The leading P&C insurer in the Nordic region, with operations in Finland, Sweden, Norway, Denmark, the Baltic countries and Russia.
4 CEO’s Review 7 Key Figures 8 Strategy 10 Sampo in the 21st Century 12 Personnel 14 ADMINISTRATION
O u t l O O k f O r 2 0 1 0 “Sampo Group is expected to report a good result for 2010.”
Illustrations: Anton Yarkin Photos: Riitta Supperi, Tomi Parkkonen, Lehtikuva Printing: Libris, Helsinki 2010 Circulation: 14,500
Björn Wahlroos on Sampo’s stake in Nordea in Sampo’s press conference on 11 February 2009.
At the beginning of 2009, we were the only ones who believed in banking stocks. Despite being alone in our belief, we significantly increased our Nordea stake. The reward was outstanding: Sampo Group’s mark-to-market result in 2009 was the best ever in our history.
At the start of 2010, we are now in a very different situation than we were in at the beginning of 2009. In early 2009, equities were at a low following the collapse of values the previous autumn. Industries suffered from empty order books and layoffs and dismissals were everyday news. Indeed, very few were brave enough to forecast economic development further than a few months ahead.
The market recovery began in March 2009, which was immediately visible in Sampo Group’s investment result. Both If P&C Insurance and Mandatum Life achieved their best ever mark-to-market results.
If P&C Insurance’s premium income growth slowed down, but remained at the previous year’s level in local currencies.
company improved its position compared to its competitors in a difficult market situation.
Our investment return was excellent thanks to the right allocation decisions. We significantly increased our investments in corporate loans and increased the equity weight in our portfolio at a sufficiently early stage. The increase in value of our investment portfolio was reflected in our net asset value which increased by 77 per cent compared to the previous year and stood at EUR 14.63 per share by the year-end.
Nordea’s importance to Sampo Group increased significantly during 2009. During the first half of the year, our shareholding increased from approximately 12 per cent to 18 per cent and – following the approval by the authorities – to over 20 per cent of the total number of shares in Nordea. As of 31 December 2009, Nordea is accounted for as an associated company in Sampo Group’s accounts.
Our life insurance subsidiary, Mandatum Life, managed well in the financial crisis and, unlike many of its competitors, did not have to resort to capitalization. The concept of Wealth Management proved its case and the sales of unitlinked insurances progressed well. In 2009, Mandatum Life’s premium income increased for the first time in the history of the company to over EUR 800 million. Consequently, the
My satisfaction with Sampo’s success is mixed with concerns over the uncertainty regarding which direction the real economy will take in 2010. Despite my overall positive standpoint, I expect that we may still see some turbulence on the capital markets especially due to the bleak outlook on employment.
Our main geographical markets of Norway, Sweden and Finland will most likely not recover simultaneously from the recession. Economic recovery in Sweden is supported by a wide industrial basis, while Norway benefits from its oil resources. Finland will most likely recover later than its western neighbors. However, from a broader perspective, the outlook is positive.
Sampo has traditionally been one of the best dividend payers in the industry, and this year will be no exception.
When taking over the helm, I did not make any dramatic changes to our course of action. We continued following our previously well-proven practices with our existing executive committee. The key figures of If P&C and Mandatum Life as well as Nordea’s figures prove that this course of action was the right one.
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 targets.
If ’s mission is to offer attractively priced 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.
If ’s strategic goal is to establish better profitability and customer satisfaction in the long run than competitors, coupled with high creditworthiness. The financial targets are to achieve a combined ratio of less than 95% and a return on equity (RoE) of at least 17.5 per cent.
Nordic Business Platform - If will create competitive advantage through economies of scale and know-how transfer through an integrated Nordic and Baltic platform
Investment Strategy with Balanced Risk - If has adopted a low risk strategy in investments by maintaining a balance between insurance commitments and investment assets in terms of currency and duration. Surplus capital is invested to enhance total returns.
In Finland Mandatum Life relies mainly on three sales channels - in-house corporate sales teams, wealth management focusing on HNWIs and Sampo Bank’s network.
The result of Mandatum Life consists of three components – investment result, risk result and expense result. The strategy in investment management is to maintain adequate solvency in relation to market risks in the balance sheet. This enables the company to strive for a return that is higher than the risk free return. In expense and risk result Mandatum Life seeks growth, even if in the short term the expense result will suffer from the substantial investments in sales channels and Wealth Management unit. Mandatum Life’s financial target is to produce an RoE of at least 17.5 per cent.
Sampo Group’s property and casualty insurance operations are combined with Nordic P&C insurance company If. Following the transaction, Sampo owns 38 percent of If ’s stock. In addition to Sampo, the owners of the company include Skandia, Storebrand and Finnish mutual pension insurance company Varma.
Mandatum Bank is merged into Sampo-Leonia Group and the Group adopts a name Sampo. Björn Wahlroos is appointed Group CEO and President.
Sampo in the 21st Century Sampo Group has gone through several mergers during the 21st century. The latest change in group structure was Nordea's becoming Sampo's associated company.
If, the leading P&C insurance company in the Nordic region, becomes a fully owned subsidiary of Sampo. Following the transaction, Sampo has three main business areas: P&C insurance, banking and long-term savings.
Sampo’s subsidiary, Sampo Life Insurance Company adopts a new name, Mandatum Life. Mandatum Life focuses on unit-linked insurance.
Sampo plc has increased its ownership in Nordea, the largest Nordic banking group since 2006. In 2009 Sampo’s holding in Nordea exceeds 20 per cent. In consequence of this, Nordea becomes Sampo’s associated company.
Group CEO and President Björn Wahlroos is elected as Chairman of the Sampo Board. The successor of Wahlroos is Kari Stadigh, the long-time deputy CEO.
To ensure efficient delivery and customer satisfaction, If Academy uses a blend of different tools. Traditional teacher led programs are mixed with ambitious e-learning efforts. Important projects in 2009 include
New “action based problems solving” program aimed at If • top talent Process for revitalizing leadership in If• Self-situational leadership for all, and SL-training for leaders• Implementation of a new Learning Management System• Certification of financial advisors in Norway• Cooperation with Mandatum Life •
As an employer we are very aware of the importance of intangible assets and we strive to create a work environment and an atmosphere where talented people can and want to grow. A testament to our accomplishments is the remarkable operational and economic stability of our group during the very turbulent year 2009.
In Sampo we believe that compensation is an important part of our people value proposition and during 2009 we were therefore actively engaged in discussions with the financial supervisory authorities with the aim of understanding the new rules and being able to continue offering attractive compensation solutions to our staff while complying with the new rules and general guidelines.
The company has also established its own HR department to act as the business partner for managers and company executives in people issues. The new department will also lead the way in building common ways of working, culture and spirit in Mandatum Life.
We owe current and future success largely to the quality and high ambition level of our staff.
Corporate Governance 16 Corporate Social Responsibility 22 Legal Structure 24 Organisation 25 Board of Directors 26 Group Executive Committee 28
Björn Wahlroos on shareholder value in CEO’s review video published on 11 February 2009.
election and terms Of Office Of Board Members According to Sampo’s Articles of Association, the company’s Board of Directors comprises no fewer than three and no more than ten members elected by shareholders at the Annual General Meeting. The Annual General Meeting of 2009 decided that the Board would consist of eight members until the close of the Annual General Meeting to be held in 2010. The term of office of the Board members ends at the close of the Annual General Meeting 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 Annual General Meeting.
Sampo complies with the Finnish Corporate Governance Code, which was issued by the Securities Market Association and entered into force on 1 January 2009. Sampo’s Board of Directors has also approved internal rules concerning corporate governance, internal control and reporting in the Sampo Group.
Following Board members are independent of the company and its major shareholders: Tom Berglund, Anne Brunila,
The Board convened 11 times in 2009. The average attendance of Board members at meetings was 95.6 per cent.
audit Committee The Audit Committee is responsible for monitoring the statutory auditing and reporting process of the financial statements and consolidated financial statements, and for overseeing the veracity of Sampo Group’s financial statements and the financial reporting process. Furthermore, the Audit Committee is responsible for evaluating the auditors’ and auditing firm’s professional competence and independence and particularly their provision of related services to Sampo Group, and for preparing proposals to the Annual General Meeting concerning the auditors’ election and their fees. The Committee also oversees the actions of the auditors under the laws of Finland, monitors the auditors’ invoicing for audit and non-audit services as deemed appropriate, monitors the efficiency of the Group’s internal control, internal audit and risk management systems, and monitors the Group’s risks and the quality and scope of risk management. In addition, the Committee approves the internal audit action plan, monitors the internal audit’s reporting, monitors the fulfilment of risk policies, the use of limits and the development of profit in various business areas, oversees the preparation of and compliance with risk management policies and other related guidelines, and reviews the description of the main features of the internal control and risk management systems pertaining to the financial reporting process, which is included in the company ’s Corporate Governance Statement. The Committee also evaluates the compliance with laws and regulations in Sampo
Group and executes any other duties that may be bestowed upon it by the Board.
The Committee comprises at least three members elected from among those Board members who do not hold executive positions in Sampo and are independent of the company. Also participating in the meetings of the Committee are the Responsible Auditor, Group CEO, Group CFO, Group Chief Counsel, Group Chief Audit Executive, the member of the Group Executive Committee responsible for risk control and Group Chief Risk Officer.
In 2009, the Chairman of the Audit Committee was Christoffer Taxell, and the other members were Tom Berglund, Veli-Matti Mattila and Jukka Pekkarinen. Also participating in the meetings were the Auditor’s representative, Group CEO, Group CFO, Group Chief Risk Officer, Group Chief Audit Executive, and the Group Chief Counsel, who also served as secretary to the Committee.
The company has a Managing Director who is simultaneously Group CEO and President of Sampo Group. The Board of Directors elects and releases the Group CEO, and decides on the terms of employment and other compensation. Björn Wahlroos was the Managing Director of the company and the Group CEO and President of Sampo Group until 7 April 2009, and Kari Stadigh from 8 April 2009 onwards.
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 accordance with the decision of the Annual General Meeting in 2009, 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 2010: 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 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. Board members employed by the company will not receive separate compensation for Board work during the validity of the employment or service relationship.
Members of the Board of Directors did not receive any other benefits, nor did they participate in Sampo’s incentive systems.
Compensation of the Managing director and other executives The Board of Directors decides on the terms of employment and compensation of the Group CEO and other executives on the Sampo Group Executive Committee, on the basis of a proposal by the Nomination and Compensation Committee. However, the Nomination and Compensation Committee can decide, upon authorisation by the Board of Directors, on the salaries of the members of the Group Executive Committee, excluding the Group CEO and Deputy CEO.
Björn Wahroos was Sampo Group CEO until 7 April 2009 and Kari Stadigh as of 8 April. For year 2009 the Group CEO was paid in salaries and bonuses as follows: Björn Wahlroos was paid for the period 1.1. - 7.4.2009 EUR 201,102 in fixed salary and EUR 370,800 in profit and incentive bonuses, altogether totaling EUR 571,902.
The members of the Group Executive Committee participate in the local retirement programs applicable to employees in their respective countries of residence. As part of their service contract, the majority of the members of the Group Executive Committee also participate in supplementary retirement programs. The retirement ages are 60 or 65 years.
Sampo’s Internal Audit is a function independent of business operations which evaluates the sufficiency and effectiveness of the internal control system and the quality with which tasks are performed in Sampo Group. The Internal Audit reports to the Group CEO. The Internal Audit has been organised to correspond with the business organisation.
The total fees paid to the auditor for services rendered and invoiced were EUR 2,141,426. In addition, Ernst & Young Oy were paid fees for non-audit services rendered and invoiced totalling EUR 223,583.
If ’s operations are based on promoting a society in which everyone can live a safe and secure life.
and the aim is to always operate in a way that meets or exceeds the ethical, legal and commercial expectations placed on operations.
An example of this is the environment; If has been working on environmental issues intensively for some years and has a robust environmental policy in place that steers all activity in the company. The policy is centred on the fact that If will always seek to identify the best possible environmental solution for If, its customers, its suppliers and its partners.
The company is currently carrying out an ambitious internal programme in which 100 improvements are being implemented. One of the focus areas is business travels, which during the last two years have fallen by 35 per cent as a result of a concerted effort to use video and web conferencing. Another key issue concerns the environmental demands placed on If ’s suppliers; Since the sale of Sampo Bank in early 2007 Sampo Group has not published a separate Social Responsibility Report.
Corporate Social Responsibility Sampo Group’s companies share the values of ethicality, loyalty, openness and entrepreneurship and aim to follow these values in all business operations and with all stakeholders.
If has a comprehensive programme to support investment into safety in society in a broad sense. In Sweden, for example, If supports Save the Children’s work to combat cyber bullying. In Norway If is engaged in nationwide cooperation with the Directorate for Civil Protection and Emergency Planning and the Norwegian fire safety association Norsk Brannvernforening. In Finland If donates bright yellow caps to children starting school in order to make them more visible on their way to school.
If naturally also influences decision-makers in reaching decisions that make the best sense in the long term. In Sweden, for instance, If ’s goal is to get community planners to take rising sea levels into account when they make decisions about housing close to the sea. Another example is traffic safety where If ’s researchers analyse the company’s extensive traffic accident statistics in order to provide data that can be used to increase traffic safety.
If 's environmental policy we must take concrete measures to improve •
environmental solution - for our company, our customers, our suppliers and our partners.
in an environmentally friendly way through the provision of guidelines and support.
in their efforts to use more environmentally friendly methods in their work.
Björn Wahlroos (b. 1952) Positions of Trust: UPM-Kymmene Corporation, Chairman of the Board, Nordea Bank AB, Vice Chairman of the Board, Finnish Business and Policy Forum EVA, Member of the Board, The Research Institute of the Finnish Economy ETLA, Member of the Board, Hanken School of Economics, Chairman of the Board
Tom Berglund (b. 1951) Professor of Hanken School of Economics Positions of Trust: The European Shadow Financial Regulatory Committee, Member, Federal Reserve Bank of Atlanta's Center for Financial Innovation and Financial Stability, Advisory Committee, Member
–Berglund holds 5,206 Sampo plc shares directly or through a controlled company.
