44Governance 63Board of Directors' Report 95Risk Management 199Financial Statements 340Calendar and Contacts
In 2017 we saw that the stimulus measures of the European Central Bank were finally bringing results. On the whole, Europe has enjoyed economic growth and the most important aspect for us is that all of the Nordic countries are on a solid growth path. Nevertheless, it is difficult to fully understand the mechanism between growth and interest rates. This is due to the fact that during this period of economic growth, interest rates have remained at a recordlow level. This is particularly the case in Sweden, where the monetary policy decisions of Riksbank, the country’s central bank, are rather baffling. Political risks in general caused less jitters in the market than expected. Meanwhile, in the US, tax reforms by the Republican administration have been welcomed by the markets, and the situation in Europe has calmed down, at least for the time being.
The investment market was similar to the previous year. Interest rates moved more or less sideways, but the uptrend in stock markets continued as a rule. We performed well, in spite of the fact that higher interest rates would obviously be most welcome from our perspective. We estimate that if the yield curve increased by one percentage point throughout, Sampo Group’s financial benefit would be in the region of
The number of household customers of our P&C insurer If increased in all markets, exceeding three million at the end of the year. This is a record figure. Furthermore, the growth in premiums written for 2017 was almost two per cent. This development was particularly positive in Norway, where premiums written had contracted for a number of years. The 2017 annual growth was 2.6 per cent, with the last quarter reaching as high as of 5.7 per cent. If’s combined ratio was
Digital solutions are increasingly being used in insurance, which ensure even better customer experiences. As the leading P&C insurer in the Nordic countries If is at the forefront of this development. Already half of If’s customers receive all of their insurance documents and invoices electronically. At present, 40 per cent of private customers’ claims are filed online.
Mandatum Life’s pre-tax profit amounted to EUR 236 million. The investment return was good and stood at 6.5 per cent at fair value. The expense and risk results also reached all-time records. This represents an excellent result. Mandatum Life’s technical provisions were EUR 11.6 billion on 31 December 2017, of which assets covering unit-linked liabilities accounted for 61 per cent. This is the highest level ever recorded and it is based to a great extent on the increased wealth management business.
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However, a company’s success always depends, first and foremost, on its customers and personnel. In this connection,
Income statement items are compared on a year-on-year basis and comparison figures for balance sheet items are from 31 December 2016 unless otherwise stated.
Sampo Group practices P&C insurance and life insurance under If, Topdanmark and Mandatum Life brands. 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 its fully-owned businesses have welldefined strategies based on return on equity targets.
Sampo plc, the listed parent company of Sampo Group, is a good dividend payer. Sampo aims to pay at least 50 per cent of Group’s net profit as dividend. Share buy-backs can be used to complement the dividend. The Board proposes to the AGM a dividend of EUR 2.60 per share for the year 2017. The proposed dividend corresponds to a pay-out ratio of 96 per cent, calculated from Group's net profit excluding noncontrolling interest and the non-recurring profit item of EUR 706 milloin.
Sampo Group creates value for its shareholders through efficient and highly profitable operating units and by investments in situations offering significant upside potential with manageable downside risk. Shareholders benefit from the value creation through a high and stable dividend yield as Sampo plc upstreams the dividends it receives from its subsidiaries and associates to its shareholders. Sampo plc and the whole Sampo Group is aware of its corporate responsibility and all group companies are dedicated to being responsible corporate citizens.
If operates on a pan-Nordic basis leveraging both scale and capabilities across all areas in If. If’s key success factor is continuous improvement of its operations. Underwriting focus by understanding risk better than competitors, setting the right prices, and offering the best products and services, have been If’s strategic themes for more than a decade.
If’s operations are divided into Nordic business areas by customer segments. The Baltic countries constitute a separate business area and operates on one business platform across all three Baltic countries.
• The Private business area is If’s largest business area and Nordic market leader with more than three million private individuals as customers.
• The Baltic business area offers property and casualty insurances for both private individuals and corporate customers. If is the fourth largest P&C insurer in the Baltic region and market leader in Estonia, with approximately 310,000 customers.
• Europe’s most professional and innovative P&C insurance people If continues to strengthen its underwriting competences within the “Best in Risk” concept. The concept focuses on understanding all aspects of risk management, including product, pricing and risk quality, throughout the organisation.
GrGrososs Ws Writtritten Pren Premiums per Businesemiums per Business Ars Areaea If, 2017
If’s financial targets are to achieve a return on equity (RoE) of at least 17.5 per cent and a combined ratio of less than 95 per cent.
• More value is created by utilizing the economies of scale shared between life and non-life insurance business in Denmark, rather than operating abroad
• The success criteria for an insurance company are: declining expense ratio, good risk management and strong sales power
Mandatum Life is a well-respected manager of customer wealth and provider of cover against health and life risks in Finland and the Baltic countries. The Mandatum Life Group offers its customers comprehensive services in preparing and prospering, including tailored unit-linked investments and the related wealth management, personal risk insurance, pension and reward solutions for companies and the related consultation services.
The focal point of Mandatum Life’s new sales business is unitlinked insurance, such as capital redemption contracts, group pension insurance, personnel funds and risk insurance covering personal risks. For these, Mandatum Life has its own sales channels in Finland: sales groups specialized in corporate sales, wealth managers and investment managers focused on wealth management, and Customer Service that focuses on additional services offered to existing clientele. In addition to these sales channels, Mandatum Life and Danske Bank have had a distribution agreement in effect since 2007. In the same year, it was also agreed that Mandatum Life would have the right to sell the insurance portfolio to Danske Bank. In October 2016, Mandatum Life announced that it would exercise that right, as a result of which the insurance portfolio acquired through Danske Bank will transfer to Danske Bank or to a party designated by it most likely at the end of 2018.
Corporate clients are at the heart of Mandatum Life’s customer strategy. The employees insured through the companies and covered by the reward and incentive models create an excellent target group for Mandatum Life’s services targeted at private customers, such as savings and insurance against life and health risks.
If is the leading property and casualty insurer in the Nordic region, with operations in Finland, Sweden, Norway, Denmark and the Baltic countries. If’s operations are divided into four business areas: Private, Commercial, Industrial and Baltic. If is Sampo plc’s fully-owned subsidiary.
Nordea, the largest bank in the Nordic region, has around 11 million customers and is one of the largest universal banks in Europe in terms of total market capitalization. Nordea’s share is listed on the Nasdaq Nordic Exchanges in Stockholm, Helsinki and Copenhagen. In Group reporting Nordea is treated as an associate and included in the segment Holding. At the end of 2017 Sampo plc held 21.2 per cent of shares in Nordea.
During the year the macroeconomic situation improved in all Nordic countries, despite elevated geopolitical risks. This reflected positively on If’s investment result which amounted to an ROI of 2.6 per cent (2.9). If’s balanced and conservative investment policy remained unchanged.
If has confirmed its position as the leading property and casualty insurer in the Nordic region. During the year both number of customer and customer satisfaction continued to increase even further. If continuously works to improve customer experience and strives to be the most serviceoriented company in the industry by providing better digital services, quality and efficiency in all our processes and relevant product offerings. A central goal is to create the best customer experience in all types of contacts.
Customer focus is on top of each employee’s agenda as the most important focus point throughout the organization. To keep If’s market leading position it is important to pair this customer focus with skills in underwriting as well as innovation. Many customer initiatives implemented over the last couple of years have had a positive impact on customer satisfaction. For example simplified e-business solutions, continued automation of claims processes and improved digital customer communication.
During the year internet sales increased by 20 per cent and about 40 per cent of private claims are filed online. Furthermore, at the end of the year, approximately 50 per cent of all customers are e-Customers, ie customers with digital payment and digital policy letters on all their policies.
Topdanmark’s profit before taxes for 2017 was DKK million 2,235 (1,942). Combined ratio was 82.0 (85.1). The improvement was due to a very low claims trend in large claims and in weather-related claims as well as a higher level of run-off profits. Topdanmark’s Board of Directors proposes to the AGM of 2018 a dividend of DKK 19 per share.
• Topdanmark will continue investing in efficiency improvement in 2018. The expenses are expected to represent 0.5-1 percentage points on combined ratio.
• In non-life insurance, Topdanmark has distribution agreements with Danske Bank and Sydbank. In 2017, Topdanmark’s multi-distribution strategy was supplemented with an agreement with Coop, the largest supermarket chain in Denmark.
In non-life insurance, Topdanmark has a 17 per cent market share. Topdanmark focuses on the private, agricultural and SME market where the company has around 600,000 customers and handles around 300,000 claims a year.
Under these market conditions, Nordea showed 8 per cent increase in net profit, further improved credit quality and a return on equity of 9.5 per cent. Nordea’s Board of Directors decided in 2017 to initiate a re-domiciliation process of the parent company from Sweden to Finland. The change of domicile and the new legal structure, with the banking business carried out in branches of the parent company, will enable Nordea to operate as one bank in a more stable and predictable regulatory environment.
Nordea’s response to the market environment and to the changing forces to the industry – digitalisation and regulation – is a transformation of the bank, in order to create a safer, more resilient and agile bank with strategic optionality. The key elements of the transformation are the following: • investments in compliance and risk management • technology investments including the core banking platform replacement which is going according to plan and which will lead to lower operational risks, improved customer satisfaction and better cost efficiency
Mandatum Life’s premium income decreased from the previous year. A significant part of the sales channels’ resources was employed for implementing several regulatory changes for the customers. Among the sales channels, Danske Bank’s sales volumes clearly declined for a second consecutive year. Mandatum Life’s own sales channels performed well during the year, even though the premium income fell short of the previous year’s record level. Within the institutional segment, promising opening moves were made in Sweden.
Mandatum Life’s investment returns exceeded the return requirement on technical provisions, especially due to the excellent return on equity investments. Despite a slight rise, low-risk, long-term interest rates remained at a low level,
The positive investment year – the sixth in a row – created a foundation for a good result and solid solvency development. The strong result was reflected in an even higher solvency ratio and also enabled the payment of an extra dividend in September. The valuation of the insurance portfolio to be sold to Danske Bank was completed in June, further strengthening the company’s solvency position and creating a solid foundation for dividend streams over the next few years.
which means maturing fixed income investments continue to present a considerable re-investment risk, as in previous years. As a result of the low interest rate levels, the company continued to supplement the reserves for decreased discount rates. Consequently, the return requirement on technical provisions for 2018–2021 has been substantially lowered.
In 2017, Mandatum Life continued to invest in digitalization and an increasing number of the company’s products are now available through mobile services. Digital services enable better customer satisfaction and more efficient processes and offer an effective way of reaching potential customers through corporate clients.
At the end of the year, Mandatum Life merged its subsidiary operating in the Baltics with the parent company and Innova Services Ltd with Mandatum Life Services Ltd. The changes in the corporate structure will streamline administrative processes and enable stronger synergy benefits between the businesses in different countries.
Sampo Group values the competence of employees and strives to offer possibilities to learn new skills and grow professionally. Sampo Group is a stable and trusted employer and the international career opportunities attract new employees. Future leaders grow from within Sampo Group and are offered challenging positions and projects and supported with mentoring programs.
In 2017 Sampo Group employed on average 9,364 people (6,780), the increase is mainly due to Topdanmark’s consolidation as a subsidiary as of 30 September 2017. P&C insurance is Sampo Group’s largest business area, comprising 91 per cent of Sampo Group personnel (8,517 employees). Life insurance employed 8 per cent of the personnel and 1 per cent of the employees worked in the parent company Sampo plc.
In geographical terms, 32 per cent of the Group’s personnel was located in Denmark, 24 per cent in Finland, 20 per cent in Sweden and 14 per cent in Norway. The Baltic countries and other countries employed 10 per cent of the personnel.
In the financial industry value creation relies on intangible assets such as employee competence, customer service, creativity and operational excellence. The dedicated employees of Sampo Group are building trust through operational excellence and they deliver first-class customer experience every day.
AAvvererage Page Personnel (FTE) bersonnel (FTE) by Cy Companompanyy Sampo Group, 2017
If has more than 3 million customers. If sells and renews close to 8 million insurances annually and handles 1.5 million claims. If’s success is entirely dependent on how well the company does in all of these customer interactions. Therefore, first class customer focus through dedicated employees with professional insurance competence is the main determinant of success.
The cornerstones of If’s Human Resources (HR) Strategy are: Competence Development & Innovation, Right Person in the Right Place, Leadership the If way, and Employeeship & Performance Culture. HR plays a key role in ensuring that If can attract the best talent, that competence building is strong, and that both leadership and employeeship are first class. Employeeship refers to the employees’ own responsibility for customer service, performance and development.
In contemporary business, leadership is multifaceted. Strong skills in traditional management must be complemented by abilities to help highly skilled specialists reach their full potential through nurturing their own motivation. If continues to develop the leadership model to better reflect the increased importance of intrinsic motivation, where performance is based on the inner drive, motivation, and commitment of the individual employee.
Great leadership is essential, but it is not enough. A modern, complex service organization like If, with competent and highly trained staff, increasingly requires that individual employees take full responsibility for customer service, performance and development. At If this is called employeeship.
Strengthening employeeship in If and making it a cornerstone of the company’s culture are key priorities. To support this effort, If has developed an Employeeship Model based on the If Leadership Model and is promoting it through articles, workshops and presentations and also in development discussions, appraisals, training programs and employee surveys.
In 2017, Finland and the Baltic countries launched a campaign called “Praise your Colleague”, aiming at strengthening the employeeship and feedback culture in If. Employees can praise their colleagues with the help of postcards that have been distributed in the offices. In Finland, the campaign has included intranet information, videos on the theme, and a blog to be shared in social media. The videos have later been used also in recruitment ads. In the Baltic countries, the theme is promoted quarterly and the individual praise is regularly published on the intranet.
During the year, If also focused on gender equality. The Equal Opportunites Advisory Board, founded in 2015, continued its work by, for example, hosting workshops in management teams. Based on the proposals from the Advisory Board, HR processes such as recruitment, succession planning and leader evaluation were strengthened in order to further secure gender equality in the company. The share of female managers is steadily rising and was 46.5 per cent in the end of 2017.
During the #metoo-campaign in fall 2017, several cases of sexual harassment were investigated in If, some of them leading to disciplinary action. As a result, If has taken forceful action to prevent sexual harassment: additional reporting channels have been set up and instructions and training have been provided to leaders.
Sickness statistics are based on If’s internal reporting standards and may deviate from locally published statistics.
The increased focus on digitalization and on how to serve customers better is leading to major change initiatives in the business areas. HR is supporting in reorganizations, the building of flagship offices, the set-up of new units, the development of training activities and the design of remuneration systems.
Number of EmploNumber of Employyees (FTE)ees (FTE) If, 31 December 2017 and 31 December 2016
Targeted competence development for individual employees is important for all Topdanmark’s employees. Therefore,
Topdanmark places importance on management development, as good management is key to attracting and retaining qualified employees. Newly appointed managers will be offered a 6-month program with specific focus on their new role as managers. Topdanmark offers experienced managers a development program in cooperation with Copenhagen Business School Executive Program, comprising both customer orientation and personal development. For many years, Topdanmark has focused on talent development and has organized different programs in order to encourage talented employees to use their competence to contribute to Topdanmark’s continued growth and delivery of results.
As a result of the newly established cooperation with Singularity University Denmark, Topdanmark will give selected talents a unique opportunity to acquire competence within digitalization and technological development in an innovative environment in 2018. For this, Topdanmark is looking for employees with a digital mind-set. In order to support that process, a range of special development activities have been planned for 2018, for which the cooperation with Singularity University Denmark will be a source of inspiration.
In Denmark, the number of people who take sick leave because of stress is increasing, and at Topdanmark, an increase has been seen among the company’s employees. Therefore, Topdanmark has initiated efforts to prevent incipient stress and take care of employees suffering from stress.
All Topdanmark’s employees have the option of anonymous stress counselling, provided by experienced psychologists. This service can be used as a first step for employees, who experience symptoms of stress. This way employees can get help quickly without having to get a referral from a family doctor first. In cases of serious and long-term stress, a program tailor-made for the individual is available as part of the employee health insurance scheme.
When it comes to absence due to illness, Topdanmark’s goal is that it should be below the outline from the Danish Employer’s Association for the Finance Sector for the insurance business.
At Topdanmark, the number of employees has been stable for many years. In order to be able to offer competitive products and services, Topdanmark has gradually made its business operations more efficient by for example increasing automation of processes. In 2017, Topdanmark also outsourced some jobs. As a result, the number of employees working at Topdanmark has decreased from 2016.
Managers (male 58%, female 42%) All employees (male 55%, female 45%)
Mandatum Life is a financial company providing wealth management, rewarding and personal risk insurance services. Mandatum Life has more than 500 employees and the company operates in Finland and the Baltics. Mandatum
Number of EmploNumber of Employyees (FTE)ees (FTE) Mandatum Life, 31 December 2017 and 31 December 2016
Mandatum Life has been selected as one of the best workplaces in Finland for eight consecutive years.
Competition for the best talent is heating up, and work culture and development opportunities play an increasingly important role in recruiting. Valuing expertise and developing competence are core elements of Mandatum Life’s future success. In 2017, competence development at Mandatum Life continued based on the 70-20-10 model. According to the model, 70 per cent of learning takes place at the workplace through interesting and challenging assignments, 20 per cent through feedback and learning from other members of the work community and 10 per cent through training programs.
Investments in training programs continued in 2017 especially in the field of business competence development. In collaboration with Hanken & SSE, the company launched the Mandatum Life Business School training program built on high-quality speeches by international experts, small group workshops and a group project. The Business Impact Challenge organized in 2017 focused on developing business projects in small groups with the aim of creating added value for the customer. The projects were built around current themes from Mandatum Life’s business: development of group pension insurance, key employee insurance and development of web and mobile services.
Mandatum Life develops leadership for the long run by focusing on supervisory work and by regularly measuring the development of management and well-being. The starting point is that those who hold a managerial position are among the company’s key personnel and that every Mandatum Life employee is entitled to have a good manager.
All Mandatum Life managers also receive feedback on their interaction skills through 360-degree evaluations every two years. Feedback is given by the employees who work under
the manager, by colleagues and by the manager’s manager. The Great Place to Work Finland study is also an important measure of a manager’s success, as it provides not only company-specific results, but also team-level results. Team satisfaction is one of the criteria in determining the bonus for each manager.
Mandatum Life supplements the employees’ pension security based on its financial result annually. Additionally, the employees have the opportunity to fund part of their personal performance bonuses, thus enjoying the benefits of professional wealth management services. The Personnel Fund was introduced in 2014. In 2017, close to 90 per cent of Mandatum Life’s entire personnel took advantage of the fund.
Statistics are based on Mandatum Life's internal reporting standards and may deviate from locally published statistics. Until 2014 the figures do not include Innova or Kaleva. Since 2015 figures include Innova.
In the results of the Great Place to Work Finland study, which measures well-being at work, Mandatum Life’s Finnish operations received an overall rating of 85 per cent in 2017. The result remained the same as in the previous year. The following claims reached a particularly high score: “People here are willing to go the extra mile to ensure that the work gets done”, at 95 per cent (91) and “I am proud of what we
Mandatum Life strives to promote equality between all employee groups. In terms of gender distribution, equality among the employees is at an excellent level, with men representing 51 per cent and women 49 per cent of the personnel. In senior management, men have a larger representation, with a third of the operative management group members being women.
In spring 2017, Mandatum Life launched an effective marketing campaign around personnel motivation and rewards. At the same time, the company invested extensively in digital services by launching the ML Money mobile app for Personnel Fund members and supplementary pension recipients.
