The contact information can also be found on the first pages of the Annual Report sections for If P&C Insurance, Sampo Life and Sampo Bank.
Jarmo Salonen, Head of Investor Relations and Group Communications Telephone +358 (0)10 516 0030 Fax +358 (0)10 516 0016 E-mail jarmo.o.salonen@sampo.fi
Until January 2007, the Sampo Group also included Sampo Bank plc, fully owned by Sampo plc, and Sampo Bank’s subsidiaries. Late in 2006, Sampo announced the divestment of Sampo Bank to Danske Bank of Denmark. The transaction was completed upon the receipt of all the necessary official approvals in February 2007, at which time all companies in the Sampo Bank Group were transferred to the ownership of Danske Bank.
In this 2006 Annual Report, Sampo Bank is still presented as part of the Sampo Group.
Earnings per share, EUR 1.73 1.68 +3 Dividend per share, EUR * 1.20 0.60 +100 EPS (incl. change in FVR), EUR 1.89 1.97 –4 NAV per share, EUR 9.21 7.67 +20 Average number of staff (FTE) 11,657 11,730 –1 Group solvency ratio, % 202.7 196.1 +3 * Year 2006 figure is the Board of Director’s dividend proposal.
of price to asset value, the 4 billion euros we got valued the bank at roughly twice the multiples of its listed Nordic peers.
Markets have for years been ripe with rumors concerning an imminent sale of Sampo Bank, and at times an even larger transaction, involving all of Sampo Group in a merger with some larger Nordic or European entity has figured prominently in market gossip. As I stated in my review of two years ago, being on top of the situation and keeping the helm has been essential to Sampo’s success. We have seen no reason to strike alliances or execute transactions on other than what we ourselves have considered favorable terms.
And now, it seems, we have been successful in doing just that. In a number of transactions during the past five or six years we have reshaped the Group several times over and, in doing so, produced a total return for our shareholders that is second to none of our peers.
The financial results of our P&C insurance group If for 2006 were excellent. The combined ratio reached a new record low of 89.9 per cent following improvements in all individual business areas save that of the Baltic region, where a number of large claims early in the year had a significant negative impact.
In geographical terms Finland, where major cost-cutting and efficiency-improving measures took effect, reported the greatest
roup R eview improvement. It was a pleasure to me personally to see the Finnish combined ratio improve by a full 3.7 per cent even when competition was tightening, particularly in motor insurance for private customers. Comparing our figures with those of our closest competitors in the Finnish market did nothing to diminish that feeling of joy.
The year was good for Sampo Life as well. It improved its market position in all of its focal areas and, for the first time, saw unit-linked insurance account for more than half of total premiums written.
In the wake of the sale of Sampo Bank, Sampo Life will face a partially new situation, as its main distribution channel will no longer belong to the Group. To ensure a smooth transition, the two companies have, in conjunction with the Danske Bank transaction, negotiated a comprehensive long-run distribution agreement.
I am convinced that Sampo Bank, now a part of the Danske Group, in combination with alternative and proprietary distribution channels, will provide Sampo Life with ample opportunities and adequate tools to further strengthen its market position in the future.
At the moment Sampo’s equity capital exceeds the capital requirements of our operating divisions by more than 5 billion euros. We have announced a new dividend policy and are seeking authorization for record share buy-backs from the AGM. In the short run, that will constitute the limit of our capital repatriation. Instead, we will, as an investor, seek to ensure our shareholders a risk-adjusted return on their funds, superior to that which is available in the markets. I believe that our track record speaks for itself and that we will be able to reach this target.
We expect to remain the subject of speculation The sale of Sampo Bank did not put an end to speculation concerning the Group’s future, rather the opposite. There is however a change of note. Previously, we were mostly considered the target of a takeover – which we as such did not mind much. Supported by the significant financial resources at our disposal, we are now frequently seen as an acquirer. This, in itself, is an achievement and a testament to the fact that Sampo is unlikely to just drift along in the current of change in the Nordic financial services industry.
This “strategy” virtually guarantees that we are unlikely to be able to stay on the sidelines of the rumor-circuit. It is, and will remain our policy not to comment on any market gossip relating to Sampo. We have openly stated our objectives and values, and I believe this straightforwardness to be appreciated by shareholders and analysts alike.
In closing, I wish to thank our customers, employees and shareholders for the year that was. Particular thanks go to Sampo Bank’s employees who, for the past six years, have had to live with continuous change and, in the end, now have to adjust to a partially new corporate culture. I cannot help feeling a little wistful on the occasion of our parting, especially since I regard myself as so much more of a banker than an insurance executive. There are moments however, when feelings of pride and nostalgia have to take a back seat, and allow financial logic to rule the day. I am convinced that the sale of our bank division will prove good, not only for our shareholders, but, in the longer run, a successful move for the staff as well.
Sampo Life, a life insurance specialist, operates in Finland and, via its subsidiaries, in the Baltic countries and Sweden. Sampo Life’s operations are divided into two types of business. New sales are focused on unit-linked insurance. As most of the company’s technical reserves comprise with-profit insurance policies, the objective is to create as high returns as possible for the investment assets of this portfolio. The company has an over 20 per cent share of the Finnish and approximately 15 per cent of the Baltic insurance markets.
* Sampo plc holds 20% of the shares of Primasoft, and 30% of the voting rights. The corresponding figures for Sampo Bank plc are 20% and 30%.
15 February Sampo Bank recommends its customers tie their housing loan interest rates to a long rate, which may be up to 20 years.
15 February Morten Thorsrud, responsible for the Industrial business area in If P&C Insurance, is appointed to the Sampo Group’s Executive Committee.
8 March The value of assets administrated by Sampo Fund Management exceeds EUR 10 billion.
13 March If signs co-operation agreement with SBAB, the Swedish National Housing Finance Corporation.
6 April Sampo Fund Management establishes the Mandatum Arvo Russia Value Fund, the world’s first mutual fund focusing on Russian value securities.
26 April If’s web-based Bad Luck Test won the Andy Award in New York, one of the world’s two largest marketing competitions.
14 August During the year If participated in several large projects on children and youth safety. As schools began, If distributed caps with reflectors to all first graders in Finland.
24 August Sampo donates EUR 200,000 to Finnish schools for projects promoting the creativity of children and youth.
19 September Invoices from Elisa and Saunalahti are the first e-invoices available in Sampo Bank’s Web Bank.
26 September If launches “If Start” in Sweden and Norway – a new product aimed to increase young people’s interest in insurance, which has been on the wane.
9 November Sampo plc announces the divestment of the Sampo Bank Group to Danske Bank A/S of Denmark. The transaction was completed upon the receipt of all necessary official approvals in February 2007.
29 November Log-ins in the If-kansio (“If folder”) web service for If’s Finnish retail customers approached 50,000 in October. Over one-third of all retail customers’ accident reports are already submitted via the Internet.
Sampo’s P&C insurance operations are merged with If. Following the transaction, Sampo owns 38 per cent of If’s stock.
Sampo Insurance Company and Leonia merge into the Sampo-Leonia financial services group. The group’s business areas are long-term savings (life insurance, asset management and mutual funds), banking, investment banking, and P&C insurance.
The roots of Sampo’s P&C insurance business reach back to the 18th century. The history of life insurance and banking dates back to the 19th century. The full history of the companies belonging to the Sampo Group is available on the internet at www.sampo.com/group. The principal changes to the Group that have taken place in the 21st century are outlined in the picture below.
Group’s compensation system and decides on other far-reaching matters concerning the staff.
According to Sampo’s Articles of Association, the company’s Board of Directors comprises no fewer than three and no more than ten members elected by shareholders at the Annual General Meeting. The Annual General Meeting of 2006 decided to elect eight members to the Board until the close of the Annual General Meeting to be held in 2007. The term of office of the Board members is one year. The members of the Board annually elect a Chairman and Vice Chairman from among their members, at their first meeting following the Annual General Meeting.
The composition of the Board of Directors of Sampo plc is as follows: Georg Ehrnrooth, Chairman Matti Vuoria, Vice Chairman Tom Berglund, Member Anne Brunila, Member Jukka Pekkarinen, Member Jussi Pesonen, Member Christoffer Taxell, Member Björn Wahlroos, Member
The following Board members are independent of the company and its major shareholders: Tom Berglund, Georg Ehrnrooth, Jussi Pesonen and Christoffer Taxell.
Executive Committee and other Committees appointed by the Board 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 Executive Committee, and also the guidelines and authorisations given to other bodies appointed by the Board.
The Board has a Nomination and Compensation Committee and an Audit Committee, whose members it appoints from its midst in accordance with the charters of the respective committees. The Board’s Risk Control Committee was discontinued as of 15 January 2007 and its duties were transferred to the Audit Committee. In addition the Board has appointed an Asset and Liability Committee (to monitor the Group’s balance sheet risks), a Credit Committee (to monitor credit risks) and an Investment Committee (to monitor investment risks). The Board has also appointed the members of these committees. The activities of the Asset and Liability Committee and the Credit Committee within the Sampo Group were terminated on 31 January 2007.
Ilkka Hallavo*, Group Executive Vice President, Head of Corporate Banking, Deputy Managing Director of Sampo Bank plc Line Hestvik, Group Executive Vice President, Head of BA Private, If P&C Mika Ihamuotila, President and CEO of Sampo Bank plc (until 31 January 2007) Peter Johansson, Group CFO Patrick Lapveteläinen, Group CIO Torbjörn Magnusson, President and CEO of If P&C Insurance Holding Ltd (publ) Ivar Martinsen, Group Executive Vice President, Head of BA Commercial, If P&C Petri Niemisvirta, President and Head of Life Insurance Maarit Näkyvä*, Group Executive Vice President, Head of Retail and Private Banking Morten Thorsrud, Group Executive Vice President, Head of BA Industrial, If P&C Ricard Wennerklint, CFO, If P&C
The Group MD Committee comprises Björn Wahlroos, Kari Stadigh, Mika Ihamuotila, Torbjörn Magnusson and Patrick Lapveteläinen. Ilona Ervasti-Vaintola acts as the Group MD Committee’s secretary.