–Member of the Board of Directors of Sampo plc since 9 April 2003.
–Brunila holds 4,993 Sampo plc shares directly or through a controlled company.
Matti Vuoria (b. 1951) CEO, President of Varma Mutual Pension Insurance Company Positions of Trust: Wärtsilä Corporation, Vice Chairman of the Board, Stora Enso Oyj, Member of the Board, Danisco A/S, Denmark, Member of the Board (1999–2009), Securities Market Association, Chairman of the Association’s Board, Federation of Finnish Financial Services, Member of the Board, The Finnish Pension Alliance TELA, Member of the Board, FinnishRussian Chamber of Commerce, Chairman
–Member of the Board of Directors of Sampo plc since 7 April 2004.
–Vuoria holds 31,116 Sampo plc shares directly or through a controlled company.
Sampo's Board of Directors is responsible for the management of the company in compliance with the law, the regulations of the authorities, Sampo’s Articles of Association and the decisions of Shareholder’s Meeting.
–Pekkarinen holds 5,048 Sampo plc shares directly or through a controlled company.
–Taxell was transferred to the Board of Directors of Sampo plc from the Supervisory Board on 1 January 1998.
–Member of the Board of Directors of Sampo plc since 7 April 2009.
Eira Palin-Lehtinen (b. 1950) Positions of Trust: Elisa Corporation, Member of the Board, Sigrid Juselius Foundation, Deputy Board Member and Member of Finance Committee, Nordea Funds (Nordea Alternative Investment, Nordea Funds of Funds, Nordea I Sicav), Luxembourg, Member of the Board, Svenska konstsamfundet, Member of Investment Committee
–Member of the Board of Directors of Sampo plc since 15 April 2008.
–Member of Sampo Group Executive Committee and Secretary of the Board of Directors of Sampo plc since 2001.
Peter Johansson (b. 1957) Group CFO, Sampo plc Positions of Trust: If P&C Insurance Holding AB (publ), Sweden, Member of the Board, Mandatum Life Insurance Company Limited, Vice Chairman of the Board
Torbjörn Magnusson (b. 1963) President and CEO of If P&C Insurance Positions of Trust: If P&C Insurance Ltd, Sweden, Chairman of the Board, If P&C Insurance Company Ltd, Finland, Chairman of the Board, Swedish Insurance Federation, Chairman, Swedish Insurance Employer Association, Member –Member of Sampo Group Executive Committee since 2004.
Ivar Martinsen (b. 1961) Group Executive Vice President, Head of BA Commercial, If P&C Insurance Positions of Trust: FNH Norway (the organisation for the Financial Sector in Norway), Chairman of the Executive committee of P&C Insurance
Petri Niemisvirta (b. 1970) President and Head of Life Insurance, Managing Director of Mandatum Life Insurance Company Limited Positions of Trust: Amanda Capital Plc, Member of the Board, Federation of Finnish Financial Services, Life Insurance Executive Committee, Chairman, Silta Oy, Member of the Board, BenCo Insurance Holding B.V., Netherlands, Member of the Board, Euroben Life and Pension Limited, Ireland, Member of the Board –Member of Sampo Group Executive Committee since 2001.
–Niemisvirta holds 36,476 Sampo plc shares directly or through controlled companies.
Morten Thorsrud (b.1971) Group Executive Vice President, Head of BA Industrial, If P&C Insurance Positions of Trust: Forsikring & Pension, Denmark, Member of the Board, CJSC If Insurance, Russia, Member of the Board, IPSC Region, Russia, Member of the Board
–Vuorinen holds 4,737 Sampo plc shares directly or through controlled companies or persons closely associated with the Insider.
Ricard Wennerklint (b. 1969) Group Executive Vice President, Deputy MD, If P&C Insurance Holding, MD of If P&C Insurance Positions of Trust: If P&C Insurance Company Ltd, Finland, Member of the Board, If P&C Insurance AS, Estonia, Member of the Board, SOS International a/s, Denmark, Member of the Board, CJSC If Insurance, Russia, Member of the Board, IPSC Region, Russia, Member of the Board
B o a r d o f d i r e c t o r s ’ r e p o r t
Meanwhile, net asset value per share amounted to EUR 14.63 (8.28). The fair value reserve on the Group level increased to EUR 296 million (-2,364). Without the change in the accounting treatment of Sampo’s holding in Nordea, the fair value reserve would have been EUR 588 million higher and consequently earnings per share, including the change in the fair value reserve, would have been more than one euro higher. The accounting treatment of Nordea also decreased the return on equity and return on asset figures reported.
If P&C, Sampo Group’s P&C insurance operation, produced its highest ever mark-to-market result of EUR 1,353 million (-19). The insurance technical performance remained sound with a combined ratio of 92.1 per cent for the full year 2009 (91.8). The profit before taxes rose to EUR 644 million (549). Return on equity was 53.2 per cent (-0.8) and the fair value reserve increased to EUR 105 million (-414).
Profit before taxes for the ‘Holding’ segment decreased to EUR 36 million (180). The fair value reserve increased to EUR -3 million (-1,759).
The biggest change in the assets held in Sampo Group’s balance sheet was the change in the accounting treatment of Nordea as it became an associated company. In the balance sheet liabilities the biggest change was in Group’s debt position, which is explained in more detailed in section Debt financing.
Key figures profit before taxes 825 870 -5 profit for the period 641 675 -5 change dividend per share, eUr 1.00 0.80 0.20 earnings per share, eUr 1.14 1.18 -0.04 eps (incl. change in fVr) eUr 5.88 -3.52 9.40 NaV per share, eUr 14.63 8.28 6.35 average number of staff (fte) 7,311 7,145 166
Sampo plc’s Board of Directors decided on 27 August 2009 to submit an application to the Swedish Financial Supervisory Authority for a license to increase the holding in Nordea Bank AB (publ) above 20 per cent. The Swedish Financial Supervisory Authority granted Sampo plc on 20 October 2009 the license and subsequently on 11 December 2009 Sampo plc’s ownership in Nordea exceeded 20 per cent.
The purchase price in excess of the carrying amount of the net assets of Nordea was EUR 1.2 billion. Based on the purchase price allocation EUR 330 million was allocated to customer related intangibles and will be depreciated in equal installments during 10 years. The annual depreciation will be EUR 24 million.
As of 1 January 2010 Sampo’s share of Nordea’s net profit will be shown on the face of Sampo Group’s profit and loss account on the line Share of associate´s profit/loss.
In 2009 If P&C, Sampo Group’s P&C insurance arm, maintained its excellent technical result and produced its best ever mark-to-market result of EUR 1,353 million (-19).
The combined ratio for 2009 was 92.1 per cent (91.8), which is significantly better than the long-term target of below 95 per cent.
In the Private business area the combined ratio increased to 92.5 (91.3). Higher claims frequency and large claims deteriorated the risk ratio to 68.0 per cent (67.3). In the Commercial business area risk ratio improved to 68.3 per cent (68.6) but the weakening cost ratio drove the combined ratio slightly up to 92.6 per cent (92.4).
Large claims and claims frequency developed favorably in the Industrial business area and the combined ratio consequently improved to 90.7 per cent (93.4). Although the premiums written decreased substantially in the Baltic and Russia business area the stable trends in average claims and frequency continue and the combined ratio improved to 91.7 per cent (92.6).
Net income from investments 629 -222 other operating income 0 0 change in liabilities for inv. and ins. contracts -600 681 other operating expenses -46 -51 -9 profit before taxes 121 140 -13 change average number of staff (fte) 450 437 13
In 2009 Mandatum Life, Sampo Group’s life insurance arm, performed well both in terms of profitability and growth. Mark-tomarket result rose to an all-time high at EUR 658 million (-511).
Profit before taxes in life insurance for 2009 was EUR 121 million (140). Net investment income, excluding income on unit-linked contracts, amounted to EUR 270 million (263). Meanwhile, net income from unit-linked investments was EUR 359 million (-485). The fair value reserve increased to EUR 210 million from EUR -192 million a year earlier. Return on equity (RoE) in life insurance surged to 97.6 per cent (-68.8).
Return on investments during 2009 was 16.8 per cent (-7.8) because of high equity returns and well-performing fixed income markets. Net investment income contains impairment losses of EUR 140 million. At the end of December 2009 the duration of fixed income assets was 2.6 years (3.6).
Mandatum Life Group’s solvency margin strengthened significantly during 2009 and amounted to EUR 926 million (378) as at 31 December 2009, exceeding clearly the minimum requirements of EUR 226 million. The solvency ratio was 18.5 (7.9). Total technical reserves were EUR 6.8 billion (6.1) based on the strong growth of unit-linked reserves, which accounted for 2.4 billion (1.6). The share of unit-linked reserves of total technical reserves increased to 35 per cent (27).
Expense ratio in Sampo Group’s life operations improved slightly to 111.0 per cent (113.1). This ratio does not take into account all fees intended to cover the operating expenses. Assuming all fees were to be taken into account, Mandatum Life Group’s expense ratio would be 91.8 per cent (89.6). Mandatum Life does not defer acquisition costs, which burdens the first year’s result.
The tax treatment of private persons’ savings for old age has changed in Finland as of 1 January 2010 with the introduction of a new Act extending the tax deductibility previously enjoyed only by individual pension premiums to a new set of savings products. Mandatum Life has together with Sampo Bank decided, for the time being, not to actively offer new individual pension products to private persons through Sampo Bank’s branch office network, however the present private pension clients are expected to contribute to their existing policies also in the future. The influence to Mandatum Life’s result will be minor.
The segment’s profit before taxes amounted to EUR 36 million (180). The decrease in the reported profit reflects the change in segment’s investment assets with an increase in Nordea holding and a decrease in fixed income assets. With regard to Nordea in 2009 only the dividend of EUR 80 million was included in the income statement. The fair value reserve at the end of 2009 was EUR -3 million (–1,759).
On 31 December 2009 Sampo started to account Nordea as an associated company and in connection with this the carrying value of the Nordea shares was on 31 December 2009 reinstated at acquisition cost. Without this the fair value reserve would have been EUR 588 million larger.
On 31 December 2009 Sampo plc held shares in Nordea Bank to a market value of EUR 5.8 billion. Sampo plc has invested EUR 5.2 billion in Nordea and at the end of 2009 held 809,429,180 Nordea shares corresponding to a holding of 20.1 per cent. Average price paid per share amounted to EUR 6.38 and the closing price of Nordea on 31 December 2009 was EUR 7.11.
If P&C Insurance Holding Ltd finalized combining its Baltic subsidiaries into one company on 1 July 2009. The new company, If P&C Insurance AS, operates in all the Baltic countries and has its domicile in Estonia and branches in Latvia and Lithuania.
At its organizational meeting, the Board elected Björn Wahlroos as Chairman. The following members were elected to the Nomination and Compensation Committee: Björn Wahlroos (Chairman), Matti Vuoria (Vice Chairman), Christoffer Taxell, Anne Brunila and Eira Palin-Lehtinen. Christoffer Taxell
Group Quarterly income statement change in liabilities for insurance and investment contracts -61 -17 -165 -390 367 share of associates’ profit/loss 0 0 0 0 0
Profit for the period before taxes 199 192 264 169 206 other comprehensive income for the period exchange differences on translating foreign operations -8 102 17 10 -186 available-for-sale financial assets -189 1,549 1,875 -247 -1,396 income tax relating to components of other comprehensive income -50 -175 -143 42 -99 other comprehensive income for the period, net of tax -250 1,477 1,741 -186 -1,665
The Annual General Meeting decided to pay the following fees to the members of the Board of Directors until the close of the 2010 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. After deduction of taxes and similar payments, 50 per cent of the Board members’ annual compensation will be paid in Sampo A shares and the rest in cash.
On 6 May 2009 Sampo Group’s Board of Directors decided that the Group MD Committee’s composition will be following: Kari Stadigh (chairman), Ilona Ervasti-Vaintola, Peter Johansson, Patrick Lapveteläinen, Torbjörn Magnusson, Petri Niemisvirta and Ricard Wennerklint.
Sampo Group follows the Finnish Corporate Governance Code, as approved by The Board of the Securities Market Association in October 2008. A more detailed description of the Group’s governance systems is available in both the Annual Report and on the Group’s website at www.sampo.com/cg.
More information regarding corporate responsibility in Sampo Group is available in the section ‘Corporate Responsibility ’ in the Annual Report 2009.
personnel The number of full-time equivalent staff decreased to 7,087 employees as at 31 December 2008 (7,458). In P&C insurance, the number of staff mainly decreased in the Baltic and Russian operations. In life insurance, the number of staff decreased slightly both in Finland and the Baltics.
During 2009, approximately 93 per cent of the staff was working in P&C insurance, 6 per cent in life insurance and 1 per cent in the holding company. Geographically, 31 per cent were working in Finland, 27 per cent in Sweden, 22 per cent in Norway and 20 per cent in the Baltic countries, Russia, Denmark and other countries. The average number of employees during 2009 was 7,311, which compares to an average of 7,145 during 2008.
In Sampo Group people issues such as performance and competence development, leadership, employment relations, compensation and health management were focus areas during 2009.
Further information on staff in Sampo Group is available in the section ‘Personnel’ in the Annual Report 2009.
The outcome of the long-term management 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 bonuses. Furthermore, the programs are subject to rules requiring part of the paid bonus to be used to acquire Sampo shares, which must in turn be held for a specified period of time.
Continuity is emphasized in committing and remunerating Sampo Group’s management and other key employees. Sampo plc’s Board of Directors decided on 27 August 2009 to adopt a new long-term incentive scheme 2009:1. The scheme complements earlier schemes and is targeted at Sampo Group’s management and other key employees. Currently 115 key employees are participating in the scheme. The long-term management incentive schemes 2006II – 2009I extend to 2013.
