic capital by EUR 4,056 million (EUR 3,637 million in 2012) and capitalization by internal measures is strong.
Regulatory solvency capital amounted to EUR 8,598 million in Sampo Group at the end of year 2013.
Nordea is included in the calculation of Sampo Group’s economic capital by adding Sampo Group’s share of the economic capital reported by Nordea, converted into the 99.5 per cent confidence level used in Sampo Group. At year end, the risks arising from Nordea constitute the largest single component in Sampo Group’s economic capital. The correlations between risk types and business areas, and thereby indirectly the amount of diversification, are defined by Sampo plc at Sampo Group level.
Due to the adoption of the revised accounting standard IAS 19 on Employee Benefits, the comparison figures for 2012 have been restated and differ from the earlier published figures.
At the end of 2013, Sampo Group’s consolidated regulatory capital position was strong. The Group’s solvency ratio was 184 per cent (170 per cent in 2012).
The breakdown of economic capital by risk type and a comparison to adjusted solvency capital both in If P&C and Mandatum Life is depicted in the figure Breakdown of Capitalization, If P&C and Mandatum Life, 31 December 2013. Regulatory capital requirement is presented in the same figure.
In If P&C, economic capital increased to EUR 1,720 million (EUR 1,613 million at the end of 2012), while in Mandatum Life, economic capital decreased to EUR 1,085 million (EUR 1,110 million at the end of 2012).
The amount of adjusted solvency capital exceeded the economic capital both in If P&C and in Mandatum Life. During the year, the amount of adjusted solvency capital in If P&C increased to EUR 3,706 million (EUR 3,090 million at the end of 2012), and in Mandatum Life, adjusted solvency capital increased to EUR 1,492 million (EUR 1,076 million at the end of 2012). In both companies good fair value results and increase in interest rates strengthened the capitalization which was partly offset by paid dividends to the parent company.
Parent company Sampo plc is rated by Moody’s and If P&C is rated by both Moody’s and Standard & Poor’s (S&P). The main rating objective is to retain at least a single A rating for If P&C. The data for S&P rating model is updated regularly by If P&C. Sampo Group is in a continuous dialogue with the rating agencies and therefore has a good understanding of the opinions of agencies.
As a result of the continuous work with risk management issues, If P&C’s ERM (Enterprise Risk Management) has been graded ‘strong’ by S&P.
While awaiting the postponed implementation of the Solvency II regulation in the EU, common guidelines have been issued to the local supervisory authorities. The guidelines concern supervision of how the insurance companies prepare for Solvency II regarding the governance system, the forward looking risk assessment, supervisory reporting and pre-application of internal models. Although If P&C and Mandatum Life are well prepared in these areas, companies are refining their processes to be fully compliant when Solvency II comes into force.
Financial Statements 155 Group's IFRS Financial Statements 155 Consolidated comprehensive income statement, IFRS
160 Notes to the accounts 160 Summary of significant accounting policies 177 Segment information 183 Notes to the Group’s Financial Statements 251 Sampo plc’s Financial Statements 251 Sampo plc’s income statement 252 Sampo plc’s balance sheet 253 Sampo plc’s statement of cash flows 255 Summary of Sampo plc’s significant accounting policies 256 Notes to Sampo plc’s Financial Statements 265 Approval of the Financial Statements and the Board of Directors’ Report 266 Auditor's Report
Change in liabilities for insurance and investment contracts 4 -697 -719
ItItems rems reclaseclassifiable tsifiable to pro profit or losofit or losss 23, 24
TTOOTTAL CAL COMPREHENSIVE INCOMPREHENSIVE INCOME FOME FOR THE FINANCIAL YEAROR THE FINANCIAL YEAR 1,4251,425 1,8871,887
EEquity aquity at 31 Dec. 2012t 31 Dec. 2012 9898 00 44 1,5271,527 7,4967,496 165165 760760 -29-29 10,02010,020
EEquity aquity at 31 Dect 31 December 2013ember 2013 9898 00 44 1,5271,527 8,1758,175 -106-106 976976 -30-30 10,64310,643 1) 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 25 (-) of Nordea's actuarial gains/losses from defined pension plans. The exchange differences include the share of Nordea's exchange differences EURm -99 (28). Respectively, available-for-sale financial assets include EURm 5 (11) of Nordea's valuation differences and cash flow hedges EURm -0 (-29).