The Nomination and Compensation Committee is entrusted to prepare proposals for Sampo’s Annual General Meeting on the composition of the Board, the compensation of Board members and the principles on which this compensation is determined. The Committee consults the largest shareholders in these matters. The Committee is also responsible for preparing proposals for Sampo’s Board on the composition and chairmen of the Board’s committees, on the composition of the Group MD Committee, on the appointment of the Sampo Group’s CEO and the members of the Sampo Group’s Executive Committee, and on the principles by which the members of the Executive Committee are to be compensated and their compensation.
The Audit Committee is responsible for overseeing the Sampo Group’s internal audit and the actions of the auditors under the laws of Finland, the authenticity of the Group’s financial accounts and the auditors’ professional competence and independence, and for assessing compliance with laws and regulations within the Sampo Group. The Audit Committee also prepares the proposal to be made to the Annual General Meeting on the election of the auditor and the auditing fees, and also monitors the auditors’ invoicing in the way it sees fit. The Audit Committee meets at least once every half-year.
The Board of Directors’ Audit Committee comprises at least three members elected from among those Board members who do
roup R eview not hold management positions in Sampo and are independent of the company. Also participating in the meetings of the Committee are the Auditor, the CEO, the CFO, the Group’s Chief Counsel and the Head of Internal Audit. The Audit Committee comprises Christoffer Taxell (Chairman), Anne Brunila and Jussi Pesonen. In addition, Tomi Englund, Björn Wahlroos, Peter Johansson, Ilona Ervasti-Vaintola and Pentti Mattila attended the Audit Committee ’s meetings in 2006. The Audit Committee met two times in 2006. Since 15 January 2007, the Audit Committee’s meetings have also been attended by the Chairman of the Group’s Investment Committee, the Executive Committee member responsible for risk control and the Head of Risk Control.
The Board of Directors has appointed a Risk Control Committee to control the Sampo Group’s risks at the Group level. The Risk Control Committee is responsible for supervising the preparation of and compliance with the Sampo Group’s risk management principles and other related guidelines, supervising the Sampo Group’s risks and risk accumulations and the quality and scope of risk management, and monitoring the fulfilment of risk policies, the use of limits and the development of risks and profit in the various business areas.
Kari Stadigh, Ilkka Hallavo, Mika Ihamuotila, Peter Johansson, Patrick Lapveteläinen and Petri Viertiö attended the Risk Control Committee’s meetings. The Risk Control Committee met four times in 2006.
The Credit Committee is responsible for preparing the Group’s credit policy for approval by the Board, preparing credit risk limits and authorisations for the Boards of Group companies, monitoring the use of credit risk limits and authorisations, and making credit decisions in cases requiring the highest level of authority. In 2006 the Credit Committee comprised Ilkka Hallavo (Chairman), Jukka Apajalahti, Jarmo Lankinen, Patrick Lapveteläinen, Kari Tähtelä and Aki Palo (expert member).
The Investment Committee is responsible for preparing the Group’s investment policy for approval by the Board, preparing investment decision authorisations for the Boards of Group companies, and monitoring the use of limits and authorisations. In 2006 the Investment Committee comprised Kari Stadigh (Chairman), Patrick Lapveteläinen, Sirpa Mannila, Vesa Nurminen, Ulla Kangas and Petri Viertiö (expert member).
The CEO of the Sampo Group 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 authorisation by the Board of Directors. The Group CEO ensures the legal compliance of Sampo’s accounting and the trustworthy organisation of asset management.
The period of notice for terminating the service contract of the CEO of the Sampo Group is six months. In addition to receiving salary for the period of notice, the CEO will be entitled to severance compensation of 18 months’ full salary (not including bonuses), provided the service contract has been terminated by Sampo.
In accordance with a decision of the Annual General Meeting in 2006, the members of the Board will be paid the following annual fees for their Board and committee work until the close of the Annual General Meeting in 2007: the Chairman EUR 120,000, the Vice Chairman EUR 85,000, and the other members of the Board EUR 70,000, with 30 per cent of each Board member’s annual fee being paid in Sampo A shares. Board members employed by the company will not receive separate compensation for Board work.
The Board of Directors decides on the terms of employment and compensation of the CEO and other executives on the Sampo Group’s Executive Committee. However, the Nomination and Compensation Committee can decide, upon authorisation by the Board of Directors, on the salaries of the members of the Group Executive Committee, excluding the Group CEO and Deputy CEO.
The CEO was paid a total of EUR 2,942,004 in salaries and bonuses for 2006. The Deputy CEO was paid a total of EUR 1,759,285 in salaries and profit bonuses.
Internal audit Sampo’s Internal Audit is a function independent of business operations which evaluates the sufficiency and effectiveness of the internal control system and the quality with which tasks are performed in the Sampo Group. The Internal Audit reports to the CEO. Internal Audit has been organised to correspond with the business organisation.
Georg Ehrnrooth, born 1940 Positions of Trust: Oy Karl Fazer Ab, Board Member Sandvik AB (publ.), Board Member Nokia Corporation, Board Member Rautaruukki Corporation, Vice Chairman of the Board Finnish Business and Policy Forum EVA, Vice Chairman of the Board Research Institute of the Finnish Economy ETLA, Vice Chairman of the Board He was appointed to the Board of Directors of Sampo plc on 26 June, 1992. He holds 21,724 Sampo plc shares directly or through a controlled company.
He holds 1,300 Sampo plc shares directly or through a controlled company.
She holds 1,234 Sampo plc shares directly or through a controlled company.
Jussi Pesonen, born 1960 President and CEO, UPM-Kymmene Corporation Positions of Trust: Finnish Forest Industries Federation, Chairman of the Board Confederation of Finnish Industries (EK), Board Member Oy Metsä-Botnia Ab, Board Member Confederation of European Paper Industries CEPI, Board Member He was appointed to the Board of Directors of Sampo plc on 5 April, 2006. He holds 4,300 Sampo plc shares directly or through a controlled company.
Christoffer Taxell, born 1948 Chancellor, Åbo Akademi University Positions of Trust: Society of Swedish Literature in Finland, Investment Committee, Member Stockmann Oyj Abp, Board Member Stiftelsen för Åbo Akademi, Chairman of the Board Finnair Oyj, Chairman of the Board Nordkalk Oyj Abp, Board Member Föreningen Konstsamfundet, Chairman of the Board Confederation of Finnish Industries (EK), Chairman of the Board (until 31 December 2006) Luvata Oy, Board Member He transferred to the Board of Directors of Sampo plc from the Supervisory Board on 1 January, 1998. He holds 2,238 Sampo plc shares directly or through a controlled company.
The CVs of members of the Board of Directors can be viewed on the Internet at www.sampo.com, see Sampo Group/Investor relations/Corporate Governance.
Björn Wahlroos, born 1952 Group CEO, Managing Director of Sampo plc
Mandatum Securities Ltd, Board Member (until 31 January 2007) Mandatum & Co Ltd, Board Member (until 31 January 2007) Central Chamber of Commerce of Finland, Legal Committee, Chairman The Security Fund of Commercial Banks and Postipankki Ltd, Vice Chairman of the Delegation Deposit Guarantee Fund, Member of the Delegation Investors’ Compensation Fund, Chairman of the Delegation OMX Exchanges Ltd, Board Member
Sampo Bank plc, Board Member MB Equity Partners Oy, Chairman of the Board MB Funds, Board Member Advisory Office for Bank Customers, Member of the Executive Committee Finpro ry, Member of the Supervisory Board Luottokunta, Member of the Supervisory Board He holds 8,602 Sampo plc shares directly or through controlled companies
If P&C Insurance Ltd (Sweden), Board Member If P&C Insurance Company Ltd (Finland), Board Member FNH Norway (Norwegian Financial Services Association), Board Member She holds no Sampo Plc shares
Sampo Bank plc, Board Member (until 31 January 2007) Sampo Fund Management Ltd, Chairman of the Board (until 31 January 2007) Mandatum Asset Management Ltd, Chairman of the Board (until 31 January 2007) Mandatum & Co Ltd, Chairman of the Board (until 31 January 2007) Sampo Life Insurance Company Limited, Vice Chairman of the Board HYY Group Ltd, Board Member Finnish National Opera Foundation, Member of the Board of Trustees European Banking Federation, Board Member Confederation of Finnish Industries, Board Member Elisa Corporation, Vice Chairman of the Board The Finnish Bankers’ Association, Vice Chairman of the Board (until 31 December 2006) He holds 312,343 Sampo plc shares directly or through controlled companies
If P&C Insurance Holding Ltd, Board Member Sampo Life Insurance Company Limited, Board Member The Security Fund of Commercial Banks and Postipankki Ltd, Board Member
He holds 36,976 Sampo plc shares directly or through controlled companies
Torbjörn Magnusson, born 1963 President and CEO, If P&C Insurance Holding Ltd
Ivar Martinsen, born 1961 Group Executive Vice President, Head of BA Commercial, If P&C
Maarit Näkyvä, born 1953 (member of the Group Executive Committee until 31 January 2007)
Realty World Ltd, Chairman of the Board Kesko Corporation, Board Member She holds 7,929 Sampo plc shares directly or through controlled companies
Morten Thorsrud, born 1971 (member of the Group Executive Committee from 15 February 2006)
If P&C Insurance Ltd (Sweden), Board Member If P&C Insurance Company Ltd (Finland), Board Member AS If Eesti Kindlustus (Estonia), Board Member UAB If Draudimas (Lithuania), Board Member AAS If Latvia (Latvia), Board Member CJSC If Insurance (Russia), Chairman of the Board Capital Assurance Company, Inc., Board Member Capital Assurance Services, Inc., Board Member SOS International a/s, Board Member He holds 1,350 Sampo plc shares directly or through controlled companies
Maarit Näkyvä and Ilkka HallavoKari Stadigh, Mika Ihamuotila and Petri Niemisvirta Line Hestvik, Morten Thorsrud and Ivar Martinsen
The average number of employees in the Sampo Group was 11,657 in 2006, compared with 11,730 in 2005.
The employees were divided as follows: 435 in the holding company, 6,428 in If P&C Insurance and its subsidiaries, 365 in Sampo Life and its subsidiaries, and 4,429 in Sampo Bank and its subsidiaries.