Mandatum Life decided to pilot new reward communications first through its own personnel who have access to the same reward services as the company’s corporate customers. The employees gave feedback not only on the communications related to rewards but also on the mobile app functionality. The communication was carried out by email, through the new mobile app and through the company’s launch and internal communications channels. A Business School working group participated in designing the employee pilots.
During the internal reward campaign, the ability to inspire enthusiasm was a particular focus area. In order for a reward to have the desired effect, it must be reflected in the employees’ daily work. The feedback raised important experiences that were used to improve the app’s functions, the related communications and, above all, the customer experience.
Sampo has a long-standing commitment to managing business according to sound business principles. These principles are described in the Sampo Group Code of Conduct and reflected in the way Sampo organizes Corporate Governance, the way people treat each other in the workplace and the way Sampo’s personnel serves customers and deals with other stakeholders. Through its products and services, Sampo Group, for its part, aims at contributing towards the well-being and safety of the society.
Sampo Group’s general governance rests on the idea that Sampo plc, as the parent company of the Group, provides subsidiaries with a framework of general principles within which the parent company expects the subsidiaries to organize and carry out their businesses. These group-level guiding principles set the general tone also for corporate responsibility.
However, Sampo has recently begun to build a more concrete approach to managing corporate responsibility on a grouplevel as well. This is to better answer the needs of the Group’s various stakeholders and to meet the legislative requirements. Therefore in 2017, Sampo continued to develop the non-financial reporting by preparing for the publication of the Group’s first report on non-financial information (Corporate Responsibility Report 2017). Sampo Group will issue the report in accordance with Chapter 3a, Section 5 of the Accounting Act. The report will be separate from the Board of Directors’ Report and be published before the end of June 2018.
If works towards a safe society by spreading knowledge and awareness regarding loss prevention. In 2017, If’s corporate responsibility activities focused on loss prevention through initiatives for safer societies and to increase understanding of the risks posed by climate change. These are both critical elements of If’s overall corporate responsibility strategy. In 2017, If’s corporate responsibility work was realized through cooperation with organizations and authorities, donations and active education of customers and the public.
Throughout the years, If has gathered extensive knowledge of how people are affected by losses and how such losses can be avoided. This knowledge is increasingly sought after and important – both for If as a company and for the general public. If wants to share its knowledge and expertise in loss prevention for the benefit of the public in general. As an example, If has launched Nordic online safety stores offering safety related products ranging from reflectors to first aid kits and from locks to life vests.
A vital part of If’s responsibility work is the fight against climate change. If has taken a clear stand on the importance of environmental issues and takes active measures to contribute towards sustainable development. If is developing products, processes, and loss prevention services in order to help customers act in a more environmentally friendly manner. By providing If’s customers with guidance on how to prevent losses, the company can help its customers save money and protect the environment. Further reading on the measures If takes, in its own operations, can be found in If’s Environmental Report 2017.
Safety continues to be an important theme for If. During recent years, If has particularly focused its efforts on fire and traffic safety.
The safety of children and youth has been a leading theme of If’s safety work. For a decade, If has been involved in programs aiming to improve the traffic situation around schools in Sweden, Norway and Finland. If’s annual survey among headmasters, asking about the traffic situation around their schools, shows that most headmasters are worried about the children’s safety and that the pace of improvement works is slow. Additionally, in Norway and Finland, If Safety Fund donates reflective vests and other safety equipment to kindergartens, schools, local rescue teams, and other local initiatives, every month.
Topdanmark’s CR strategy comprises among others the following: CusCusttomer Romer Relaelationstions
Topdanmark works constantly on providing information on prices and insurance coverage to customers in a format that is as easy to comprehend as possible. The goal is that customers should be so satisfied with Topdanmark’s products and services that they wish to recommend the company to others. Customer surveys indicate that 48 per cent of customers are ambassador customers, representing an increase of 2 percentage points compared to 2016.
In 2017, Topdanmark completed a major change and improvement of company’s websites and electronic customer files, making it easier to get an overview of insurance coverage and price, to report a new claim and monitor an ongoing claim. Topdanmark entered also into a partnership with Singularity University Denmark. The goal is to get an even better understanding of how an insurance and pension company should navigate in a changing society.
In 2017, Topdanmark carried out a regular screening and assessment of the share portfolio for positions with consideration to the UN Global Compact. Furthermore, “Recommendations for active Ownership” launched by the Committee on Corporate Governance were implemented.
Topdanmark provides financial security to its customers through insurance and pension products. However, the consequences of claims are often more than purely financial for the individual customer, for Topdanmark, and for the society in general. Therefore, Topdanmark works on prevention.
Topdanmark reports to the CDP (Carbon Disclosure Project), which is an international environmental reporting initiative, promoting openness and dialogue on the CO2 emissions and climate strategies of businesses. Topdanmark focuses on reduction of CO2, i.e. with a help of solar cell systems and waste sorting. In 2017, Topdanmark’s CO2 emissions were reduced by 6.5 per cent compared to 2016. Out of all waste, 40 per cent of waste was sent to recycling.
Topdanmark has focused on increasing the number of women in management positions and has launched a number of activities to support this work since 2012. One example of these activities has been mentor programs for female managers. The latest program, which started in 2015, came to conclusion during 2017. Topdanmark’s goal is that there are at least 40 per cent of both genders, on average, at all management levels. In 2017, the average for female managers was 42 per cent (41).
In 2017, Topdanmark contributed with DKK 507,000 in total for Doctors Without Borders (Médecins Sans Frontiéres, MSF) and the Fight Cancer campaign. Topdanmark’s employees also collected 1.5 tons of clothes for a Red Cross campaign, and donated 439 portions of blood during working hours for the Danish blood bank that Topdanmark has supported since 2005.
Mandatum Life’s corporate responsibility is based on the cornerstones of its business operations: increasing and securing the financial welfare of its customers and safeguarding against financial risks. In Mandatum Life’s view, sustainable business attracts customers, long-term investors and motivated employees.
Financial responsibility – which means ensuring the continuity, profitability, earnings power and solvency of the operations in all market situations – is a prerequisite for business and the basis of Mandatum Life’s responsibility work. It lays the foundation for the management of customers’ insurance-related liabilities and customers’ investments and pensions.
Mandatum Life has identified three main themes for its corporate responsibility: responsible investing, promoting responsible personnel practices in work life, and implementing them in the company’s own work community.
Mandatum Life has joined the international Portfolio Decarbonization Coalition in an effort to reduce the carbon footprint of investments worldwide. As part of the Montreal Pledge, the company annually measures and discloses the carbon intensity of the investments it manages. At 66 per cent compared to the benchmark indices, the carbon intensity of Mandatum Life’s investments is clearly below that of the rest of the market.
Mandatum Life strives to promote good reward practices through its business. Mandatum Life supports companies’
The well-being of personnel is one of Mandatum Life’s strategic targets. Motivated and enthusiastic employees have a significant impact on customer satisfaction and the company’s ability to succeed. Responsibility for personnel also means providing security for employees and their families in case of financial risks, supplementing pension cover through group pension insurance and encouraging long-term savings through the Bonus Fund.
Continuing to reduce the carbon intensity of its investments and helping investors reduce the carbon footprint of their investments while taking into account their investment objectives are at the heart of Mandatum Life’s corporate responsibility goals. In early 2018, the Mandatum Life
According to Chapter 4, Section 10(2) of the Finnish Limited Liability Companies Act, Sampo’s AGM of 2017 had the opportunity to resolve that the rights to Sampo plc shares registered in the joint account will be forfeited unless the shareholder has requested that the shares be registered in the book-entry system. The Act did not require Sampo to inform the holders of shares outside the book-entry system of the possible forfeiture of shares registered in the joint account. However, the Audit Committee of Sampo plc’s Board of Directors decided that the company would still try to reach the holders of paper share certificates, so that they do not forfeit their shareholder rights.
In January 2017, two shareholders submitted written proposals to Sampo plc, which were added to the agenda of the AGM.
The first proposal suggested that rights to shares in the bookentry system and the rights carried by the shares be forfeited with regard to the shares in the joint account. On the basis of the proposal, the company's Board of Directors should cancel the treasury shares to be held by the company as a result of the forfeiture.
The second proposal suggested that the decision on the cancellation of unregistered shares be made at the earliest on 1 February 2020 and that, before that date, the company will actively seek to reach out to all shareholders of the company who have not transferred their holdings to the book-entry system.
On 27 April 2017, Sampo plc’s AGM decided, with a 98.9 per cent majority of the shareholders’ votes, that the shareholder rights carried by unregistered shares will be forfeited.
Over a dozen Sampo employees participated in the search for the holders of paper share certificates. Furthermore, Sampo hired dozens of law students in its Shareholder Services to handle shareholder inquiries. The Helsinki District Court also received an exceptionally high number of inquiries concerning the invalidation of lost share certificates. Meanwhile, Danske Bank and other banks that were in charge
Sampo launched a large-scale project in late 2016 to reach the shareholders who had not transferred their shares into to the book entry system. The project was related to seven million Sampo shares representing one per cent of the total shares. The project aimed at informing shareholders about the need to transfer their shares into book entry account before the Annual General Meeting of April 2017 in order to safeguard their share rights.
of share conversions after the conversion period were busy with these requests.
The deadline for the finalisation of conversions with banks expired on 31 October 2017. Since November 2016, the number of shares registered in the joint account decreased by 2,154,710 shares. Compared to 1 November 2016, the number of Sampo plc shareholders increased by approximately 20,000 to slightly over 108,000.
Annual General Meeting, to cancel 4,648,150 Sampo shares that were in the joint account on 1 December 2017. This corresponded to 0.8 per cent of Sampo plc's total number of shares and votes.
The cancellation of shares became effective on 22 December 2017. Sampo plc's total amount of shares is 555,351,850, which are divided into 554,151,850 A shares and 1,200,000 B shares. The total number of votes attached to the shares is 560,151,850.
Between November 2016 and April 2017, the Helsinki District Court received a total of 7,800 applications for the invalidation of Sampo share certificates. Normally, the Helsinki District Court processes around 3,400 petition cases a year. These applications were also processed by other district courts.
Over a period of slightly over six months, Sampo issued more than 15,000 register extracts to the shareholders requesting them.
Number of SharNumber of Shares on the Joint Bookes on the Joint Book-Entry A-Entry Accccount sincount since 1997e 1997
During 2017, Sampo complied in full with the Finnish Corporate Governance Code issued 1 October 2015 by the Securities Market Association, effective from 1 January 2016.
Eira Palin-Lehtinen VVicice Chairperson of the Boare Chairperson of the Boardd Born 1950Born 1950
Sigrid Jusélius Foundation, Deputy Board Member and Member of the Finance Committee
Clausen has been determined by Sampo's Board of Directors to be independent of the company and of major shareholders under the rules on Finnish Corporate Governance Code.
Kesko Corporation, Board Member; Teleste Corporation, Board Member; Swedish Society of Literature in Finland, Board Member; Hanken School of Economics, Board Member and Chairman of the Investment Committee; Kelonia (Private Equity holding company), Board Member; Veritas Pension Company, Member of the Supervisory Board
Adine Grate Axén CEOCEO, A, Adine Grdine Graatte ABe AB Born 1961Born 1961
Sky, Board Member and Chair of the Audit Committee; Madrague Capital Partners AB, Board Member; AP 7, Vice Chairman of the Board; Swedavia AB, Board Member; 3 Scandinavia, Advisor and Executive Board Member
Veli-Matti Mattila PrPresident and CEOesident and CEO, Elisa C, Elisa Corpororporaationtion Born 1961Born 1961
Mattila has been determined by Sampo’s Board of Directors to be independent of the company and of major shareholders under the rules on Finnish Corporate Governance Code.
Member of the Board of Directors of Sampo plc since 16 April 2015. Murto holds 1,373 Sampo plc shares directly or through a controlled company.
Murto been determined by Sampo’s Board of Directors to be independent of the company and of major shareholders under the rules on Finnish Corporate Governance Code.
Per Arthur Sørlie PrPresident and CEOesident and CEO, Borr, Borregaaregaard Ad ASSAA Born 1957Born 1957
Inspiria Science Center, Board Member; Umkomaas Lignin (Pty) Ltd, Chairman of the Board
Member of the Board of Directors of Sampo plc since 12 April 2012. Sørlie holds 3,806 Sampo plc shares directly or through a controlled company.
Sørlie has been determined by Sampo’s Board of Directors to be independent of the company and of major shareholders under the rules on Finnish Corporate Governance Code.
According to Sampo’s Policy on Diversity as regards the Board of Directors of Sampo, when electing the Board of Directors the aim is to ensure that the Board as a whole for the purpose of its work possesses the requisite knowledge of and expertise in the social, business and cultural conditions of the regions and markets in which the main activities of the Group are carried out. A broad set of qualities and competences, diversity, including age, gender, geographical provenance and educational and professional background, is an important factor to take into consideration. According to the Policy on Diversity, and in compliance with the Corporate Governance Code, it is also important that the person to be elected to the Board shall have the qualifications required for the duties and the possibility to devote a sufficient amount of time to the work.
The number of the Directors and the composition of the Board shall be such that they enable the Board of Directors to see its duties efficiently. Both genders shall be represented in the Board of Directors and the target is a share of at least 37.5 per cent of the total number of members for both genders. During 2017, the representation of both genders in the Board of Directors fulfilled the target.
According to the Policy on Diversity, Sampo’s Nomination and Compensation Committee shall identify, review and recommend candidates for the Board. The Nomination and Compensation Committee shall take the following factors into consideration, including such other factors as the Board may determine: 1. Regulatory requirements for the members of the Board; ANNUAL REPORT 2017 Governance
2. Overall board composition taking into consideration the appropriate combination of professional experience, skills, knowledge and variety of viewpoints and backgrounds; 3. The past performance of incumbent members (attendance, staying informed about the company and its business, participation in the meetings, proven interest in the company’s business and compliance with applicable company policies and guidelines; 4. Allocation and sufficiency of time; and 5. Other criteria (e.g. with respect to new Directors, the integrity, judgment and available time).
At the Annual General Meeting the Nomination and Compensation Committee gives an account of how it has conducted its work and explains its proposals
The AGM of 2017 decided that the Board would consist of eight members until the close of the AGM to be held in 2018. The term of office of the Board members ends at the close of the AGM that first follows their election. The members of the Board elect a Chairman and Vice Chairman from among their members at their first meeting following the AGM.
The Board convened 10 times in 2017. The attendance of Board members at meetings was 100 per cent.
Board-Appointed Committees The Board may appoint committees, executive committees and other permanent or fixed-term bodies for duties assigned by the Board. The Board confirms the Charter of Sampo's committees and Group Executive Committee, and also the guidelines and authorizations given to other bodies appointed by the Board.
Members of the CMembers of the Committommittees,ees, 31 Dec31 December 2017ember 2017
The Committee evaluates the compliance with laws and regulations in Sampo Group, monitors significant litigations of Group companies, and executes any other duties that may be bestowed upon it by the Board.
According to its Charter, 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 and of which at least one is independent of Sampo’s major shareholders. Also participating in the meetings of the Committee are the Responsible Auditor, Group CEO, Group CFO, CFO of the most significant subsidiary, Group Chief Audit Executive, the member of the Group Executive Committee responsible for risk control and Group Chief Risk Officer.
In 2017, the Chairperson of the Audit Committee was Jannica Fagerholm, and the other members were Christian Clausen, Adine Grate Axén and Per Arthur Sørlie. Also participating in the meetings were the Auditor's representative, Group CEO, Group CFO, CFO of If P&C Insurance Holding, Group Chief Risk Officer and Group Chief Audit Executive.
The Committee is also responsible for preparing proposals for Sampo's Board on the evaluation of the independence of the members of the Board, on the composition and chairman of the Board's committees, on the appointment of Sampo Group CEO and President and the composition of Sampo Group's Executive Committee, the composition of the Group MD Committee, and, to the extent required, makes surveys of potential successors to aforementioned positions. The Committee also prepares proposals for the Board on the principles by which the members of the Group Executive Committee are to be compensated and their remuneration.
The Chairman of the Nomination and Compensation Committee in 2017 was Björn Wahlroos, and the other members were Veli-Matti Mattila, Risto Murto and Eira Palin-Lehtinen.
Member of Sampo Group Executive Committee since 2014. Alsaker holds 26,626 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Group Executive Committee The Board of Directors has appointed the Sampo Group Executive Committee and a Group MD Committee to the Group Executive Committee, which supports the Group CEO in preparing matters to be handled by the Group Executive Committee.
Peter Johansson GrGroup CFoup CFOO, Sampo Gr, Sampo Groupoup Born 1957Born 1957
Member of Sampo Group Executive Committee since 2001. Johansson holds 54,983 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Member of Sampo Group Executive Committee since 2001. Lapveteläinen holds 245,272 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Member of Sampo Group Executive Committee since 2004. Magnusson holds 32,932 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Ivar Martinsen Head of BusinesHead of Business Ars Area Cea Commerommercial, If Pcial, If P&C Insur&C Insurancance Le Lttd (publ)d (publ) Born 1961Born 1961
Member of Sampo Group Executive Committee since 2005. Martinsen holds 46,691 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Morten Thorsrud Head of BusinesHead of Business Ars Area Privea Privaattee, If P, If P&C Insur&C Insurancance Le Lttd (publ)d (publ) Born 1971Born 1971
Finance Norway (Finans Norge, FNO), Chairman of the Executive Committee of P&C Insurance
Ricard Wennerklint Deputy CEODeputy CEO, If P, If P&C Insur&C Insurancance Holding Le Holding Lttd (publ)d (publ) Born 1969Born 1969
Member of Sampo Group Executive Committee since 2005. Wennerklint holds 31,597 Sampo plc shares directly or through controlled companies or persons closely associated with him.
Information as of 31 December 2017, unless stated otherwise. The CVs of members of the Group Executive Committee can be viewed at www.sampo.com/management.
In 2017, the Group Executive Committee convened four times at the request of Group CEO. The Group MD Committee, which operates in conjunction with the Group Executive Committee, met eight times.
The Group CEO is in charge of the daily management of Sampo, subject to the instructions and control of the Board of Directors. The Group CEO is empowered to take extraordinary and broad-ranging actions, taking into account the scope and nature of Sampo's operations, only upon authorization by the Board of Directors. The Group CEO ensures the legal compliance of Sampo's accounting and the trustworthy organization of asset management.
Sampo has published a Remuneration Statement on its website in accordance with the Corporate Governance Code. (www.sampo.com/remunerationstatement)
Meeting, the members of the Board were obliged to acquire Sampo A shares at the price paid in public trading for 50 per cent of his/her annual fee excluding taxes and similar payments. The remaining part of the fee was paid in cash. Sampo plc paid the transfer tax related to the acquisition of the shares. In addition, statutory social and pension costs incurring to non-Finnish members according to applicable national legislation were borne by Sampo plc.
During 2017, the Group CEO was a participant in long-term incentive schemes 2014 I and 2017 I for Sampo Group’s key employees. The terms of the incentive schemes are available on Sampo’s website.
In 2017, the Group CEO was paid EUR 1,124,176 as fixed salary and benefits and EUR 597,599 as short-term incentives (including deferred compensation pertaining to the operative year 2013 and excluding compensation deferred in 2017) and EUR 1,968,000 as long-term incentives, together totaling EUR 3,689,776.
Under the terms of their employment contracts, the Group Executive Committee members are covered by supplementary pension schemes. The retirement age for the Group Executive Committee members, as set out in their contracts, is 60, 65 or the age laid down in the employment pension system of their country of residence.
More detailed information on remuneration in Sampo Group during 2017 is available in the Remuneration Report published by Sampo at www.sampo.com/ remunerationreport.