2) The amount recognised in equity from available-for-sale financial assets for the period totalled EURm 280 (384). The amount transferred to p/l amounted to EURm -70 (11).
3) The amount recognised in equity from cash flow hedges for the period totalled EURm -0 (-1).
4) IAS 19 Pension benefits had a net effect of EURm -83 (-95) on retained earnings.
Net cash frNet cash from operom operaating activitiesting activities 230230 1,0921,092
AAdditional infdditional informaormation ttion to the so the statattement of cash floement of cash flowws:s: 20132013 20122012
Dividend income received 82 82 *) Investments include investment property, financial assets and investments related to unit-linked insurance contracts.
If P&C Insurance Holding AB sold the Russian insurance company SOAO Region on 30 Nov 2012. The net net consideration paid was EURm 8. The cash and cash equivalents transferred amounted to EURm 1.
During the financial year, Sampo adopted the following amended standards relating to its business.
Amendment to IAS 1 (effective for annual periods beginning on 7 July 2012 or after) requires the grouping of items presented in other comprehensive income based on whether they are potentially reclassifiable to profit or loss subsequently. The amendment had an impact on the Group’s disclosures.
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.
The following exchange rate was applied in the consolidated financial statements: BalancBalancee sheetsheet dadattee
Insurance premiums in the income statement consist of premiums written for P&C insurance and life insurance.
In the life insurance business, IFRS 4 Insurance Contracts provides that insurance contracts with a discretionary participation feature are measured in accordance with national valuation principles (except for the equalisation reserve) rather than at fair value. These contracts and investments made to cover shareholders’ equity are managed in their entirety and are classified mainly as available-for-sale financial assets.
Purchases and sales of financial assets at fair value through profit or loss, held-to-maturity investments and available-for-sale financial assets are recognised and derecognised on the trade date, which is the date on which the Group commits to purchase or sell the asset. Loans and receivables are recognised when cash is advanced.
Financial derivFinancial derivaativtive inse instruments held ftruments held for tror tradingading
Available-for-sale financial assets are non-derivative financial investments that are designated as available for sale and or are not categorised into any other category. Available-for-sale financial assets comprise debt and equity securities.
The fair value of financial instruments is determined primarily by using quoted prices in active markets. Instruments are measured either at the bid price or at the last trade price, if the instrument is a share listed at NASDAQ OMX. The financial derivatives are also measured at the last trade price. If the financial instrument has a counter-item that will offset its market risk, the mid-price may be used to that extent.
There is objective evidence of impairment, if an issuer or debtor e.g. encounters significant financial difficulties that will lead to insolvency and to estimation that the customer will probably not be able to meet the obligations to the Group. Objective evidence is first assessed for financial assets that are individually significant, and individually and collectively for financial assets not individually significant.
Whether there is objective evidence of an impairment of available-for-sale financial assets, is evaluated in a separate assessment, which is done if the credit rating of an issuer has declined or the entity is placed on watchlist, or there is a significant or prolonged decline in the fair value of an equity instrument below its original acquisition cost.
Derivative instruments that are not designated as hedges and embedded derivatives separated from a host contract are treated as held for trading. They are measured at fair value and the change in fair value, together with realised gains and losses and interest income and expenses, is recognised in profit or loss.
Hedge accounting applies to hedges that are effective in relation to the hedged risk and meet the hedge accounting requirements of IAS 39. The hedging relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for undertaking the hedge, are documented at the inception of the hedge. In addition, the effectiveness of a hedge is assessed both at inception and on an ongoing basis, to ensure that it is highly effective throughout the period for which it was designated. Hedges are regarded as highly effective in offsetting changes in fair value or the cash flows attributable to a hedged risk within a range of 80-125 per cent.