The subsidiaries’ staff reviews are included in the sections of the Annual Report that present the business areas.
Sweden If P&C Insurance and subsidiaries: 1,810 Sampo Bank and subsidiaries: 3
Estonia If P&C Insurance and subsidiaries: 415 Sampo Life and subsidiaries: 41 Sampo Bank and subsidiaries: 575
Latvia If P&C Insurance and subsidiaries: 115 Sampo Life and subsidiaries: 34 Sampo Bank and subsidiaries: 54
Lithuania If P&C Insurance and subsidiaries: 168 Sampo Life and subsidiaries: 41 Sampo Bank and subsidiaries: 407
Other If P&C Insurance and subsidiaries: 54 Sampo Bank and subsidiaries: 7
In 2006, Sampo commenced a major campaign around the slogan “What’s your number?”. The number refers to the sum of money needed on top of the statutory pension for an individual to be able to continue with his/her lifestyle and hobbies after retirement. A campaign in which Sampo provided information on retirement cash flow planning was very visible in advertising, customer events and bank branch meetings. The Sampo Sustainability Equity fund selected Generation Investment Management LPP, a company specialising in sustainable investment, as its new portfolio manager.
Sampo’s operating environment remained stable in 2006. Economic growth was favourable in the Nordic countries, with production growing much faster than the EU average and employment improving. In the Baltic region and Russia, production increased even faster. One focal area in the Nordic countries in 2006 was the promotion of sustainability. The Nordic countries were again rated as among the least corrupted in the world. According to the Corruption Perception Index (CPI) published in November 2006 by Transparency International, Finland is the least corrupted country in the world, along with Iceland and New Zealand.
Changes in share capital On 5 April, 2006, the Annual General Meeting of Sampo plc decided to cancel the 7,000,000 Sampo A shares acquired in 2005. The cancellation reduced the number of A shares correspondingly. The EUR 1,177,315.50 decrease in share capital was entered in the Trade Register on 26 April 2006. After this entry, Sampo plc’s total share capital was EUR 94,975,808.67 and the number of A shares was 563,500,515. The company’s total number of shares, including the 1,200,000 B shares, was 564,700,515 shares.
roup R eview the number of votes carried by all shares. Shares can be bought back either by an offer made to all holders of A shares in proportion to their holdings on equal terms determined by the Board, or through public trading on the Helsinki Stock Exchange, in which case the shares will not be bought in proportion to the shareholders ’ holdings. Shares can be bought back for implementation of the Sampo Group’s share-based incentive schemes and/or to be cancelled.
On 11 May, 2006, the Board of Directors decided, on the basis of the authorisation granted, to buy back up to 15 million Sampo A shares by 31 December, 2006. The purchases started on 31 May, 2006, and by the end of 2006, Sampo plc had bought back 4,827,500 of its own shares. EUR 73.1 million was used for purchase of the shares. The A shares held by Sampo plc on 31 December, 2006 correspond to approximately 0.8 per cent of all shares and the votes carried by them. The shares bought back corresponded to approximately EUR 0.8 million of share capital.
At the end of the year under review, 1,242,456 of the year 2000 options were still unexercised. If Sampo A shares had been subscribed with all the year 2000 options, the total number of shares would have increased by 1.1 per cent, or 6,212,280 shares. However, 1,030,250 options were held by Satura Ltd, a wholly owned subsidiary of Sampo plc. No subscriptions were made on the basis of these options, and they were cancelled without value on 31 January, 2007. At the end of the subscription period on 31 January 2007, a further 685 options were unexercised.
Shareholders There were 59,988 registered shareholders on 31 December 2006, over 4 per cent more than one year earlier. 1.36 per cent of shares had not been transferred to the book-entry system. The holdings of nominee-registered and foreign shareholders increased to 53.8 per cent (48.9) of the share capital and 53.3 per cent (48.5) of the votes. Almost all of the foreign shareholders have nominee-registered holdings.
At the end of the year, the members of Sampo’s Board of Directors, including the Chief Executive Officer owned, directly or indirectly, 11,898,422 Sampo shares. Their combined holdings constituted 2.1 per cent of the share capital and votes.
– Exafin B.V.’s total holding of Sampo A shares exceeded 5 per cent and was 8.13 per cent (8.07) on 30 March, 2006.
Annual General Meeting Sampo plc’s Annual General Meeting will be held on Thursday, 12 April, 2007 at 2 p.m., at the Helsinki Fair Centre’s congress facilities in conference hall 101, address Messuaukio 1, 00520 Helsinki. The listing of persons who have registered for the meeting will commence at 12.30 p.m.
To be entitled to participate in the AGM, shareholders must be entered in the shareholder register maintained by Finnish Central Securities Depository Ltd (Suomen Arvopaperikeskus Oy) by 2 April, 2007. Asset managers must enter nominee-registered shareholders in the Sampo shareholder register created for the AGM by Finnish Central Securities Depository Ltd.
Shareholders by number of shares owned at 31 December, 2006 Number of shares A and B shares
Book-entry, securities Votes number Votes %Shareholders number Shareholders % Number %
On waiting list, total 0 0 0 0 for with options during 2006 and entered in the Trade Register in January 2007. The proposed dividend corresponds to a dividend income of approximately 5.9 per cent, calculated as per the share price on 29 December, 2006.
In previous years, dividends have been distributed as follows: *) Board proposal to the AGM According to the proposal, only shareholders that are registered in the shareholder register kept by Finnish Central Securities Depository Ltd on the record date for dividend payment, 17 April, 2007, are entitled to dividends. The proposed dividend payment date is 24 April, 2007.
Shareholders who have not transferred their share certificates to the book-entry system by the dividend record date will be paid their dividends after the shares have been transferred to the bookentry system.
The Annual Report is published on Sampo’s Internet pages at the address www.sampo.com/annualreport. Printed Annual Reports can be ordered at the above Internet address, by mail from Sampo Communications, Unioninkatu 22, FI-00130 Helsinki, Finland or by calling +358 010 516 0033.
State Pension Fund 4,000,000 0.7 0.7 OP-Delta Equity Fund 3,279,300 0.58 0.57 Mutual Insurance Company Eläke-Fennia 2,750,000 0.48 0.48 Etera Mutual Pension Insurance Company 2,448,950 0.43 0.43
Sampo will publish three Interim Reports in 2007, on 9 May, 8 August and 7 November. The Interim Reports are published on the Internet at
The contact information for Group subsidiaries is available on the Internet at the address www.sampo.com/contacts
2 Sampo plc – Board of Directors’ Report 2006 2 Changes in group structure 3 Administration 3 Changes in share capital 4 Internal dividends 4 Staff 4 Corporate Responsibility 5 Management incentive schemes 5 Ratings 5 Group solvency 5 Risk management 5 P&C insurance 7 Life insurance 7 Other 8 Banking and investment services (Discontinued operations) 8 Events after the end of the accounting year 9 Outlook for 2007 9 New distribution policy 9 Board’s dividend proposal 10 Key figures 13 Calculation of key figures 16 IFRS Financial Statements 16 Consolidated income statement 17 Consolidated balance sheet 18 Statement of changes in equity 19 Statement of cash flows 21 Note to the cash flow statement 22 Notes to the Consolidated Financial Statements 23 Summary of significant accounting policies 35 Sampo Group risk management 54 Segment information 59 Other notes 141 Parent Company Sampo plc’s Financial Statements 141 Income statement 142 Balance sheet 144 Notes to the financial statements 155 Auditors’ report
Sampo plc sold in November 2006 all Sampo Bank plc’s shares to Danske Bank A/S for a cash consideration of 4,050 million euros. The transaction was closed on 1 February 2007 and Sampo Group will book a sales gain of approximately EUR 2.9 billion from the transaction. The tax-free sales gain will be reported in the first quarter 2007 accounts.
Profit before taxes for banking and investment services rose in 2006 to EUR 355 million (316). Net interest income and fees and commissions continued to develop favourably. RoE for banking and investment services rose to 23.8 per cent (23.1) and exceeded the target of 20 per cent.
The Group’s equity on 31 December 2006 was EUR 5,189 million (4,348). Equity was strengthened by the profit for the period, the increase in the fair value reserve, new capital through subscriptions with option rights and exchange rate effects. Equity was reduced by the dividends paid in April and the repurchase of Sampo A shares in May–December. As of 1 January 2005 Sampo Group’s capital adequacy has been measured by the Finnish rules on conglomerate capital adequacy based on the European Union’s Directive 2002/87/EU. At the end of December 2006 Sampo Group’s own funds exceeded the minimum solvency requirements by EUR 2,443 million and the solvency ratio was 202.7 per cent (196.1).
Sampo Group’s balance sheet total grew by 11 per cent to EUR 47,620 million (42,985). Asset growth was fastest in loans to customers in the banking and investment services segment, which grew to EUR 21,559 million from EUR 18,913 million, and in unitlinked investments, which increased to EUR 1,753 million (1,262). On the liability side of the balance sheet, debt securities in issue increased by EUR 1,973 million to EUR 11,620 million.
Changes in Group structure Sampo Group underwent a major structural change during year 2006 when banking and investment services companies were disposed. On 9 November, 2006 Sampo plc announced that it had agreed to sell all shares of Sampo Bank Group to Danske Bank A/S for a cash consideration of EUR 4,050 million. In addition Sampo Bank paid a dividend of EUR 25 million to Sampo plc in December 2006. Sampo Group booked a tax free sales gain of approximately EUR 2.9 billion in the first quarter of 2007. The necessary authority approvals were obtained, and the transaction was closed on 1 February, 2007.
After the transaction Sampo Group’s other business areas, P&C insurer If and life insurance company Sampo Life, continue to follow their current strategies. As part of the transaction, Sampo Life and Danske Bank made an agreement securing continued distribution of Sampo Life’s products through Sampo Bank.
In April 2006 Sampo Bank plc signed an agreement to acquire Industry and Finance Bank (Profibank) based in St. Petersburg. The closing of the transaction took place in August 2006 after Sampo Bank received necessary authority approvals.
If P&C Insurance Holding Ltd announced in May 2006 its aim to upgrade its presence in Russia by establishing a P&C insurance company in St. Petersburg. If has had a representative office in St. Petersburg since 1995. In December 2006 Russian supervisory authority approved If ’s licence application. By upgrading its presence, If aims to give even better service to corporate customers in the growing Russian market.