Sampo Group’s major risks arise from the insurance activities and investment portfolios. Risk management related to these areas is seen as core competence and is therefore under constant development. Like all companies Sampo Group is exposed to operational risks and risks related to business environment. Sampo Group is continuously working at improving internal control, core processes and systems, as well as monitoring and analyzing impacts from changes in the Group’s external operating environment to reduce the impact of operational and business risks.
Sampo plc’s share capital amounted to EUR 98 million (98) as at 31 December 2009. The Annual General Meeting decided to reduce the share premium account and the reserve fund on the company’s Balance Sheet by transferring all the funds in the share premium account and reserve fund on the Balance Sheet on 31 December 2008 to the invested unrestricted equity. The transfer was completed during 2009.
Sampo’s monthly trading volume 2005 – 2009 Sampo’s monthly share price performance 2005 – 2009 euro million shares
shareholders by sectors on 31 december 2009 (a and B shares)
financial institutions and insurance corporations 25,101,654 4.5 public institutions 78,175,384 13.9 Non-profit institutions 13,343,997 2.4 foreign ownership and Nominee registered 274,955,355 49.0 on Joint account 7,328,850 1.3 shareholders’ proportional shareholdings (private repurchase). The share price will be no higher than the highest price paid for Sampo shares in public trading at the time of purchase. The authorization will be valid until the close of the next Annual General Meeting, nevertheless not more than 18 months after AGM’s decision.
The shares are to be acquired through public trading on the NASDAQ OMX Helsinki at the market price prevailing at the time of repurchase. Weighty financial reasons for repurchases exist as they are to be carried out in order to follow the company ’s distribution policy.
During 2009, Sampo received the following notification of change in holdings pursuant to Chapter 2, Section 9 of the Securities Markets Act: On 17 December 2009, Sampo plc received a disclosure according to which Capital Research and Management Company (taxpayer I.D. 86 – 0206507) had on 16 December 2009 risen above one twentieth (1/20) of Sampo plc’s entire stock and voting rights. According to the notification Capital Research held 5.1 per cent of Sampo’s total share capital and 5.0 per cent of related votes.
Nominee registered total 267,136,889 47.59 47.18 * 4,927,855 a shares and 1,200,000 B shares.
ratings All the main ratings for Sampo Group companies remained unchanged in 2009.
Moody’s standard and poor’s rated company rating outlook rating outlook sampo plc Baa2 stable Not rated if p&c insurance Ltd (sweden) a2 stable a stable if p&c insurance company Ltd (finland) a2 stable a stable
Group solvency With Nordea Bank AB (publ) as its associated company as of 31 December 2009 Sampo Group became a financial and insurance conglomerate according to the Act on the Supervision of Financial and Insurance Conglomerates (2004/699).
In Sampo Group solvency is assessed internally by comparing the capital required to the capital available. Capital requirement assessment is based on an economic capital framework, in which Group companies quantify the amount of capital required for measurable risks over a one year time horizon at 99.5 per cent´s confidence level. In addition to economic capital companies are assessing their capital need related to nonmeasurable risks like risks in business environment. Capital available or Adjusted Solvency Capital include regulatory capital and in addition other loss absorbing items like the effect of discounting technical reserves and other reserves excluded from regulatory capital.
The economic capital tied up in Group’s operations on 31 December 2009 was EUR 3,783 million (1,895)and adjusted solvency capital was EUR 7,077 million (4,023).
Maturity date: 10 april 2012 New issue price: 100.00 per cent New issue coupon: 6.339 per cent (i) New issue spread: 4.00 per cent (ii) New issue Mid-swap rate: 2.339 per cent
Sampo plc also activated its Domestic CP Programme during 2009 and in addition issued further senior bonds and notes. As at 31 December 2009 Sampo plc’s balance sheet liabilities consisted of issued senior bonds and notes of EUR 962 million and EUR 466 million of outstanding CPs issued. Sampo plc also raised a TEL-pension loan of EUR 130 million in August 2009. The average interest on the afore-mentioned debt as of 31.12.2009 was 3.2 per cent.
To strengthen its liquidity position Sampo plc furthermore signed a EUR 200 million revolving credit facility in April 2009. The facility is undrawn.
If P&C is expected to reach its long-term combined ratio target of below 95 per cent in 2010 and profit-wise produce another excellent year. The macro economic situation will continue to dampen the premium growth but has a limited impact on profitability.
Mandatum Life’s mark-to-market profit is highly dependent on capital markets and is expected to remain good. Reported profit is foreseen to reach year 2009 level. The company seeks further growth in the unit-linked volumes.
The critical success factor in insurance business is the capability to manage the randomness of insured events. Insurance risk is the risk that the cost of future insurance claims will prove higher than expected at the time of pricing the insurance covers. During 2009, Sampo Group’s business risk profile in the insurance businesses remained relatively stable.
The main market risks of Sampo Group’s during 2009 were equity risk, interest rate risk and credit risk. Equity risk arises from the Group’s equity portfolio amounting to EUR 2.4 billion (2.7). Interest rate risk is related to the Group’s fixed income investments and insurance liabilities. In the short run, rising interest rates would decrease the valuation of fixed income assets. However, over a long period the risk that interest rates fall and remain at a low level is economically more important. Fixed income investments also expose the Group to credit risks, the significance of which has increased during the year.
Currency risk is the risk that Sampo Group will incur losses due to changes in foreign currency exchange rates. In If P&C and Mandatum Life currency risk is mainly related to net currency exposures. In Sampo plc currency risk consists of the translation risk linked to the net asset value and dividends of If P&C.
Operational risks, such as failures in internal processes and systems, and business risks, such as changes in the economic environment or business cycle, are inherent throughout all business areas. The perceived risks in the businesses and operating environment did not change significantly during 2009.
According to its dividend policy, Sampo plc aims to distribute an annual dividend corresponding to a dividend yield of 4 – 6 per cent. However, dividends cannot exceed reported profit after tax (excluding extraordinary items) for the calendar year for which the dividend is paid. Share buy-backs can be used to complement dividends.
The parent company’s distributable capital and reserves totaled EUR 6,435,539,685.41, of which profit for the financial year was EUR 531,142,474.88.
The Board proposes to the Annual General Meeting a dividend of EUR 1.00 per share to company’s 561,372,390 shares. The dividends to be paid are EUR 561,282,390 in total as no dividend is paid to the 90,000 Sampo A shares held by the company itself. Rest of funds are left in the equity capital.
No significant changes have taken place in the company’s financial position since the end of the financial year. The company ’s liquidity position is good and in the view of the Board, the proposed distribution does not jeopardize the company’s ability to fulfill its obligations.
New dividend policy The Board decided today to change the existing dividend policy. According to the new policy total annual dividends paid will be higher than 50 per cent of Group’s net profit for the year (excluding extraordinary items). In addition share buy-backs can be used to complement the cash dividend. The new policy will for the first time be applied to the dividend paid for 2010.
return on equity (at fair values) % 53.7 -32.4 52.6 22.6 28.4 return on assets (at fair values) % 16.5 -7.4 11.5 4.0 4.4 property & casualty insurance premiums written before reinsurers’ share eUrm 3,888 4,057 4,085 4,019 3,962 return on equity (at fair values) % 53.2 -0.8 19.2 22.0 24.1
Life insurance premiums written before reinsurers’ share eUrm 809 536 622 662 655 return on equity (at fair values) % 97.6 -68.8 9.1 30.0 39.0
Holding 4 per share key figures earnings per share, continuing operations eUr - - 1.25 1.27 options diluted earnings per share eUr - - - 1.69 1.65 options diluted earnings per share, continuing operations eUr - - - 1.24 earnings per share, incl. change in fair value reserve eUr 5.88 -3.52 5.89 1.89 1.97 earnings per share, incl. change in fair value reserve, continuing operations eUr - - 0.95 1.44 capital and reserves per share eUr 13.56 8.25 13.47 9.18 7.65 Net asset value per share eUr 14.63 8.28 13.49 9.21 7.67 adjusted number of shares at 31 dec. 6 1,000 561,282 561,372 574,209 562,791 564,701 average adjusted number of shares 6 1,000 561,370 569,442 577,802 563,092 564,864 Weighted average number of shares, incl. dilutive potential shares 6 1,000 561,370 569,442 577,802 576,341 575,268
adjusted number of shares at 31 dec. 6 1,000 560,082 560,172 573,009 561,591 563,501 average adjusted number of shares 6 1,000 560,170 568,242 576,602 561,892 563,664
B shares adjusted number of shares at 31 dec. 1,000 1,200 1,200 1,200 1,200 1,200 average adjusted number of shares 1,000 1,200 1,200 1,200 1,200 1,200 1 sampo plc’s sales gain (eUrm 2,830) arising from the disposal of the share stock of sampo Bank plc to danske Bank a/s is included in the Group key figures for the year 2007. the comparison average numbers of staff between the years 2005 and 2006 include the average staff number of the Banking and investment services (discontinued operations).
3 Key figures for p&c insurance are based on activity based costs and cannot, therefore, be calculated directly from the consolidated income statement.
Group key figures profit before taxes property & casualty insurance profit before taxes + life insurance profit before taxes + holding business profit before taxes ± Group elimination items with result impact
return on assets (at fair values), % + operating profit + interest and other financial expenses + calculated interest on technical provisions ± change in fair value reserve ± change in valuation differences on investments
+ balance sheet total − technical provisions relating to unit-linked insurance ± valuation differences on investments (average of values on 1 Jan. and 31 dec.)
Group solvency + total equity + sectoral items − intangible assets and sectoral deductibles own funds, total − minimum requirements for own funds, total group solvency
return on equity (at fair values), % formula shown above in connection with the Group key figures.
risk ratio, % + claims incurred − claims settlement expenses premiums earned cost ratio, % + operating expenses + claims settlement expenses premiums earned
Loss ratio excl. unwinding of discount, % claims incurred before unwinding of discount premiums earned expense ratio, % operating expenses premiums earned × 100%
Life insurance key figures profit before taxes formula shown above in connection with the Group key figures.
expense ratio + operating expenses before change in deferred acquisition costs + claims settlement expenses expense charges solvency capital (ifrs) + equity after proposed profit distribution ± valuation differences on investment - intangible assets + subordinated loans - deferred tax liability probably realised in near future (incl. deferred tax from fair value reserve and profit)
Market capitalisation number of shares at 31 dec. × closing share price at 31 dec.
Risk and Capital Measurement 55 Capital Management in Sampo Group 56
Kari Stadigh on Sampo’s results in CEO’s interview video published on 4 November 2009.
Nothing dramatic – that is what our shareholders actually expect us to deliver.”
The information presented in this Risk Management section is part of the IFRS financial statements.
Sampo plc as a holding company does not have any own business operations. Sampo plc sets the main financial and capitalisation targets for the subsidiaries and defines the risk management principles. The subsidiaries independently organise their risk management according to these principles, taking into account the special characteristics that arise from the company specific earnings logic and risks.
As a pan-Nordic insurance group If P&C underwrites policies that cover various risks of individuals and corporations on a geographically diverse area. If P&C is hence exposed to various risks, which are selected carefully and priced reflecting the risks. Reinsurance is used to handle low frequency, but high impact events. A critical success factor is also the company’s capability to maximise investment returns while taking all risks as well as the features of insurance liabilities, solvency, regulatory asset coverage rules and rating requirements into account.
Mandatum Life mainly operates in Finland and offers life and pension policies as well as policies covering insurance risks. Profitability of life insurance is dependent on the investment result, insurance risk result and expense result. In Mandatum Life, investment result is the margin between investment return from assets covering other than unit-linked reserves and the cost of guaranteed rate and bonuses of with-profit insurance policies. Insurance risk result is the margin between actual claims and the amount of claims assumed in pricing. Expense result is the expense charges from policies less the actual expenses.
2 Development of Sampo Group’s Risk Exposures and Solvency Position in 2009
Insurance Operations The total P&C insurance market decreased during the year, affected by a low economic activity. The insurance market for private customers was challenging, especially due to the financial crisis and aggressive competition, especially in Norway and in Sweden. Motor insurance, which is a large part of If P&C’s insurance portfolio, decreased due to a low level of new car sales. On a Nordic level the impact of large claims was approximately in line with an expected normalised year. On a country level, the impact of large claims was somewhat higher in Norway and lower in Finland.
In Mandatum Life, unit-linked liabilities have grown significantly due to increased premium income and excellent investment return in unit-linked funds. Analysis of the change in provisions is presented in Table 8 in the Insurance risk section. Surrender rates also stabilised after the year 2008 peak. Other liabilities were as stable as was expected. There were no major changes in the overall insurance risk position.
During 2009, the holding company Sampo plc increased its holding in Nordea. At year-end 2009, Sampo plc’s holding in Nordea amounted to over 20 per cent. Nordea is now treated as an associated company and it is consolidated in the Group’s financial statements using the equity method. Consequently, the Nordea shares are from 2010 no longer reported in the investment assets of Sampo Group.
Solvency The solvency of Sampo Group’s insurance subsidiaries have improved markedly during the year due to the improved financial market environment and good investment returns. The solvency position of Sampo Group was affected by the change in the way Nordea is treated in consolidation and solvency calculations as well as by the fact that the Nordea holding was increased considerably during the year.
Regulatory solvency capital of If P&C increased to EUR 2,427 million (EUR 2,021 million) while the regulatory capital requirement was EUR 634 million (EUR 570 million). Regulatory solthe classification of risks in sampo Group
Sampo plc, EURm investment returns at fair values in if p&c and Mandatum Life during 2000 – 2009
In May, If P&C paid SEK 1.1 billion in dividends to Sampo plc. At the end of the year, If P&C paid further dividends of SEK 4.0 billion. In order to strengthen Mandatum Life’s capacity to aim for higher investment returns, the company’s solvency was not reduced with dividends. The development of the solvency position in Sampo Group and the insurance subsidiaries are further described in the Capital Management section of this annual report.
The overall risk management and internal control principles as well as divisions of responsibilities of the insurance subsidiaries are defined on the Sampo Group level. The insurance subsidiaries organise their operations according to these principles while taking into account the specific characteristics of the respective business area. The principles for risk management and risk governance structure in If P&C, Mandatum Life and Sampo plc are presented below.