Corporate Responsibility Sampo plc and whole Sampo Group is aware of its corporate responsibility and all group companies are dedicated to being responsible corporate citizens. Sampo is committed to developing its operations to further economic, social and environmental sustainability as is in the interests of the company and as is expected by its various stakeholders. Through its products and services, Sampo Group, for its part, aims at contributing towards the well-being and safety of the society.
• persons are prohibited from having so called short-term positions, which refers to a situation where the period
The total fees paid to the auditor for services rendered and invoiced were EUR 2,438,827. In addition, Ernst & Young Oy were paid fees for non-audit services rendered and invoiced totaling EUR 291,316.
Ernst & Young Oy has carried out the statutory audit of Sampo plc without interruption as of the competive tendering performed in 2002. In accordance with the transitional provisions of Article 41 of Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC, Sampo plc cannot as of 17 June 2023 enter into or renew an audit engagement with Ernst & Young Oy, and has to replace its current statutory auditor in the Annual General Meeting of 2024 at the latest.
91Calculation of the Key Figures 91- Group Key Figures 92- P&C Insurance Key Figures 93- Life Insurance Key Figures 93- Per Share Key Figures
Sampo Group Sampo Group had a strong 2017. Particularly the insurance operations performed well and produced record results. Sampo Group’s profit before taxes for 2017 amounted to EUR 2,482 million (1,871) and the total comprehensive income for the period, taking changes in the market value of assets into account, rose to EUR 2,146 million (1,760). The profit contains a positive non-recurring item of EUR 706 million because of the change in Topdanmark’s accounting treatment.
Earnings per share amounted to EUR 3.96 (2.95) and mark-tomarket earnings per share to EUR 3.79 (3.14). Return on equity for the Group amounted to 17.1 per cent (15.0) for 2017. Net asset value per share on 31 December 2017 was EUR 25.37 (24.86).
Profit before taxes for If segment was EUR 818 million (824). Insurance technical result was excellent and combined ratio for full-year 2017 amounted to 85.3 per cent (84.4). Return on equity was 21.3 per cent (25.3). Premiums grew by 1.8 per cent with fixed currencies.
In the third quarter of 2017 Sampo plc made a commitment to invest approximately EUR 500 million into two financial companies, Nets A/S and SAXO Bank A/S.
Sampo Group’s solvency capital calculated according to the Act on the Supervision of Financial and Insurance Conglomerates (2004/699) based on Directive 2002/87/EC of the European Parliament and of the Council exceeded the minimum solvency requirements at the end of 2017 by EUR 3,858 million (3,849) and the conglomerate solvency ratio stood at 154 per cent (154).
Balance sheet (at the end of period) 9.8438 9.6490 9.6398 9.5322 9.5525
Balance sheet (at the end of period) 1.0004 1.0251 1.0072 1.0397 1.0513
The Nordic countries, like other developed countries across the world, posted strong economic growth last year,
In Denmark, the economy posted a healthy growth rate of around 2 per cent in 2017, as it did the previous year, following a few years of lackluster growth. While private consumption was the main engine for the economy, higher corporate investments and continued growth in exports also contributed. Inflation picked up after a prolonged period of stagnation, as consumer prices rose by 0.5 percentage point over the previous year. The Danish labor market is seeing brisk activity and employment continued to grow, although at a slightly slower pace than before.
Topdanmark is the second largest non-life insurance company and the sixth largest life insurance company in Denmark. The company is listed on Nasdaq Copenhagen. In non-life insurance, Topdanmark has a 17 per cent market share. Topdanmark focuses on the private, agricultural and SME market where the company has around 600,000 customers and handles around 300,000 claims a year. In life insurance, Topdanmark has a 9 per cent market share in Denmark.
At the end of 2017 Sampo plc held 41,997,070 Topdanmark shares, corresponding to 46.7 per cent of all shares and 48.9 per cent of related voting rights in the company. Sampo consolidates Topdanmark as a subsidiary as of 30 September 2017 in its financial reporting in accordance with IFRS (for further details see section Consolidation of Topdanmark).
The Board of Directors recommends to the AGM of 2018 that distribution of dividend for DKK 1,710 million (EUR 230 million), i.e. DKK 19 per share. If the AGM approves the proposal, Sampo plc share of the dividend payment is EUR 107 million.
The following text is based on Topdanmark’s full-year 2017 result release published on 25 January 2018.
Due to the start of the consolidation of Topdanmark as a subsidiary Sampo Group’s 2017, results for Topdanmark contain a non-recurring profit of EUR 706 million as the difference between the carrying value and the fair value of Sampo's holding on 30 September 2017. In Sampo Group’s segment Topdanmark Sampo plc’s share of Topdanmark’s purchase price allocated to customer relations is amortized over a period of 10 years leading to a quarterly amortization of around EUR 5 million, net of tax (included in Other operating expenses).
In non-life insurance premiums earned increased 1.4 per cent to EUR 1,208 million. Run-off profits of EUR 46 million were primarily generated in motor and illness/accident insurance. 2017 was impacted by a low level of large-scale claims. Compared to 2016, the level was EUR 15 million lower, thus improving the claims trend for the Topdanmark Group by 1.2 percentage points.
The combined ratio amounted to 82.0 per cent in 2017 (85.1). Excluding run-off profits, the combined ratio was 85.8 per cent (90.4). The expense ratio was 16.1 per cent (16.4) impacted among other things by a reduction in the number of employees.
In life insurance gross premiums increased 11.0 per cent to EUR 1,109 million in 2017 (999). Unit-linked contracts represented 94 per cent of new sales in 2017.
On 31 December 2017 Sampo plc held 860,440,497 Nordea shares corresponding to holding of 21.2 per cent. The average price paid per share amounted to EUR 6.46 and the book value in the Group accounts was EUR 8.81 per share. The closing price as at 31 December 2017 was EUR 10.09.
In 2017, volumes and margins were relatively stable, and business momentum was solid overall. At the end of 2017, Nordea was negatively impacted by a very low activity level on capital markets. The planned de-risking of the bank, with
Net interest income was down 1 per cent in both local currencies and EUR from 2016. Average lending volumes in business areas in local currencies were down by 2 per cent compared to 2016 and deposit volumes were down by 1 per cent. Net fee and commission income increased 5 per cent in local currencies and 4 per cent in EUR from the previous year. Net result from items at fair value decreased in local currencies by 22 per cent and by 23 per cent in EUR from 2016.
Total expenses were up 5 per cent in local currencies and 4 per cent in EUR from the previous year excluding nonrecurring items and amounted to EUR 5,102 million. Staff costs were up 7 per cent in local currencies excluding nonrecurring items.
Net loan loss provisions decreased to EUR 369 million, corresponding to a loan loss ratio of 12 bps (down from 15 bps in 2016).
Net profit excluding non-recurring items decreased 14 per cent in both local currencies and EUR and amounted to EUR 3,048 million.
Currency fluctuations had no effect on income and operating profit but a positive effect of 1 percentage point on expenses and a negative effect of 3 percentage points on loan and deposit volumes compared to a year ago.
Change in liabilities for inv. and ins. Contracts -377 -465 -19
With profit reserves continued to decrease as planned during 2017 and amounted to EUR 4.6 billion (4.8) on 31 December 2017. With profit reserves related to the higher guarantees of 4.5 and 3.5 per cent decreased EUR 226 million to EUR 2.6 billion at the end of 2017.
In the course of 2017 Mandatum Life increased its technical reserves with EUR 53 million due to low level of interest rates and the total discount rate reserves at the end of 2017 amounted to EUR 325 million (273), of which EUR 282 million is allocated to years 2018 - 2021. The figure does not take into account the reserves relating to the segregated fund. The discount rate used for 2018, 2019 and 2020 is 0.25 per cent for 2021 a rate of 2.75 per cent is used. Discount rate of segregated liabilities is 0.50 per cent and discount rate reserve of segregated liabilities amounted to EUR 261 million (275).
The assets covering Mandatum Life’s original with profit liabilities at the end of 2017 amounted to EUR 5.2 billion (5.4) at market values. 42 per cent (41) of the assets are in fixed income instruments, 16 per cent (14) in money market, 28 per cent (30) in equities and 13 per cent (15) in alternative investments. The investment return marked-to-market for 2017 was 6.5 per cent (7.2). The duration of fixed income assets at the end of 2017 was 2.0 years (1.9) and average maturity 2.2 years (2.3). Fixed income running yield without taking into account the FX hedging cost was 2.4 per cent (2.9) on 31 December 2017.
The assets covering the segregated fund amounted to EUR 1.1 billion (1.2), of which 77 per cent (75) was in fixed income, 6 per cent (10) in money market, 11 per cent (8) in equities and 6 per cent (7) in alternative investments. Segregated fund’s investment return marked-to-market was 1.8 per cent (4.7). On 31 December 2017 the duration of fixed income assets was 2.6 years (2.4) and average maturity 3.3 years (3.5). Fixed income running yield without taking into account the FX hedging cost was 2.1 per cent (1.8).
Mandatum Life Group’s premium income on own account amounted to EUR 960 million (1,116). Premiums through Danske Bank channel decreased roughly EUR 100 million during 2017. Premiums from unit-linked policies amounted to EUR 850 million (973).
More information on the portfolio transfer to Danske Bank is available in section Mandatum Life’s portfolio transfer to Danske Bank.
Sampo plc owns and controls its subsidiaries engaged in P&C and life insurance. In addition Sampo plc held on 31 December 2017 approximately 21.2 per cent of the share capital of Nordea, the largest bank in the Nordic countries. Nordea is an associated company to Sampo plc.
The difference between the carrying value and the fair value of Sampo's holding on 30 September 2017, EUR 706 million, was recognized in profit and loss in the third quarter of 2017.
Sampo Group started to consolidate Topdanmark as a subsidiary as of 30 September 2017 in its financial reporting in accordance with IFRS. Earlier as of May 2011 Topdanmark was consolidated as an associate in the P&C insurance segment.
The transformation of If’s Finnish subsidiary, If P&C Insurance Company Ltd (Finland), into a branch office of the Swedish company, If P&C Insurance Ltd, was completed as of 2 October 2017 after all the necessary regulatory approvals were obtained.
Mandatum Life Insurance Co. Ltd. disclosed on 27 October 2016 that it will exercise its option to sell the insurance portfolio, sold through Danske Bank's branch network in Finland, to Danske Bank or its nominee. The valuation process was finalized by 19 June 2017 and the value of the insurance portfolio as at 31 December 2016 was determined to be EUR 334 million. The transfer of the portfolio is expected to take place during 2018. The sales gain is taxable under the Finnish tax law. The transaction will have a positive impact on Mandatum Life's solvency position.
Timo Vuorinen, former Managing Director of If P&C Insurance Company (Finland), Head of Private Sales and Services (Finland) and Head of Business Area Baltic resigned in November 2017 from his operative responsibilities and hence left Sampo Group Executive Committee. This was a consequence of the decision to merge If P&C Insurance Company Ltd (Finland) with If P&C Insurance Ltd (Sweden). Vuorinen was employed by Sampo Group until the end of 2017.
Governance In 2017 Sampo complied in full with the Finnish Corporate Governance Code issued 1 October 2015 by the Securities Market Association and effective from 1 January 2016.
The Annual General Meeting elected eight members to the Board of Directors. The following members were re-elected to the Board: Christian Clausen, Jannica Fagerholm, Adine Grate Axén, Veli-Matti Mattila, Risto Murto, Eira PalinLehtinen, Per Arthur Sørlie and Björn Wahlroos. The Members of the Board were elected for a term continuing until the close of the next Annual General Meeting.
At its organizational meeting, the Board elected Björn Wahlroos as Chairman and Eira Palin-Lehtinen as Vicechairperson. Veli-Matti Mattila, Risto Murto, Eira PalinLehtinen and Björn Wahlroos (Chairman) were elected to the Nomination and Compensation Committee and Jannica Fagerholm (Chairman), Christian Clausen, Adine Grate Axén and Per Arthur Sørlie to the Audit Committee.
All the Board members have been determined to be independent of the company and of the major shareholders under the rules of the Finnish Corporate Governance Code 2015. The curriculum vitaes of the Board Members are available at www.sampo.com/board.
Ernst & Young Oy was elected as Auditor. The Auditor is paid a fee determined by an invoice approved by Sampo. Kristina Sandin, APA, acts as the principally responsible auditor.
Based on the proposal made by a shareholder and the Board of Directors, the AGM made the decision on the forfeiture of the share certificates that were still in the joint account and the rights carried by the shares. The decision did not apply to shares whose transfer into the book-entry system had been validly requested by 27 April 2017 at 2 pm and the request for conversion of which had been completed by 31 October 2017.
Approximately 98.9 per cent of the votes cast at the AGM were in favor of the proposal for the forfeiture of the share certificates that were still in the joint account and the rights carried by the shares.
Sampo plc and the whole Sampo Group is aware of its corporate responsibility and all group companies are dedicated to being responsible corporate citizens. Sampo is committed to developing its operations to further economic, social and environmental sustainability as is in the interests of the company and as is expected by its various stakeholders.
Most of Sampo Group’s practical corporate responsibility work is carried out at the subsidiary level. The operations of Sampo Group’s insurance subsidiaries If, Topdanmark and Mandatum Life differ from each other and, therefore, the nature of their corporate responsibility activities also differ to a great extent. The subsidiaries have their own models of corporate responsibility reporting reflecting the special features of their businesses. Further details on If’s environmental activities can be found from If’s Environmental Reports available at www.sampo.com/ environmentalreport. Information on Topdanmark’s responsibility can be read from the company’s SCR Reports: www.topdanmark.com/en/csr/csr-reports. More information on Mandatum Life’s corporate responsibility activities can be found from the company website english.mandatumlife.fi/ csr.
The average number of Sampo Group’s employees (FTE) in 2017 amounted to 9,364 (6,780) The total number of employees in Sampo Group increased 39 per cent comparing to full year 2016. The increase was impacted by the consolidation of Topdanmark as a subsidiary as of 30 September 2017.
At the end of the year, the total number of staff in Sampo Group totaled 9,439 persons.
More detailed information on personnel in Sampo Group is available in the Personnel section of Annual Report 2017.
Sampo plc’s Board of Directors has established the Sampo Group Remuneration Principles, which apply to all Sampo Group companies. The Remuneration Principles are available at www.sampo.com/remuneration.
The different forms of remuneration used in Sampo Group are the following: (a) Fixed Compensation (b) Variable Compensation (c) Pension (d) Other Benefits
The starting point of any compensation mechanism shall be to encourage and stimulate employees to do their best and surpass their targets. Remuneration packages shall be designed to reward fairly for prudent and successful performance. At the same time, however, in order to safeguard the interest of other stakeholders, compensation mechanisms shall not generate conflicts of interest and shall not entice or encourage employees to excessive or unwanted risk taking. Thus, compensation mechanisms cannot be separated from risk management objectives and practices.
The decision on payout of variable compensation shall be based on the assessment of the incurred risk exposure and the fulfillment of solvency capital requirements. Furthermore, the payment of a certain portion of the variable compensation payable to the Senior Executive Management and to certain key persons shall be deferred for a defined period of time as required in the regulatory framework applicable to each Sampo Group company. After the deferral period, a retrospective risk adjustment review shall be carried out and the Board of Directors of each Sampo Group company shall decide whether the deferred variable compensation shall be paid/released in full, partly or cancelled in whole. In 2017, altogether EUR 6.4 million (10.4) of short-term and long-term incentives has been deferred.
In the 2017:1 scheme, 4,092,000 incentive units were allocated in September to October 2017, out of a maximum of 4,500,000 units. The remaining incentive units may be allocated during September to October 2018 and may be directed to new recruits or to current employees with materially changed circumstances. The scheme will vest in three annual instalments starting from three years from the allocation of the units.
The value of one incentive unit is calculated as the difference between the trade-weighted average price of the Sampo A share at the time of payment and the dividend-adjusted starting price. In addition to the share price development, the calculation of the value of one incentive unit takes into account the performance of the insurance margin of If P&C and the return on capital at risk as further specified in the terms of the respective incentive scheme. Both schemes contain a cap for maximum payout. The terms of the incentive schemes are available at www.sampo.com/ incentiveterms.
A deferral rule applies to incentive rewards paid to key employees who are subject to the deferral rule in accordance with the remuneration policies of the relevant Sampo Group companies in force at the launch of the incentive schemes. At payout from the schemes, the identified staff shall acquire Sampo A shares with a certain part of the installment after deducting income tax and other comparable charges. The shares are subject to disposal restrictions for three years, after which the Board of Directors shall decide on the possible release.
Sampo Group will publish in March 2018 a Remuneration Report 2017 at www.sampo.com/remunerationreport. The Remuneration Report 2017 is part of the Remuneration Statement, which is available at www.sampo.com/ remunerationstatement.The statement has been prepared in accordance with the Corporate Governance Code issued by the Securities Market Association and effective as of 1 January 2016.
Thirdly, as a general rule, Sampo prefers to have low leverage and adequate liquidity buffers to be able to generate liquidity as needed. The size of assessed diversification benefit of the Group companies’ profits is reflected in Sampo’s decisions on own capital structure and liquidity position.
As at 31 December 2017, Sampo plc had 555,351,850 shares, which were divided into 554,151,850 A shares and 1,200,000 B shares. Total number of votes attached to the shares is 560,151,850. Each A share entitles the holder to one vote and each B share entitles the holder to five votes at the General Meeting of Shareholders. According to the company’s Articles of Association, A shares must number at least 179,000,000 and no more than 711,200,000. Meanwhile, B shares must number at least zero and no more than 4,800,000. As at 31 December 2017 Sampo plc's share capital amounted to EUR 98 million (98) and the equity capital in total to EUR 12,847 million (11,934).
DeDevvelopment of the Number of Sharelopment of the Number of Shareses Sampo plc, 2008–2017
SharShareholders beholders by the Number of Shary the Number of Shares Ownedes Owned Sampo plc, 31 December 2017
When Sampo plc’s shares were incorporated to the bookentry system in September 1997 shareholders were obliged to provide the share certificates and request registration of the shares into their book-entry accounts during the registration period set in the General Meeting’s resolution to incorporate the shares into the book-entry system. A joint book-entry account in the name of the Company was opened for those shareholders who did not request the registration of their shares.
Sampo plc has actively pursued to locate the holders of the shares in the joint book-entry account. Sampo sent on 3 November 2016 a letter to 75,000 private persons, who had been registered as holders in the shareholder register dated 12 September 1997. The letter and widespread media attention following it has led to more than hundred thousand contacts with potential shareholders.
In December 2017, Sampo plc announced that its Board of Directors had decided, according to the authorization by the Annual General Meeting, to cancel 4,648,150 Sampo shares that were in the joint account on 1 December 2017. This corresponded to 0.8 per cent of Sampo plc's total number of shares and votes. The cancellation of shares became effective on 22 December 2017.
The number of Sampo plc’s shareholders increased during 2017 by more than 18,000 holders to 108,667 (90,879) as at 31 December 2017. The substantial increase is explained by Sampo’s success in finding holders of paper share certificates, see more in Section Shares on the joint book-entry account.
The holdings of nominee-registered and foreign shareholders increased to 62.04 per cent (60.95) of the shares and 61.87 per cent of the votes (60.43).
% of shar% of shares and ves and voting rightsoting rights % of shar% of shares and ves and voting rightsoting rights thrthrough financial insough financial instrumentstruments TTotalotal
In addition Sampo plc received during 2017 a notification regarding the total number of Sampo A shares and related voting rights owned by Capital Income Builder (CIB), a 100 per cent owned subsidiary of the Capital Group Companies, Inc., directly or through financial instruments.