After the reporting period, on 2 January 2007, Sampo Life Insurance Company Ltd announced that it combines its Baltic subsidiaries under one company, SE Sampo Life Insurance Baltic. The company will operate in all Baltic countries having its domicile in Estonia and branches in Latvia and Lithuania.
EPS including change in fair value reserve, euro 1.89 1.97 –4
The Annual General Meeting approved the financial accounts for 2005 and discharged the Board of Directors and the Chief Executive Officer from liability.
The firm of authorised public accountants, Ernst & Young Oy, was re-elected Auditor.
On 15 February 2006 Sampo plc’s Board of Directors nominated Morten Thorsrud, head of If P&C Industrial business area, to the Group’s Executive Committee.
Changes in share capital The Annual General Meeting of 5 April 2006 decided, in accordance with the proposal of the Board of Directors, to pay a dividend
Impairment losses on loans and receivables 0 –6 5 2 –4
Change in liabilities for insurance and investment contracts –201 –55 45 –135 –186
Profit before taxes from continuing operations 334 461 219 339 287
Profit before taxes from discontinued operations – – – – 1
The Annual General Meeting decided to cancel the 7,000,000 Sampo A shares repurchased in 2005. The number of A shares decreased by a corresponding number. The reduction in share capital by EUR 1,777,315.50 was registered on 26 April 2006, after which Sampo plc’s share capital amounted to EUR 94,975,808.67, and the number of A shares totalled 563,500,515. The total number of shares of the company, including 1,200,000 B-shares was 564,700,515.
The Annual General Meeting also authorised the Board of Directors to repurchase Sampo shares. The authorisation is valid until 5 April 2007. The maximum amount of A shares that can be repurchased is 5 per cent of the company’s share capital or of the number of votes carried by all shares. Shares can be bought back either through an offer made to all holders of A shares in proportion to their holdings and on equal terms determined by the Board, or through public trading on the Helsinki Stock Exchange. Shares can be bought back to implement Sampo Group’s equity-based incentive plans and/or to be cancelled.
The Board decided on 11 May 2006 to repurchase a maximum of 15 million Sampo A shares. Shares were to be repurchased by 31 December 2006 at the latest. Repurchases started on 31 May 2006 and 4,827,500 A shares was bought by 31 December 2006. EUR 73.1 million was used to acquire the shares. The shares held by Sampo plc corresponded to 0.8 per cent of the total amount of shares and votes at 31 December 2006. The repurchased shares correspond to EUR 0.8 million in share capital.
At 31 December 2006 Sampo plc’s share capital amounted to EUR 95.5 million, and the number of A shares totalled 566,418,145. The total number of shares of the company, including 1,200,000 B shares, was 567,618,145.
On 30 March 2006 Exafin B.V. notified Sampo that it’s holding of Sampo A shares had risen to 8.13 per cent of the total amount of shares and 8.07 per cent of votes.
Sampo Group publishes annually a separate Corporate Responsibility Report which is available on the Group’s homepage www.sampo.com.
The incentive schemes 2003I – 2006II extend to 2010. The incentive schemes increased staff costs in 2006 by EUR 29 million (28) and on 31 December 2006 the total provision, including social security costs, for the schemes was EUR 53 million (38).
Group solvency Group solvency is calculated according to the consolidation method defined in the Chapter 3 of the Act of the Supervision of Financial and Insurance
Conglomerates, which entered into force on 1 January 2005. In the consolidation method items, which according to bank or insurance regulations are part of own funds but not equity, are added to group’s balance sheet equity. Items, which are not available to cover losses in other group companies, are, however, not included in own funds.
The Group’s solvency ratio (own funds in relation to minimum requirements for own funds) on 31 December 2006 was 202.7 per cent (196.1).
Risk management The main objectives of risk management are to ensure that the capital base is adequate in relation to the risks arising from business activities and that the risks assumed are properly priced.
A more detailed description of Sampo Group’s risk management organisation and activities is available in the Risk Management section of the 2006 Annual Report or on www.sampo.com.
The overall market environment in Nordic P&C insurance was favourable during 2006 and competitive behaviour was mostly disciplined. In the private segment, competition intensified in certain business lines in Norway and Finland. Competition is based on pricing, and the strict underwriting focus has lead to somewhat lower growth. The commercial market was mostly stable, but there were some signs of increased competition in Sweden. In the industrial segment the competitive situation was stable.
On 31 December 2006 the total investment assets of If amounted to EUR 10.1 billion, of which 89 per cent was invested in fixed income instruments (88), 10 per cent in equity (10) and 1 per cent in other assets (2). Net investment income for the full year amounted to EUR 358 million (460). Investment income was lower than previous year, due to rising interest rates during the first half of 2006. Development in the second half of the year was favourable, and investment income in the third and fourth quarter was higher than a year before. The return on investments for year 2006 was 4.3 per cent (5.8). At year end the duration for interest-bearing assets equalled 3.0 years.
Solvency capital amounted to EUR 2,841 million on 31 December 2006 (3,216). The solvency ratio – solvency capital in relation to net premiums written – was 74 per cent (88). Reserve ratios remained stable and reserves were 159 per cent (157) of net premiums written and 254 per cent of claims paid (256). In December If paid a EUR 452 million dividend to parent company Sampo plc, which decreased solvency capital. During year 2006 If paid dividends in total EUR 1,031 million.
Personal insurance is an important growth area for If and several risk and health products continue to sell well. Since the launch of these products in 2005 almost 200,000 contracts have been signed.
During year 2006 If strengthened its leading market position in the car-branded insurance market and signed several important co-operation and distribution agreements. If co-operates with Ford (brands Ford, Volvo and Mazda) in all the Nordic countries and with General Motors (Saab and Opel among others) in Sweden, Denmark and Finland. In March If concluded an agreement to sell home insurance products through the Swedish housing finance corporation SBAB.
Life insurance Sampo Life Group consists of Sampo Life, a wholly-owned subsidiary of Sampo plc, operating in Finland and of its subsidiary Sampo Life Insurance Baltic SE. The latter has the form of a European company headquartered in Estonia. It operates in the other Baltic countries through branches. Sampo Life also has a subsidiary in Sweden to complement the product offering of If P&C.
In Sampo Group life insurance has an RoE target of 17.5 per cent, which was easily surpassed as the RoE was 30.0 per cent (39.0).
The investment assets of life operations, excluding the assets of EUR 1.8 billion (1.3) covering unit-linked contracts, amounted to EUR 5.9 billion (5.9) at market values on 31 December 2006. Fixed income covered 66 per cent (64), equity 31 per cent (33) and real estate 2 per cent (3) of total assets. Equity investments include direct equity holdings, equity funds and private equity.
Sampo Life Group’s solvency remained strong. The solvency capital amounted to EUR 1,033 million (1,077) and solvency ratio was 20.1 per cent (21.3) on 31 December 2006.
Sampo Life Group’s focus in 2006 was on strengthening its market position in unit-linked insurance. Unit-linked premiums grew by almost 50 per cent to EUR 429 million (288) and consequently Sampo Life’s market share in the Finnish unit-linked insurance increased to 25.2 per cent (20.8). Unit-linked premiums covered 65 per cent of total direct premiums (43). The share of regular premiums also increased and was 60 per cent (55). Sampo Life’s overall market share in Finland was 20.4 per cent (20.2).
Sampo plc’s result was affected by two extraordinary items. Firstly, in connection to the legal proceedings against the former management and owners of Interbank Ltd concerning credit and collateral arrangements between Interbank Ltd and Savings Bank of South-Western Finland at the District Court of Salo, Sampo plc was ordered in the first quarter of 2006, as the successor of Interbank Ltd’s liabilities, to indemnify Arsenal-SSP Oy a total of almost EUR 13 million, including interest on arrears. All parties have appealed against the decision. Secondly, Sampo plc was awarded EUR 30 million in compensation for damages for breach of contractual duties in the third quarter.
Sampo plc’s balance sheet has strengthened significantly in 2006 because of sizable internal dividends which amounted to EUR 1.4 billion. The liabilities to external creditors were EUR 1 billion on 31 December 2006 and equity capital amounted to EUR 3.5 billion. Sampo plc’s balance sheet total was EUR 4.5 billion (3.6). Of this amount, holdings in banking and investment services companies accounted for EUR 0.8 billion (0.8) and holdings in insurance
Change in liabilities for inv. and ins. contracts –345 –390 –12
Banking and investment services (Discontinued operations) Banking and investment services comprises Sampo Bank Group, which Sampo plc sold to Danske Bank A/S on 9 November 2006. The transaction was closed on 1 February 2007. Sampo Bank plc operates mainly in Finland and through subsidiaries in all the Baltic countries and in St. Petersburg in Russia. Sampo Bank’s main subsidiaries are Sampo Fund Management Ltd, Mandatum Asset Management Ltd, Mandatum Securities Ltd (former Mandatum Stockbrokers Ltd), Mandatum & Co Ltd, 3C Asset Management Ltd and Arvo Asset Management Ltd.
Profit before taxes for the year 2006 includes one-off sales gains worth EUR 40 million. Comparison figure includes one-off sales gains worth EUR 58 million.
Loans and advances to customers increased by 14 per cent from year-end 2005 and totaled EUR 21,084 million (18,484). Growth in mortgages continued and the stock rose year-on-year 19 per cent to EUR 9,685 million. Rapid growth continued in consumer credits.
Deposits amounted to EUR 12,598 million increasing 10 per cent from year end 2005 (11,442).
Sampo Bank Group’s capital adequacy was 11.9 (10.6) per cent at the end of 2006 and the tier 1 ratio was 8.3 (7.6) per cent. Tier 1 capital rose to EUR 1,481 million (1,255). Risk-weighted assets on 31 December 2006 were EUR 17,847 million (16,466).
In September Sampo Housing Loan Bank plc issued its second EUR 1 billion covered bond on the international capital markets. The bond was issued under the EUR 5 billion covered bond programme and followed a transfer of a EUR 850 million housing loan portfolio from Sampo Bank plc to Sampo Housing Loan Bank plc.