To meet these objectives, Sampo Group’s risk management process includes the tasks described in Figure 4.
Risk buffers, i.e. the difference between actual level of capitalisation and internally assessed economic capital, is monitored and managed regularly.
The risks involved in business operations and business environment are identified and monitored continuously. Particularly, when new services are launched, risks are thoroughly analysed.
Sound pricing of insurance policies and the assessment of risk-return relationship of investments are prerequisites for achieving the targeted financial performance and profitability over time. From risk management’s angle, the basis of pricing is defined by allocated capital and expected return on it as well as reliable estimates for claims costs and operating costs.
Results, risks and profitability are measured and reported by Management Accounting and Risk Control units, which are independent from business activities.
Risk portfolios, both investments and liabilities, are adjusted to maintain a sound risk to return ratio and return on capital. The portfolio management responsibilities are based on defined limits and respective authorisations.
Prerequisite for the efficient, high-quality operations is that authorisations and responsibilities of different companies, business areas, centralized units and administrative bodies are clearly defined.
If P&C and Mandatum Life organise their activities autonomously but in accordance with the Group level risk management principles. The Board of Directors of Sampo plc, the parent company, defines return and capitalisation targets of the subsidiaries. The risk exposures and capitalisation of the subsidiaries are consolidated on the Group level on a quarterly basis and reported to the Board and Audit Committee of Sampo plc.
Group Risk Governance The Board of Directors of Sampo plc is responsible for ensuring that the Group’s risks are properly managed and controlled.
The Group Chief Risk Officer (CRO) is responsible for supervising the appropriateness of risk management on Sampo Group level. The CRO aims to secure a holistic view of the risks Sampo Group is exposed to, by monitoring Sampo Group’s aggregated risk exposure and by coordinating and monitoring company specific and group level risk management.
The separate risk committees in If P&C which are reporting to the IRCC are the Investment Control Committee (ICC), Underwriting Committee (UWC), Actuarial Committee (AC), Reinsurance Committee (RC), and Operational Risk Committee (ORC). ICC is responsible for the control of investment activities in If P&C by ensuring compliance with the principles and limits specified in the Investment Policy. ICC reports to the Board and meets at minimum once a month. UWC is responsible for maintaining the Underwriting Policy and for reporting all deviations from the Underwriting Policy to IRCC. AC monitors the technical provisions and technical calculations and reports on reserve risk to the IRCC on a quarterly basis. RC is responsible for approving deviations from the Reinsurance Security Policy and for reporting all deviations to IRCC. ORC considers various policies and recommendations concerning operational risk management within If P&C and monitors deviations from these policies. Moreover, the committee is responsible for follow-up of operational risks identified in the operational risk assessment process.
During the year 2009, the responsibilities for the control of market risks and investment decisions were revised in Mandatum Life. Mandatum Life’s Asset and Liability Committee (ALCO) was established to control Mandatum Life’s solvency and investments, which are managed by Sampo plc’s investment unit. ALCO meets at a minimum on a monthly basis. Under normal circumstances, the members of the Board of Directors and Managing Director get monthly reports on investments and solvency. The decisions regarding the biggest investment risks are made by the Board.
Internal audit ensures with its audit recommendations that adequate internal controls are in place.
Economic capital accounts for market, credit, insurance and operational risks, as well as the diversification effect between
these risks. Economic capital is calculated using a set of calculation methods, which have been developed for the specific needs of each business area. When assessing the economic capital need arising from Nordea, Sampo plc uses the economic capital calculated by Nordea multiplied by the proportion of Sampo plc’s share in Nordea (20.1 per cent at year end).
5 Capital Management in Sampo Group capital Management process In Sampo Group, capital management is about ensuring the adequacy of the available capital in relation to risks arising from the company’s activities and business environment. Capital management activities are conducted continuously in various parts of the organisation. Figure 6 depicts the capital management actions in Sampo Group on a general level.
Capital Adequacy Assessment The current capital adequacy is assessed by comparing the amount of available capital to the amount of capital required to bear the risks arising from the current business activities. Internally, the assessment of capital has three phases. First, economic capital is used to assess the capital required by the current activities. Second, the less quantifiable, low probability and high impact, risks as well as uncertainties related to the business environment are considered. Third, expected profitability is taken into account because earnings are the first buffer against potential losses.
• Business volume targets • New business & pricing • Investment limits • Portfolio management • Dividends, share buy-backs • Capital instrument issues capitaL adeQUacy assessMeNt
• Rating agencies • Debt investors • Regulators • Shareholders • Policyholders iNterNaL staKeHoLders
Managements’ views and plans regarding the future development of the business and investment activities are used when analysing the future capital requirement. Within the planning process it is considered how changes either in business volumes and business mix or changes in existing risk factors may affect profitability, risks and capital needs. The results of these considerations are reflected in risk management and capitalisation recommendations to the business management and the Board of Directors. The recommendations are also affected by the external stakeholders’ views on the capitalisation of Sampo Group.
Capital Management Actions A prudent assessment of capital adequacy and a careful capital planning are important phases when creating an understanding of the actions that maintain a proper balance between capital and risks. However, Sampo Group believes that the proactive management of risks and capitalisation is the most important phase in the risk and capital management process. Risk limits and decision making authorisations are set up in a way that, together development of capitalisation in if p&c, Mandatum Life and sampo Group during 2009
Internal Capital Measures Economic capital tied up in Sampo Group’s operations on December 31, 2009 was EUR 3,783 million compared to EUR 1,895 million on 31 December, 2008. The increase in economic capital is mainly related to the overall increase of investment portfolio
The distribution of economic capital has changed considerably from 2008. The most significant risk area for the Group in terms of economic capital in 2009 is credit risk. The main reason for the change is that in 2009, Nordea’s economic capital is broken down into different risk areas whereas in 2008 the Nordea holding was affecting only market risk.
The breakdown of economic capital in insurance subsidiaries is further depicted in the Figure 9. The biggest risks are insurance risks related to P&C insurance and market risks in life insurance operations.
Breakdown of economic capital by different risks and by segment on 31 december 2009 and by different risks on 31 december 2008
economic capital in if p&c and Mandatum Life on 31 december 2009
Table 1 regulatory capital measures of if p&c and Mandatum Life on 31 december 2009 and 2008 eUrm If P&C Mandatum
Insurance risk is the risk that the insurance claims will be higher than excepted.
Group solvency according to the act on the supervision of financial and insurance conglomerates (1193/2004) on 31 december 2009 and 31 december 2008
Valuation differences and deferred taxes 369 3 subordinated loans 287 388 share of Nordea’s capital not included in Group capital* 889 -
Intangibles and other deductables -2,875 -1,571 intangibles (insurance companies) -688 -663 intangibles (Nordea) -1,179 0 equalisation provision (finland) -348 -333 contingency reserve (finland) -33 -31 planned dividends for the current period -561 -449
in 2008 Group solvency was calculated according to the decree of the Ministry of social affairs and Health (1106/2000).
* includes Hybrid capital loans (eUr 363 million), tier-2 capital (eUr 964 million), deductions for investments in insurance companies (eUr -236 million) and other items (eUr -201 million).
quantify the risks. If P&C mainly writes insurance agreements in the Nordic and Baltic countries, as well as policies for Nordic clients with operations outside the Nordic countries.
The UW policy is supplemented with detailed underwriting guidelines which outline how to conduct underwriting within
Technical provisions are divided into the provision for unearned premiums and the provision for claims outstanding in the company’s balance sheet. Provisions for unearned premiums are recognised on the balance sheet at the time contracts are written. These are intended to cover anticipated claims costs and operating expenses during the remaining time of insurance contracts in force. Provisions for claims outstanding on the other hand, are intended to cover the anticipated future payments of all claims incurred, including claims not yet reported to the company.
The uncertainty of technical provisions is normally larger for new portfolios for which complete run-off statistics are not yet available and for portfolios that include long-tailed business. Examples of portfolios including long-tailed business are Workers’ Compensation (WC), Motor Third Part Liability (MTPL), Personal Accident, and Liability insurance.
Risk Management and Control The business units manage underwriting risk on a day-to-day basis. Separate underwriting and pricing units are responsible for the tariffs and pricing of products related to the business area Private and smaller risks in the business area Commercial. In the business area Industrial and for more complex risks in the business area Commercial, the underwriting is based more on general principles and individual underwriting than strict tariffs. In general, pricing is based on statistical analyses of historical claims data and assessments of future developments of for instance claims inflation and claims frequency.
In product lines such as MTPL and WC, legislation and hence the product features and risks, differ significantly between countries. For instance, some of the Finnish, Swedish and Danish provisions for these lines include annuities which are sensitive to changes in mortality assumptions and discount rates. The proportion of the technical provisions related to MTPL and WC is 68 per cent.
Also, the technical provisions for many lines of business are sensitive to changes in inflation. Inflation risk refers to the risk that technical provisions increase due to higher inflation than expected. The anticipated inflation trend is observed in all provisions, but is of highest importance for claims settled over a long period of time. For long-tailed business, such as MTPL and WC, assessments are made regarding the expected claims inflation. These are based on external assessments of the inflation trend (e.g. consumer price index and payroll index) combined with If P&C’s own evaluation of cost increases for various types of claims. Inflation risk in the technical provisions is taken into account in the investment strategy of If P&C. The sensitivity towards inflation differs between countries due to the different national rules.
The sensitivity of technical provisions to different risk factors on 31 December 2009 is presented in Table 6.
Sweden Norway Finland Denmark technical provisions per product and country (book value), if p&c, 31 december 2009 sweden Norway finland denmark total eUrm duration eUrm duration eUrm duration eUrm duration eUrm duration
insurance. These are disclosed in the Note 27 to the Financial Statements.
The actuarial estimates are based on the data on historical claims and any other information that is available at the closing date. Factors that are monitored are e.g. loss development trends, the level of unpaid claims, changes in legislation, legal cases and economic conditions. The methods used in calculating technical provisions include the Chain Ladder and the Bornhuetter-Fergusson methods combined with projections of number of claims and average claim costs.
Reinsurance If P&C’s Reinsurance Policy stipulates guidelines for the purchase of reinsurance. The need and optimal choice of reinsurance is evaluated through statistical analysis. The remaining net exposure is subject to the capital requirements (regulatory, economic and rating) and the cost of reinsurance must be favourable compared to the cost of capital.
To analyse the exposure to natural catastrophes, the probability of major losses and the need for reinsurance, If P&C cooperates with external advisors. Two different approaches are used for these analyses: Statistical models in which historical losses are used to esti-• mate distributions for the frequency and size of losses, and Catastrophe models in which catastrophes are simulated • based on historical and meteorological data. Subsequently, insurance losses can be calculated taking into account vulnerability, exposure and policy terms.
Biometric Risks Biometric risks in life insurance refer to the risk that the company has to pay larger mortality, disability or morbidity benefits to insured or that the company is obliged to pay pensions to the policy holder for a longer time (longevity risk) than the company has anticipated when pricing the policies.
These risks arise as many policies have long maturities and fixed prices. 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.
Table 7 shows the insurance risk result in Mandatum Life’s Finnish life insurance policies. The ratio of the actual claims costs to the assumed was 87 per cent in 2009 (84 per cent in 2008). Sensitivity of the insurance risk result can also be assessed on the basis of the information in the table. For instance the increase of mortality by 100 per cent would increase the amount of benefit payments from EUR 15 million to EUR 30 million.
Longevity risk is the most critical biometric risk in Mandatum Life. Most of the longevity risk arises from the Group pension portfolio. The main mortality uncertainties in the Group pension portfolio are related to the socio-economical strucsensitivities of technical provisions, if p&c technical provision item risk factor change in risk parameter country Effect EURm 2009
Nominal reserves inflation increase increase by 1%-point sweden 175.6 denmark 15.1
The longevity risk result and longevity trend is analysed regularly. The longevity risk result for the year 2009 was slightly negative (Table 7). The assumed life expectancy in all group pensions was revised in 2002 and in part of the portfolio in 2007.
Mortality risk result is positive (Table 7) and the mortality trend has been favourable to the company. The most significant risk that could adversely affect the mortality risk result is possible pandemics. At this stage, no reliable predictions of mortality in the case of pandemics are available.
Discount Rate Risk in Technical Provisions Discount rate risk in technical provisions is the main risk affecting the adequacy of technical provisions. The guaranteed interest rate in policies is fixed for the whole policy period. Thus, if market interest rates and expected investment returns fall, technical provisions may have to be supplemented. Interest rate risk of assets and liabilities is further discussed in the Market and ALM risks section of this Annual Report.
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 liabilities has been decreased to 3.5 per cent. As a result, technical provisions have been supplemented with EUR 95 million (EUR 119 million in year 2008).
Surrender and lapse risks are taken into account when the company is analysing its ALM risk. This is described in more detail in the Market and ALM risk section.
claim ratios of Mandatum Life after reinsurance eUrm Risk income Claim expense Claim ratio risk income claim expense claim ratio * Note: the 2008 figures are reproduced by adding the employees’ group life which was excluded in 2008 figures.
MANDATUM LIFE PARENT COMPANY Group pension 2,450 111 -185 -10 83 15 -9 2,456 36%
Reserve for decreased discount rate 119 0 0 0 0 0 -24 95 1%
MANDATUM LIFE PARENT COMPANY TOTAL 6,046 766 -549 -63 158 18 294 6,671 98%
The company is also exposed to expense risk because loadings may not be enough to cover the realised expenses.
Technical provisions are analysed and the possible supplement needs are assessed regularly. Assumptions related to the liabilities are reviewed annually.
The actuarial department conducts thorough analyses of underwriting result annually. It measures the efficiency of risk selection and adequacy of tariffs by collecting actual claims expenditure for each product line and each type of risk and comparing it to the claims expenditure assumed in insurance premiums of every risk cover. Also administration and acquisition expenses are monitored annually.