When a hedging instrument expires, is sold, terminated, or the hedge no longer meets the criteria for hedge accounting, the cumulative change in fair value remains in equity until the hedged cash flows affect profit or loss.
At each reporting date the Group assesses whether there is any indication that an intangible asset or an item of property, plant or equipment may be impaired. If any such indication exists, the Group will estimate the recoverable amount of the asset. In addition, goodwill, intangible assets not yet available for use and intangible assets with an indefinite useful life will be tested for impairment annually, independent of any indication of impairment. For impairment testing the goodwill is allocated to the cash-generating units of the Group from the date of acquisition. In the test the carrying amount of the cash-generating unit, including the goodwill, is compared with its recoverable amount.
In classifying insurance contracts and examining their related risks, embedded contracts are interpreted as one contract.
Pensions and compensation for healthcare or medical rehabilitation paid on the basis of Finland’s statutory P&C insurance (accident, motor third party liability and patient insurance) are raised annually by the TEL (Employee Pensions Act) index in order to maintain the real value of the pensions. The index raises are not the responsibility of the insurance companies, but are funded by the so-called pay-as-you-go principle, i.e. each year premiums written include index raises to the same amount that is paid out in that year. In practice, the P&C insurance companies collect a so-called expense loading along with their premiums written, which is then forwarded to the central organisation for the particular insurance line. The central organisation distributes the pay-as-you-go contributions collected so that the company undertaking the type of insurance in question receives an amount equal to the compensation falling under the pay-as-you-go system it has paid that year. The insurer’s participation in the payment is proportional to the insurer’s market share in the insurance line in question.
InsurInsurancance and ine and invvesestment ctment controntract liabilities andact liabilities and rreinsureinsurancance ase assetssets
Due to the difference in the discount rate of liabilities and the guaranteed interest of 4.5 per cent, supplementary provisions for guaranteed interest have been added to technical provisions. In the subsidiary, Mandatum Life Insurance Baltic, the discount rate varies by country between 2.0-4.0 per cent and the average guaranteed interest rate between 2.0-4.0 per cent.
Mortality assumptions have an essential effect on the amount of liability, particularly in group pension insurance, the liability of which accounts for about 32 per cent of the technical provisions of the Finnish life company. A so-called cohort mortality model is used in calculating the group pension insurance liability since 2002, incorporating the insured person’s birth year in addition to his or her age and sex. The cohort mortality model assumes that life expectancy increases by one year over a ten-year period.
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 Group has also certain voluntary defined benefit plans. These are intra-Group, included in the insurance liabilities of Mandatum Life and have no material significance.
From the beginning of 2014 on, the corporate tax rate in Finland was lowered from 24.5 per cent to 20 per cent. The taxable income for the financial year is based on 24.5 per cent, but the lower rate has been used in the calculation of deferred taxes.
The fair value of any non-quoted financial assets is determined using valuation methods that are generally accepted in the market. These methods are discussed in more detail above under 'Fair value'.
In 2014, the Group will apply the following new or amended standards and interpretations related to the Group’s business.
IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on 1 Jan 2013 or after, latest application for annual period beginning on 1 Jan 2014) defines closer the concept of control as the crucial factor for consolidation. The new standard will have no material impact on the Group’s financial statements reporting.
The amendment to IAS 32 Financial Instruments: presentation (effective for annual periods beginning on 1 Jan 2014 or after) specifies the presentation of situations when financial assets and liabilities are offset. The adoption of the amendment will have no material impact on the Group’s financial statements reporting.
Consolidated income statement by business segment for year ended 31 December 2012
EEquity aquity attributable tttributable to paro parent cent companompany'sy's equityholdersequityholders 10,64310,643
EEquity aquity attributable tttributable to paro parent cent companompany'sy's equityholdersequityholders 10,02010,020
GrGroupoup, t, totalotal 5,6185,618 5,4135,413 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 70 (2) transferred from the fair value reserve.
The changes in the fair value reserve are disclosed in the Statement of changes in equity.