Outlook for 2007 The world economy has fared well and equity prices have continued to move upwards for the past four years. Uncertainties, however, still exist and continued steady development cannot be taken for granted.
Even if equity performance proves less impressive than in 2006, Sampo Group is expected to report a good result as both its insurance businesses are operationally in excellent shape and higher interest rates will boost the fixed income yields.
The role of Sampo plc, the parent company, changed markedly after the closing of the Sampo Bank transaction. With the sales proceeds of 4,050 million euro and the sizable internal dividends paid in 2006, Sampo plc has become a significant investor. Its assets are presently mainly invested in short-term fixed income instruments.
Sampo Group’s P&C insurance operation If is expected to report a sound technical result for 2007. If remains firmly committed to its target of achieving a combined ratio of 95 per cent or better each and every year. Favourable claims trends and low cost levels warrant more positive expectations for 2007 and If foresees to achieve a combined ratio between 91 and 94 per cent. Due to higher interest rates its fixed income portfolio is likely to yield substantially more than in 2006 and overall the result is expected to remain good. The RoE target for P&C insurance operations is 17.5 per cent.
Sampo Life Group’s marked-to-market result is highly dependent on capital market development. However, it possesses substantial reserves to withstand market volatility and its 2007 reported profit is therefore expected to remain good in most foreseeable scenarios. Both in Finland and in the Baltics Sampo Life continues to focus on unit-linked insurance and on selected risk policies. The RoE target for the life insurance operation is 17.5 per cent.
New distribution policy The Board of Sampo plc announced on 9 November 2006 a new distribution policy to be applied with immediate effect. According to the new policy, Sampo plc aims to distribute an annual dividend corresponding to a dividend yield of 4-6 per cent. Dividends cannot, however, exceed reported profit after tax (excl. extraordinary items) for the calendar year for which the dividend is paid. Share buybacks can be used to complement dividends.
The Board proposes to the Annual General Meeting that the distributable funds are used as follows: For the financial year 2006 a dividend of EUR 1.20 per share be paid on the company’s 577,473,285 shares. The number of shares includes 14,682,640 shares converted in 2006 with warrants. The new shares were entered into the trade register on 3 and 12 January 2007. Dividends are not paid on the 4,827,500 Sampo A shares that Sampo plc held at 31 December 2006. The total amount of dividends is EUR 692,967,942.00.
Loss ratio before unwinding of discount 2) % 72.5 72.7 71.1
Average number of staff 6,428 6,592 6,776 *) Comparison figures of P&C insurance for the year 2004 are for 9 months from April to December.
Return on equity (at fair values) % 30.0 39.0 32.2 – –
Earnings per share, incl. change in fair value reserve € 1.89 1.97 1.58 – –
Average adjusted number of shares 7) 1,000 563,092 564,864 558,077 553,859 555,730
Weighted average number of shares, incl. dilutive potential shares 7) 1,000 576,341 575,268 566,391 556,400 557,803
Counter-value of shares at 31 Dec. € (appr.) 0.17 0.17 0.17 0.17 0.17
Adjusted number of shares at 31 Dec. 7) 1,000 561,591 563,501 562,562 552,720 552,653
Share trading volume during accounting period 1,000 592,839 663,491 648,086 188,014 179,173
2) Key figures for P&C Insurance are based on activity based costs and cannot, therefore, be calculated directly from the consolidated income statement.
5) The dilution effect has been calculated as if all the remaining subscription rights (4,178,984/the option programme of 2000 at the end of
December, 2006) would have been realised. One subscription right entitles to subscribe 5 shares.
6) The Board of Director’s proposal to the Annual General Meeting for the accounting period 2006. The dividend for 2004 was EUR 0.60.
In calculating the key figures the tax corresponding to the result for the accounting period has been taken into account. The valuation differences on investment property and held-to-maturity debt securities have been taken into account in return on assets, return on equity, equity/assets ratio and net asset value per share. Additionally, the change in fair value reserve has been taken into account in return on assets and return on equity. A deferred tax liabilitiy has been deducted from valuation differences.
In calculating the net asset value per share and the return on equity as per 2002 and 2003, an interpretation of the principle of fairness in life insurance has been taken into account, according to which the owners’ share of the valuation differences is a standard 25%. As a result of a change in accounting practice in 2004, the target level for total policyholder bonuses was kept as before, but the division of valuation differences in accounting was abandoned. Accordingly, the valuation differences on investments for years 2004–2006 have been treated entirely as capital and reserves in calculating the above-mentioned key figures.
If is consolidated as a subsidiary in Sampo Group’s accounts as of April 1, 2004. Accordingly If figures have been taken into account line by line in the consolitated profit and loss account and balance sheet. In the comparison periods and between January 1, 2004 and March 31, 2004 If has been treated as an associate.
Profit before taxes + property & casualty insurance operating profit + life insurance operating profit + other business operating profit + banking and investment services operating profit ± Group elimination items with result impact
Property & casualty insurance + insurance premiums + net income from investments + other operating income – claims incurred – staff costs – other operating expenses
The key figures for the insurance business have been calculated in accordance with the decree issued by the Ministry of Finance and the specifying instruction 12/002/2005 of the Insurance Supervisory Authority.
Return on equity (at fair values), % + profit before taxes ± change in fair value reserve ± change in valuation differences on investments – tax (incl. change in deferred tax relating to valuation differences on investments)
Return on assets (at fair values), % + operating profit + interest and other financial charges + calculated interest on technical provisions ± change in fair value reserve + change in valuation differences on investments
Equity/assets ratio (at current values), % + total equity ± valuation differences on investments after deduction of deferred tax
Operating profit Formula shown above in connection with the calculation of Group key figures.
Loss ratio (excl. unwinding of discount), % claims incurred before unwinding of discount insurance premiums before unwinding of discount
Combined ratio (excl. unwinding of discount), % Loss ratio before unwinding of discount + expense ratio
Solvency capital (IFRS) + equity after proposed profit distribution ± valuation differences on investment – intangible assets + capital securities – deferred tax liability probably realised in near future ± other required items (Ministry of Finance decree)
Solvency capital, % of technical provision (IFRS) + solvency capital (IFRS)
Expense ratio + operating expenses before change in deferred acquisition costs + claims settlement expenses expense charges (and balance sheet total)
Solvency capital (IFRS) + equity after proposed profit distribution ± valuation differences on investment – intangible assets + capital securities – deferred tax liability probably realised in near future
Revenue Formula shown above in connection with the calculation of Group key figures.
Cost to income ratio – staff costs – other operating expenses
+ net interest income + net income from financial transactions + net fee and commission income + net income from investments + other operating income
Earnings per share profit for the financial period attributable to the parent company’s equityholders adjusted average number of shares
Capital and reserves per share equity attributable to the parent company’s equityholders adjusted number of shares at balance sheet date
Market capitalisation number of shares at 31 Dec. × closing share price at 31 Dec.
Impairment losses on loans and receivables 6 2 –2 0 –2 3 1
Total operating expenses –4,469 –459 88 –4,841 –4,490 –425 105 –4,809
Liabilities directly associated with non-current assets classified as held for sale 1, 37 24,520 –
Total income and expenses recognised for the period 163 887 1,049 14 1,063
Cash flow hedges: - recognised in equity during the financial year 0 0 0 - recognised in p/l –1 –1 –1
Financial assets available-for-sale - recognised in p/l –155 –18 –172 –172
Proceeds from the sale of group and associated undertakings 26 102
On 16 August 2006, Sampo Bank Plc acquired Industry and Finance Bank (Profibank ZAO) in St.Petersburg, Russia. The purchase consideration, EURm 4.8, was in its entirety paid in cash.
The cash and cash equivalents in the acquired entity were EURm 0.4. The assets and liabilities of the acquired entity do not have a material effect on the consolidated financial statements.
Other notes to the consolidated financial statements Note page 1 Non-current assets held for sale and discontinued operations . . . . . . . . . . . . . . . . . 59 4 Net income from financial transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 5 Fee and commission income and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 6 Impairment losses on loands and receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 10 Change in liabilities for insurance and investment contracts . . . . . . . . . . . . . . . . . . . 73 13 Result analysis of P&C insurance business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 14 Performance analysis of P&C insurance business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 18 Cash and balances at central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 19 Financial assets and liabilities at fair value through p/l . . . . . . . . . . . . . . . . . . . . . . . 81 23 Investments related to unit-linked contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 27 Deferred tax assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 29 Non-current assets classified as held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 30 Amounts owed to credit institutions and customers . . . . . . . . . . . . . . . . . . . . . . . . . . 113 32 Liabilities from insurance and investment contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 116 33 Liabilities from unit-linked insurance and investment contracts . . . . . . . . . . . . . . . . 119 37 Liabilities directly associated with non-current assets classified as held for sale . . 127 44 Investments in shares and participations other than subsidiaries and associates . . 136
The financial statements have been prepared under the historical cost convention, modified by changes in fair value, amortisation, depreciation or impairment losses, depending on the accounting treatment of the respective items.
The Board of Directors of Sampo plc accepted the financial statements for issue on 13 February 2007.
The Group has a synthetic securitisation arrangement, by which Sampo Bank plc uses credit derivatives to transfer the credit risk of a loan portfolio in its balance sheet to the market. The derivatives are treated in the consolidated financial statements like guarantees. Sea Fort Securities plc, a special purpose entity funding part of the credit risk, has been established for this purpose. The loans remain in Sampo Bank plc’s balance sheet.
The Group has no controlling power or participation in the special purpose entity’s net assets, and the special purpose entity has not been consolidated.
The income statements of Group entities whose functional currency is other than euro are translated into euro at the average rate for the period, and the balance sheets at the rates prevailing
Once a financial asset has been written down as a result of an impairment loss, interest income is thereafter recognised using the original effective interest rate of that asset. When an uncertainty arises about the collectibility of the interest, the uncollectible amount, or the amount in respect of which recovery has ceased to be probable, is recognised as an impairment loss.