In addition, adequacy of liabilities is tested quarterly. If seen necessary, tariffs are set, the underwriting policy is updated and changes are made to the provisions relating to existing business. Tariffs and prices, as well as the reinsurance principles and reserving principles are reviewed and approved annually by the Board of Directors.
expected maturity of insurance and investment contracts, Mandatum Life, 31 december 2009
MANDATUM LIFE PARENT COMPANY Group pension 9.6 385 363 796 640 485 350 566
Reserve for decreased discount rate 6.2 18 17 28 16 8 4 4
Market risks refer to the effects of fluctuations in the value of investments or technical provisions on the Group’s results or value of the balance sheet. For investments, the most significant market risks are equity, interest rate and credit risks. For technical provisions the most significant market risks are interest rate and inflation risks. ALM risk arises when the effects of market risks for investment assets are different from what they are for technical provisions. ALM risk is caused by differences in the sensitivity of investments and technical provisions to interest rates, inflation and foreign exchange rates. These differences are mainly attributable to differences in cash flows. The cash flows of technical provisions are modelled estimates and therefore uncertain in relation to both their timing and amount. ALM risk therefore also arises from this uncertainly.
Market risk Management and control in sampo Group The following principles for market risk management are applied in Sampo Group: The structure of liabilities. • Each subsidiary’s technical provisions are modelled and analysed regularly to form an understanding of their expected future cash flows and their sensitivities to changes in different factors such as inflation, interest rates and currencies. Risk bearing capacity. • The solvency position and the holding company’s capacity to capitalise are reflected in risk taking. When the solvency position is strong, market views can more freely be utilised in investment decisions. When making asset allocation decisions and setting return and liquidity targets, the structure of the companies’ technical provisions, their risk-bearing capacities, regulatory requirements,
The investment allocation for surplus capital is based on riskreturn optimisation. In order to enhance returns with acceptable risks, this portfolio may also contain equities in addition to fixed income investments.
The long-term target for investments is to provide sufficient return to cover the guaranteed interest rate plus bonuses based on principle of fairness as well as the shareholder’s return requirement with acceptable level of risk. In order to enhance returns, the company actively manages its investment portfolio. Mandatum Life’s market risk arises mainly from ALM-risk and also from the equity and credit risks related to investments.
The Board approves the Investment Policy annually, which sets principles and limits for investment activities. The Investment Policy also includes measures and limits for maximum acceptable market risk. These measures and limits are based on both Solvency I and Solvency II type approaches. The general objective is to maintain the required solvency and to ensure that investments are sufficient and eligible for covering technical provisions.
Market Risk Management and Control in Holding Sampo plc’s risks are mainly indirect risks arising from it’s holdings in subsidiaries and the associated company. Interest rate risk arising from the company’s gross debt and the liquidity reserve invested into short-term money market securities is the company’s most significant market risk. Most of Sampo plc’s debt is tied to short-term reference rates. This mitigates the Group-level interest rate risk because while lower interest rates would reduce subsidiaries ’ investment returns in the long-term, the interest expense in Sampo plc would be lower. Market risks related to Sampo plc’s investment portfolio are monitored and regularly reported to the company’s Board of Directors and the Audit Committee.
rating targets and the general risk appetite are taken into account. Investment management. • Market risks are managed actively within the limitations stemming from the liabilities´ features and the solvency situation. Sampo Group has a thorough understanding of Nordic markets and issuers and consequently Sampo Group’s direct investments are mainly made into Nordic securities. When investing in non-Nordic securities fund investments are often used. These funds are primarily used as a tool in tactical asset allocation and secondarily to increase diversification. Maintaining good diversification among various asset classes and within each asset class is a goal in investment activities. Investment policies and separate controlling bodies. • The Boards of Directors of If P&C and Mandatum Life annually approve the companies’ Investment Policies, which define investment portfolio allocations and their limits, the risk governance of investment activities and the decision making authorisations. The Investment Policies also include other guidelines of investment management like the use of derivatives and management of foreign currency risk. The Board of Directors in If P&C appoints ICC and the Board of Directors in Mandatum Life appoints ALCO. These committees are responsible for the control of investment activities within the respective legal entity. Centralised investment management. • If P&C and Mandatum Life have outsourced part of their investment management activities. Sampo plc’s Chief Investment Officer is responsible for all investments within the limitations of the companies ’ Investment policies. The investment administration units have a common Group-wide infrastructure for performance and risk reporting. Independent risk control. • Market risk control is separated from portfolio management activities. Middle-office functions measure risks and performance and control limits on a daily basis. Market risks and limits are controlled by the ICC and ALCO in If P&C and Mandatum Life, respectively, on a monthly basis. The aggregated market risks on Sampo Group level are controlled by the Group’s Audit Committee at least quarterly. Regulatory rules. • Local regulatory rules are always taken into account in investment activities.
Market Risk Management and Control in P&C Insurance If P&C’s approach in market risk management has been defined in accordance with the above described group wide principles.
First a neutral fixed income investment portfolio with features (in terms of nominal and real yields, durations and currencies) corresponding to the technical provisions is defined. The ALM framework is then used to derive a replicating investment allocation, because in practice, there are often no perfect replicates available for all liability types. For instance, sufficiently long-term inflationlinked instruments may not be available in all currencies. In these cases, techniques are used to create portfolios from available instruments that are good approximations of the neutral portfolio.
aLM risks in sampo Group In Sampo Group, ALM risks are analysed regularly. These analyses are used as an input for investment and business decisions. According to the Investment Policies in Sampo Group’s insurance subsidiaries, the composition of investment assets shall take into account the nature of the insurance commitments with respect to currency, interest rate and inflation risk.
The economic value of these reserves, i.e. the present value of future claims payments, is however exposed to changes in market interest rates. The sensitivity of this economic value to changes in market interest rates can be approximated with duration. The weighted average duration of If P&C’s insurance liabilities was 5.4 years (6.0 years in 2008). The duration of fixed income investments was 2.5 years at year end (3.1 years in 2008).
The duration of fixed income investment is presented in more detail in Table 13 in the fixed income investments section. The duration of technical provisions and thus the sensitivity to changes in interest rates is analysed in the Figure 11 and Table 5 in the insurance risk section. In addition, cash flows of financial assets and liabilities according to contractual maturities are shown in Table 18 in the liquidity risk section.
The duration of fixed income investment is presented in Table 13 in the fixed income investments section. Table 9 in the insurance risk section shows the maturity and average durations of Mandatum Life’s insurance and investment contracts. The cash flows of financial assets and liabilities according to contractual maturities are shown in Table 18 in the liquidity risk section.
Sensitivity Analysis of Financial Assets and Liabilities Table 10 shows the sensitivity analysis of the fair values of financial assets and financial liabilities given different market risk scenarios. The effects represent the instantaneous effects of a one-off change in the underlying market variable on the fair values on 31 December, 2009.
Sampo Group mainly invests into fixed income assets. Fixed income assets are further broken down in Table 12 and in Figure 13.
During 2009, the major change in the investment portfolio of Sampo Group was the increase of equity investments. The increase in the proportion of equity in the investment portfolio is due to the rise in equity prices as well as net purchases. At year end, the proportion of equity investments of all investments was 14.4 per cent excluding Nordea shares (7.4 per cent in 2008). The fair value of Nordea shares at the end of 2009 was EUR 5,756 million (EUR 1,602 million in 2008).
If P&C’s investment operations generated a return of 12.4 per cent in 2009 (-3.1 per cent in 2008). The investment assets amounted to EUR 10,654 million (8,956 million in 2008). The proportion of equities in the investment portfolio increased from 4.9 per cent sensitivity analysis of the fair values of financial assets and liabilities, sampo Group, 31 december 2009 interest rate equity other financial investments eUrm 1% parallel shift down 1% parallel shift up 20% fall in prices 20% fall in prices effect recognised in profit/loss -18 6 -5 -8 effect recognised directly in equity 331 -313 -469 -109
Table 10 the sensitivity analysis includes the effects of derivative positions. all sensitivities are calculated before taxes. the debt issued by sampo plc is not included.
sensitivity analysis of capitalisation to market risks on 31 december 2009 interest rate equity other financial investments eUrm 1% parallel shift down 1% parallel shift up 20% fall in prices 20% fall in prices
Table 11 the sensitivity analysis includes the effects of derivative positions. all sensitivities are calculated before taxes. the debt issued by sampo plc as well as the sensitivity related to Nordea are not included.
to 10.7 per cent during the year, while the proportion of fixed income investments decreased from 94.5 per cent to 88.8 per cent.
Sampo Group, EUR 16,593 million f e d c b a
Fixed income 82.2% Equities 14.4% Private equity 1.5% Real estate 1.3% Hedge funds 0.5% Commodities 0.0%
Fixed income 88.8% Equities 10.7% Private equity 0.3% Real estate 0.2%
BBB− BB+ − c d Not rated fixed income total equities other derivatives
BBB− BB+ − c d Not rated fixed income total equities other derivatives (counterparty risk) total in the tables, interest rate funds are categorised according to their average rating. regarding derivatives, only netted positive market values of otc derivatives are presented. the fixed income investments of if p&c include credit default swaps, which decrease the reported exposure by eUr 45 million. the fixed income investments of if p&c exclude an interest rate fund investment of eUr 66 million which is included in the category other.
Mandatum Life, EUR 3,743 million i h g f e d c b a
Money market securities and cash 6.8% Government bonds 13.5% Covered bonds 30.1% Investment grade bonds 22.6% High yield bonds 12.8% Sub-ordinated loans 6.1% Interest rate derivatives 0.3% Swedish index-linked bonds 7.9%
Breakdown of direct equity investments by geographical regions, sampo Group, if p&c and Mandatum Life, 31 december 2009
Scandinavia 32% Finland 26% Western Europe 11% East Europe 4% North America 10% Latin America 3% Far East 10% Japan 4%
Scandinavia 1% Finland 48% Western Europe 15% East Europe 7% North America 10% Latin America 3% Far East 13% Japan 4%
Equity investments The equity investments of Sampo Group totalled EUR 2,389 million at year-end excluding Nordea. (2,706 million in 2008, 1,104 million excluding Nordea).
The geographical emphasis in Sampo Group’s equity investments is in Nordic companies. The proportion of Nordic companies ’ equities corresponds to 58 per cent of the total equity portfolio. This is in line with Sampo Group’s Nordic focus and the fact that technical provisions relate to the Nordic currencies.
Sampo Group’s biggest equity holdings are disclosed in the Notes to the Financial Statements (note 40).
Mandatum Life’s technical provisions are mainly denominated in euros, and currency risk therefore mainly arises from investments in other currencies than euro. Mandatum Life’s currency strategy is based on active management of the currency position. The objective is to achieve positive return relative to a situation where the open currency risk exposure is fully hedged.
In addition to the exposure presented in Table 14, the Group companies may have translation risk related to their foreign subsidiaries and associated companies. Currency risks related to the net asset values are not normally hedged in the Group.
Other investments In addition to interest rate, equity and currency risks, If P&C and Mandatum Life are also exposed to a number of other market risks. These risks are related to exposures in real estates, private equity investments and investments in hedge funds. The Investment Policies set limits for maximum allocations into these markets and products. On 31 December 2009, the share of the above mentioned investments was 3.4 per cent of the total investment portfolio. In If P&C the proportion was 0.5 per cent and in Mandatum Life it was 8.6 per cent.
Credit risk is the risk of loss, or of adverse change in the financial situation, resulting from fluctuations in the credit standing of issuers of securities, derivative and re-insurance counterparties and any other debtors.
The credit risk in investment operations can be divided into issuer risk and counterparty risk. Issuer risk is often associated with a direct holding in a security, while counterparty risk is related to derivatives. The essential difference in terms of risk is that in the case of issuer risk, the entire market value of the instrument is at risk, whereas in the case of counterparty risk, it is only the possible positive market value of the derivative contract that is at risk.
In addition to the credit risk associated with investment assets, credit risk arises from insurance operations mainly through ceded reinsurance. Credit risk related to reinsurers arises through reinsurance receivables and through the reinsurers’ portion of outstanding claims. Credit risk related to reinsurance mainly relates to P&C insurance, as the use of reinsurance in life insurance is of relatively low volume.
In order to limit and control credit risk associated with reinsurance, If P&C has a Reinsurance Security Policy, which sets requirements for the reinsurers’ minimum credit ratings and the maximum exposure to individual reinsurers. Similar to credit risk in investment assets, credit ratings from rating agencies are used to support the assessment of the creditworthiness of reinsurance companies.
Geographically, Sampo Group focuses its direct investments to the Nordic countries. The proportion of financial institutions of fixed income investments was 38 per cent.
The proportion of reinsurance recoverables related to the ten largest individual reinsurance counterparties amounts to EUR 314 million, which is 66 per cent of total recoverables. The largest individual reinsurance counterparty is Mucredit risks related to the investments The most significant credit risk exposures in Sampo Group arise from investments into fixed income investments. Table 12 in the Market and ALM Risks section shows the allocations of investments per external credit rating and per industry sector. The figures include the counterparty risk related to derivatives.
reinsurance receivables and reinsurers’ portion of outstanding claims per rating category, if p&c, 31 december 2009 and 31 december 2008 rating Total EURm % of total total eUrm % of total
Table 15 ratings for ceded treaty and facultative premiums, if p&c, 31 december 2009 and 31 december 2008 rating Total EURm % of total total eUrm % of total
concentration of market and credit risks in individual counterparties by asset class on 31 december 2009 counterparty (per business area)
The largest market and credit risk concentrations related to individual counterparties and by different business areas are shown in Table 17. The concentrations by products, ratings and industry sectors are shown in Table 12.
Liquidity risk is managed by having a sufficient amount of investments that are readily marketable or that are of short maturity.
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, operating expenses and income. At year-end, the liquidity position in each legal entity was good.
nich Re (AA-rating) which accounts for 33 per cent of total recoverables.
The distribution of ceded treaty and facultative premiums per rating category is presented in Table 16.
concentration of credit and Market risks Potential concentration risks in Sampo Group may arise from market and credit risks related to the individual segments’ investment portfolios.