Securities Markets Act. 12 of the notifications came from BlackRock Inc. and one from Capital Income Builder (CIB).
SharShareholders beholders by Secty Sectoror Sampo plc (A and B shares), 31 December 2017
NotificaNotifications btions by BlackRy BlackRock, Inc. in 2017ock, Inc. in 2017
The following table presents the Board’s and Group Executive Committee’s holdings of Sampo A shares. At the end of 2017, members of Sampo plc’s Board of Directors and their close family members owned either directly or indirectly 10,527,151
Members of the Group Executive Committee and their close family members owned either directly or indirectly 849,557 (842,105) Sampo A shares representing 0.2 per cent (0.2) of the share capital and related votes.
SharShares Owned bes Owned by the Boary the Board of Dird of Directectors and bors and by the Gry the Group Exoup Executivecutive Ce Committommitteeee Sampo plc, 31 December 2017 and 31 December 2016
Sampo plc, Sampo Group’s parent company, received approximately EUR 1,5 billion in dividends from its subsidiaries and associated company Nordea Bank AB during 2017. The following dividend payments were received: • Mandatum Life; EUR 125 million in March 2017 and EUR 150 million in September 2017
• Nordea Bank AB; EUR 557 million in March 2017 and • If P&C; SEK 6.0 billion (EUR 620 million) in December 2017.
Since 1 January 2016 If P&C, Topdanmark and Mandatum Life have applied Solvency II rules in their regulatory solvency calculations. If Group companies use either partial internal models or standard model for calculation of their solo solvency position. Mandatum Life reports in accordance with standard formula for Solvency II. Topdanmark uses an internal model to report its stand-alone solvency position. In Sampo Group’s conglomerate solvency calculation a standard model is, however, used for all insurance entities.
For If P&C the standard formula has roughly a EUR 400 million higher capital requirement than the model used for internal purposes. However, If P&C Group has an A+ rating from S&P which will continue to require significantly more capital and therefore the use of standard formula has no practical implications on If P&C Group’s capital position. On 31 December 2017 If P&C Group’s Solvency II capital requirement under standard formula amounted to EUR 1,938 million (1,942) and own funds to EUR 3,818 million (3,822). Solvency ratio amounted to 197 per cent (197).
S&P A+ rating requirement for If P&C Group amounted to EUR 3,098 million (2,967) at the end of 2017 and the capital base was EUR 3,408 million (3,565). On 31 December 2017 If P&C Group’s Solvency II capital requirement under partial internal model was to EUR 1,510 million (1,581) and own funds to EUR 3,875 million (3,855). Solvency ratio amounted to 257 per cent (244).
Mandatum Life’s solvency ratio after transitional measures on 31 December 2017 was strong at 182 per cent (160). Own funds of EUR 1,977 million (1,893) exceed Solvency Capital Requirement (SCR) of EUR 1,087 million (1,182) by EUR 890
More information on Sampo Group’s capital policy is available at the Risk Management section of the Annual Report 2017.
On 27 February 2017 Sampo plc repaid EUR 500 million senior notes maturing on that date.
On 30 May 2017 Sampo plc issued under its EMTN Programme senior unsecured fixed rate notes of EUR 500 million maturing on 30 May 2025.
As at 31 December 2017 financial liabilities in Sampo plc’s balance sheet consisted of issued senior bonds and notes of EUR 2,884 million (2,877) and EUR 293 million (671) of CPs issued. The average interest, net of interest rate swaps, on Sampo plc’s debt as of 31 December 2017 was 0.93 per cent (1.37).
Senior Bond 2,000 SEKm Stibor3M + 0.77% Euribor3M + 0.586125% 0.2571% 28 May 2020
Sampo Group’s business areas are expected to report good operating results for 2018.
If P&C is expected to reach its long-term combined ratio target of below 95 per cent in 2018 by a margin.
With regard to Topdanmark reference is made to the profit forecast model that the company publishes quarterly.
In its current day-to-day business activities Sampo Group is exposed to various risks and uncertainties mainly through its separately managed major business units. Parent Company Sampo's contribution to risks is a minor one.
Uncertainties in the form of major unforeseen events may have an immediate impact on the Group’s profitability. Identification of unforeseen events is easier than estimation of their probabilities, timing and potential outcomes.
The parent company’s distributable capital and reserves totalled EUR 7,570,983,877.42 of which profit for the financial year was EUR 1,395,971,059.94.
The dividend will be paid to shareholders registered in the Register of Shareholders held by Euroclear Finland Ltd as at the record date of 23 April 2018. The Board proposes that the dividend be paid on 3 May 2018.
Key Figures GrGroup koup keey figury figureses 20172017 20162016 20152015 20142014 20132013
Return on equity (at fair values) % 17.1 15.0 14.0 10.9 13.8
Return on assets (at fair values) % 7.6 7.3 7.2 5.6 7.0
Premiums written before reinsurers' share EURm 4,525 4,458 4,559 4,634 4,768
Premiums written before reinsurers' share EURm 967 1,122 1,149 1,110 1,068
¹) On 31 Dec. 2009 Nordea was consolidated as an associate to Sampo and Sampo became a financial and insurance conglomerate, in accordance with the Act on Supervision on Financial and Insurance Conglomerates (2004/699). The group solvency is calculated according to Chapter 3. The adjusted solvency is determined on the basis of the Group financial statements as permitted by the Financial Supervisory Authority.
²) Key figures for P&C Insurance are based on activity based costs and cannot, therefore, be calculated directly from the consolidated income statement. Topdanmark's ratios are for the whole year.
+ other operating income - claims incurred - change in liabilities for investment and insurance contracts - staff costs - other operating expenses - finance costs
99Sampo Group’s Risks and Core Risk Management Activities 99- Group’s Risks 101- Core Risk Management Activities 102If P&C Group 102- Underwriting Risks and Performance 108- Market Risks and Investment Performance 113- Counterparty Default Risks 114- Operational Risks 114- Capitalization 117Topdanmark Group 117- Underwriting Risks and Performance 125- Market Risks and Investment Performance 131- Counterparty Default Risks 132- Operational Risks 132- Capitalization 135Mandatum Life Group 135- Underwriting Risks and Performance 140- Market Risks and Investment Performance 146- Counterparty Default Risks 147- Operational Risks 147- Capitalization 150Risk Considerations at Sampo Group Level and Sampo plc 150- Underwriting Risks at Sampo Group 151- Market Risks at Sampo Group Level 159- The Role of Sampo plc 161Sampo Group Capitalization 161- Group's Own Funds and Solvency According to Conglomerate
164- Internal Considerations of Adequacy of Solvency 166Appendix 1: Sampo Group Steering Framework and Risk Management Process 175Appendix 2: Risk Definitions 183Appendix 3: Selected Management Principles
Non-life insurance and life insurance activities are conducted by the subsidiaries If P&C Insurance Holding Ltd (publ) (“If P&C”), Mandatum Life Insurance Company Ltd (“Mandatum Life”) and Topdanmark A/S (“Topdanmark”). First two are wholly owned by the Group’s parent company, Sampo plc (“parent company” or “Sampo”), which is a listed holding company and has no insurance or banking activities of its own. In Topdanmark Sampo has a 46.7 per cent holding of shares and 48.9 per cent of votes.
Sampo as a holding company manages its subsidiaries and associated companies independently of each other meaning that the legal sub-groups Mandatum Life, If P&C, Topdanmark and the associated company Nordea conduct their businesses independently from each other. The independent sub-groups have their own infrastructures and management as well as operative processes in place. In instances where the subsidiaries and the associated companies cooperate in some business areas, cooperation is conducted similarly as with any third-party.
The major management tool is the work in the companies’ Boards of Directors. The Boards of If P&C and Mandatum Life are manned by Sampo plc personnel. In regards to wholly owned subsidiaries, Sampo gives more exact guidance on how activities should be organized in terms of group-wide principles and there is a frequent dialogue between Sampo and subsidiaries in major operative issues. In addition, Sampo is monitoring performance, risks and capitalisation at detailed levels.
In Sampo Group the risks associated with business activities fall into three main categories as shown in the picture Classification of Risks in Sampo Group: strategic risks, reputational risk and risks inherent in the business operations. The first two risk classes are only briefly described in this Risk Management Disclosure as the focus is on the third risk class.
Strategic risk is the risk of losses due to changes in the competitive environment or lack of internal operational flexibility. Unexpected changes in the general business environment can cause larger than expected fluctuations in the financial results and in the long run these can endanger the existence of Sampo Group’s business models.
In general, concentration risk arises when the company’s risk exposures are not diversified enough. When this is the case, an individual extremely unfavourable claim or financial market event, for instance, could threaten the solvency of the company.
• Liquidity risks are managed by having an adequate portion of investments in liquid instruments. The portion is mainly dependent on the features of the liabilities.
The Nordic P&C (property and casualty) insurance market is relatively concentrated. The four largest players account for approximately 70 to 90 per cent of the markets in Norway,
Finland and Sweden. In Denmark the market is less concentrated. The largest insurance companies are often established in more than one Nordic country, but If P&C is the only company with a significant market share in all Nordic countries.
In the Nordic region customer retention levels are high, with renewal rates of approximately 80 to 90 per cent. The market is characterized also by low expense ratios in the range of 15 to 20 per cent. In If P&C, the internet continues to grow in importance both as a distribution channel as well as a service channel. Additionally, distribution through partnerships (e.g. with banks and car dealerships) is increasingly important.
The Insurance operation in the Nordic region is organizationally divided into Business Areas by customer segment - Private, Commercial (small and medium sized companies) and Industrial (large corporates). Insurance operations in the Baltic countries are organized in one Business Area, Baltic. Business Area Private is the largest by premium volume, accounting for more than half of total premium income.
• Business Area Private's gross premium income increased during the year, driven by continued good customer loyalty and strong new car sales. Underwriting performance was also supported by a favourable claims trend.
• Business Area Commercial had positive premium growth, whereas the large claims outcome, especially in Sweden and Norway, had an adverse impact on the overall underwriting result.
• Business Area Industrial's underwriting performance improved during the year, due to positive premium growth and stable costs, both with regards to claims and operations.
If P&C’s three major Solvency II Lines of Business are Motor vehicle liability insurance, Other motor insurance and Fire and other damage to property insurance. The table If P&C Underwriting Performance, 31 December 2017 presents the development of If P&C’s premiums, claims, operating expenses, reinsurer’s share and underwriting performance per Solvency II Lines of Business for the last two years.
BrBreakeakdodown of Grwn of Grososs Ws Writtritten Pren Premiums bemiums by Cy Countryountry If P&C, 2017, total EUR 4,526 million
Ceded written premiums (EURm) 168 +/- 10 per cent +/- 17 +/- 17
A group-wide reinsurance program has been in place in If P&C since 2003. In 2017, retention levels were between SEK 100 million (approximately EUR 10.2 million) and SEK 250 million (approximately EUR 25.4 million) per risk and SEK 250 million (approximately EUR 25.4 million) per event.
Definition of reserve risk can be found in Appendix 2 (Risk Definitions).
Reserves are exposed mainly to inflation and discount rates and to some extent to life expectancy. The sensitivity of If P&C’s technical provisions to an increase in inflation, an increase in life expectancy and a decrease in the discount rate is presented in the table Sensitivities of Technical Provisions, If P&C, 2017.
The Board of Directors of If P&C decides on the guidelines governing the calculation of technical provisions. If P&C’s Chief Actuary is responsible for developing and presenting guidelines on how the technical provisions are to be calculated and for assessing whether the level of total provisions is sufficient. On If P&C group level the Chief Actuary issues a quarterly report on the adequacy of technical provisions.
The Actuarial Committee is a preparatory and advisory board for If P&C’s Chief Actuary. The committee secures a comprehensive view over reserve risk, discusses and gives recommendations on policies and guidelines for calculating technical provisions.
Fixed income investments and listed equity instruments form a major part of investment portfolio of EUR 11,685 million (EUR 12,192 million). A large part of the fixed income investments was at 31 December 2017 concentrated to financial institutions. The role of real estate, private equity, biometric and other alternative investments is immaterial.
If P&C Group has a relatively low amount of financial liabilities and thus Group’s respective refinancing risk is relatively small.
Counterparty default risk arising from receivables from policyholders and other receivables related to commercial transactions is very limited, because non-payment of premiums generally results in cancellation of the insurance policies.
The distribution of reinsurance receivables and reinsurers’ portion of outstanding claims on 31 December 2017 per rating category is presented in the table Reinsurance Recoverables and Pooled Solutions, If P&C, 31 December 2017 and 31 December 2016.
A system is implemented for incident reporting procedures and follow up. Incident data is used to analyse risk and severe incidents are tracked to ensure proper actions are taken.
If P&C has issued a number of steering documents which are relevant for the management of operational risk. These include but are not limited to the Operational Risk Policy, Business Continuity Policy and Security and Information Policy. If P&C also has processes and instructions in place to manage the risk of external and internal fraud. Internal training on ethical rules and guidelines is provided to employees on a regular basis. Policies and other internal steering documents are reviewed and updated on a regular basis.
figure If P&C’s Solvency, 31 December 2017, SCR is divided into risk contributions. The diversification benefit between risks is also presented in the figure.
If P&C’s structure of OF as presented in table If P&C’s own funds, 31 December 2017 is strong. Tier 1 items are covering 84 per cent of OF and the role of Tier 3 items is immaterial. Norwegian Natural Perils Fund (“NNPF”) is a material part of Tier 2 untaxed reserves covering 33 per cent.
Over the latest years If P&C has paid over 80 per cent of its net profit as dividends to Sampo plc. As a result the retained earnings – part of the reconciliation reserve - have consistently been a source of Tier 1 growth.
Topdanmark Group Topdanmark Group is a Danish insurance group concentrating on the Danish insurance market writing nonlife, life- and pension policies through its operative insurance companies Topdanmark Forsikring and Topdanmark Livsforsikring.
At the group level the current emphasizes are (i) to create synergies by having both non-life and life insurance business within the same group, and (ii) to improve customer experience and cost efficiency by digitalization, innovation and new technology. Products are marketed through a diversified net of distribution channels including Topdanmark’s own sales staff consisting of both tied agents and sales centres, and external partners, insurance brokers and online sales.
The premiums and underwriting performance by Solvency II lines of business are presented in the table Topdanmark Underwriting Performance, 31 December 2017 and 31 December 2016.
In order to maintain product and customer profitability, Topdanmark monitors changes in its customer portfolios. Provisions are recalculated and the profitability reports are updated in the same context on a monthly basis. Based on this reporting, trends in claim levels are carefully assessed and price levels may be adjusted if considered necessary.
In the private market segment, customer scoring is used and customers are divided into groups according to their expected profitability levels. The customer scoring has two roles. First it helps to maintain the balance between the individual customer's price and risk. Secondly it facilitates the fairness between individual customers by ensuring that no customers are paying too large premiums to cover losses from customers who pay too small premiums.
The insurance lines of business are divided into short-tail i.e. those lines where the period from notification until settlement is short and long-tail i.e. those lines where the period from notification until settlement is long. Examples of short-tail lines in Topdanmark Forsikring are building, personal property and comprehensive motor insurance. Long-tail lines relate to personal injury and liability such as workers' compensation, accident, motor third party insurance and commercial liability.
During such a long period of settlement, the levels of compensation could be significantly affected by changes in legislation, case-law or practice in the compensation of damages adopted by, for example, the Danish Labour Market Insurance which decides on compensation for injury and loss of earnings potential in all cases of serious industrial injuries. The practice adopted by the Danish Labour Market Insurance also has some impact on the levels of compensation for accident and personal injury within motor, liability and commercial liability insurance.
The risk inherent in the life business is first of all related to the with profit technical provisions. When the majority of new contracts are written as unit-linked contracts, the risk will not increase as much as the volume of premiums and total provisions.
DeDevvelopment of Welopment of With Prith Profit and Unit-Linkofit and Unit-Linked Ted Technical Prechnical Proovisionsvisions Topdanmark, 2008–2017
In 2017, the investment return was sufficient to cover obligations to policyholders in all interest rate groups and hence the full risk return to shareholders’ equity was recognized as income. Risk return on shareholders' equity together with other main components of life business result are shown in the table Result of Life Insurance, Topdanmark,
Falling interest rates and, in particular, sustained low interest rates along with prolonged lives represent a significant risk scenario for insurers with guaranteed benefits as there will be a reduction of the individual bonus potentials used for loss absorption.
All policies have been split into contribution groups according to the guaranteed benefit scheme. For all contribution groups there are separate loss absorbing buffers and hence in each contribution group, the separate investment policy must be in line with risk taking capacity to ensure the ability to meet the guaranteed benefits. Market risk is adjusted continuously in accordance with the risk capacity of the contribution groups, and the movements in interest rates are monitored so that risk reducing actions can be taken when needed.
Disability risk is the risk of increased disability intensity or declines in the rates of resumption of work. Losses may incur
due to an increase in disability frequency or due to inadequate health evaluation when the policy is written.
Longevity risk is the risk that customers with life dependent policies, primarily annuities, live longer than expected. That will increase provisions for lifetime products. Extra costs, due to longer lifetimes, will be partially covered by individual and collective bonus potential. The remainder affects profit/loss for the year and consequently shareholders' equity.
• New subscription basis changes as needed • Establishment of business processes that ensure that the products are sold at the right price / risk mix
At the same time, the policy sets the framework for investment of customers' savings, schemes of right to bonus and link savings (customer funds) in Topdanmark Livsforsikring, so that the company can continue to offer
Index linked bonds comprise bonds – primarily Danish mortgage bonds – for which the coupon and principal are index-linked.
Assets related to illness/accident insurance comprise the investments in Topdanmark Livsforsikring corresponding to the size of the illness/accident provisions.
InInvvesestment Allocatment Allocation, Ttion, Topdanmark Gropdanmark Group Exoup Excluding Lifcluding Life Insure Insurancancee
Annual InAnnual Invvesestment Rtment Returns aeturns at Ft Fair Vair Valuesalues Topdanmark Group Excluding Life, 2008-2017
Interest rate risk exposure is net of assets, liabilities and derivative instruments whose carrying amount is dependent on the interest rate level. In regards to insurance liabilities Topdanmark is exposed to interest rate risk due to provisions for outstanding claims in non-life insurance and guaranteed benefits in life insurance.
Currency risk is assessed based on SCR. The value of base currency is shocked by 25 per cent against most of the currencies except 2.39 per cent against EUR where the largest exposure exists.
Topdanmark monitors and regularly reports on operational risks. For this purpose the company has a process of recording operational risk events. The events are collected centrally into a register and communicated further in the management system. This way the organization can learn from its errors.
Topdanmark has numerous documents in which instructions regarding operational risks are given. The most important ones are Policy and Guidelines for Operational Risks, Compliance and Internal Control, Information Security Policy, IT-Preparedness Strategy and IT-Preparedness plan.
Operational risks are included as part of Topdanmark's ORSA and reported to the Risk Committee in Topdanmark's Risk Registry.
In Topdanmark Group statutory Solvency Capital Requirement is calculated as follows: • Topdanmark Forsikring A/S calculates most of its non-life and health risks and their respective capital requirement by model that has been developed in-house. Other risks and their respective SCRs are calculated by Solvency II standard formula (SF). Then these module specific SCR´s are used as inputs to calculate company’s SCR. This calculation process is called Partial Internal Model (PIM) and it has been approved by the Danish Financial Supervisory Authority (DFSA). Topdanmark Livsforsikring A/S and Nykredit Liv A/S calculate their module specific SCRs and total SCR using solely SF.