Fees and commissions Fees and commissions which are an integral part of the effective interest rate of a financial instrument are deferred and treated as an adjustment to the effective interest rate. Such fees may be origination fees (including compensation for activities such as evaluating the borrower’s financial condition, evaluating and registering guarantees, collateral and other securities and documentation) and commitment fees, for example. If a commitment fee expires without an entity making a loan, the fee is recognised as revenue upon expiry.
Fees for other financial services include fees recognised as revenue when services are provided (e.g. those charged for servicing a loan). Fees earned upon the execution of a significant act are recognised as revenue when the act is completed. Such fees are e.g. syndication fees which are recognised in profit or loss when the syndication has been completed.
Insurance premiums Insurance premiums in the income statement consist of premiums earned for P&C insurance and premiums written for Life insurance. P&C insurance contracts are primarily of short duration (1 year), so that premiums written are recognised as earned on a pro rata basis, adjusting them by a change in the provision for unearned premiums i.e. by the proportion of the insurance premium income that, based on the period covered by the insurance contract, belongs to the following financial year,.
In Life insurance, liabilities arising from insurance and investment contracts count as long-term liabilities. Therefore the insurance premium and related claims are usually not recognised in the same accounting period. Depending on the type of insurance, premiums are recognised in premiums written either when the premium is charged, or when the premium has been paid.
The change in the provisions for unearned premiums is presented as an expense under ‘Change in insurance and investment contract liabilities’.
Financial assets and liabilities at fair value through profit of loss comprise trading assets and liabilities, derivatives held for trading, and financial assets designated as at fair value through profit or loss.
Financial assets designated as at fair value through profit or loss Financial assets designated as at fair value through profit or loss are assets which, at inception, are irrevocably designated as such. They are initially recognised at cost which is the fair value of the consideration given, and subsequently remeasured at fair value. Gains and losses arising from changes in fair value, or realised on disposal, together with the related interest income and dividends, are recognised in the income statement.
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold until maturity. Held-to-maturity investments are initially recorded at cost which is the fair value of the consideration given plus any directly attributable transaction costs, and are subsequently measured at amortised cost using the effective interest rate method.
With the exception of cash and balances with central banks, the loans and receivables of Banking and Investment services and other operations are included in the balance sheet item ‘Loans and receivables’. The investments of the insurance businesses are mainly included under ‘Investments’.
In other segments, available-for-sale financial assets comprise assets that, although they are not acquired for trading purposes, might not be held to maturity.
The fair value of financial instruments is determined primarily by using quoted prices in active markets. Financial assets are measured at the bid price and financial liabilities at the asking price. If there are items in a position offsetting each other’s market position, the mid price may be used 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.
Impairment of financial assets Sampo assesses on each balance sheet date whether there is any objective evidence that a financial asset may be impaired. A financial asset is impaired and impairment losses are incurred, if there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset, and if that event has an impact, that can be reliably estimated, on the estimated future cash flows of the financial asset.
The objective evidence of the customer’s ability to pay all contractual payments is based on a default rating. There is objective evidence of impairment if the payment status of a customer is rated as ‘default’, which, in the case of loans and held-to-maturity investments, is demonstrated by one or more of the following loss events: – Overdue payments: Interest or principal payments more than 90 days overdue.
– Forced concession: Decision the Group would not have made at the given terms, if the customer had not had existing exposures in the Group (e.g. reduction of an interest rate or a material abatement of interest or principal, change in the status of a loan to subordinate, voluntary restructuring or rearrangement of payments).
– Legal restructuring: Corporate restructuring and corresponding rearrangements for personal customers.
If, in a subsequent period, the amount of the impairment loss decreases, and the decease can be related objectively to an event occurring after the impairment was recognised (the default status is removed), the previously recognised impairment loss shall be reversed either directly or by adjusting the allowance account.
Hedge accounting applies to hedges that are effective in relation to the hedged risk and meet the hedge accounting requirements of IAS 39. The hedging relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for undertaking the hedge, are documented at the inception of the hedge. In addition, the effectiveness of a hedge is assessed both at inception and on an ongoing basis, to ensure that it is highly effective throughout the period for which it was designated. Hedges are regarded as highly effective in offsetting changes in fair value or the cash flows attributable to a hedged risk within a range of 80 – 125 per cent.
In the Banking and Investment Services segment, assets, liabilities and future cash flows denominated in euro or other currencies are hedged against related interest rate, currency and price risks.
Both individual items and portfolios are designated as hedged items to which hedge accounting is applied. In the Insurance segments, hedges are made against interest rate risk and currency risk, but hedge accounting is not applied.
Fair value hedging is used to hedge individual fixed interest rate loans, debt securities in issue, as well as index-linked deposits and index-linked debt securities in issue. The hedging instruments used include interest rate swaps, interest rate and cross currency swaps and, for index-linked items, index options. In addition, fixed interest rate loan portfolios are hedged by using interest rate swaps.
Cash flow hedging is used to hedge portfolios of floating rate loans. Derivative instruments which are designated as hedges and are effective as such are measured at fair value. The effective part of the change in fair value is recognised in the fair value reserve in equity and the remaining uneffective part is recognised in profit or loss.
Finance leases are included in ‘Loans and receivables’ and interest in ‘Interest income’.
Finance leases Leases of assets in which substantially all the risks and rewards of ownership are transferred to the Group are classified as finance leases. Finance leases are recognised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The corresponding obligation is included in ‘Other liabilities’ in the balance sheet. The assets acquired under finance leases are amortised or depreciated over the shorter of the asset’s useful life and the lease term. Each lease payment is allocated between the liability and the interest expense. The interest expense is amortised over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Goodwill represents the excess of the cost of an acquisition (made after 1 January 2004) over the fair value of the Group’s share of the net identifiable assets, liabilities and contingent liabilities of the acquired entity at the date of acquisition. Goodwill on acquisitions before 1 January 2004 is accounted for in accordance with the previous accounting standards and the carrying amount is used as the deemed cost in accordance with the IFRS.
Customer relationships based on insurance contracts and identifiable in conjunction with the merger of the P&C insurance business are also recognised as other intangible assets. Customer relationships are measured at fair value at the acquisition. Measurement of the present value of all future cash flows from an asset takes into consideration insurance premium revisions, cross-sales and general economic forecasts. The average validity period of insurance contracts, 6 years, is deemed as the asset’s useful life, during which time it is amortised on a straight-line basis. When necessary, customer relationships are tested for impairment.
29IFRS Financial Statements: Notes to the accounts estimated useful life of the asset. The estimated useful lives by asset class are as follows: IT software 4 – 10 years Other intangible assets 3 – 10 ”
The cost of acquiring the Russian Industry and Finance Bank has been recognised as an intangible asset of Banking and Investment Services to the extent the cost exceeded the total amount of the company’s net assets. This part of the cost was considered as the cost of acquiring a licence to undertake banking operations in Russia. The licence is considered to have an indefinite useful life. It will not be amortised, but it will be tested for impairment.
Items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful life. In most cases, the residual value is estimated at zero. Land is not depreciated. Estimates of useful life are reviewed at financial year-ends and the useful life is adjusted if the estimates change significantly. The estimated useful lives by asset class are as follows: Residential, business premises and offices 20 – 60 years Industrial buildings and warehouses 30 – 60 years Components of buildings 10 – 15 years IT equipment and motor vehicles 3 – 5 years Other equipment 3 – 10 years
Depreciation of property, plant or equipment will be discontinued, if the asset in question is classified as held for sale in accordance with IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’.
Impairment of intangible assets and property, plant and equipment At each reporting date the Group assesses whether there is any indication that an intangible asset or an item of property, plant or equipment may be impaired. If any such indication exists, the Group will estimate the recoverable amount of the asset. In addition, goodwill, intangible assets not yet available for use and intangible assets with an indefinite useful life will be tested for impairment annually, independent of any indication of impairment. For impairment testing the goodwill is allocated to the cash-generating units of the Group from the date of acquisition. In the test the carrying amount of the cash-generating unit, including the goodwill, is compared with its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. The value in use is calculated by estimating future net cash flows expected to be derived from an asset or a cash-generating unit, and by discounting them to their present value using a pre-tax discount rate If the carrying amount of an asset is higher than its recoverable amount, an impairment loss is recognised in profit or loss. In conjunction with this, the impaired asset’s useful life will be re-determined.
Investment property Investment property is held to earn rentals and for capital appreciation. The Group applies the cost model to investment property in the same way as it applies to property, plant and equipment. Moreover, the depreciation periods and methods and the impairment principles are the same as those applied to corresponding property occupied for own activities. The fair value of investment property is estimated using a method based on estimates of future cash flows and a comparison method based on information from actual sales in the market. The fair value of investment property is presented in the Notes.
Insurance and investment contracts Insurance contracts are treated in accordance with IFRS 4. Under the standard, insurance contracts are classified as insurance contracts if significant insurance risk is transferred between the policyholder and the insurer. If the risk transferred on the basis of the contract is essentially financial risk rather than significant insurance risk, the
IFRS Financial Statements: Notes to the accounts contract is classified as an investment contract. Classification of a contract as an insurance contract or investment contract determines the measurement principle applied to it.
Sampo treats the liabilities arising from contracts in the first phase of the standard according to national accounting standards, except for the equalisation reserve and changes in it which are reported in equity and profit or loss, in accordance with the IFRS.
The provision for claims outstanding in direct P&C insurance and reinsurance may be calculated by statistical methods or through individual assessments of individual claims. Often a combination of the two methods is used, meaning large claims are assessed individually while small claims and claims incurred but not reported (the IBNR provision) are calculated using statistical methods. The provision for claims outstanding is not discounted, with the exception of provisions for vested annuities, which are discounted to present value using standard actuarial methods, taking anticipated inflation and mortality into account.
Liability adequacy test A liability adequacy test is performed separately for both the provision for claims outstanding and the provision for unearned premiums. The provision for claims outstanding is based on estimates of future cash flows. The estimates are made by using wellestablished actuarial methods.
Provision for a collective guarantee The provision for a collective guarantee is regulated by Finland’s Traffic and Accident Insurance Act and must be collected by insurers. Its purpose is to guarantee the payment of claims to customers in the event that any insurers are put into liquidation or bankruptcy. The collection of funds for this provision is to guarantee
Classification of insurance contracts Policies issued by the Life Insurance business are classified as either insurance contracts or investment contracts. Insurance contracts are contracts that carry significant insurance risk or contracts in which the policyholder has the right to change the contract by increasing the risk. As capital redemption contracts do not carry insurance risk, these contracts are classified as investment contracts.