Change in claims provision for annuities -7 0 -7 -9 - -9
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 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 2013 amounted to EURm 282 (289). The non-discounted value was EURm 453 (513). The exchange effect on the discounted provisions was an increase of EURm 9. The acquired businesses increased the the provision by some EURm 9. The real decrease EURm 15 is partly explained by the model adjustment for Motor Third Party Liability and Workers' Compensation insurances.
InsurInsurancance ce controntracts tacts total, grotal, grososss -568-568 -590-590 77 4141 -561-561 -548-548
InsurInsurancance ce controntracts tacts total, netotal, net -565-565 -586-586 77 4141 -559-559 -545-545
Change in liabilities fChange in liabilities for insuror insurancance and ine and invvesestment ctment controntracts in tacts in total, grotal, grososss -648-648 -642-642
Pension costs - defined contribution plans -51 -44 - defined benefit plans (Note 31) -22 -7
FirFire ande and otherother damagedamage tto pro propertyoperty TThirhird partyd party liabilityliability CrCreditedit insurinsurancancee
2) Includes other technical income EURm 28 (33) and other technical expenses EURm 26 (30).
Profit or loss attributable to the equity holders of the parent company 1,452 1,408
Non-cancNon-cancellable minimum rellable minimum rentalental - not later than one year 1 2 - later than one year and not later than five years 1 1 - later than five years 0 0
Non-cancNon-cancellable minimum rellable minimum rentalental - not later than one year 6 6 - later than one year and not later than five years 14 11 - later than five years 2 3
FFair vair value of inalue of invvesestment prtment property aoperty at 31 Dec.t 31 Dec. 125125 112112
RRental incental income frome from inom invvesestment prtment propertyoperty 00 00
FFair vair value of inalue of invvesestment prtment property aoperty at 31 Dec.t 31 Dec. 00 44
Closing net carrying amountClosing net carrying amount 153153 99 162162 153153 1111 164164
In Mandatum Life, the recoverable amount exceeds its carrying amount by some EURm 180. With the calculation method used, e.g. an increase of about 1.4 per cent in the weighted average cost of capital could lead to a situation where the recoverable amount of the entity would equal its carrying amount.
As for the If Group, the management believes that any reasonably possible change in any of these key assumptions would not cause the aggregate carrying amount to exceed the aggregate recoverable amount.
Nordea was first conslidated as an associate company from 31 Dec. 2009 with Sampo's holding of 20.05 per cent. In the financial year 2013, Sampo's holding in Nordea was 21.25 per cent with the goodwill related to the acquisitions of EURm 978.
TTotal intotal intereresest rt raatte derive derivaativtiveses 1,2501,250 11 55 213213 22 11
Currency options, bought and sold 42 0 - - - -
TTotal fotal fororeign eeign exxchange derivchange derivaativtiveses 955955 77 11 1,2481,248 1717 22
TTotal derivotal derivaativtives held fes held for tror tradingading 7,4417,441 3232 1111 2,5562,556 3737 55
Net result from exchange derivatives designated as fair value hedges amounted to EURm 18 (12). Net result from hedged risks in fair value hedges of available for sale financial assets amounted to EURm -18 (-11).
The interest rate derivatives hedging cash flows fell due during the financial year and no new cash flow hedges were started.
Financial assets available-for-sale for life insurance include impairment losses EURm 33 (29).
Financial assets available for sale / debt securities: Debt securities available for sale include EURm 2,553 (2,381) investments in bonds and EURm 354 (405) investments in money market instruments.
Financial assets available for sale /shares and participations: Listed equity securities include EURm 641 (589) listed equities. Unlisted equity securities include EURm 640 (752) investments in capital trusts.