• The DFSA has permitted Topdanmark to use the volatility adjusted Solvency II interest rate curve.
When Topdanmark applies its internal model for non-life insurance the PIM SCR for Topdanmark Group is DKK 710 million lower than respective figure if Topdanmark would have used solely SF. Because SF SCR figures of Topdanmark Group are used as inputs when Sampo Group SCR is calculated, also in this context the respective SF SCR figures are disclosed. Hence, separate SF SCR figures in below table are gross figures for risks and the effect of LAC of TP is shown as one figure. However, in Topdanmark’s own SCR disclosure, company concentrates on PIM figures that are net figures to give more accurate picture of risks. Later in its Solvency and Financial Condition Report Topdanmark also discloses its Standard Formula figures. The SF solvency requirement and its components at year end 2017 was EUR 514 million as presented below and as reported to the DFSA. The reported SCR is the same whether it is calculated on gross or on net basis.
At the company and group level, the starting point of eligible own funds is equity that is adjusted by some corrective items of which the most significant are: Own Funds: Shareholders’ equity - Proposed dividend + Deferred tax on security funds + Profit margin - Intangible assets + Tax effect + Usable share, subordinated loan Tier 1 (max. 20% of Tier 1 capital) + Usable share, subordinated notes (max. 50% of SCR) Own funds
Eligible own funds include the following Solvency II Compliant Subordinated Liabilities of Topdanmark as of 31 December 2017. Sampo Group’s holdings in these assets are: IsIssuersuer InsInstrumenttrument Nominal amountNominal amount
Mandatum Life Group Mandatum Life operates in Finland and in the Baltic countries and offers savings and pension policies with life risk features as well as policies covering mortality, morbidity and disability risks.
Existing with profit liabilities and assets backing these liabilities are still the most critical areas from risk management point of view. Mandatum Life’s strategy is to maintain a sufficiently strong solvency position, which makes it possible to seek a higher long-term investment return than average guarantees.
In this section the underwriting risks and performance as well as the development of technical provisions are presented. Further details of technical provisions can be found in Appendix 5 (Valuation for solvency purposes).
The unit-linked business has been Mandatum Life’s main focus area since 2001. Since then the trend of unit-linked technical provisions has been upward and the average annual growth in unit-linked technical provisions has been over 20 per cent per annum. Due to the nature of the unit-linked business, volatility between the years has been relatively high. Around EUR 3,100 million of current unit-linked liabilities totaling EUR 7,066 million were sold through Danske Bank. These liabilities, together with around EUR
WWith prith profit and others, eofit and others, exxcl. Balticcl. Baltic 4,8044,804 116116 -452-452 -35-35 131131 11 -7-7 4,5584,558 39%39%
RReserveserve fe for decror decreased disceased discount rount raattee 273273 00 00 00 00 00 5252 325325 3%3%
In most of the original 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. Mandatum Life has sold policies with lower guaranteed rates as well but their share is small.
With respect to with profit policies with the 4.5 per cent guaranteed rate, the maximum discount rate used when discounting technical provisions has been decreased to 3.5 per cent over the lifetime of these policies. As a result, technical provisions were supplemented by a reserve of EUR 43 million at the end of 2017 (EUR 48 million in 2016).
• EUR 18 million for the year 2021 to lower the interest rate to 2.75 per cent.
The guaranteed interest for the segregated group pension policies is mainly 3.5 per cent. More important from a risk management point of view is that the discount rate of liabilities is 0.50 per cent and related discount rate reserve EUR 261 million (275). The future bonus reserve has an important role in the risk management of the segregated group pension portfolio. The reserve amounts to EUR 117 million, which can be used to cover possible investment losses or to finance possible changes in the discount rate of segregated technical provisions.
The decreasing trend of with profit liabilities is expected to continue. Liabilities with the highest guarantees and highest capital consumption are expected to decrease from EUR 2,635 million to below EUR 900 million during the remaining Solvency II transitional period of the technical provision (1 January 2018–31 December 2031). Duration of segregated group pension portfolio is around 11 years and duration of original with profit portfolio is around 10 years.
Longevity risk is the most critical biometric risk in Mandatum Life. Most of the longevity risk arises from the with profit group pension portfolio. With profit group pension
The mortality risk result in life insurance is positive. A possible pandemic is seen as the most significant risk that could adversely affect the mortality risk result.
The risk result is followed actively and thoroughly analyzed annually. Mandatum Life measures the efficiency of risk selection and the adequacy of tariffs by collecting information about the actual claims expenditure for each product line and each type of risk and comparing it to the
Policy terms and tariffs cannot usually be changed materially during the lifetime of the insurance, which increases the expense risk. The main challenge is to keep the expenses related to insurance administrative processes and complex IT infrastructure at an effective and competitive level. In year 2017, the expense result of Mandatum Life Group was EUR 33 million (26). Mandatum Life does not defer insurance acquisition costs. Since 2012 the expense result has grown significantly, especially due to increased fee income from unit-linked business, as presented in the table Expense result, Mandatum Life Group, years 2008-2017.
This section covers market risk related to the Mandatum Life’s with profit business i.e. that part of the business where Mandatum Life carries investment risk.
Mandatum Life’s market risks arise mainly from equity investments and interest rate risk related to fixed income assets and insurance liabilities with a guaranteed interest rate. The most significant interest rate risk in the life insurance business is that fixed income investments will not, over a long period of time, generate a return at least equal to the guaranteed interest rate of technical provisions. The
MarkMarket Risket Risks of Fixs of Fixed Inced Income andome and EEquity Exposurquity Exposureses
Nordic equity exposure include almost only direct investments to Finnish equities and they account for almost one third of equity exposure. Two thirds of equity investments are globally allocated consisting mainly of fund investments, but the role of direct investments are increasing in that part of the portfolio as well.
The Investment Policy for segregated assets defines the risk bearing capacity and the corresponding control levels. Since the future bonus reserves of the segregated group pension portfolio is the first buffer against possible investment losses, the risk bearing capacity is also based on the amount of the future bonus reserve. Different control levels are based on the fixed stress scenarios of assets.
Mandatum Life is negatively affected when rates are decreasing or staying at low levels, because the duration of liabilities is longer than the duration of assets. Growing part of Mandatum Life’s business, i.e. unit-linked and life and health business, is not interest rate sensitive, which partially mitigates whole company’s interest rate risk.
Currency risk can be divided into transaction and translation risk. Mandatum Life is exposed to transaction risk, which refers to currency risk arising from contractual cash flows in foreign currencies. For more detailed risk definition of currency risk see Appendix 2 (Risk Definitions).
The transaction risk positions of Mandatum Life against EUR is shown in the table Transaction Risk Position, Mandatum Life, 31 December 2017. The table shows the net transaction risk exposures and the changes in the value of positions given a 10 per cent decrease in the value of the base currency.
In life companies in general, a large change in surrender rates could influence the liquidity position. However in Mandatum Life, only a relatively small part of the insurance policies can be surrendered and it is therefore possible to forecast shortterm cash flows related to claims payments with a very high accuracy.
In Mandatum Life the major three sources of counterparty risk are financial derivatives, reinsurance, and other receivables. Counterparty default risk arising from reinsurance or receivables from policyholders and other receivables related to commercial transactions is very limited.
In Mandatum Life, the default risk of derivative counterparties is a by-product of managing market risks. This stems from the fact that Mandatum Life is a frequent user of long-term interest rate derivatives in addition to FX-forwards and options.
In the figure Mandatum Life’s Solvency, 31 December 2017 SCR is divided into risk contributions. The diversification benefit between risks is also presented in the figure.
The solvency position without the transitional measures is expected to develop favorably during the transitional period. The amount of with profit liabilities is decreasing (see figure Forecast of With Profit Liabilities, 31 December 2017–31 December 2031 within chapter Underwriting Risks and Performance) and liabilities with the highest guarantees are expected to fall relatively most, from EUR 2,635 million to around EUR 900 million during the transitional period. Hence, the most capital consuming with profit liabilities will decrease during the period and their duration will shorten as well. This creates a decreasing trend to the SCR and simultaneously a positive trend to own funds without transitional measures. Internally Mandatum Life is forecasting solvency ratios with and without the transitional measures; both forecasts affect the company’s business decisions.
Mandatum Life’s structure of OF as presented in the table Mandatum Life’s Own Funds, 31 December 2017 consist of only Tier 1 items of which EUR 100 million (i.e. 5.1 per cent of OF) was subordinated debt at the end of 2017. This subordinated debt is classified as a restricted Tier 1 item due to Grandfathering principles. Transitional measures on technical provisions contribute EUR 422 million to OF at the end of 2017. Due to sale of Danske Bank-related portfolio the quality of own funds will improve further as part of the expected, but uncertain, future profit component of OF will turn to a Shareholder equity.
In summary, the solvency and the capital structure of Mandatum Life with transitional measures are adequate. During the transitional period on technical provisions the liabilities with high guarantees will decrease remarkably which will also support future capital level needs.
It is regarded that current business model where all companies have their own processes and agreements with counterparties is preventing accumulation of counterparty default risks and operational risks. Hence, these risks are managed at company level and it is considered that need to monitor them at group level is remote.
Underwriting and market risk concentrations and their management are described in the next sections as well as parent company's role as risk manager of group-wide risks and as a source of liquidity.
With respect to the underwriting businesses carried out in the subsidiary companies, it has been established that If P&C, Topdanmark and Mandatum Life all operate within Nordics, but mostly in different geographical areas and in different lines of business and hence their underwriting risks are different by nature. There are some common risk factors like the life expectancy in Finland. Also in Denmark If P&C and Topdanmark have some overlapping areas. However, there are no material underwriting risk concentrations in the normal course of business.
Underwriting Risk grUnderwriting Risk grososss 1,8351,835 591591 408408 00 2,8032,803 2,8332,833 -30-30
Underwriting Risk netUnderwriting Risk net 1,3581,358 376376 406406 00 1,8211,821 2,1412,141 -319-319
Mandatum Life has focus on Finnish life insurance risks and hence it has practically no lines of business or geographical diversification benefits within underwriting. In Topdanmark capital consumption is most evenly spread over underwriting risks written solely in Denmark and its company specific diversification benefit over lines of businesses is relatively largest compared to other Sampo Group companies.
For all subsidiaries, their insurance liabilities and the company specific risk appetite are the starting points for their investment activities. The insurance liabilities including loss absorbing buffers as well as the risk appetite of Mandatum Life, If P&C and Topdanmark differs, and as a result the structures and risks of the investment portfolios and balance sheet of the three companies differ respectively. Companies’ average investment returns and volatilities of investment returns also differ as presented earlier in the Annual Investment Return at Fair Value -tables.
The total amount of Sampo Group’s investment assets as at 31 December 2017 was EUR 25,512 million (EUR 26,524 million in 2016) as presented in the below figure. Mandatum Life’s and Topdanmark’s investment assets presented here do not include assets which cover unit-linked contracts.
MarkMarket risk gret risk grososss 1,5821,582 904904 1,5451,545 522522 4,4014,401 4,5534,553 -152-152
FixFixed Inced Income Inome Invvesestments in Public Secttments in Public Sectoror Sampo Group excluding Topdanmark, 31 December 2017
The exposures in fixed income instruments issued by noninvestment grade issuers are significant, because a relatively small number of Nordic companies are rated. Further, many of the rated companies have a rating lower than triple-B (high yield) rating.
The listed equity investments of Sampo Group totaled EUR 3,934 million at the end of year 2017 (EUR 4,113 million). At the end of year 2017, the listed equity exposure of If P&C was EUR 1,448 million (EUR 1,527 million). The proportion of listed equities in If P&C’s investment portfolio was 12.4 per cent. In Mandatum Life, the listed equity exposure was EUR 1,578 million at the end of year 2017 (EUR 1,737 million) and the proportion of listed equities was 25.2 per cent of the investment portfolio. In Topdanmark Group, the listed equity exposure was EUR 793 million at the end of year 2017 (EUR 761 million). Within Topdanmark Group, the allocation to listed equity is higher in the life company.
The largest exposures by individual issuers and counterparties are presented in the table Largest Individual
Exposures by Issuer and by Asset Class, Sampo Group exluding Topdanmark, 31 December 2017. The largest single name investments in Topdanmark’s portfolios are in AAArated Danish covered bonds.
LarLargesgest dirt direct high yield and non-rect high yield and non-raatted fixed fixed inced income inome invvesestmentstments RaRatingting TTotal fotal fair vair valuealue,,
In general Sampo Group is structurally dependent on the performance of Nordic economies as already described earlier. Sampo Group is also economically exposed to the low level of interest rates. The lower the rates and the “flatter” the yield curve, the more challenging the environment is for the current business models especially when duration of insurance liabilities is longer than asset duration in If P&C and Mandatum Life. In Topdanmark interest rate risk of balance sheet is minor and hence Topdanmark is not increasing interest rate risk at group level.
The capacity to generate funds is dependent on leverage and liquidity buffers which can be inferred from the table Sampo plc Balance Sheet Structure, 31 December 2017 and 31 December 2017.
• The financial leverage measured as the portion of debt within all liabilities was 29 (32) per cent.
with the tradable financial assets, means that Sampo plc is able to generate liquid funds.
This is why part of Sampo plc’s debt instruments are issued in SEK and interest rate duration is maintained relatively short. However, the market view is also affecting decisions and for instance at the moment SEK-dividends paid by If P&C are still in SEK and SEK debt is converted into EUR using crosscurrency swaps, due to tactical market-view reasons.
Sampo Group’s own funds and SCR are presented in the figure Sampo Group Solvency by Solvency II rules, 31 December 2017. Sampo Group’s Ratio of Eligible own funds to group SCR at the end of 2017 was 156 per cent (155 per cent). Solvency was adequate in every quarter during the year.
adding Sampo’s share of Topdanmark’s partial internal model on top of the Consolidated Group SCR. The previous methodology did not grant any diversification benefits at Sampo Group level. At Q3 2017 Topdanmark’s Standard Formula SCR was included in the consolidated Group SCR. The effects of the change in methodology are limited due to diversification benefits that the Standard Formula grants when calculating the Consolidated Group SCR. Topdanmark uses simplifications in the calculation of Standard Formula SCR.
The following table Sampo Group’s Own Funds, 31 December 2017 and 31 December 2016 presents Sampo Group’s Own Funds by tiers.
Reserves, Retained earnings and Net income for the year (before SII adjustments)
Own funds items included in Sampo Group’s Tier 2 capital, amounting to EUR 368 million as of 31.12.2017, consists of subordinated debt instruments held by external investors.
As of 31.12.2017 subordinated debt of EUR 100 million issued by Mandatum Life was completely in Sampo’s investment portfolio and about one third of If P&C’s subordinated debt of EUR 312 million was held by Sampo plc as well. Topdanmark has issued three subordinated debt instruments by nominal amount of DKK 1,750 million and 30 per cent of these are held in Sampo Group companies’ investment portfolios. The details of subordinated debt instruments issued by If P&C,
Topdanmark and Mandatum are shown in the companies’ respective tables. Full instrument details are available on Sampo’s web-page www.sampo.com/publicdebt.
In order to include the diversification benefit between business areas into Group’s capital need estimate, Sampo is using correlations of quarterly reported profits between business areas when assessing the diversification benefit in the context of Conglomerate Rules. With this adjustment the resulting diversified Sampo Group capital requirement would be EUR 5,541 (5,571) million and the Group solvency ratio would be 199 (196) per cent.
When Sampo is considering the Group Solvency based on the adequacy of buffer at Group level it is assessed that the buffer is more than adequate in light of the following facts.
• The companies also have capacity to issue more instruments eligible for their own funds and hence extra buffers at Group level are not required.
• There are diversification benefits within Group: The correlation of the business areas’ reported profits are quite modest as presented in the table Group's Diversification Benefit as Internally Assessed, 31 December 2017. In particular, Nordea’s profits are weakly correlated with If P&C’s, Mandatum Life’s and Topdanmark’s profits. Hence, there is a clear diversification benefit within Group.
GrGroup's Divoup's Diversificaersification Benefit as Inttion Benefit as Internally Asernally Assessessedsed
Appendix 1: Sampo Group Steering Framework and Risk Management Process When Sampo Group is organizing its business and risk management activities, clear responsibilities and simple and flat operational structures are the fundamental principles. The responsibilities and operational structures followed in Sampo plc and wholly-owned subsidiaries, as illustrated in the figure Sampo Group’s Steering Framework are described in the following paragraphs. In regards to Topdanmark, its
The Board of Directors of Sampo plc decides on the main guidelines governing the subsidiaries’ business activities and risk management. The most significant of these guidelines are the Code of Conduct, Risk Management Principles, Remuneration Principles and Compliance Principles. There are also further guidelines which are followed in order to prevent reputational and compliance risks, for example the Disclosure Policy.
Subsidiaries organize their activities independently, taking into account the specific characteristics of their business operations and the guidance from the parent company relating to targets, capitalization and group-wide principles. The stakeholders’ expectations and external regulations also have a direct effect on the subsidiaries’ activities.
At the operative level, the subsidiaries focus on the effective execution of insurance operations and financial and risk management activities. Investments are managed according to the Investment Policies which are approved by the Boards of Directors of the respective subsidiaries. The parent company leads day-to-day management of investments; facilitates simultaneous effective execution of the subsidiaries’ investment policies; and maintains group-wide oversight of the investment portfolios.
• Capitalization is adequate in terms of risks inherent in business activities and strategic risks, taking into account the expected profitability of the businesses.
Based on the above sub-group level work and Sampo Group level internal work Sampo Group prepares annually or more often if needed a Single Own Risk and Solvency Assessment document (“Single ORSA report”). The Single ORSA report has virtually the same structure and contents as quarterly Audit Committee reporting. The only substance difference is the addition of Group-wide solvency forecasts, which are not normally part of the quarterly reporting.
The Board of Directors of Sampo is responsible for ensuring that Group’s risks are properly managed and controlled. The Board of Directors of Sampo defines financial and capitalization targets for the subsidiaries and approves group level principles which steer the subsidiaries’ activities. The risk exposures and capitalization reports of the subsidiaries are consolidated at group level on a quarterly basis and reported to the Board and to the Audit Committee of Sampo.
The Audit Committee is responsible, on behalf of the Board of Directors, for the preparation of Sampo Group’s risk management principles and other related guidelines. The AC shall ensure that the operations are in compliance with these guidelines, control Sampo Group’s risks and risk concentrations as well as control the quality and scope of risk management in the Group companies. The committee shall also monitor the implementation of risk policies, capitalization and the development of risks and profit. At least three members of the AC must be elected from members of the Board who do not hold management positions in Sampo Group and are independent of the company. The AC meets on a quarterly basis.
The Boards of Directors of If P&C and Mandatum Life are the ultimate decision making bodies of the respective companies and have the overall responsibility for the risk management process in If P&C and Mandatum Life respectively. The Boards of Directors appoint the If P&C ORSA Committee and the Mandatum Life Risk Management Committee, and are responsible for identifying any need to change the policies, principles and instructions related to risk management.
• The Internal Model Committee’s tasks are to identify sources for potential model changes and to give its opinion to the Chairman on the assessment and classification of potential changes and on further validation activities or internal model development. In addition to the tasks above, the committee discusses and analyzes information related to the internal model from other committees as well as monitors the status of internal model use and development activities.
In Mandatum Life the Board of Directors is responsible for risk management and the adequacy of internal control. The Board of Directors annually approves the Risk Management Plan, Investment Policy and other risk management and internal control instructions.
Chairman of the Risk Management Committee which coordinates and monitors all risks in Mandatum Life. The risks are divided into groups, the main groups being insurance, market, operational, legal and compliance risks as well as business and reputation risks. Each risk area has its own specialized committee or unit and a responsible person in the RMC.