On Sampo Group level, risk accumulations are monitored regularly. Concentration risks are managed by taking into account the total Group exposure when setting individual limits in the investment policies for the subsidiaries. The concentration risks are partly mitigated by the fact that Mandatum Life’s investments are mainly in Euros whereas If P&C has the major share of its investments in other Nordic currencies. Concentrations are managed by selecting the geographic areas for the Group companies´ investments. As a result of these actions concentrations on Group level relate mainly to Nordic banks. If the risk is considered to be too high, concentrations are mitigated by reallocating the investments.
In Sampo Group, operational risk management is organised under the different business areas, which are described below.
Sampo plc coordinates capital allocation, risk management, internal audit, group accounting, investor relations and legal and tax issues within Sampo Group. The operational risks within Sampo plc are less significant than those of its subsidiaries.
Governance The continuity of operational risk management is secured through the Operational Risk Committee (ORC). ORC handles policies and recommendations concerning operational risk management within If P&C as well as contingency plans, deviations from related policies and guidelines, follow-up of risks identified in the Operational Risk Assessment (ORA) process, occurred incidents and other reports related to operational risks.
operational risk Management and control in Life insurance 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 minimise operational risks subject to cost-benefit considerations.
Identification and Management Operational risks are identified through several different sources and methods: Macro analysis• is conducted prior to the annual strategy process where the key trends in Mandatum Life’s business environment are identified, including a macro level business analysis of operational risks. External events are monitored continuously and the company reacts to those as soon as possible. Self-assessment• process is used to map and evaluate the major operational risks and their probabilities and significance, including an evaluation of internal controls and sufficiency of instructions. Self-assessment is conducted annually. Analysis of incidents• . Realised operational risks and near misses reported by the business units are collected and analysed by ORC. Each business unit is responsible for ensuring that the occurred incidents and near misses are reported to the ORC. Internal audits•
In order to limit operational risks, Mandatum Life has approved a number of policies including e.g. Security Policies, Continuity and Preparedness Plans, Outsourcing Policy, Complaints Handling Policy, Claims 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 ORC.
During 2009 If P&C and Mandatum Life have made extensive efforts in monitoring, evaluating the effects and commenting to the authorities and industry interest groups on the draft Solvency II implementing measures. The work will continue during 2010.
IFRS Financial Statements 82 Consolidated Comprehensive Income Statement 82 Consolidated Balance Sheet 83 Consolidated Statement of Changes in Equity 84 Consolidated Statement of Cash Flows 85 Notes to the Accounts 86 Sampo plc’s Financial Statements 160 Parent Company Income Statement 160 Parent Company Balance Sheet 161 Parent Company Statement of Cash Flows 162 Notes to the Parent Company Financial Statements 163 Approval of the Financial Statements and the Board of Directors’ Report 170 Auditor’s Report 171
F I N A N C I A L S TAT E M E N T S
Profit attributable to Owners of the parent 641 675 Non-controlling interests 0 0
Liabilities Liabilities for insurance and investment contracts 27 13,014 12,375 Liabilities for unit-linked insurance and investment contracts 28 2,359 1,637
Equity attributable to owners of the parent 7,613 4,631 Non-controlling interests 0 0
Acquisition of treasury shares -167 -167 Recognition of undrawn dividends 3 3
Total comprehensive income for the period 675 -248 -2,692 11 -2,254
Share-based payments -1 -1 Acquisition of treasury shares -1 -1 Recognition of undrawn dividends 11 11
Total comprehensive income for the period 641 122 2,662 -2 3,422 * The amount recognised in equity from available-for-sale financial assets for the period totalled EURm 2,626 (-2,755).
Change (+/-) in liabilities of operating activities Financial liabilities -165 196 Other liabilities 87 -85 Paid taxes -275 -49
Investing activities Investments in group and associated undertakings -1,758 0 Proceeds from the sale of group and associated undertakings - 6 Other investments - -522 Net investment in equipment and intangible assets -13 65
Segment Information Consolidated Income Statement by Business Segment 101 Consolidated Balance Sheet by Business Segment 103 Geographical Segment Information 105
Movements in Level 3 Financial Instruments Measured at Fair Value During the Financial Year 134
Sensitivity Analysis of Level 3 Financial Instruments Measured at Fair Value 135
During the financial year 2009 Sampo adopted the following new or amended standards or interpretations relating to its business.
The changes in IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement – Embedded Derivatives clarify reassessment of all embedded derivatives and, if needed, separation from a host contract in the financial statements when a hybrid financial asset is reclassified out of the fair value through profit or loss category. The adoption of the changes did not have any material effect on Sampo’s financial statements reporting.
IFRIC 13 Customer Loyalty Programmes states that the loyalty award credits should be treated separately from the sale of goods and services. The adoption of the interpretation did not have any material effect on Sampo’s financial statements reporting.
IFRIC 16 Hedges of a Net Investment in a Foreign Operation clarifies the accounting treatment of a net investment in a foreign operation on the group level. The adoption of the interpretation did not have any material effect on Sampo’s financial statements reporting.
The Board of Directors of Sampo plc accepted the financial statements for issue on 11 February 2010.
The acquisition method of accounting is used for the purchase of subsidiaries. The cost of an acquisition is allocated to the identifiable assets, liabilities and contingent liabilities, which are measured at the fair value of the date of the acquisition. The excess of the cost of an acquisition over the Group’s share of the fair value of the identifiable net assets acquired is recognised as goodwill.
Associates Associates are entities in which the Group has significant influence, but no control over the financial management and operating policy decisions. Unless otherwise demonstrated, this is generally presumed when the Group holds in excess of 20 per cent, but no more than 50 per cent, of the voting rights of an entity. Investments in associates are treated by the equity method of accounting, in which the investment is initially recorded at cost and increased (or decreased) each year by the Group’s share of the post-acquisition net income (or loss), or other movements reflected directly in the equity of the associate. If the Group’s share of the associate’s loss exceeds the carrying amount of the investment, the investment is carried at zero value, and the loss in excess is consolidated only if the Group is committed to fulfilling the obligations of the associate. Goodwill arising on the acquisition is included in the cost of the investment. Unrealised gains (losses) on transactions are eliminated to the extent of the Group’s interest in the entity.
Exchange differences arising from translation of transactions and monetary balance sheet items denominated in foreign currencies into functional currency are recognised as translation gains and losses in profit or loss. Exchange differences arising from equities classified as available-for-sale financial assets are included directly in the fair value reserve in equity.
The following exchange rates have been applied in the consolidated financial statements: Balance sheet date
The Group’s primary segmentation is based on business areas whose risks and performance bases as well as regulatory environment differ from each other. The control and management of business and management reporting is organised in accordance with the business segments. The Group’s business segments are P&C insurance, life insurance and holding business.
Financial Assets Designated as at Fair Value Through Profit or Loss Financial assets designated as at fair value through profit or loss are assets which, at inception, are irrevocably designated as such. They are initially recognised at cost which is the fair value of the consideration given, and subsequently remeasured at fair value. Gains and losses arising from changes in fair value, or realised on disposal, together with the related interest income and dividends, are recognised in the income statement.
Held-to-Maturity Investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold until maturity. Held-to-maturity investments are initially recorded at cost which is the fair value of the consideration given plus any directly attributable transaction costs, and are subsequently measured at amortised cost using the effective interest rate method.
Loans and Receivables Loans and receivables comprise non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately or in the short term. The category also comprises cash and balances with central banks.
Available-for-Sale Financial Assets 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.
If, in a subsequent period, the amount of the impairment loss decreases, and the decease can objectively be related to an event occurring after the impairment was recognised (e.g. the default status is removed), the previously recognised impairment loss shall be reversed through profit or loss.
As there are no quoted prices available in active markets for unquoted equities and participations, the aim is to determine their fair value with the help of generally accepted valuation techniques available in the markets. The most significant share of unquoted equities and participations comprise the private equity and venture capital investments. They are measured in
If, in a subsequent period, the fair value of a debt security increases and the increase can objectively be related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss shall be reversed by recognising the amount in profit or loss.
Hedge Accounting The Sampo Group may hedge its operations against interest rate risks, currency risks and price risks through fair value hedging and cash flow hedging. Cash flow hedging is used as a protection against the variability of the future cash flows, while fair value hedging is used to protect against changes in the fair value of recognised assets or liabilities.
Fair Value Hedging In accordance with the Group’s risk management principles, fair value hedging is used to hedge changes in fair values resulting from changes in price, interest rate or exchange rate levels. The hedging instruments used include foreign exchange forwards, interest rate swaps, interest rate and cross currency swaps and options, approved by the managements of the Group companies.
Changes in the fair value of derivative instruments that are documented as fair value hedges and are effective in relation to
IFRS Financial Statements: Summary of Signif icant Accounting Policies 93 the hedged risk are recognised in profit or loss. In addition, the hedged assets and liabilities are measured at fair value during the period for which the hedge was designated, with changes in fair value recognised in profit or loss.
Other Intangible Assets IT software and other intangible assets, whether procured externally or internally generated, are recognised in the balance sheet as intangible assets with finite useful lives, if it is probable that the expected future economic benefits that are attributable to the assets will flow to the Group and the cost of the assets can be measured reliably. The cost of internally generated intangible assets is determined as the sum of all costs directly attributable to the assets. Research costs are recognised as expenses in profit or loss as they are incurred. Costs arising from development of new IT software or from significant improvement of existing software are recognised only to the extent they meet the above-mentioned requirements for being recognised as assets in the balance sheet.
Property, plant and equipment comprise properties occupied for Sampo’s own activities, office equipment, fixtures and fittings, and furniture. Classification of properties as those occupied for own activities and those for investment activities is based
Investment property is held to earn rentals and for capital appreciation. The Group applies the cost model to investment property in the same way as it applies to property, plant and equipment. Moreover, the depreciation periods and methods and the impairment principles are the same as those applied to corresponding property occupied for own activities. The fair value of investment property is estimated using a method based on estimates of future cash flows and a comparison method based on information from actual sales in the market. The fair value of investment property is presented in the Notes.
A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the Group can reliably estimate the amount of the obligation. If it is expected that some or all of the expenditure required to settle the provision will be reimbursed by another party, the reimbursement will be treated as a separate asset only when it is virtually certain that the Group will receive it.
Reinsurance Contracts A reinsurance contract is a contract which meets the IFRS 4 requirements for insurance contracts and on the basis of which the Sampo Group (the cedant) may receive compensation from another insurer (the reinsurer), if it becomes liable for paying compensation based on other insurance contracts it has issued. Such compensation received on the basis of reinsurance contracts is included in the balance sheet under ‘Reinsurers’ share of insurance liabilities’ and ‘Other assets’. The former item includes the reinsurers’ share of the provisions for unearned premiums and claims outstanding in the Group’s reinsured insurance contracts, while the latter includes short-term receivables from reinsurers.
Receivables and liabilities related to reinsurance are measured uniformly with the cedant’s receivables and liabilities. Reinsurance receivables are tested annually for impairment. Impairment losses are recognised through profit or loss, if there is objective evidence indicating that the Group (as the cedant ) will not receive all amounts of money it is entitled to on a contractual basis.
Classification of Insurance Contracts In classifying insurance contracts and examining their related risks, embedded contracts are interpreted as one contract.
Liability Adequacy Test A liability adequacy test is performed separately for both the provision for claims outstanding and the provision for unearned premiums. The provision for claims outstanding is based on estimates of future cash flows. The estimates are made by using well-established actuarial methods.
Pay-as-you-go System for P&C Insurance 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.
Deferred Acquisition Costs In the P&C insurance business, acquisition costs clearly relating to the writing of insurance contracts and extending beyond the financial year are recognised as assets in the balance sheet. Acquisition costs include operating expenses directly or indirectly attributable to writing insurance contracts, fees and commissions, marketing expenses and the salaries and overheads of sales staff. Acquisition costs are amortised in the same way as provisions for unearned premiums, usually in 12 months at the maximum.
Measurement of Insurance and Investment Contracts National accounting standards are applied to all insurance contracts and to investment contracts with DPF, with the exception of the equalisation provision and changes in it.
The amounts of claims include the guaranteed interest and an estimation of future bonuses. The present values of the cash flows have been discounted to the balance sheet date by using a swap rate curve.
Sampo has valid share-based incentive schemes that are settled either in cash (the long-term incentive schemes 2006 II, 2008 I, 2008 II and 2009 I for executives and specialists) or in equity instruments (Sampo 2006). Schemes are measured at fair value at the grant date. In the schemes settled in cash, the valuation is recognised as a liability and changes recognised through profit or loss. In the schemes with equity instrument payments, valuation is recognised as an expense and as an increase in equity on a straight-line basis during the vesting period.
The fair value of schemes has been determined using the Black-Scholes-pricing model. The fair value of the marketbased part of the incentive takes into consideration the model’s forecast concerning the number of shares to be paid as an incentive. The effects of non-market based terms are not included in the fair value of the incentive; instead, they are taken into account in the number of those share options that are expected to be exercised during the vesting period. In this respect, the Group will update the assumption on the estimated final number of shares at every interim or annual balance sheet date.
Item Tax expenses in the income statement comprise current and deferred tax. Tax expenses are recognised through profit or loss, except for items recognised directly in equity or other comprehensive income, in which case the tax effect will also be recognised those items. Current tax is calculated based on the valid tax rate of each country. Tax is adjusted by any tax related to previous periods.
Sampo presents cash flows from operating activities using the indirect method in which the profit (loss) before taxation is adjusted for the effects of transactions of a non-cash nature,
IFRS Financial Statements: Summary of Signif icant Accounting Policies 99 deferrals and accruals, and income and expense associated with investing or financing cash flows.
Actuarial Assumptions Evaluation of insurance liabilities always involves uncertainty, as technical provisions are based on estimates and assumptions concerning future claims costs. The estimates are based on statistics on historical claims available to the Group on the balance sheet date. The uncertainty related to the estimates is generally greater when estimating new insurance portfolios or portfolios where clarification of a loss takes a long time because complete claims statistics are not yet available. In addition to the historical data, estimates of insurance liabilities take into consideration other matters such as claims development, the amount of unpaid claims, legislative changes, court rulings and the general economic situation.