TTotal intotal intereresest derivt derivaativtiveses 820820 2626 00 820820 4343 --
Equity and euqity index options 88 14 16 90 16 19
TTotal financial asotal financial assessests measurts measured aed at ft fair vair valuealue 6,8876,887 13,00613,006 1,0991,099 20,99220,992
TTotal financial liabilities measurotal financial liabilities measured aed at ft fair vair valuealue -- 5252 -- 5353
TTotal financial asotal financial assessests measurts measured aed at ft fair vair valuealue 4,9844,984 14,20114,201 1,1171,117 20,30120,301
TTotal financial liabilities measurotal financial liabilities measured aed at ft fair vair valuealue -- 4343 1919 6262 *) During the financial year, debt securities EURm 19 (7) were transferred from level 1 to level to 2. From level 2 to level 1 were transferred EURm 151 (-). Mutual funds EURm 34 were transferred from level 2 to level 1 in the comparsion year.
The sensitivity of financial assets and liabilites to changes in exchange rates is assessed on business area level due to differenct 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 12 (15) and in a decrease recognised directly in equity of EURm 11 (11). In Life insurance, 10 percentage point depreciation of all other currencies against EUR would result in an increase recognised in profit/ loss of EURm 14 (52) and in a decrease recognised directly in equity of EURm 68 (64). 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
Financial asFinancial assets designasets designatted aed at ft fairair vvalue thralue through prough profit or losofit or losss
The value of financial assets regarding the debt security instruments has been tested by assuming a rise of 1 per cent unit in interest rate level in all maturities. For other financial assets, the prices were assumed to go down by 20 per cent. The Sampo Group bears no investment risks relatted to unit-linked insurance, so a change in assumptions regarding these assets does not affect profit or loss. On the basis of the these alternative assumptions, a possible change in interest levels would cause descend of EURm 2 (3) for the debt instruments, and EURm 161 (177) valuation loss for other instruments in the Group's other comprehensive income. The reasonably possible effect, proportionate to the Group's equity, would thus be 1.5 per cent (1.8).
Tax losses for which no deferred tax asset has been recognised -9 -6
Tax from previous years -1 1 23 Components of other comprehensive income
TTotal itotal items not rems not reclaseclassifiable tsifiable to pro profit or losofit or loss, net of taxs, net of tax -14-14 3131
Change in defChange in deferrerred aced acquisition cquisition cososts in the periodts in the period
TTotal protal proovision rvision reporteported in the BSed in the BS 7,4357,435
Current estimate of total claims costs 7,318 2,130 2,199 2,355 2,454 2,573 2,621 2,819 2,948 2,865 2,911 33,194
TTotal protal proovision rvision reporteported in the BSed in the BS 7,0587,058
Change in liabilities arising frChange in liabilities arising from other than unit-linkom other than unit-linked insured insurancance and ine and invvesestment ctment controntractsacts
Change in liabilities arising frChange in liabilities arising from unit-linkom unit-linked insured insurancance and ine and invvesestment ctment controntractsacts
DerivDerivaativtive financial inse financial instruments (nottruments (note 15)e 15) 25 38
Preferred capital note, 2002 (nominal value EURm 65) 20 years 8.98% - 66
The loans 2005 and 2011 are issued with fixed interest rates for the first ten years, after which they become subject to variable interest rates. The new subordinated loan issued in June 2013 has a fixed interest rate for the first 5.5 years afther which it becomes subject to variable interest rates. At the point of change, there is the possibility of redemption for all the loans. All loans and their terms are approved by supervisory authorities and the loans are utilised for solvency purposes.
Holding, tHolding, totalotal 2,0452,045 2,1812,181 *) The determination and hierarchy of financial assets and liabilities at fair value are disclosed in note 17. Based on the principles of this determination, the bonds of the Holding Company fall under level 2.
Present value of estimated pension obligation, 612 595 580 including social costs 347 392 385
FFair vair value of plan asalue of plan assetssets 266266 203203 195195
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 per cent 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 per cent of the pensionable salary and applies to all employees born in 1957 or earlier and who were employed by If in 2013.