In addition to the risk specific committees, the duties related to compliance and risk management of the Baltic branches have been organized as follows: • The Legal and Compliance Unit takes care of compliance matters with the Head of the Unit being a member of the Risk Management Committee.
Topdanmark's policy is to hedge against risks arising from the Company's activities or to limit such risks to a level that allows the Company to maintain normal operations and implement its planned measures even in the case of highly unfavourable events in the outside world. As a consequence of this policy, for a number of years, the Company has identified and reduced or eliminated the risks which could potentially cause losses exceeding what Topdanmark considers to be acceptable. The Board of Directors determines the overall risk policies and limits. The internal auditors report to the Board of Directors and report on, among other things, the observance of these risk policies and limits.
Topdanmark's risk management function identifies, assesses and quantifies risks. It reports to the Risk Committee, which is responsible for risk policies, risk limits, solvency calculation, capital plans, Topdanmark's own risk and solvency assessment (ORSA), and Topdanmark's partial, internal model for non-life insurance risks. The members of the Risk Committee are the CFO of the Group, the head of the Compliance Function and the heads of the primary risk areas, which are: Asset Management, Statistical Services, Reinsurance, Finance, Life Actuarial Services and Life Finance. The Risk Committee reports and recommends to the Board of Directors via the Executive Board.
The Risk committee has set up the Model Committee, which is responsible for developing and operating Topdanmark's internal model for calculation of results probabilities and risks of the non-life insurance portfolio based on random simulation. The model is used for, among other things, optimising the reinsurance programme, calculation of cost of capital, forecast balancing and calculating capital requirements.
The first component is a source of underwriting risk and the second component affects the interest rate risk to the balance sheet.
Underwriting risk can be generally defined as a change in the value of insurance liabilities caused by variance between the final costs for full contractual obligations and the assumed costs when these obligations were estimated. Hence, underwriting risk is realized as unexpected liability cash flows or unexpected change in the value of insurance liabilities when the pricing and provisioning assumptions on claims payments differ to the actual payments.
Non-life insurance underwriting risks are often divided into premium and catastrophe risks and reserve risk in order to separate the risks related to future claims of current insurance contracts from already incurred claims as illustrated in the table Non-life Insurance Underwriting Risks below.
Premium risk relates to future claims resulting from expected insured events which have not occurred by the balance sheet date. The frequency, severity and timing of insured events and hence future claims may differ from those expected. As a result, the claims cost for future claims exceeds the expected level and there is a loss or adverse changes in the value of the insurance liabilities. Catastrophe risk can be seen as an extreme case of premium risk. It is the risk of extreme or exceptional events, such as natural catastrophes where the pricing and setting of provisioning assumptions include significant uncertainty. These events may lead to significant deviations between the actual claims and the total expected claims resulting into a loss or adverse changes in the value of insurance liabilities.
In life insurance, catastrophe events include – as in non-life insurance – rare single events or a series of events, usually over a short period of time and, albeit even less frequently, longer lasting events. When a low frequency, high severity event or series of single events lead to a significant deviation in actual benefits and payments from the total expected payments, an extreme case of biometric risk (i.e. a catastrophe risk) has been realized.
Policyholder behavior risks arise from the uncertainty related to the behavior of policyholders. The policyholders have the right to cease paying premiums (lapse risk) and may have a possibility to withdraw their policies (surrender risk).
Furthermore, market risks also include the risk of worsening market liquidity in terms of widening bid-ask spreads and the risk of unexpected changes in the repayment schedules of assets. In both cases the market values of financial instruments in investment portfolios may change.
BalancBalance Sheet Le Sheet Leevvel Markel Market Risket Risks ors or ALM RiskALM Riskss
Counterparty Default Risk (“Counterparty Risk”) is one type of consequential risk, which Sampo Group is exposed to through its activities. In the case of counterparty risk, the final loss depends on the positive mark-to-market value of derivatives or reinsurance recoverables at the time of default and on the recovery rate which is affected by collaterals.
In Sampo Group, operative liquidity risk is managed by the legal entities, which are responsible for liquidity planning and maintaining adequate liquidity buffers. Liquidity risk is monitored based on the expected cash flows resulting from assets, liabilities and other business. In the subsidiaries, the adequacy of liquidity buffers is dependent on the underwriting cash flows. In the parent company, the adequacy of liquidity buffers is dependent also on potential strategic arrangements and strong liquidity and capacity to generate more liquidity if needed is generally preferred.
At Group level Sampo plc monitors the ALM-profiles of the companies and may adjust its own risk profiles to mitigate the risks at group level. Because of this the major portion of Sampo’s debt is tied to short term interest rates. Hence, risk profile of Sampo plc is opposite to daughter companies.
Solvency II valuation methods, there are some minor differences compared to IFRS rules. See Appendix 4 for Solvency II Valuation Methods.
Sampo believes that the sustainability issues have an impact on the long term performance, risks and value of all companies. Hence, integration of environmental, social and governance issues (ESG) into the investment process is an important instrument to improve the risk-return profile of investments and it is a critical success factor of investment activities especially in the long run.
• During 2018 Sampo Group will develop reports classifying assets by their ESG scorings (or ratings) to further enhance internal monitoring of ESG issues and make external reporting more transparent from ESG angle.
Sampo’s activity is reflected through our actions. In case Sampo’s view about the company changes, Sampo does not make new investments on the company and investments already in the portfolio may be sold over time.
In addition to direct investments the collective investment assets managed by third parties are used. The external asset managers and collective investment assets managed by them are selected centrally by the same members of Sampo Group’s Investment Unit for both wholly owned subsidiaries. In this selection clearly defined procedures are followed to ensure the integrity of asset managers and to make sure that these investments do not overlap with direct investments. By this way Sampo Group prevents unidentified or unwanted concentrations.
These investments are mainly in other asset classes – real estate, private equity and alternative credit funds - and in different geographical areas than the direct investments that are mainly in Nordic countries. These investments are primarily used as a tool in tactical asset allocation when seeking return and secondarily in order to increase diversification. Sampo Group does not have Asset Backed securities in its portfolios except some CDOs in Topdanmark.
At Group level Sampo is also exposed to translation risk, because base currency of If P&C is Swedish Krona and for Topdanmark base currency is Danish Krona.
In Sampo Group derivatives are used mainly to adjust risks at investment-portfolio level (spread and equity risks) or at balance-sheet level (interest rate, inflation and currency risks). This adjusting can mean mitigating or increasing of risks. From time to time risk profile of single transactions may be adjusted by derivatives as well.
The approved derivatives are listed in the companies’ investment policies. In case there is a need for a new kind of derivative instrument the proposal is made for the Board approval. This proposal includes analysis how the effect of new instrument type is properly taken into account in risk limits and other reporting.
The ICC is responsible for monitoring the implementation of and compliance with the Investment and Asset Coverage
• The persons responsible for managing the subsidiaries’ investments report directly to Sampo Group’s Chief Investment Officer which ensures day-to-day coordination. Topdanmark is taking care of its day-to-day investments independently
• IT systems in investment activities are common throughout the Group, facilitating consistent analysis and reporting of risks both at the company and group level. In regards to Topdanmark their investment assets are taken into account at concentration reporting, but otherwise they have separate reporting processes.
Appendix 4: Profitability, Risks and Capital Sampo Group operates under a holding company structure and the parent company does not have any business activities of its own. Sampo Group’s business activities are conducted in four separately managed independent business areas, with each business area managing their own risks and reserving sufficient capital to cover their risks.
The structure also implies that Sampo plc’s primary focus is on the capitalization at the sub-group level and when the sub-groups are well-capitalized, the Group is by definition well-capitalized. The latter may not be true if the sub-groups are cross-capitalizing each other, or the parent company is financially weak (highly leveraged and has inadequate liquidity buffers) or profits of the sub-groups are strongly and positively correlated. In Sampo Group none of these three claims are true.
Since Solvency II (“SII”) entered into force on 1 January 2016, group solvency calculated by Solvency II rules must be disclosed as well. Differences between these methods will be described later in the chapter Capitalization at Group level. In Solvency II Sampo plc is defined as the ultimate parent of the Solvency II group and thus the operative insurance companies each report separate figures to their local supervisors while If P&C group Solvency II figures are not required to be disclosed separately, but as part of Sampo Group SII figures.
To serve its current clients, If P&C is maintaining a Single-A rating which effectively implies that If P&C’s capital floor – the level to which it compares its actual capital – is higher than the SCR. Mandatum Life and Topdanmark consider the SCR to be an adequate capital floor. Topdanmark’s group solvency is calculated according to Solvency II rules. Topdanmark uses a partial internal model to calculate the non-life insurance risk and the volatility-adjustment when calculating technical provisions, which are both approved by the Danish FSA.
• More ability and capacity to issue SII compliant capital instruments means that a lower buffer is needed.
ii. The business activities can be conducted with all targeted client bases and the company has access to financial and debt issuance markets at terms and conditions implied by the company’s creditworthiness.
On a sub-group and company level, a target can also be set for the capital structure. In general, Sampo Group is in favor of strong capital structures and as a result Sampo Group companies currently have, according to SII rules, room for new hybrid capital and subordinated debt instruments in their balance sheets.
However, at Sampo Group level there are more factors affecting capitalization than at the sub-group level. These factors are illustrated in the figure Sampo Group’s Capitalization Framework.
Sampo Group’s capital requirement and amount of group’s own funds are calculated either by the conglomerate rules or the Solvency II directive as follows: Sampo Group’s capital requirement according to the conglomerate rules, is called the Group’s total minimum requirement for own funds and it is the sum of the separate sub-group’s requirements (sectoral rules) and the parent company’s requirement based on the Capital Requirements Directive/Capital Requirements Regulation (“CRD IV/CRR”). The conglomerate’s capital requirement does not take into account any diversification between the business areas. Hence it is a quite conservative measure of capital requirement and easy to interpret.
Sampo Group’s capital requirement by Solvency II rules is called Group SCR and it is calculated in two phases: i. The capital requirements of other risks than FX-risk and concentration risk are calculated for the consolidated group including respective standard formula SCRs of the parent company Sampo plc, If P&C, Mandatum Life and Topdanmark. The company SCRs may include the simplifications and other options as applied by them. The capital requirement of FX-risk and concentration risks are calculated based on group-wide exposures calculated separately for this purpose. In regards to FX-risk requirement also the translation risk exposures related to SEK denominated equity of If P&C and DKK denominated equity of Topdanmark are taken into account. Diversified capital requirement for the consolidated group SCR is then calculated from these risk specific SCRs.
Group’s own funds and SCR are calculated by combination of consolidation and deduction and aggregation methods.
Under normal circumstances Group’s OF by Solvency II and conglomerate rules are close to each other due to the similar treatment of sectoral items. Minimum Consolidated Group SCR (MCR) is determined by adding up the Solo MCRs of the insurance entities consolidated for the Group SCR calculation.
For comparison purposes the values derived from Sampo’s consolidated IFRS financial statements are mapped in accordance with the Solvency II balance sheet presentation in the below table Solvency II adjustments, 31 December 2017. Only main rows are presented. The currency used is the group’s reporting currency, the euro.
The scope of Sampo Group in the SII framework is the same as the scope used in Sampo Groups's financial statement.
According to the Solvency II balance sheet the excess of assets over liabilities for the Group per 31.12.2017 was EUR 737 million less than the respective IFRS figure. On the asset side the main differences are due to the different treatment of intangible assets and inclusion of future undue premium receivables in technical provisions instead of assets. On the liability side there are material differences related to technical provisions due to different classification of some items and valuation principles. These differences are discussed in the next sections.
While recognition of deferred taxes is consistent with the IFRS accounts, SII adjustments affect the carrying values in the SII balance sheet and thus give rise to additional deferred tax effects. Solvency II valuation decreased deferred tax assets by EUR 18 million and deferred tax liabilities by EUR 147 million. The difference is mainly due to elimination of certain assets (intangible assets, etc) and differences in the calculation of technical provisions.
There are no anticipated effects on the carrying amounts of Sampo’s investment assets except for properties. In solvency II balance sheet properties are valued at fair value according to SII valuation rules. This increases the value of properties by EUR 40 million.
Participations are reported in Sampo’s SII consolidated balance sheet using the adjusted equity method, or where applicable, the IFRS equity method. Participations refers to undertakings in which Sampo Group directly or indirectly has significant influence, which is normally the case when the shareholding amounts to a minimum of 20 per cent of the capital or voting rights for all shares in the company.
Under Solvency II the technical provisions should fully take into account all cash inflows and outflows. Therefore, in regard to the policies in force, the future premiums expected but not yet due are not recognized as receivables. Instead they are included in the premium provision based on a best estimate, which differs from the treatment under the IFRS, where premium receivables are recognized in the balance sheet. Thus receivables of EUR 916 million were reclassified from premium receivables to insurance liabilities. Receivables in Solvency II relate only to the amounts due for payments by policyholders, insurers, and others linked to insurance business.
TTechnical Prechnical Proovisions Avisions Accccorording tding too SolvSolvencency II in Sampo Gry II in Sampo Groupoup
- Second, all of these cash flows are discounted by the risk free interest rate term structure as defined and published by EIOPA.
The best estimate is calculated separately on a gross basis, without deduction of the amounts recoverable from reinsurance contracts, and on a net basis by taking into account the ceded amount representing amounts recoverable from reinsurance contracts.
The above calculations of the best estimate are done separately for each currency the company has insurance liabilities in and the currency specific discount curve as defined by EIOPA is used. This risk free term structure is based on market rates that are adjusted by credit risk adjustment and by volatility adjustment. The use of volatility adjustment is optional. This routine is followed up to the last liquid point of market rates as defined by EIOPA and it is defined separately for different currencies. The last liquid point is for example 20 years for the euro and 10 years for the Swedish krona. From the last liquid point and ahead, being the last point on the curve based on market rates, the risk free term structure is affected by the Ultimate Forward Rate (UFR) as defined by EIOPA.
The future expected cash flows of insurance activities are always estimates and hence their magnitude and timing are uncertain by their nature. For this uncertainty, and to arrive at a market consistent valuation of the liabilities, a company must take into account the capital allocated for the run-off of the liabilities. Risk Margin is the cost of this capital and it is determined as follows.
i. It is assumed that a company is not taking on any excess market risk nor writing any new business. Then all expected future cash flows of insurance activities match exactly with risk free asset cash flows in same currencies as insurance related cash flows.
The main conceptual differences between SII and IFRS Technical Provisions affecting Sampo Group are: 1. In Solvency II a “true best estimate” is defined as the mean of the full range of possible future outcomes of insurance cash flows without any cash flow add-ons based on prudency. The IFRS provisions may include prudential assumptions when the cash flows are estimated.
3. The inclusion of future insurance events into Technical Provisions is fundamentally different in SII and in financial accounting. The following points listed are illustrating these differences, but local financial accounting rules may be different than the ones used as examples here.
◦ Following the financial accounting rules, when an insurance company writes a premium, the full written premium is booked into the reserves at the moment of the writing. This reserve is called the Unearned Premium Reserve (UPR) and its conceptual purpose is to cover future insurance events on the written contracts. After the initial booking, the reserve is released linearly into earnings during the lifetime of the insurance contract – at the end of the contract period there is no UPR left and if the claims and costs related to the contract turned out to be lower than the written premium, a profit has been recognized.
◦ The corresponding component in the SII Technical Provisions is called the Premium Provision (PP). This account estimates all of the future insurance events and the corresponding best estimate cash flows related to contracts in force.
◦ The PP has a lower value than the UPR account if the written contract is estimated to be profitable. The
higher the estimated profitability, the bigger the difference between the accounts.
◦ In non-life business the valuation difference between the UPR and the PP is the most material difference between the financial accounting and SII Technical Provisions.
Sampo Group’s insurance companies present the differences between IFRS and Solvency II Technical provisions in the next sections. Calculation methods, made assumptions and other decisions affecting the cash flows are described in more detail.
• Other revaluation effects amounting to EUR 838 million include cash flow revaluation effects mainly on premium provisions as well as discounting effects. If P&C, under IFRS, only discounts claims provision reserves for annuities and the annuity IBNR provision in Finland. The basic risk free rates used in the Solvency II balance sheet are derived for currencies DKK, EUR, GBP, NOK, SEK and USD, which cover more than 99 per cent of the technical provisions. For other currencies, either EUR or USD rates are used.
• If P&C uses the risk free rates without volatility adjustment.
If P&C does not apply transitional measures on the risk-free interest term structure or to the technical provisions.
To calculate Solvency II technical provision Mandatum Life produces the cash flows of insurance policies by using best estimate parameters and assumptions and stochastic investment market scenarios consistent with Solvency II discount rate. Stochastic market scenarios are particularly needed for the valuation of economic guarantees and policyholder options embedded in insurance contracts. Probability weighted present value of these cash flows is so called best estimate liability. Solvency II technical provision is best estimate liability plus risk margin.
TTechnical prechnical proovisions – lifvisions – lifee ((eexxcluding unit-linkcluding unit-linked)ed) 4,5734,573 4,3274,327 246246
TTechnical Prechnical Proovisions Avisions Accccorording tding too SolvSolvencency II in Ty II in Topdanmarkopdanmark
For life insurance the calculation of best estimate and profit margin are the same for IFRS and Solvency II. In IFRS the profit margin is presented as an insurance provision, while in Solvency II it forms part of the Solvency II own funds deducted for tax liabilities. The calculation of risk margin applies two different principles. For IFRS the principle is a stress on the biometrical risks. The Solvency II calculation is a 6 per cent cost of capital on insurance risk, counterparty default risk and operational risk in accordance with Solvency II.
All the best estimate insurance liabilities are discounted using the volatility adjusted Solvency II interest rate curve for DKK.
Other provisions than technical provisions and contingent liabilities do not give any additional rise to either new liabilities being recognized for solvency purposes or existing liabilities being recognized differently to their financial statement recognition. Provisions and contingent liabilities as well as pension benefits and operating leases are presented in Sampo Annual Report/Financial Statement/Notes to the accounts. There are no major financial leasing arrangements in Sampo Group.
205- Group's notes to the Accounts 205- Summary of Significant Accounting Policies 218- Segment Information 224- Business Acquisitions 226- Material partly-owned subsidiaries 228- Other notes to the Group’s Financial Statements 1–40 323Sampo plc’s Financial Statements 323- Sampo plc’s Income Statement 324- Sampo plc’s Balance Sheet 325- Sampo plc’s Statement of Cash Flows 326- Notes to Sampo plc’s Financial Statements 334Approval of the Financial Statements and the Board of Directors’ Report 335Auditor's Report
Change in liabilities for insurance and investment contracts 4 -603 -448
Share of associates' profit/loss 13 712 837 - Gain from fair valuation of former associated company 706 -
ItItems rems reclaseclassifiable tsifiable to pro profit or losofit or losss 22 23
TTotal itotal items rems reclaseclassifiable tsifiable to pro profit or losofit or loss, net of taxs, net of tax -97-97 115115
EEquity aquity at 1 January 2016t 1 January 2016 9898 44 1,5271,527 9,3259,325 -472-472 929929 11,41111,411 -- 11,41111,411
EEquity aquity at 31 Dect 31 December 2017ember 2017 9898 44 1,5271,527 10,69210,692 -656-656 1,1841,184 12,84812,848 660660 13,50813,508
IAS 19 Pension benefits had a net effect of EURm -15 (-38) on retained earnings.
Group's share holding. The retained earnings thus include EURm -19 (-34) of Nordea's actuarial gains/losses The exchange differences include the share of Nordea's exchange differences EURm -43 (33). Respectively, available-for-sale financial assets include EURm 5 (19) of Nordea's valuation differences.