IFRIC 17 Distributions of Non-cash Assets to Owners clarifies the recognition and measurement of assets other than cash paid in dividends. The adoption of the interpretation will have no influence on the Group’s financial statements reporting.
Improvements to IFRSs 2009 – various minor changes made to different standards at the same time. The Group does not consider these changes material to Sampo’s financial statements reporting. The changes were yet not approved by the EU at the balance sheet date.
Applications in 2011 The Group will adopt the following revised standard and amendments in 2011, provided that the EU will have adopted them by then: The amendment to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues (effective for annual periods beginning on 1 Feb. 2010 or after) addresses the accounting for rights, options or warrants that are denominated in a currency other than the functional currency of the issuer. The Group estimates that the change will have no influence on the Group’s financial statements reporting.
The revised IAS 24 Related party disclosure (effective for annual periods beginning on 1 Jan. 2011 or after) clarifies the concept of related parties. The Group estimates that the revision will have no significant influence on the Group’s financial statements reporting. The revisions were yet not approved by the EU at the balance sheet date.
Consolidated Income Statement by Business Segment for Year Ended 31 December 2009
Change in liabilities for insurance and investment contracts -33 -600 - - -633
Profit attributable to Owners of the parent 641 Non-controlling interests 0
The Group’s business segments comprise P&C insurance, Life insurance and Holding company. Geographical information has been disclosed about income from external customers and non-current assets. The reported areas are Finland, Sweden,
Consolidated Income Statement by Business Segment for Year Ended 31 December 2008
Profit attributable to Owners of the parent 675 Non-controlling interests 0
Investments related to unit-linked insurance contracts - 2,366 - - 2,366
Liabilities Liabilities for insurance and investment contracts 8,583 4,431 - - 13,014 Liabilities for unit-linked insurance and investment contracts - 2,359 - - 2,359
Equity Share capital 98 Reserves 1,531 Retained earnings 5,688 Other components of equity -2,687
Insurance contracts total, gross 510 488 Premium revenue ceded to reinsurers on insurance contracts issued -6 -7
Premiums from investment contracts Premiums from contracts with discretionary participation feature 20 0 Premiums from unit-linked contracts 279 47
Single and regular premiums from direct insurance Regular premiums, insurance contracts 381 365 Single premiums, insurance contracts 127 121 Single premiums, investment contracts 299 47
IFRS Financial Statements: Other Notes 107 2 Net Income from Investments
Equity securities Gains/losses 18 -32 Impairment losses -86 -4 Dividend income 14 47
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 26 (59) transferred from the fair value reserve.
Equity securities Gains/losses 109 30 Impairment losses -140 -1 Dividend income 27 62
Net income from investments includes exchange differences Arising from investments 1 -47
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 21 (30) transferred from the fair value reserve.
Change in provision for claims outstanding (incurred and reported losses) -674 67 -607 -704 55 -650 Change in provision for claims outstanding (incurred but not reported losses, IBNR) -631 18 -613 -670 18 -651
Change in claims provision for annuities -15 0 -15 -11 - -11
Total claims cost attributable to current-year operations -2,673 108 -2,564 -2,800 118 -2,682
Total claims cost attributable to prior-year operations 74 13 87 91 -1 90
The provision for annuities is valued in accordance with normal actuarial principles taking anticipated inflation and mortality into consideration, and discounted to take the anticipated future investment return into account. To cover costs for the costs for the upward adjustment of annuity provisions required for the gradual reversal of such discounting, an anticipated return is added to the annuity results. Provisions for incurred but not reported losses pertaining to annuities in Finland are discounted. The provisions in 2009 amounted to approximately EURm 290 (303). The non-discounted value was EURm 444 (467). The growth is mainly caused by the increase in the provision for work insurance.
Pension insurance Contracts with discretionary participation feature (DPF) -306 -284 -65 -113 -371 -397
Life insurance, unit-linked Surrender benefits -71 -124 Death benefits -21 -22 Maturity benefits -29 -29 Loss adjustment expenses 0 0
Claims paid total, gross -564 -652 Claims paid total, net -560 -648
IFRS Financial Statements: Other Notes 113 4 Change in Liabilities for Insurance and Investment Contracts
Change in liabilities for insurance and investment contracts in total, gross -600 681
Staff costs Wages and salaries -330 -328 Cash-settled share-based payments -4 -2 Pension costs - defined contribution plans -49 -45 - defined benefit plans (Note 31) -26 -21
IT costs -93 -20 Other staff costs -16 -17 Marketing expenses -39 -41 Depreciation and amortisation -20 -20 Rental expenses -46 -49 Change in deferred acquisition costs 13 10 Direct insurance comissions -139 -137 Commissions on reinsurance ceded 18 20
Insurance premiums earned 3,643 3,807 Claims incurred -2,717 -2,834 Operating expenses -640 -662 Other insurance technical income and expense 0 4 Allocated investment return transferred from the non-technical account 201 233
Technical result before investment return * Activity-based operating costs EURm 239 (242) have been allocated to claims incurred.
** Includes other technical income EURm 23 (26) and other technical expenses EURm 22 (22).
Expenses arising from investment property direct operating expenses arising from investment property generating rental income during the period -2 -1 direct operating expenses arising from investment property not generating rental income during the period -1 -1
Expenses arising from investment property direct operating expenses arising from investment property generating rental income during the period -7 -7 direct operating expenses arising from investment property not generating rental income during the period 0 0
Property rented out under operating lease Non-cancellable minimum rental not later than one year 0 1 later than one year and not later than five years - 0
Fair values for the Group’s investment property are entirely determined by the Group based on the market evidence. The premises in investment property for different segments are leased on market-based, irrevocable contracts. The lengths of the contracts vary from those for the time being to those for several years.
Forecasts for If, approved by the management, cover years 2010 – 2012. The cash flows beyond that have been extrapolated using a 3% growth rate. A 2% growth rate for years beyond 2009 has been used for the markets where Mandatum Life operates.
Associates that have been accounted for by the equity method at 31 Dec. 2008 EURm Nimi
Consulting AB Lennemark & Andersson 8 / 5 10 1 * If there is a published price quatation ** Excluded from accounting for by the equity method because of their immaterial effect on consolidated figures.
Derivative financial instruments 84 362 Financial assets designated as at fair value through p/l 163 355 Loans and receivables 3 1 Financial assets available-for-sale 9,998 8,155
Currency options, bought and sold 30 0 0 47 0 1
Equity derivatives OTC derivatives Equity and equity index options 1 0 0 - - -
Interest options, bought and sold 300 4 3 - - -
Currency options, bought and sold 128 1 1 126 2 3
Total financial assets designated as at fair value through p/l 161 354
Financial assets available-for-sale Debt securities Government bonds 1,566 2,038 Other debt securities 7,231 5,633
EURm Total Up to 1 year 1 – 2 years 2 – 3 years 3 – 5 years
Most of the cash flows are forecast to occur during the first two years.
Financial assets available for sale / debt securities: Debt securities available for sale include EURm 2,500 (1,876) investments in bonds and EURm 789 (1,297) investments in money market instruments. Financial assets available for sale /shares and participations: Listed equity securities include EURm 554 (370) quoted shares. Unlisted equity securities include EURm 359 (318) investments in capital trusts.
Financial assets available-for-sale Debt securities Certificates of deposit issued by banks 11 994 Other debt securities 125 190
Total financial assests measured at fair value 3,320 13,707 740 17,768
Total financial liabilities measured at fair value - 127 - 127
The historical cost of the equity securities related to unit-linked contracts was EURm 1,737 (1,669) and that of the debt securities EURm 355 (130).
Derivative financial instruments Debt securities 16 0 Mutual funds 1 0
Financial assets related to unit-linked insurance Debt securities 1 0 Mutual funds 54 -11
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%. The Sampo Group bears no investment risks related to unit-linked insurance, so a change in assumptions regarding these assets does not affect profit or loss. On the basis of these alternative assumptions, a possible change in interest levels would cause a valuation loss of EURm 3 for the debt instruments, and EURm 105 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 1.4%.
Deferred tax liabilities Depreciation differences and untaxed reserves 334 6 0 20 360
Income tax relating to components of other comprehensive income -326 333 24 Tax Effects Relating to Components of Other Comprehensive Income
Assets arising from direct insurance operations 830 767 Assets arising from reinsurance operations 47 44 Settlement receivables 3 17 Deferred acquisition costs 1 122 99 Assets related to Patient Insurance Pool 59 60
Other assets include non-current assets EURm 50 (50). Item Other comprise rental deposits, salary and travel advancements and assets held for resale.
Receivables from policyholders 6 4 Assets arising from reinsurance operations 1 1 Settlement receivables 38 187
Cash at bank and in hand 57 16 Short-term deposits (max 3 months) 11 155
Incurred and reported losses 1,854 1,756 Incurred but not reported losses (IBNR) 3,284 2,944 Provisions for claims-adjustment costs 241 212 Provisions for annuities and sickness benefits 1,535 1,455
As the P&C Insurance is exposed to various exchange rates, comparing the balance sheet data from year to year can be misleading. The exchange effect on technical provisions for own account between 2008 and 2009 was insignificant as the strenghtening of the Norwegian krone was offset by the fall of the euro. In the comparison year, the exchange effect on the technical provisions for own account amounted to a net increase of EURm 343.
At the close of the claims year 4,731 2,413 2,359 2,507 2,522 2,592 2,726 2,733
Provision reported in the balance sheet 2,380 293 394 433 483 560 781 1,344 6,668 of which established vested annuities 1,175 65 54 63 66 57 46 9 1,535
Claims cost trend of P&C Insurance The tables below show the cost trend for the claims for different years. The upper part of the tables shows how an estimate of the total claims costs per claims year evolves annually. The lower section shows how large a share of this is presented in the balance sheet.
The liabilities at 1 Jan. and at 31 Dec. include the future bonus reserves and the effect of the reserve for the decreased discount rate of individual insurances. The calculation is based on items before reinsurers’ share. A more detailed specification of changes in insurance liabilities is presented in Group’s Risk Management.
Investment contracts do not include a provision for claims outstanding. Liability adequacy test does not give rise to supplementary claims. Exemption allowed in IFRS 4 Insurance contracts has been applied to investment contracts with DPF or contracts with a right to trade-off for an investment contract with DPF. These investment contracts have been valued like insurance contracts.
IFRS Financial Statements: Other Notes 143 28 Liabilities from Unit-linked Insurance and Investment Contracts
If P&C Insurance Ltd issued in 2001 EURm 200 preferred capital note. The loan pays fixed interest rate for the first ten years and floating rate interest after that. The loan falls due at the latest March 2021. The loan is listed on the Luxembourg Exchange.
During 2009, Sampo Plc activated its commercial paper programme and issued debt securities within. The company also made an exchange offer for its debenture of EURm 600. After this EURm 37 of the debentures remained in the balance sheet. Sampo Plc also issued a three-year-long bond of EURm 750. In addition, Sampo Plc took out a pension loan of EURm 130, with a maturity of 5 years.
Exchange rate differences 3 Additions 19 Amounts used during the period -12 Unused amounts reversed during the period -2
Current (less than 1 year) 18 Non-current (more than 1 year) 17
Employee benefits Sampo has defined benefit plans in P&C insurance business in Sweden and Norway.
The following actuarial assumptions have been used for the calculation of defined benefit pension plans in Sweden and Norway: Sweden Sweden Norway Norway
Net cumulative unrecognised actuarial gains/losses -64 -2 -67 -86 -8 -94
Net pension obligation recognised in the balance sheet 31 54 85 31 45 76
Expected rate of return on plan assets at the begninning of the year -13 -15 -12 -12 -10 -9 Actuarial gains (-) or losses (+) recognised during the financial year 5 1 3 2 1 Losses (+) or gains (-) on curtailments and settlements 1 2 3 4 2 7
Pension obligations: At the beginning of the year 390 406 405 359 302 237 Earned during the financial year 14 14 16 18 19 13
Defined benefit plans at 31 Dec. 424 390 406 405 359 302
Reconciliation of plan assets: At the beginning of the year 220 255 228 203 178 155
Other short-term employee benefits There are other short-term staff incentive schemes in the Group, the terms of which vary according to country, business area or company. Benefits are recognised in the profit or loss for the year they arise from. An estimated amount of these profit-sharing bonuses, social security costs included, for 2009 is EURm 34.
Liabilities arising out of direct insurance operations 104 94 Liabilities arising out of reinsurance operations 47 38 Settlement liabilities 1 0 Liabilities related to Patient Insurance Pool 57 58 Tax provisions 240 10 Prepayments and accrued income 158 133
The non-current share of other liabilities is EURm 48 (52). Item Other includes e.g. witholding taxes, social expenses related to Workers Compensation insurance policies and employee benefits, unpaid premium taxes and other accruals.
Item Other includes e.g. liabilities arising from withholding taxes and social security costs, liabilities to creditors and insurance premium advances.
Cash at balances at central banks 9 7 9 8 Investments
The subsidiaries If P&C Insurance Ltd and If P&C Insurance Company Ltd provide insurance with mutual undertakings within the Nordic Nuclear Insurance Pool and within the Norwegian Natural Perils’ Pool.
Lended securities Domestic shares Number of shares 837,000 Remaining acquisition cost 10 Fair value 11 -
Lease and sublease payments recognised as an expense in the period minimum lease payments -2 -2 sublease payments 0 0
Commitments for non-cancellable operating leases Minimum lease payments not later than one year 1 3 later than one year and not later than five years 3 4 later than five years 2 3
Legal reserve The legal reserve comprises the amounts to be transferred from the distributable equity according to the articles of association or on the basis of the decision of the AGM. During the financial year, EURm 366 was transferred to the reserve for invested unrestricted equity from the legal reserve.
Invested unrestricted equity The reserve includes other investments of equity nature, as well as issue price of shares to an extent it is not recorded in share capital by an express decision. During the financial year, EURm 1,161 was transferred to this reserve from the share premium reserve and EURm 366 from the legal reserve.