The anticipated retirement age in connection with life-long pension is 65 years for Sweden and 67 years for Norway. In Sweden, life-long old-age pension following a complete service period is payable at a rate of approximately 10 per cent of the pensionable salary between 0 and 7.5 income base amounts, 65 per cent of salary between 7.5 and 20 income base amounts and 32.5 per cent between 20 and 30 income base amounts. In Norway, life-long old-age pension following a complete service period is payable at a rate of approximately 70 per cent of the pensionable salary up to 12 Norwegian base amounts, together with the estimated statutory old-age pension. Paid-up policies and pension payments from the Swedish plans are normally indexed upwards in an amount corresponding to the change in the consumer price index. However, there is no agreement guaranteeing the value and future supplements in addition to the contractual pension benefit could either rise of fall. Pension payments from the Norwegian plans are indexed upwards in an amount corresponding to the change in the consumer price index.
The pensions are primarily funded through insurance whereby the insurers establish the premiums and disburse the benefits. If’s obligation is primarily fulfilled through payment of the premiums. Should the assets that are attributable to the pension benefits not be sufficient to enable the insurers to cover the guaranteed pension benefits, If could be forced to pay supplementary insurance premiums or secure the pension obligations in some other way. In addition to insured pension plans, there are also unfunded pension benefits in Norway for which If is responsible for ongoing payment.
TTotal in cotal in compromprehensivehensive ince income some statattementement 1212 -55-55 -44-44 -27-27 6464 3838
The following actuarial assumptions have been used for the calculation of defined benefit pension plans in Norway and Sweden: SSwwedeneden NorwNorwaayy SSwwedeneden NorwNorwaayy
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 2013 is EURm 80.
Item Other includes e.g. witholding taxes, social expenses related to Workers Compensation insurance policies and employee benefits, unpaid premium taxes and other accruals.
AsAssets pledged as csets pledged as collaollattereral fal for liabilities or cor liabilities or contingent liabilitiesontingent liabilities
Lease and sublease payments recognised as an expense in the period - minimum lease payments 25 -45
In connection with the transfer of property and casualty insurance business from the Skandia Group to the If Group as of March 1, 1999, If P&C Holding Ltd and If P&C Insurance Ltd issued a guarantee for the benefit of Försäkringsaktiebolaget Skandia (publ.) whereby the aforementioned companies in the If Group mutually guarantee that companies in the Skandia Group will be indemnified against any claims or actions due to guarantees or similar commitments made by companies in the Skandia Group within the property and casualty insurance business transferred to the If Group.
Minimum lease paMinimum lease paymentsyments not later than one year 2 2 later than one year and not later than five years 8 3 later than five years 9 -
The Group had at the end of 2013 premises a total of 178,877 m2 (178,971) taken as a lessee. The contracts have been made mainly for 3 to 10 years.
At the end of the financial year 2013, the mother company or other Group companies held no shares in the parent company.
Other long-term benefits consist of the benefits under long-term incentive schemes accounted for for the year (see Note 36).
RRelaelatted party tred party transactions of the kansactions of the keey managementy management
The related party transactions of the key management are not material nor does the key management have any loans from the Group companies.
OutsOutstanding balanctanding balances with res with relaelatted parties/Ased parties/Associasociatte Nore Nordeadea
The Board of Directors of Sampo plc has decided on the long-term incentive schemes 2009 I - 2011 I for the management and key employees of Sampo Group. The Board has authorised the CEO to decide who will be included in the scheme, as well as the number of calculated incentive units granted for each individual used in determining the amount of the incentive reward. In the schemes, the number of calculated incentive units granted for the members of the Group Executive Committee is decided by the Board of Directors. Over 110 persons were included in the schemes at the end of year 2013.
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, regarding the 2011 I scheme, also 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 predividend starting prices vary between eur 16.49 - 24.07. The maximum value of one incentive unit varies between eur 28.49 39. 07, reduced by the dividend-adjusted starting price. In the 2011 I scheme, the incentive reward depends on two benchmarks. The payout is 70 per cent, if the IM is 6 per cent or more, and 35 per cent, if the IM is between 4 - 5.99 per cent. 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 so that an incentive reward of 30 per cent is paid out, if the return is at least risk free return + 4 per cent. If the return is risk free return + 2 per cent, but less than risk free return + 4 per cent, the payout is 15 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) 42 *) Grant dates vary **) Trade-weighted average for ten trading days from the approval of terms 37 Auditors' fees
There are a number of legal proceedings against the Group companies outstanding on 31 Dec. 2013, arising in the ordinary course of business. The companies estimate it unlikely that any significant loss will arise from these proceedings.