The amount recognised in equity from available-for-sale financial assets for the period totalled EURm 266 (216). The amount transferred to p/l amounted to EURm -204 (-29). EURm -7 (-11) was transferred to the Segregated Suomi portfolio.
Net cash frNet cash from operom operaating activitiesting activities 1,2671,267 195195
NotNote te to the so the statattement of cash floement of cash floww
The Board of Directors of Sampo plc accepted the financial statements for issue on 7 February 2018.
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-forsale financial assets are included directly in the fair value reserve in equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as if they were assets and liabilities of the foreign entity. Exchange differences resulting from the translation of these items at the exchange rate of the balance sheet date are included in equity and their change in other comprehensive income
P&C insurance contracts are primarily of short duration, so that premiums written are recognised as earned on a pro rata basis, adjusting them by a change in the provision for
According to the Group’s risk management policy, investments are managed at fair value in order to have the most realistic and real-time picture of investments, and they are reported to the Group key management at fair value. Investments comprise debt and equity securities. They are mainly classified as financial assets available-for-sale or at fair value through p/l.
In the Sampo Group, financial assets and liabilities at fair value through profit of loss comprise financial assets held for trading and financial assets designated as at fair value through profit or loss.
The fair value of financial instruments is determined primarily by using quoted prices in active markets. Instruments are measured either at the bid price or at the last trade price, if there is an auction policy in the stock market of the price source. The financial derivatives are also measured at the last trade price. If the financial instrument has a counter-item that will offset its market risk, the same price source is used in assets and liabilities to that extent. If a published price quotation does not exist for a financial instrument in its entirety, but active markets exist for its component parts, the fair value is determined on the basis of the relevant market prices of the component parts.
Non-current assets and the assets and liabilities related to discontinued operations are classified as held for sale, if their carrying amount will be recovered principally through sales transactions rather than from continuing use. For this to be the case, the sale must be highly probable, the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups), the management must be committed to a plan to sell the asset (or disposal group), and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Leases in which assets are leased out and the Group retains substantially all the risks and rewards of ownership are classified as operating leases. They are included in ‘Investment property’ in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment, and the impairment losses are recognised on the same basis as for these items. Rental income on assets held as operating leases is recognised on a straight-line basis over the lease term in profit or loss.
Goodwill is measured at historical cost less accumulated impairment losses. Goodwill is not amortised.
Intangible assets with finite useful lives are measured at historical cost less accumulated amortisation and impairment losses. Intangible assets are amortised on a straight-line basis over the estimated useful life of the asset. The estimated useful lives by asset class are as follows: IT software 3-10 years
without recognition of the impairment loss. Impairment losses recognised for goodwill are not reversed.
The risks involved in insurance and investment contracts are widely elaborated in the Group’s note 39.
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.
In Mandatum, regarding the group pension portfolio transferred from Suomi Mutual (=segregated portfolio), a socalled shadow accounting is applied, as permitted in IFRS 4.30, by adjusting the equity with the amount of unrealised gains and losses of the agreement. The equity is adjusted with an amount that unrealised gains or losses would have affected the Segregated Portfolio in accordance with the profit distribution policy of the Segregated Portfolio, if the gains or losses had been realised at the balance sheet date.
Mandatum aims at giving a total return before charges and taxes on the original insurance portfolio’s policyholders’ savings in contracts with DPF that is at least the yield of those long term bonds, which are considered to have lowest risk.
The Group has also certain voluntary defined benefit plans. These are intra-Group and have no material significance.
The schemes have been measured at fair value at the grant date and at every reporting date thereafter.
The fair value of the 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 incentive units to be paid as a reward. 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 incentive units 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 incentive units at every interim or annual balance sheet date.
balance sheet and its tax base. Deferred tax is not recognised on non-deductible goodwill impairment, and nor is it recognised on the undistributed profits of subsidiaries to the extent that it is probable that the temporary difference will not reverse in the foreseeable future.
Preparation of the accounts in accordance with the IFRS requires management estimates and assumptions that affect the revenue, expenses, assets, liabilities and contingent liabilities presented in the financial statements. Judgement is needed also in the application of accounting policies. The estimates made are based on the best information available at the balance sheet date. The estimation is based on historical experiences and most probable assumptions concerning the future at the balance sheet date. The actual outcome may deviate from results based on estimates and assumptions. Any changes in the estimates will be recognised in the financial year during which the estimate is reviewed and in all subsequent periods.
Fair values of investment property have been determined internally during the financial year on the basis of
IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on 1 Jan 2018 or after). The new standard will supersede IAS 18 and IAS 11 and related interpretations. The central criterion for revenue recognition is the passing of control. The adoption of the new standard will not have a material impact on the Group’s financial statements reporting.
IFRS 16 Leases (effective for annual periods beginning on 1 Jan 2019 or after). The standard will supersede IAS 17 according to which leases were recognised either in the balance sheet as finance leases, or as other leases in which case the related liability was disclosed in the notes. The new standard requires all the leases, apart from low-value and short-term leases, to be recognised in the balance sheet. The adoption will have an effect on the Group’s balance sheet, when all current leases are recognised there, and on the income statement in the form of recognised interest expenses and amortisations. However, the number of the current leases is not very significant in the Group.
The Group has analyzed the preconditions for applying the temporary exemption, and stated that they are met. Therefore, the Group is going to apply the exemption and apply IFRS 9 at the same time with the upcoming IFRS 17. The Group has started analyzing the effects of applications in other areas as well, as the new standards will have a significant impact on the Group’s financial statements.
The segment information for the comparison year has been restated. Topdanmark's share of associates' profit has been removed from the P&C insurance segment and included in Topdanmark's segment. The associate shares have also been removed from the P&C insurance segment and transferred to Holding's subsidiary shares.
Consolidated income statement by business segment for year ended 31 December 2017
PrProfit befofit beforore taxe taxeses 818818 848848 236236 576576 44 2,4822,482
TTotal itotal items not rems not reclaseclassifiable tsifiable to pro profit or losofit or loss,s, net of taxnet of tax 44 -- -- -- -- 44
PrProfit fofit for the yor the yearear 646646 5959 168168 777777 00 1,6501,650
Liabilities related to assets held for sale - - 3,202 - - 3,202
At the acquisition date, the total number of shares was 95,000,000 of which Sampo held 41,977,070 shares. Taking into consideration the treasury shares held by Topdanmark, Sampo's share of voting rights was 49.1%. The 50.9% non-controlling interest included in the balance sheet of Topdanmark has been determined as a proportionate share of the net assets.
TThe fhe fair vair values of calues of consolidaonsolidatted ased assets and liabilities as of 30 Septsets and liabilities as of 30 September 2017 arember 2017 are disclosed beloe disclosed beloww..
ANNUAL REPORT 2017 Other notes to the Group’s Financial Statements 1–40
GrGroup insuroup insurancance pre premiums writtemiums written ten total, netotal, net
The change in unearned premiums is presented in note 4, The change in insurance and investment liabilities.
Included in gains/losses from financial assets available-for-sale is a net gain of EURm -90 (12) transferred from the fair value reserve.
Included in gains/losses from financial assets available for-sale is a net gain of EURm -7 (27) transferred from the fair value reserve.
Change in claims prChange in claims proovision, grvision, grososss 7676 164164
Change in claims prChange in claims proovision, netvision, net 6565 162162
GrGroup claims incurroup claims incurred, ted, totalotal -4,023-4,023 -3,627-3,627 4 Change in liabilities for insurance and investment contracts
TTotal change in liabilities, grotal change in liabilities, grososss -587-587 -446-446
Profit or loss attributable to the equity holders of the parent company 2,216 1,650
Earnings per share (EUR per share) 3.96 2.95 9 Financial assets and liabilities
Financial assets and liabilities have been categorised in accordance with IAS 39.9. In the table are also included interest income and expenses, realised and unrealised gains and losses recognised in P/L, impairment losses and dividend income arising from those assets and liabilities. The financial assets in the table include balance sheet items Financial assets, Cash and cash equivalents and Assets held for sale.
Financial assets designated as at fair value through p/l 0 0 0 - 0
Net carrying amount aNet carrying amount at 31 Dect 31 Decemberember 653653 211211
Non-cancNon-cancellable minimum rellable minimum rentalental - not later than one year 33 10 - later than one year and not later than five years 45 14 - later than five years 24 3
FFair vair value of inalue of invvesestment prtment property aoperty at 31 Dect 31 Decemberember 688688 243243
Net carrying amount aNet carrying amount at 1 Januaryt 1 January 679679 -- 2222 700700
Forecasts for If, approved by the management, cover years 2018 – 2020. The cash flows beyond that have been extrapolated using a 2% growth rate. A 2% growth rate for years beyond 2027 has been used for the for Mandatum Life as well, as it is believed to be close to the anticipated inflation in both cases.
IAS 36 permits determing the recoverable amount by using the fair value less costs to sell. For Topdanmark, the valuation of goodwill has been tested on the balance sheet date by using that method. Topdanmark's share price at the acquisition date 30 September 2017 was 247.70 Danish crowns and 268.10 Danish crowns on 31 December 2017. The fair value of Topdanmark on the balance sheet date exceeds its carrying amount in the Group.
Associates that have been accounted for by the equity method at 31 Dec. 2017
Changes in the equity of associates -33 - -33 27 -86 -59
Nordea is an universal bank with positions within corporate merchant banking as well as retail banking and private banking. With approximately 700 branches, call centers in all Nordic countries and an e-bank, Nordea also has a large distribution network for customers in the Nordic and Baltic sea region.
Currency options, bought and sold 188 2 1 92 0 0
Equity and equity index options 0 0 0 9 3 3
TTotal equity derivotal equity derivaativtiveses 4444 00 00 99 33 33
TTotal financial asotal financial assets designasets designatted as aed as at ft fair vair valuealue thrthrough p/lough p/l 5,4225,422 2424
EURmEURm FFair vair valuealue CarryingCarrying ammountammount FFair vair valuealue CarryingCarrying amountamount
In the table above are presented fair values and carrying amounts of financial assets and liabilities. Assets held for sale are included in the figures. The detailed measurement bases of financial assets and liabilities are disclosed in Group Accounting policies.
TTotal financial asotal financial assessests measurts measured aed at ft fair vair valuealue 24,77924,779 7,0967,096 1,2311,231 33,10633,106
FINANCIAL LIABILITIES AFINANCIAL LIABILITIES AT 31 DECEMBER 2017T 31 DECEMBER 2017
FINANCIAL AFINANCIAL ASSSETSETS AS AT 31 DECEMBER 2016T 31 DECEMBER 2016
GGains/ains/ loslossesses includedincluded in p/l fin p/l foror financialfinancial asassets asets att 31.12.201731.12.2017
InInvvesestments rtments relaelatted ted to unit-linko unit-linked insured insurancance ce controntracts, tacts, totalotal 10,50910,509 6,4196,419
DefDeferrerred tax ased tax assets in the balancsets in the balance sheete sheet 1818
TTotal defotal deferrerred tax liabilities in the balanced tax liabilities in the balancee sheetsheet 638638
Tax losses for which no deferred tax asset has been recognised -2 2
EURmEURm BefBeforore-taxe-tax amountamount TTaxax Net-of-taxNet-of-tax amountamount BefBeforore-taxe-tax amountamount TTaxax Net-of-taxNet-of-tax amountamount
Share of associate's other comprehensive income -57 - -57 19 - 19
Incurred but not reported losses (IBNR) 3,093 70 3,023 3,327 78 3,249
TTotal protal proovision rvision reporteporteded in the BS of Tin the BS of Topdanmarkopdanmark 1,7481,748
TTotal protal proovision rvision reporteporteded in the BS of Tin the BS of Topdanmarkopdanmark 1,6851,685
LifLife insure insurancance liabilities fre liabilities fromom insurinsurancance ce controntracts, tacts, totalotal 4,5814,581
LifLife insure insurancance liabilities fre liabilities fromom ininvvesestment ctment controntracts aacts at 31 Dect 31 Decemberember 2017, t2017, totalotal
LifLife insure insurancance liabilities fre liabilities fromom ininvvesestment ctment controntracts aacts at 31 Dect 31 Decemberember 2016, t2016, totalotal
The liabilities at 1 January and at 31 December include the future bonus reserves and the effect of the reserve for the decreased discount rate. The calculation is based on items before reinsurers' share. More details on the insurance liabilities are presented in the risk management note 39.
GrGroup liabilities froup liabilities from unit-linkom unit-linked insured insurancance and ine and invvesestment ctment controntracts,acts,
Preferred capital note, 2011 (nominal value EURm 110) 30 years 6.00% 110 109
Preferred capital note, 2016 (nominal value 500 MSEK) 30 years 2.42% 51 52
The loan 2011 was issued with fixed interest rates for the first ten years, after which it becomes subject to variable interest rates. The subordinated loan issued in 2013 has a fixed interest rate for the first 5.5 years afther which it becomes subject to variable interest rates. At the point of change, there is the possibility of redemption for all the loans.
Preferred capital note, 2015 (nominal value 850 MDKK) 06/2026 3 month
DerivDerivaativtive financial inse financial instruments (nottruments (note 14)e 14) 10 3
TTotal in incotal in income some statattementement 66 33 99 77 -2-2 55
DisDistribution btribution by asy asset classet classs SSwwedeneden NorwNorwaayy SSwwedeneden NorwNorwaayy
Average duration of pension liabilities 21 years 21 years 13 years 13 years
EURmEURm FundedFunded plansplans UnfundedUnfunded plansplans TTotalotal FundedFunded plansplans UnfundedUnfunded plansplans TTotalotal
PPension liabilities:ension liabilities: At the beginning of the year 294 303
RRececonciliaonciliation of plan astion of plan assets:sets: At the beginning of the year 214 213
Plan asPlan assets asets at 31 Dec.t 31 Dec. 211211 214214
The pledged assets are included in the balance sheet item Other assets or Cash and cash equivalents.
Minimum lease paMinimum lease paymentsyments not later than one year 32 34 later than one year and not later than five years 105 114 later than five years 54 52
The contracts have been made mainly for 3 to 10 years.
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, and the entities over which the members of the key management personnel have a control.
Other long-term benefits consist of the benefits under long-term incentive schemes accounted for for the year (see Note 34).
Each plan has three performance periods and incentive rewards are settled in cash in three installments. The employee shall authorise Sampo plc to buy Sampo's A-shares with 50 per cent (scheme 2017 I) or 60 percent (schemes 2014 and 2011 I) of the amount of the reward after taxes and other comparable charges. The shares are subject to transfer restrictions for three years from the day of payout. A premature payment of the reward may occur in the event of changes in the group structure or in the case of employment termination on specifically determined bases. The fair value of the incentive schemes is estimated by using the Black-Scholes pricing model.
Total cost for the financial period, EURm (incl. social costs) 28 *) Grant dates vary **) Trade-weighted average for ten trading days from the approval of terms
Topdanmark's share option scheme is for its Executive Board and senior executives. The strike price has been fixed at 110% of the market price on the last trading date in the prior financial year (average of all trades). The options may be exercised 3-5 years subsequent to the granting. The scheme is settled by shares.
Average strike price at 31 December 2017 26 27 26 27
The fair value of the granting for the year has been calculated using the Black and Scholes model assuming a share price of EUR 24. The interest rate corresponds to the zero coupon rate based on the swap curve on 31 December of the previous year. Future volatility is assumed to be 22% and the average life of the options approximately 4 years.
At 31 December 2017, there were 225,000 options which could be exercised.
The insurance porfolio targeted in the agreement is mainly included in the "Unit-linked contracts" segment. Assets and liabilities are valued at book value. The effect of the with profit insurance portfolio on the investment result in the "Other contracts" segment is deemed insignificant. The insurance risk result in the "Other contrats" segment also consists mainly of other insurance portfolio than that targeted in the agreement. The effect of the transfer of the insurance portflio is expected to weaken the result significantly and this will mainly show in the "Unit-linked contract" segment. The premium income of the insurance porflio in 2017 was EUR 204 and claims cost EUR 252.
External drivers behind such changes are varied, and include for instance general economic development, changes in values, development of the institutional and physical environment and technological innovations. External drivers are often connected to each other in many ways and because of them customer demand and behaviour can change, new competitors may appear and as a result business models of the industry can change. Currently the themes of sustainable business practices in general and especially the issues related to environment, society and governance are changing the preferences and values of different stakeholders and hence as a result business environment is also changing in many different ways.
Reputational risk refers to the risk that adverse publicity regarding the company’s business practices or associations, whether accurate or not, causes a loss of confidence in the integrity of the institution. Reputational risk is often a consequence of a materialized operational or compliance risk and often manifests as a deterioration of reputation amongst customers and other stakeholders. Reputational risk is related to all activities shown in the figure Classification of Risks in Sampo Group. As the roots of reputational risk are varied, the tools to prevent it must be diverse and embedded within the corporate culture. The corporate culture, which is based on the core values of ethicality, loyalty, openness and entrepreneurship, is thus seen as an essential tool in preventing reputational risk in Sampo Group. These core values are reflected in how Sampo deals with environmental issues and its core stakeholders (i.e. customers, personnel, investors, other co-operation partners, tax authorities and supervisory authorities) and how Sampo Group has organized its Corporate Governance system.
Some risks such as interest rate, currency and liquidity risks are by their nature simultaneously linked to various activities. In order to manage these risks efficiently, Sampo Group companies have to have a detailed understanding of expected cash flows and their variance within each of the company’s activities. In addition, a thorough understanding is needed of how the market values of assets and liabilities may fluctuate at the total balance sheet level under different scenarios. These balance sheet level risks are commonly defined as Asset and Liability Management (“ALM”) risks. In addition to interest rate, currency and liquidity risk, inflation risk and risks relating to GDP growth rates are central ALM risks in Sampo Group. The ALM risks are one of the focus areas of senior management because of their relevance to risks and earnings in the long run.
Further information on Sampo Group’s steering framework and risk management process can be found in Sampo Group’s Annual Report in Sampo Group’s Risk Management Disclosure, in Appendix 1 (Sampo Group Steering Framework and Risk Management Process) and Appendix 3 (Selected Management Principles).
BrBreakeakdodown of Grwn of Grososs Ws Writtritten Pren Premiums bemiums by Line of Businesy Line of Businesss If P&C, 2017, total EUR 4,526 million
Sensitivity TSensitivity Tesest of Underwriting Rt of Underwriting Resultesult If P&C, 31 December 2017 and 31 December 2016 (unaudited)
The Business Areas manage the underwriting risk on a dayto -day basis. A crucial factor affecting the profitability and risk of non-life insurance operations is the ability to accurately estimate future claims and expenses and thereby correctly price insurance contracts. The premiums within the Private Business Area and the premiums for smaller risks within the Commercial Business Area are set through tariffs. The underwriting of risks in the Industrial Business Area and of more complex risks within the Commercial Business Area is based to a greater extent on principles and individual underwriting than on strict tariffs. In general, pricing is based on statistical analyses of historical claims data and assessments of the future development of claims frequency and claims inflation.
As on Sampo’s annual report 2017 figures are excluding Baltic, total EUR 140 million.
TTechnical Prechnical Proovisions bvisions by Line of Businesy Line of Business and Major Geogrs and Major Geographical Araphical Areaea If P&C, 31 December 2017
TTechnical prechnical proovision itvision itemem Risk fRisk factactoror Change in risk parChange in risk parametameterer CCountryountry EffEffectect
Fixed income investments and listed equity instruments form a major part of investment portfolio of EUR 11,685 million (EUR 12,192 million in 2016). A large part of the fixed income investments was at 31 December 2017 concentrated to financial institutions. The role of real estate, private equity, biometric and other alternative investments is immaterial.