The discretionary participation feature (DPF) of a contract is a contractual right held by a policyholder to receive additional benefits, as a supplement to the guaranteed minimum benefits. The supplements are bonuses based on the reserves of policies credited to the policy reserve or additional benefits in the case of death. In Sampo Life, the principle of fairness specifies the application of this feature. In unit-linked contracts the policyholder carries the investment risk by choosing the investment funds linked to the contracts.
Measurement of insurance and investment contracts National accounting standards are applied to all insurance contracts and to investment contracts with DPF, with the exception of the equalisation provision and changes in it.
Insurance and investment contract liabilities and reinsurance assets Liabilities arising from insurance and investment contracts consist of provisions for unearned premiums and outstanding claims. In the life insurance business, various methods are applied in calculating liabilities which involve assumptions on matters such as mortality, morbidity, the yield level of investments, future operating expenses and the settlement of claims.
Due to the difference in the discount rate of liabilities and the guaranteed interest of policies, supplementary provisions for guaranteed interest have been added to technical provisions. In the Baltic subsidiaries, the discount rate varies by country between 2.3 – 3.5 per cent and the average guaranteed interest rate between 3.5 – 3.8 per cent.
The provision for claims outstanding is intended to cover expected future payments for all claims incurred, including claims not yet reported to the company (the “IBNR” provision). The provision for claims outstanding includes claim payments plus all costs of claim settlements.
The amounts of short- and long-term liabilities in technical provisions are determined annually. Additionally, the risk management section of the Notes includes the forecast annual maturities of technical provisions. The assumptions used in calculating the amounts of short- and long-term liabilities are the same as those used in the liability adequacy test.
Liability adequacy test A liability adequacy test is applied to all portfolios, company by company, and the need for augmentation is checked, company by company, on the basis of the adequacy of the whole technical provisions. The test includes all the expected contractual cash flows for non-unit-linked liabilities. The expected contractual cash flows include expected premiums, claims, bonuses and expenses. The claims have been estimated including surrenders and other insurance transactions based on historical data. The amounts of claims include the guaranteed interest and an estimation of future bonuses. The present values of the cash flows have been discounted to the balance sheet date by using a risk-free, zero-coupon yield curve.
Sampo Life aims at giving a total return before charges and taxes on policyholders’ savings in contracts with DPF that is at least the yield of a Finnish government long-term bond. The total return consists of the guaranteed interest rate and bonuses determined annually. As for the level of the total return, continuity is pursued.
Share-based payments Sampo has share-based incentive schemes that are settled either in cash (the long-term incentive schemes 2003 I, 2004 I, 2004 II, 2005 I, 2006 I and 2006 II for executives and specialists) or in equity instruments (Sampo 2006). Schemes with cash payments are measured at the intrinsic value of the incentive on interim or annual balance sheet dates, and changes in the liability are recognised through profit or loss. Schemes where the payment is in equity instruments are measured at fair value at the grant date, and are recognised as an expense and as an increase in equity on a straight-line basis during the vesting period.
Income taxes Item Tax expenses in the income statement comprise current and deferred tax. Tax expenses are recognised through profit or loss, except for items recognised directly in equity, in which case the tax effect will also be recognised in equity. Current tax is calculated based on the valid tax rate of each country. Tax is adjusted by any tax related to previous periods.
Accounting policies requiring management judgement and key sources of estimation uncertainties 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 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.
Evaluation of insurance liabilities always involves uncertainty, as technical provisions are based on estimates and assumptions concerning future claims costs. The estimates are based on statistics on historical claims available to the Group on the balance sheet date. The uncertainty related to the estimates is generally greater when estimating new insurance portfolios, or portfolios where clarification of a loss takes a long time because complete claims statistics are not yet available. In addition to the historical data, estimates of insurance liabilities take into consideration other matters such
IFRS Financial Statements: Notes to the accounts as claims development, the amount of unpaid claims, legislative changes, court rulings and the general economic situation.
In 2007, the Group will apply the following standards and interpretations published by the IASB in 2005 and 2006 related to the Group’s business: IFRIC 8 Scope of IFRS 2 IFRIC 9 Reassessment of embedded derivatives IFRIC 10 Interim financial reporting and impairment IFRIC 11 IFRS 2 – Group and treasury share transactions
The view of Sampo’s management is that the introduction of the above IFRIC interpretations will have no material effect on the Sampo Group’s financial statements information, P/E ratio or accounting policies.
Capitalisation and capital management process . . . . . . . . . . 37
Market risks of P&C insurance liabilities . . . . . . . . . . . . . . . . 40 Market risks of life insurance liabilities . . . . . . . . . . . . . . . . . 40
Liquidity risks of the banking book . . . . . . . . . . . . . . . . . . . . . 44 6 Risk management process and methods . . . . . . . . . . . . . . . . 47
Investment management of insurance companies. . . . . . . . . 50 7 Preparation for changes in the operating environment. . . . 53
Banking and insurance are regulated businesses. There are formal rules for minimum capital and capital structure. Capital adequacy and solvency are reported quarterly to the supervisory authorities monitoring the Sampo Group and its subsidiaries. The supervisors are the Financial Supervision Authority and Insurance Supervision Authority in Finland, Finansinspektionen (SFSA) in Sweden and local supervisors in the Baltic countries and Russia. The Finnish Financial Supervision Authority acts as the co-ordinator. Subsidiaries are monitored on a solo basis by the authority of the country of their location.
The risks in the Sampo Group are described and aggregated internally through the concept of economic capital. Economic capital describes the amount of capital required in the Group in order to bear different kinds of risks.
Economic capital is defined by market, credit and insurance risks, operational risks and business risks. The economic capital allocated to the market, credit and technical risks of insurance is calculated by means of the Group’s own statistical risk models. The capital requirement for operational risks is calculated using the Basel II Standard Approach. Business risks are measured by business area in terms of the volatility of the operating profit and level of costs.
Economic capital reflects not only the amount of the different kinds of risks, but also slightly their mutual diversification effect. It
37IFRS Financial Statements: Risk management is very improbable that all risks in the Group’s business areas will materialise at the same time. The magnitude of the diversification effect at the Group level is about 17 per cent.
The economic capital tied up in the Group’s operations increased during the year by about EUR 271 million (9 per cent). The reasons for this were the growth of the banking loan portfolios and the increase in the market value of the investment portfolios. At the same time the minimum capital adequacy requirements increased by about EUR 169 million (8 per cent). The capital allocated to credit institution operations increased by about EUR 95 million. The capital allocated to life insurance operations increased by about EUR 59 million. The capital allocated to P&C insurance operations increased by EUR 78 million. The capital allocated to the parent company mainly comprises the exchange rate risks of subsidiary holdings and the investments. Analysed by risk category, the capital allocated to credit risks increased the most. The capital allocated to insurance risks decreased. During 2006 Sampo Bank synthetically securitized EUR 1,000 million in corporate credit exposures which decreased the required capital.
4. Financial Risks Market, credit, liquidity and property risks are here classified under financial risks. The breakdown of the Group and its segments into financial assets and liabilities is presented in Table 2. The eliminations in the table are due to inter-segment transactions. Transactions between the Group’s companies are always priced in a marketconsistent manner. For Life Insurance the table does not include the assets associated with the unit-linked business. Derivatives are netted in the table across assets and liabilities.
Movements in risk factors such as interest rates, exchange rates, equity and commodity prices and changes in their respective volatilities affect the fair values of financial assets and liabilities. The sensitivity of existing contracts to different market risk scenarios are shown in Tables 3 and 4. These tables do not show the financial risks of technical provisions, which are quantified in paragraph 5.
The currency risk consists mainly of the translation risk related to the net asset value and dividends of If. The currency positions of the Group’s companies against their home currency and the translation risks are shown in Table 5. The currency positions of companies are kept very minor. The Group’s currency risk is EUR 182 million, measured against 5 per cent depreciation of foreign currencies against the EUR.
In the banking book, loans to customers are mostly linked to Euribor rates. The interest rates for a considerable part of demand deposits are set by the banks on the basis of the competitive situation and general interest levels. The market-based funding of Sampo Bank is mainly linked to the Euribor rates. With this risk profile, in a low rate environment, the net interest rate margin is under pressure. When rates climb, the net interest rate margin rises. The main risk is a situation in which the Euribor rates remain at a very low level for a long period of time.
In 2006 the Euribor rates climbed steadily and the net interest margin of banking started to rise. During 2006, the bank did not enter into any new long-term hedges against a low rate scenario. As per 31 December 2006, a hypothetical one percentage point interest rate rise would have improved the net interest margin of Sampo Bank by EUR 40 million. The combined interest rate risk for other currencies was less than EUR 2 million.
Holding and other 0 0 –45 0 2006, Sampo Group total 355 –347 –330 0 2005, Sampo Group total 364 –327 –305 –21
IFRS Financial Statements: Risk management introduction of euro compared with the original timetable. Market risks in trading services are small compared to banking book risks.
The If Group’s investment operations achieved a return of 4.3 per cent in 2006. The amount of investment assets was EUR 9,843 million. The duration of investments was increased during the year.
Reserves for annuities in Finland, Sweden and Denmark are discounted, and potential changes in the discount rate will affect technical provisions. The discount rates vary between countries due to legislation. As of 31 December 2006, the total amount of discounted provisions is EUR 1,670 million.
P&C insurance writes insurance policies mostly denominated in Scandinavian currencies and in Euro. The currency risk is reduced by matching technical provisions with investments in the corresponding currencies or by using foreign exchange rate derivatives.
Sampo Life has prepared for low interest rates by, for example, reducing the minimum guaranteed interest of new contracts and increasing the reserve for a decreased discount rate. Due to these operations, the claim for future returns of the pension business has
Fixed income investments, Life insurance and P&C insurance, EUR 12,819 million, 31 Dec., 2006
Equity investments, Life insurance and P&C insurance, EUR 2,484 million, 31 Dec., 2006
41IFRS Financial Statements: Risk management been decreased to 3.5 per cent and, with respect to other business, to 2.5 per cent. In addition, existing contracts and processes have been altered so that the re-investment risk can be better managed. Sampo Life has no investment risk in the unit-linked business.