Elecster OYJ A Finland 117,000 6.43% 1 eQ Oyj Finland 2,053,296 5.63% 5
Goldman Sachs Loan Partners I Offshore B, L.P. Cayman islands 14
Highbridge Principal Strategies - Senior Loan Fund II L.P. Cayman islands 6
FFororeign shareign shares and participaes and participations in ttions in totalotal 1,3321,332
Net cash used frNet cash used from inom invvesesting activitiesting activities 293293 224224
Net change in cash and cash equivNet change in cash and cash equivalentsalents -193-193 385385 *) Investments include both investment property and financial assets.
257 Notes to the income statement 1-4 258 Notes to the assets 5-10 260 Notes to the liabilities 11-14 261 Notes to the income taxes 15 262 Notes to the liabilities and commitments 262 Notes to the staff and management 19-21 264 Notes to the shares held 22
Income from property occupied for own activities 0 0 2 Other oper2 Other operaating eting expensesxpenses
Carrying amount aCarrying amount at end of yt end of yearear 11 33 11 33 6 R6 Receceiveivables frables from Grom Group coup companiesompanies
CCosost at at beginning of yt beginning of yearear 225 223
CCosost at at beginning of yt beginning of yearear 4 4
RRececognisedognised in fin fair vair valuealue rreserveservee 9 Other r9 Other receceiveivablesables
Trading receivables 7 0 10 Pr10 Prepaepayments and acyments and accrued inccrued incomeome
Carrying amoun aCarrying amoun at 1 Jan. 2012t 1 Jan. 2012 9898 22 1,5271,527 273273 4,8244,824 6,7246,724
Carrying amount aCarrying amount at 1 Jan. 2013t 1 Jan. 2013 98 0 1,527 273 4,895 6,793
Financial assets available-for-sale -recognised in equity -0 -0 -recognised in p/l 3 3
Information on share capital is disclosed in Note 34 in the consolidated financial statements.
NotNotes tes to the inco the income taxome taxeses 15 Def15 Deferrerred tax ased tax assets and liabilitiessets and liabilities
Chairman of the BoarChairman of the Boardd GrGroup CEO and Proup CEO and Presidentesident
The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the preparation of financial statements and the report of the Board of Directors that give a true and fair view in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company’s accounts and finances, and the Managing Director shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner.
In our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
Opinion on the company’s financial statements and the report of the Board of Directors
In our opinion, the financial statements and the report of the Board of Directors give a true and fair view of both the consolidated and the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements.
Shareholder may register for the General Meeting until 4 pm (CET+1)
Sampo plc's Annual General Meeting will be held on 24 April, 2014 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.
Sampo will publish three Interim Reports in 2014. The Interim Reports and related supplementary materials are published on Sampo’s website at www.sampo.com/result. Press and stock exchange releases, the monthly updated list of shareholders and other investor information published by Sampo are available on the site as well.
The Interim Reports are published on Sampo's website at www.sampo.com/result. You can subscribe to Sampo's Stock Exchange Releases and Press Releases at www.sampo.com/subscription.
Sampo Group's Annual Report 2013 Calendar and Contacts mailto:jarmo.salonen@sampo.fi tel:+358105160010 mailto:peter.johansson@sampo.fi tel:+358105160067 mailto:johanna.tynkkynen@sampo.fi tel:+358105160066 mailto:essi.nikitin@sampo.fi tel:+358105160068 mailto:pirkko.rantanen@sampo.fi tel:+358105160030 mailto:jarmo.salonen@sampo.fi tel:+358105160031 mailto:maria.silander@sampo.fi tel:+358105160049 mailto:paivi.wallden@sampo.fi tel:+358105160065 mailto:carolina.oradd@sampo.fi tel:+358105160067 mailto:johanna.tynkkynen@sampo.fi tel:+358505211201 mailto:maarit.kettunen@sampo.fi