The composition of the investment portfolios by asset classes in If P&C at year end 2017 and at year end 2016 and average maturities of fixed income investments are shown in the table Investment Allocation, If P&C, 31 December 2017.
Money market securities and cash 575 5% 0.1 992 8% 0.3
Investment grade bonds and loans 3,490 30% 2.9 3,404 28% 2.9
LisListted equity ted equity totalotal 1,4481,448 12%12% -- 1,5271,527 13%13% --
AsAsset classet classes tses totalotal 11,68511,685 100%100% -- 12,19212,192 100%100% --
InInvvesestment Allocatment Allocationtion If P&C, 31 December 2017 and 31 December 2016
In regards to equities most of the equity investments are in Scandinavian markets that are selectively picked direct investments. When investing in non-Nordic equities, funds or other assets, third party managed investments are mainly used. The changes of Equity positions during the year can be seen from the table Breakdown of Listed Equity Investments by Geographical Regions, If P&C, 31 December 2017 and 31 December 2016.
The ALM risk is taken into account through the risk appetite framework and its management and governance are based on If P&C’s Investment Policies.
In general If P&C Group is negatively affected when interest rates are decreasing or staying at low levels, because the longer duration of liabilities in If P&C Group than the duration of assets. If P&C has over the years decreased its combined ratio to counteract falling interest rates. Interest rate sensitivity in terms of the average duration of fixed income investments in If P&C was 1.4. The respective duration of insurance liabilities in If P&C was 6.5. Interest rate risk is managed by changing the duration of assets and interest rate derivatives based on the market view and risk appetite.
If P&C’s transaction risk position in SEK represents exposure in foreign subsidiaries/branches within If P&C with base currency other than SEK
In addition to transaction risk, If P&C is also exposed to translation risk which at group level stems from foreign operations with other base currencies than SEK.
The maturities of technical provisions and financial assets and liabilities are presented in the table Cash Flows According to Contractual Maturity, If P&C, 31 December 2017. The average maturity of fixed income investments was 2.7 years in If P&C. The table shows the financing requirements resulting from expected cash inflows and outflows arising from financial assets and liabilities as well as technical provisions.
RaRatingting TTotal EURmotal EURm % of t% of totalotal TTotal EURmotal EURm % of t% of totalotal
As seen from above table most of the reinsurers are having either AA- or A- rating. The ten largest individual reinsurance recoverables amounted to EUR 165 million, representing 72 per cent of the total reinsurance recoverables. If P&C’s largest non-captive individual reinsurer is Munich Re (AA-)
BrBreakeakdodown of Grwn of Grososs Ws Writtritten Pren Premiums bemiums by Businesy Business Ars Areaea Topdanmark, 2017, total EUR 1,216 million
Premium risk reduction measures taken at different levels of operations are as follows: • Collection of data on risk and historical damage • Use of collected and processed data in profitability reporting, risk analyzes and in the internal model • Ongoing follow-up on risk developments as well as quarterly forecasts for future risk development • Correct pricing using statistical model tool including customer scoring tools
The non-life risk scenarios can be found in the next table.
EURm aftEURm after taxer taxaation and pension rtion and pension return taxeturn tax 20172017 20162016
PrProovisions fvisions for outsor outstanding claims, %tanding claims, % 20172017 20162016
Due to the longer period of claims settlement the long-tail lines of business are generally riskier than the short-tail lines. It is not unusual that claims in long-tail lines are settled three to five years after notification and in rare cases up to ten to fifteen years.
Workers’ compensation claims provision has by far the biggest risk, followed by the other long-tail claims provisions which mainly consist of personal injury claims.
The provisioning risk represents mostly the ordinary uncertainty of calculation and claims inflation, i.e. an increase in the level of compensation due to the annual increase in compensation per policy being higher than the level of general indexation or due to a change in judicial practice/legislation. The sufficiency of the provisions is tested in key lines by calculating the provisions using alternative models as well, and then comparing the compensation with information from external sources.
During the latest two years, premiums were split between products as follows.
Non-LifNon-Life Insure Insurancance Risk Sce Risk Scenariosenarios Topdanmark Forsikring, 31 December 2017 and 31 December 2016
RResult of Lifesult of Life Insure Insurancancee Topdanmark, 2017 and 2016
Customers’ individual and collective bonus potential together creates the loss absorbing buffers in life insurance against any losses incurred by customers on investment activities.
• The individual bonus potentials in the average return environment are protected by cross-border protection
The life risk scenarios can be found in the next table.
To monitor effectivity of the above risk reduction methods over time Topdanmark Risk Committee continuously monitors the company’s risk profile and reinsurance cover. Also forecasts are followed up.
In general, the long term value creation shall be based mainly on the acceptance of insurance risks. However, to supplement the group’s profit from its insurance activities, Topdanmark accepts a certain level of financial market risks as well, given its strong liquidity position and stable, high earnings from insurance operations. Hence, in addition to fixed income instruments Topdanmark has invested, among other things, in equities, properties and CDOs in order to improve the average investment return.
When selecting the investment assets, a portfolio composition that matches the risk features of the corresponding liabilities is sought. The purpose of the policy is also to ensure that the company has implemented effectively the organization, systems and processes necessary to identify, measure, monitor, manage and report on investment risks to which it is exposed.
When market risks are measured and managed, all exposures are included, regardless of whether they arise from active portfolio management on the investment side or from annuities which are considered as market risk.
The company has no significant concentrations on the investment side, except for the category "Treasury and mortgage bonds" that consists primarily of Danish government and AAA-rated Danish mortgage bonds.
An expected higher future inflation rate would generally be included in the provisions with a certain time delay, while at the same time the result would be impacted by higher future indexation of premiums. In order to reduce the risk of inflation within workers' compensation and illness/accident insurance, Topdanmark uses index-linked bonds and derivatives to hedge a significant proportion of the expected cash flows sensitive to future inflation.
IntIntereresest-bearing Ast-bearing Assets bsets by Ray Ratingting Topdanmark, 31 December 2017 and 31 December 2016
In the below table is a summary of selected market risks sensitivities. It can be seen from the table that the net effect of 1 percentage point parallel change in interest rates would be less than 10 per cent drop in equity or property prices.
The maturity structure of technical provisions is presented in the next table.
The main sources of counterparty risk are deposits made to individual banks, derivative contracts with banks and current receivables from reinsurance companies with the addition of potential receivables that will arise in case of a 200-year event of disaster.
Individual pension insurIndividual pension insurancancee 899899 1010 -139-139 -5-5 3333 00 2626 825825 7%7%
Capital rCapital redemption operedemption operaationstions 2828 00 -2-2 00 00 00 00 2626 0%0%
FuturFuture bonus re bonus reserveserveses 00 00 00 00 00 00 00 00 0%0%
EURmEURm RiskRisk incincomeome Claim eClaim expensexpense Claim rClaim raatiotio RiskRisk incincomeome Claim eClaim expensexpense Claim rClaim raatiotio
The underwriting portfolio of Mandatum Life is relatively well diversified and does not include any major concentration of biometric risks. To further mitigate the effects of possible risk concentrations, Mandatum Life has catastrophe reinsurance in place.
In general biometric risks are managed by careful risk selection, by setting prices to reflect the risks and costs, by setting upper limits for the protection granted and by use of reinsurance. Mandatum Life’s Underwriting Policy sets principles for risk selection and limits for sums insured. The Reinsurance Policy governs the use of Reinsurance. The Board approves the Underwriting policy, Reinsurance Policy, pricing guidelines and the central principles for the calculation of technical provisions.
Policy terms and tariffs cannot usually be changed materially during the lifetime of the insurance, which increases the expense risk. The main challenge is to keep the expenses related to insurance administrative processes and complex IT infrastructure at an effective and competitive level. In year 2017, the expense result of Mandatum Life Group was EUR 33 million (26). Mandatum Life does not defer insurance
In Mandatum Life, the approach to market risk management is based on an analysis of technical provisions’ expected cash flows, interest level and current solvency position. A common feature for all with profit technical provisions is the guaranteed rate and bonuses. The cash flows of Mandatum Life's technical provisions are relatively well predictable because in most of the company’s with profit policies, surrenders and extra investments are not possible.
Credit bonds, funds and loans 2,994 48% 3.2 3,009 46% 3.3
LisListted equity ted equity totalotal 1,5781,578 25%25% -- 1,7371,737 26%26% --
Fixed income and equity exposures are presented by Sector, Asset Class and Rating together with counterparty risk exposures relating to reinsurance and derivative transactions. Due to differences in the reporting treatment of derivatives, the figures in the table may not be fully comparable with other tables in this annual report.
InInvvesestment Allocatment Allocationtion Mandatum Life, 31 December 2017 and 31 December 2016
The role of non-investment grade bonds is material in Mandatum Life’s portfolio although it has decreased from its highs. Within fixed income investments part of the money market securities issued by Nordic banks and cash in Nordic banks form a liquidity buffer within fixed income investments. At the moment the total amount of these investments is higher than what is needed for liquidity purposes.
BrBreakeakdodown of Liswn of Listted Eed Equity Inquity Invvesestments btments by Geogry Geographical Raphical Regionsegions Mandatum Life, 31 December 2017 and 31 December 2016
The cash flows of Mandatum Life’s with profit technical provisions are relatively predictable, because in most of the company’s with profit products, surrenders and premiums are restricted. In addition the company’s claims costs do not contain a significant inflation risk element.
Base currBase currencencyy EUREUR USDUSD JPJPYY GBPGBP SEKSEK NOKNOK CHFCHF DKKDKK OtherOther TTotal,otal, netnet
The maturities of technical provisions and financial assets and liabilities are presented in the table Cash Flows According to Contractual Maturity, Mandatum Life, 31 December 2017. The average maturity of fixed income investments was 2.5 years in Mandatum Life. The table shows the financing requirements resulting from expected cash inflows and outflows arising from financial assets and liabilities as well as technical provisions.
The counterparty risk of bilaterally settled derivatives is mitigated by careful selection of counterparties; by diversification of counterparties to prevent risk concentrations and by using collateral techniques, e.g. ISDA Master Agreements backed by Credit Support Annexes. During 2016 Sampo Group companies started to settle interest rate swaps in central clearing houses, which while further mitigating bilateral counterparty risk also exposes Sampo Group companies to the systemic risk related to centralised clearing parties.
Sampo Group is first and foremost exposed to general performance of Nordic economies. However, Nordic economies typically are at any given time in different stages of their economic cycles, because of reasons like different economic structures and separate currencies. Also geographically Nordics as a large area is more a source of underwriting diversification than a concentration. Hence, inherently Nordic area is a good basis for diversified business.
For all subsidiaries, their insurance liabilities and the company specific risk appetite are the starting points for their investment activities. The insurance liabilities including loss absorbing buffers as well as the risk appetite of Mandatum Life, If P&C and Topdanmark differ, and as a result the structures and risks of the investment portfolios and balance sheet of the three companies differ respectively.
The total amount of Sampo Group’s investment assets as at 31 December 2017 was EUR 25,512 million (EUR 26,524 million) as presented in the below figure. Mandatum Life’s and Topdanmark’s investment assets presented here do not include assets which cover unit-linked contracts.
DeDevvelopment of Inelopment of Invvesestment Ptment Portfortfoliosolios If P&C, Mandatum Life, Sampo plc and Topdanmark, 31 December 2017 and 31 December 2016
Investments in Financial Sector, Sampo Group excluding Topdanmark, 31 December 2017.
Cash and moneCash and moneyy markmarketet securitiessecurities LLong-tong-termerm senior debtsenior debt
The public sector exposure includes government bonds, government guaranteed bonds and other public sector investments as shown in the table Fixed Income Investments in Public Sector, Sampo Group excluding Topdanmark, 31 December 2017. The public sector has had a relatively minor role in Sampo Group’s portfolios and these exposures have been mainly in the Nordic countries. In Topdanmark’s portfolios AAA-rated government bonds and covered bonds have a material role.
The listed equity investments of Sampo Group totaled EUR 3,934 million at the end of year 2017 (EUR 4,113 million). At the end of year 2017, the listed equity exposure of If P&C was EUR 1,448 million (EUR 1,527 million). The proportion of listed equities in If P&C’s investment portfolio was 12.4 per
The geographical core of Sampo Group’s equity investments is in the Nordic companies. The proportion of Nordic companies’ equities corresponds to 46 per cent of the total equity portfolio. This is in line with Sampo Group’s investment strategy of focusing on Nordic companies.
However, these Nordic companies are mainly competing in global markets: only a few are purely domestic companies. Hence, the ultimate risk is not highly dependent on the Nordic economies. In the long run the proportion of investments outside of the Nordic countries has gradually increased, because the amount of companies issuing securities in the Nordic countries is limited and from a strategic point of view other geographical areas have recently provided interesting investment opportunities. A breakdown of the listed equity exposures of Sampo Group is shown in the figure Breakdown of Listed Equity Investments by Geographical Regions, Sampo Group 31.12.2017.
The largest exposures by individual issuers and counterparties are presented in the table Largest Individual Exposures by Issuer and by Asset Class, Sampo Group exluding Topdanmark, 31 December 2017. The largest single name investments in Topdanmark’s portfolios are in AAArated Danish covered bonds.
BrBreakeakdodown of Liswn of Listted Eed Equity Inquity Invvesestments btments by Geogry Geographical Raphical Regionsegions Sampo Group, 31 December 2017 and 31 December 2016
LarLargesgest Individual Exposurt Individual Exposures bes by Isy Issuer and bsuer and by Asy Asset Classet Classs Sampo Group excluding Topdanmark, 31 December 2017
TTen Laren Largesgest Dirt Direct High Yect High Yield and Non-rield and Non-raatted Fixed Fixed Inced Income Inome Invvesestments and Dirtments and Direct Lisect Listteded EEquity Inquity Invvesestmentstments
Sampo plc is the long-term investor in Nordic financials and source of liquidity within the group. Hence, the healthy funding structure and the capacity to generate funds if needed are on continuous focus.
Leverage of Sampo plc was modest at year end by several measures.
• The gross debt divided by estimated market value of equity holdings, the ratio would be around 15 per cent.
All in all, Sampo plc is in a good position to refinance its current debt and even issue more debt. This capacity together with the tradable financial assets, means that Sampo plc is able to generate liquid funds.
When Sampo plc is managing its funding and capital structure and liquidity it takes into account that some of its operative companies have other base currencies (SEK, DKK) than EUR and all its operative business areas are exposed to low interest rates. These risks may affect Sampo's decisions on issuance of debt instruments and composition of liquidity portfolio.
Group level buffer is the difference between the amount of Group’s own funds and the Group capital requirement. In addition to the sub-group level factors – expected profits and their volatility, business growth prospects and ability to issue Solvency II compliant capital instruments – there are Group level factors that are also relevant when considering the size of the Group level buffer. The most material Group level factors affecting the size of buffer are (i) correlation of subgroups ’ reported profits; (ii) parent company’s capacity to generate liquidity; (iii) probability of strategic risks and arrangements within industry; and (iv) shareholders dividend expectations.
The Group level capital requirement is sum of the parts presented in the above figure and no diversification benefit between business areas is taken into account. As of 31.12.2017 the total minimum requirements for own funds were EUR 7,163 million (EUR 7,088 million). Group solvency (Group’s own funds – minimum requirements for own funds) was EUR 3,858 million (EUR 3,849 million).
PrProfit fofit for the financial yor the financial yearear 1,3961,396 1,5651,565
Net cash frNet cash from operom operaating activitiesting activities 898898 1,0441,044
Net change in cash and cash equivNet change in cash and cash equivalentsalents -239-239 699699 *) Investments include both investment property and financial assets.
Additional information to the statement of cash flows: Interest income received 40 84
AAuthorised Public Authorised Public Accccountants Ernsountants Ernst & Yt & Young Oyoung Oy
Carrying amount aCarrying amount at end of yt end of yearear 266266 298298
Carrying amount aCarrying amount at 31 Dect 31 December 2016ember 2016 9898 2828 1,5271,527 273273 5,6245,624 7,5497,549
Carrying amount aCarrying amount at 1 January 2017t 1 January 2017 9898 2828 1,5271,527 273273 5,6245,624 7,5497,549
Carrying amount aCarrying amount at 31 Dect 31 December 2017ember 2017 9898 4545 1,5271,527 273273 5,7725,772 7,7147,714
Over one year but not more than five years 4 4
19 Pension contributions to the ceo, deputy ceo and the members of the board
The Group CEO is entitled to a defined contribution pension in accordance with the pension contract in force. The annual pension premium is fixed at EUR 400,000. The supplementary pension premiums for 2016 included payments to a supplementary TEL-L group pension plan, which based on changes in legislation was removed as of 31 December 2016 and forms a paid-up policy.
PPererccentage ofentage of sharshare capitale capital heldheld CarryingCarrying amount EURmamount EURm
We have audited the financial statements of Sampo plc (business identity code 0142213-3) for the year ended 31 December, 2017. The financial statements comprise the consolidated balance sheet, income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary of significant accounting policies, as well as the parent company’s balance sheet, income statement, statement of cash flows and notes
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.
Valuation of insurance contract liabilities We refer to the Summary of significant accounting policies, Accounting policies regarding management judgment and key sources of estimation uncertainties and Notes 25, 26 and 35.
We evaluated the appropriateness of methodologies and assumptions used, and independently re-projected the reserve balances for certain classes of business.
The Group’s investment portfolio excluding investments in associates represents amounts to mEUR 33,615 (2016: mEUR 24,386 which represents 68 % of the Group’s total assets. Fair value measurement can be subjective, specifically in areas where fair value is based on a model based valuation. Valuation techniques for private equity funds, non-listed bonds and non-listed equities involve setting various assumptions regarding pricing factors. The use of different valuation techniques and assumptions could lead to different estimates of fair value. Specific areas of audit focus include the valuation of level 2 and 3 assets according to IFRS where valuation techniques use unobservable inputs. Of financial assets level 2 assets amount to mEUR 7,096 and level 3 assets to mEUR 1,231 (refer to note 16).
Our audit procedures included testing the effectiveness of controls in place over recording fair values of assets using unobservable input.
Associated company Nordea We refer to the Summary of significant accounting policies and note 13
Topdanmark A/S has been consolidated as a subsidiary as of 30.9.2017, which is determined to be the acquisition date. The company was previously accounted for as an associated entity. The acquisition is a business combination achieved in stages where the previously held equity interest in Topdanmark A/S is remeasured at fair value, and the gain is recognized in profit.
The business combination is a key audit matter due to the valuation processes and –methods related to the acquisition and as it involves estimates by management. Management’s judgement and estimates are specifically connected to determination of the acquisition date and determination of the fair values of acquired assets and liabilities, relating to e.g. allocation of the purchase consideration to identified intangible assets as customer relationships and trademark.
• Our audit procedures included assessing the determination of the acquisition date.
In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
• www.sampo.com/agm • By telephone to +358 10 516 0028 from Monday to Friday, 8 am–4 pm (CET+1)
• By fax to +358 10 516 0623 or • By mail to the address Sampo plc,
Sampo will publish two Interim Statements and a Half-year Financial Report in 2018. These quarterly reports and related supplementary materials will be available at www.sampo.com/result. The website also includes releases published by Sampo, monthly updated shareholder data and other investor information.
IntInterim Serim Statattement fement foror the Pthe Period of Januaryeriod of January - Mar- March 2018ch 2018
IntInterim Serim Statattement fement foror the Pthe Period of Januaryeriod of January - Sept- September 2018ember 2018