Changes in the reserves and retained earnings are presented in the Group’s statement of changes in equity on page 84.
Shares and votes The number of Sampo plc’s shares at 31 Dec. 2009 was 561,372,390, of which 560,172,390 were A-shares and 1,200,000 B-shares. Each A share has 1 vote and each B-share has 5 votes at General Meetings. All the B-shares are owned by the Kaleva Mutual Insurance Company. B-shares can be converted into Ashares at the request of the holder of B-shares. Sampo’s A-shares are quoted on the Helsinki Stock Exchange (currently NASDAQ OMX Helsinki).
Key management personnel The key management personnel in Sampo Group consists of the members of the Board of Directors of Sampo plc and Sampo Group’s Executive Committee.
Other long-term benefits consist of the benefits under long-term incentive schemes accounted for the year (see Note 36).
Price of Sampo A at terms approval date*, eur 20.25 18.23 18.02 16.74
Long-term incentive schemes 2006 II – 2009 I The Board of Directors for Sampo plc has decided on the long-term incentive schemes 2006 II – 2009 II for the management and experts of the Sampo Group. The Board has authorised the Nomination and Compensation Committee of the Board, or the CEO, to decide who will be included in the scheme, as well as the number of calculated bonus units granted for each individual used in determining the amount of the performance-related bonus. In the schemes, the number of calculated bonus units granted for the members of the Group’s Executive Committee is decided by the Board of Directors. Over 100 persons were included in the schemes at the end of year 2009.
Each plan has three performance periods and bonuses are settled in cash in three installments. In the schemes 2008 I, 2008 II and 2009 I, when the bonus is paid, the employee shall buy Sampo’s A-shares at the first possible opportunity, taking into account the provisions on insiders, with 30 per cent of the amount of the bonus after taxes and other comparable charges, and to keep the shares in his/her possession for one year in schemes 2008 I and 2008 II and for two years in scheme 2009 I. A premature payment of the bonuses may occur in the event of changes in the group structure or in the case of employment termination on specifically determined bases. The fair value of the incentive schemes is estimated by using the Black-Scholes princing model.
Sampo 2006 share-based incentive programme On 5 April 2006, the Annual General Meeting of Sampo plc agreed on the ”Sampo 2006” share-based incentive programme. The programme applies to senior executive management of Sampo plc and its subsidiaries, and to Sampo’s president and CEO. On 11 May 2006, the Board of Directors of Sampo plc allocated 1,300,000 shares of the maximum of 1,500,000 shares of the programme.
50 per cent of the amount of the reward eventually payable is based on the price performance of Sampo’s A-share, and the other 50 per cent is based on the development of insurance margin (IM). The programme has three performance periods that cover the years 2006 – 2010. Each installment corresponds, at the maximum, to one third of the total amount of shares. The terms of the programme include a limitation according to which the amount of the reward payable will be decreased, if Sampo’s share price increases by more than 160 per cent during an individual performance period. The shares to be distributed as a reward are partly subject to a two-year lock-up. The Board of Directors of Sampo has the right to decide to pay the reward partly or as a whole in cash instead of the shares.
In accordance with the programme, the reward is paid in three installments. The second installment, EUR 2,085,000, was paid in December 2009. The reward was paid in cash so that the employee was obliged to buy Sampo’s A-shares at Helsinki Stock Exchange at the least with 50 percent of the amount of the bonus after taxes and other comparable charges. One person left the programme during 2009.
Insurance margin Jan. 2006– Jan. 2007– Jan. 2008– Sep. 2008 Sep. 2009 Sep. 2010
Minimum payout requirement 26% 5% Maximum payout requirement 64% 10.5% Payout of the total maximum reward if the minimum is achieved 20% 40%
Auditing fees 2 2 Other fees 0 0 38 Legal Proceedings
P&C insurance Listed companies EURm Country No. of shares Holding %
Veidekke ASA Norway 11,649,680 8.57% 70 Cardo AB Sweden 2,847,223 10.55% 60 Nobia AB Sweden 14,632,850 8.35% 60 Höganäs AB B Sweden 2,627,824 7.49% 42 Clas Ohlson AB B Sweden 2,742,908 4.18% 38 TeliaSonera AB Sweden 5,200,000 0.12% 26 Hennes & Mauritz AB B Sweden 610,800 0.07% 24 Lindab International AB Sweden 3,086,818 3.92% 22 Gunnebo AB Sweden 8,036,166 10.59% 21 Atlas Copco AB B Sweden 2,071,515 0.17% 19 Sectra AB B Sweden 4,356,300 11.82% 18 ABB Ltd Switzerland 1,290,000 0.06% 17 Yara International ASA Norway 448,750 0.15% 14 Astra Zeneca Plc Great Britain 429,500 0.03% 14 Volvo AB B Sweden 2,225,372 0.10% 13 Scania AB B Sweden 1,416,306 0.18% 13 BE Group AB Sweden 2,998,600 6.00% 13 Svedbergs i Dalstorp AB B Sweden 2,298,600 10.84% 10 StatoilHydro ASA Norway 490,500 0.02% 9 Sandvik AB Sweden 920,000 0.08% 8 SSAB Svenskt Stål AB A Sweden 644,000 0.20% 8 Nederman Holding AB Sweden 1,160,400 9.90% 8 Nolato AB B Sweden 1,062,584 4.04% 6 VBG AB B Sweden 524,200 3.83% 4 Vestas Wind Systems A/S Denmark 82,900 0.04% 4
WD Power Investment Finland 2,523 0 PMI Venture Fund L.P. (CIM Venture Fund for Creative Industries L.P.) Finland 70,144 0 WD Power Investment U.S. 18,268 0 Mandatum Pääomarahasto II Ky EUR Finland 126,500 1 Private Energy Market Fund L.P. Finland 304,575 3 Mandatum Pääomarahasto II Ky USD U.S. 511,200 3 EQT III UK No 1 L.P. (EQT Northern Europe UK No. I L.P.) Finland 1,184,784 5 Mandatum Pääomarahasto I Ky Finland 690,227 6 EQT IV (No. 1) Limited Partnership Finland 945,452 6 Goldman Sachs Loan Partners I, L.P. U.S. 1,237,422 10 Goldman Sachs Loan Partners I, L.P. Debt EUR Cayman Islands 1,719,753 17 Goldman Sachs Loan Partners I, L.P. Debt USD U.S. 5,840,777 39 Fund of support of small business Russia 1 0 Equity Fund, North-West Trust Company Russia 6,368 0 Mixed investments Fund, North-West Trust Company Russia 8,984 0 APS Japan Growth Fund JPY Japan 141,555 8 Danske Invest European Opportunities Kasvu Finland 12,620,831 10 IShares Nikkei 225 DE Denmark 1,491,000 12 SPDR Trust Series 1 S&P500 ETF U.S. 190,000 15 APS Small Cap Alpha Fund Ireland 184,320 16 Aberdeen Global Asia Pacific Equity Fund Luxembourg 463,103 18
Alma Media Oyj Finland 6,655,512 8.92 49 Amanda Capital Oyj Finland 2,053,296 9.02 4 Amer Sports Oyj Finland 1,600,430 1.32 11 Basware Oyj Finland 550,000 4.80 8 Comptel Oyj Finland 19,569,925 18.28 15 Elisa Corporation Finland 650,000 0.39 10 Finnair Oyj Finland 2,400,000 1.87 9 Finnlines Oyj Finland 773,500 1.65 5 Fortum Oyj Finland 1,825,886 0.21 35 Kemira Oyj Finland 2,617,736 1.69 27 Kesko Oyj Finland 515,153 0.52 12 Konecranes Oyj Finland 500,000 0.81 10 Lassila & Tikanoja Oyj Finland 2,231,238 5.75 36 Metso Oyj Finland 855,659 0.57 21 Neste Oil Oyj Finland 1,051,088 0.41 13 Nokia Oyj Finland 2,950,000 0.08 26 Nokian Renkaat Oyj Finland 947,085 0.76 16 Norvestia Oyj Finland 1,789,538 11.68 13
Danske Invest Emerging Asia Kasvu Finland 1,820,318 48 Danske Invest Emerging Markets Debt Kasvu Finland 15,226,632 26 Danske Invest European Opportunities Kasvu Finland 19,375,369 16 Danske Invest High Yield Kasvu Finland 112,728,951 131 Danske Invest Japani Osake Kasvu Finland 403,618,921 36 Danske Invest Trans-Balkan kasvu Finland 465,974 5 Fourton Odysseus Kasvu Finland 102,880 16
Access Capital L.P. Great Britain 7 BOF III CV Investors LP (Gilde Buyout Fund III) Great Britain 6 Behrman Capital III L.P. U.S. 8 CapMan Buyout VIII (Guernsey) L.P. Great Britain 6 CapMan Equity VII B L.P. Great Britain 8 Duke Street Capital Structured Solutions Great Britain 22 EQT IV (No. 1) Limited Partnership Great Britain 6 EQT V (General Partner) LP Great Britain 10 Goldman Sachs Loan Partners I, L.P. U.S. 14 Goldman Sachs Loan Partners I, L.P. Debt EUR U.S. 22 Goldman Sachs Loan Partners I, L.P. Debt USD U.S. 52 Goldman Sachs Petershill Fund Offshore, L.P. U.S. 14 Montagu Fund III L.P. Great Britain 7 Mount Kellet Capital Partners (Cayman), L.P. U.S. 13 Pai Europe IV L.P. Great Britain 6 Russia Partners II L.P. U.S. 7 Thomas H. Lee Equity Fund V L.P. U.S. 6 VenCap 9 LLC (Preferential Equity Investors II LLC Great Britain 6
Holding Domestic other than listed companies EURm Country No. of shares Holding %
Varma Mutual Pension Insurance Company Finland 57 80.28 14 Other Finland 6
Income taxes Tax for the financial year -14 Tax from previous years 2 1 Deferred taxes 7 2
Short-term receivables Receivables from Group companies 3 5 Deferred tax assets 20 11 6
Retained earnings 4,108 3,993 Profit for the financial year 531 555
Short-term liabilities Debt securities 466 Deferred tax liabilities 20 - 2
Operating activities Profit before taxes 523 564 Adjustments: Depreciation and amortisation 0 1 Unrealised gains and losses arising from valuation 1 1 Realised gains and losses on investments 23 -3 Other adjustments 10 568
Notes to the Parent Company Financial Statements Summary of significant account policies The presentation of Sampo Plc’s financial statements together with the notes has been prepared in accordance with the Finnish Accounting Act and Ordinance. The accounting principles applied to the separate financial statements of Sampo plc do not materially differ from those of the Group, prepared in accordance with the International Financial Reporting Standards (IFRSs). The financial assets are measured at fair value derived from the markets. The accounting principles for the Group are described starting from p. 87.
Carrying amount at end of year 2,370 2,370 9 Receivables from Group Companies
Recognised in fair value reserveEURm Fair value Fair value 13 Other Receivables
Notes on the liabilities 15 Movements in the Parent Company’s Equity Restricted equity Unrestricted equity
Recognition of undrawn dividends 11 11 Financial assets available-for-sale recognised in equity 17 17 recognised in p/l 1,739 1,739
Parent company Profit for the year 531 555 Retained earnings 4,108 3,993 Invested unrestricted capital 1,527 Other reserves 273 273 Undistributable items -3 -1,759
Debentureloan, nominal value EURm 600, call 21.4.09 due 2014 37 597 - annual fixed interest 4.625% until April 2009, thereafter floating
Not more than one year 1 3 Over one year but not more than five years 3 4 Over five years 2 3 23 Off-Balance Sheet Items
Managing Director Björn Wahlroos 1.1. – 7.4.2009 572 1,806 Managing Director Kari Stadigh 8.4. – 31.12.2009 892 -
Members of the Board of Directors Björn Wahlroos 120 Tom Berglund 80 80 Anne Brunila 80 80 Veli-Matti Mattila 80 Eira Palin-Lehtonen 80 80 Jukka Pekkarinen 80 80 Christoffer Taxell 80 80 Matti Vuoria 100 100
The responsibility of the Board of Directors and the Managing Director The Board of Directors and the Managing Director are responsible for the preparation of the financial statements and the report of the Board of Directors and for the fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the fair presentation of the financial statements and the report of the Board of Directors in accordance with 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.
Auditor’s responsibility Our responsibility is to perform an audit in accordance with good auditing practice in Finland, and to express an opinion on the parent company’s financial statements, on the consolidated financial statements and on the report of the Board of Directors based on our audit. Good auditing practice requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements and the report of the Board of Directors are free from material misstatement and whether the members of the Board of Directors of the parent company and the Managing Director have complied with the Limited Liability Companies Act.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements or of the report of the Board of Directors, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements and the report of the Board of Directors in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors.
Opinion on the consolidated financial statements 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.
F O R I N V E S T O R S
A S h A R E M A I N FA c T S
B S h A R E M A I N FA c T S
ISIN code FI0009006613 Number of Shares (unlisted) 1,200,000 Votes/share 5 /share
The Annual Report is published on the Internet at the address www.sampo.com/annualreport. Printed Annual Reports can be ordered at the above Internet address, by calling +358 (0)10 516 0033 or by mail from Sampo plc Investor Relations, Fabianinkatu 27, 00100 Helsinki, Finland.
Shareholders who wish to participate in the General Meeting must register for the meeting no later than 10 am on 8 April, 2010. A shareholder may register for the General Meeting either: a Through Sampo’s website at www.sampo.com/agm; b By telephone to +358 (0)10 516 0028 from Monday to Friday, 9 am – 4 pm (Finnish time); c By fax to +358 (0)10 516 0623; or d By mail to the address Sampo plc, Shareholder services, Fabianinkatu 27, 00100 Helsinki, Finland.
The Interim Reports and related Supplementary Financial Materials are published on Sampo’s website.
Press and stock exchange releases, the monthly updated list of shareholders and other investor information published by Sampo are available on the Internet at www.sampo.com.