The most noteworthy risk included in liabilities is the interest rate risk related to guaranteed interest. In most with-profit liabilities, the guaranteed interest rate used in the premiums basis is 3.5 per cent. In Finnish individual policies sold before 1999, the guaranteed interest rate is 4.5 per cent, this being also the statutory maximum discount rate of these policies. With respect to these individual pension policies, the discount rate used in discounting liabilities has been decreased to 3.5 per cent. The discount rate of life insurance and capital redemption policies having a guaranteed interest of 3.5 or 4.5 per cent was decreased to 2.5 per cent. The liabilities have been increased by EUR 142 million (149 million) due to these decreases, of which EUR 99 million (103) is accounted for by individual pension policies, and EUR 43 million (46) by life insurance and capital redemption policies.
The surrender risk included in liabilities is the most noteworthy in with-profit insurance. In pension insurance, surrender is possible only in exceptional cases, so that the real surrender risk is in life insurance and capital redemption policy operations. This risk is reduced by the relatively short maturity of such contracts (Table 19), the surrender penalties of the first years and the reserve for a decreased discount rate.
Duration of technical provision for claims outstanding per product as of 31 Dec., 2006
Credit risks refer to variations in results caused by customers or counterparties failing to meet their commitments. Credit risks include counterparty, country and settlement risks.
Retail customer lending increased by EUR 1.9 billion (19 per cent) of which the Baltic accounted for EUR 0.4 billion (62per cent). 79 per cent of the retail loan portfolio and most of the new lending were used to finance the purchase of dwellings. The Baltic countries accounted for 8.9 per cent of the retail loan portfolio and 21.5 per cent of the growth. In Finland 80 per cent of lending and 81 per cent of its growth were in areas of net in-migration of population. Just under 1.5 per cent of lending was in areas with significant net out-migration. About 94 per cent of lending to retail customers was secured by category I–IV collateral, which are mainly dwellings and government guarantees. 6 per cent of the total was unsecured credits.
In terms of geographical area, 95 per cent of exposures were in the EU countries. The growth of exposures was concentrated in the Scandinavian and Baltic countries.
The defaulted exposures totalling EUR 140 million are secured with category I–IV collateral totalling about EUR 125 million. These figures are based on the outstanding exposure. Unused limits of defaulted customers totalled EUR 18 million at the end of 2006. Total exposures to corporate and institutional customers in default decreased by EUR 8 million and total exposures to retail customers increased by EUR 33 million.
Figure 13 shows the overdue carrying amounts for financial assets that are overdue by their age. Non-performing loans were EUR 35 million and they decreased by EUR 1 million. The nonperforming loans of retail customers were EUR 23 million and 0.19% of the exposure. Corporate customers’ non-performing loans were EUR 12 million and 0.08% of the exposure.
Impairment losses on loans and receivables amounted EUR 1.5. million. New impairment losses totalled EUR 53 million, while
Investment Services P&C Insurance Life Insurance Other % (Sampo Group level) Sampo Group recoveries totalled EUR 51.5 million. Net losses of retail customers amounted to EUR 13 million and corporate customers’ recoveries exceeded losses by EUR 11.5 million.
Almost half of the Sampo Bank Group’s funding comes from liabilities to customers. This balance sheet item has been stable in Finland and growth comes mainly from the Baltic countries. In contrast, the loan growth has been rapid. As a result, the Sampo Bank Group’s market-based funding needs have been growing steadily. To maintain its current liquidity profile, Sampo Bank has been an active issuer of medium term notes. To broaden its funding vehicles and to further ensure access to funding sources, the Sampo Bank Group built up a covered bond programme in 2005 and under it Sampo Housing Loan Bank issued its second covered bond (EUR 1 billion). This program will play a central role in funding in the coming years.
Reinsurance receivables and reinsurers’ portion of outstanding claims per rating category
Financial Assets and Liabilities together with the insurance liability Cash flows according to contractual maturity (expected future payments of technical provisions ), no eliminations
Liquidity profile of the banking book, 31 Dec., 2006 EURm 0–1m 1–12m 1–2y 2–5y 5y > Total
– Liabilities to Credit Institutions and Central Banks 194 159 16 11 96 476
P&C Insurance follows detailed underwriting guidelines, intended to secure an accurate assessment and quantification of the risks P&C Insurance will undertake, regulate the size of the amounts insured and define the risk types that may be accepted. A sensitivity analysis of the underwriting risk is presented in Table 15.
Provision risks relate to the adequacy of technical provisions or reserves. The estimation of technical provisions for P&C insurance portfolios always includes an element of uncertainty as the provisions represent an approximation of future claims payments. For the sensitivities of the reserves, see Table 16.
P&C Insurance underwrites business in the Nordic and Baltic countries (Figure 15). Given the large number of customers for P&C Insurance and the fact that business is underwritten in
Effect on pretax profit 1% change in Private’s combined ratio ± 20 ± 20 1% change in Commercial’s combined ratio ± 12 ± 12 1% change in Industrial’s combined ratio ± 5 ± 5 1% change in Baltics’s combined ratio ± 1 ± 1 1% change in premium level ± 39 ± 37 1% change in claims frequency ± 28 ± 27 10% change in ceded reinsurance premium ± 24 ± 23
Inflation Nominal long tailed Increase by 1%-point Sweden 162 157 in nominal reserves reserves Denmark 9 8
Distribution of technical provisions for claims outstanding on period of payment different geographical areas and across several classes of insurance, the portfolio is relatively well diversified.
In terms of insurance classes, motor insurance constitutes a relatively large share of the overall business underwritten, especially in Sweden.
With respect to the Sampo Life Group, the insurance risks of insurance policies refer to risks related to the mortality rate and the incidence of disability and illness. The insurance risk in life insurance is due to underwriting and provision risks. The underwriting risk contains a risk of losses due to pricing, concentration, improper reinsurance coverage or random fluctuations in frequency and size of claims. The provision risk is the risk that the carrying amounts of the liabilities are not adequate to cover all the liabilities. In life 0–3 years 46%
47IFRS Financial Statements: Risk management insurance the main provision risk is due to the discount interest rate risk (paragraph 4), but it also contains the same risks as the underwriting risk, such as random fluctuations in the frequency and size of claims.
Table 17 shows the underwriting result of Sampo Life’s Finnish business without the Employees’ Group Life Insurance Pool. The ratio of the actual claims expenditure to the claims expenditure assumed in insurance premiums was 88 per cent in 2006 (87 per cent in 2005).
The most noteworthy of the insurance risks related to pension insurance is the increase in life expectancy. The assumed life expectancy in group pension premiums and liabilities was raised in 2002.
In most individual pension insurance, the longevity risk is smaller than in group pension insurance due to the fixed term of the policies and because most policies have been issued with death cover that compensates the longevity risk. Within the policies policyholders are allowed to cancel the death cover and they are allowed to change pension plans. Both of these changes could increase longevity risk, but so far these changes have not had any material effect on Sampo Life’s total risk position.
In some older individual policies, the mortality rate and structure of products differ from the remainder of the portfolio, for which reason the valuation basis of these policies was changed and liability was supplemented in 2004. The supplementary liability is EUR 5.8 million at 31 December 2006. Since the change in the liability valuation, the mortality result within individual pension policies has been close to zero.
The provision risk is managed by analysing and annually reviewing the assumptions related to the liabilities. While improved estimates of the assumptions normally have no impact on the value of liabilities, a substantial deterioration in estimates does have an impact.
The risk management process consists of risk control and risk management. Risk control consists of formulating risk management principles, setting limits and granting authorisations, management accounting and risk calculation, assessing the economic capital needed, and monitoring the functionality of the risk management
Claim ratios of Sampo Life after reinsurance (excluding the figures of Employees’ Group Life)
The business line organisations make customer business-related decisions and ensure that decisions are made within the given authorisations and limits. In P&C insurance the risk governance model includes a centralised P&C Insurance Risk Control Committee, which reports to the Risk Control Committee and to Risk Control. The Group’s Risk Control is independent from business activities. The Group’s Risk Control is responsible for monitoring the risk position of the Group.
The Risk Control Committee also controls the aggregated market risk at the group level. The Group’s Asset and Liability Committee sets limits, control parameters and risk-taking authorisations for
Reserve for decreased discount rate 168 0 0 0 0 0 –26 142 2
Maturity of liabilities arising from insurance and investment contracts of Sampo Life Group *)
The daily management of market risks is carried out by the responsible units using various sensitivity analyses for positions against changes in market variables. In addition, there is independent monitoring by risk control.
In banking the Group Treasury manages the interest rate and liquidity risks of the banking book within its authorisations and limits. These risks arise from Sampo’s customer business. The objective is to preserve the net interest margin generated by customer business. The interest rate and liquidity risk of the banking book is managed by using derivatives and debt instruments. To reduce liquidity risks, some of the market-based funding must be acquired in maturities corresponding to the assets. A wide range of available financing sources with varying maturities is used. Customer behaviour data related to demand deposits and the prepayment characteristics of household loans are taken into account in the management process and in the related market risk models.
IFRS Financial Statements: Risk management dence level used is 97.5 per cent and the investment horizon is one month. The covariances are calculated from five-year data, using exponential weighted moving averages. Stress testing is also performed in support of the VaR calculations.
The Group’s Credit Committee is authorised to make all credit decisions. The authority is further delegated to separate subcommittees responsible for domestic and Baltic customers, and to authorise credit officers in customer business units. The nominal amount of the authorisation varies according to the economic capital and the total exposure of the customer after the decision. All credit requests are prepared in the customer business units. Credit decisions are primarily based on the risk-adjusted return on riskadjusted capital. The most important factors are creditworthiness, the loss given default, and the maturity of the respective customer exposures.
Each significant corporate customer has a customer account officer who is familiar with the customer’s business and monitors its development. Customers with significant exposures are analysed by credit analysts independent of the customer responsible unit.
Credit risk monitoring consists of the continuous monitoring of macro-economy and business sector developments on the one hand, and the monitoring of customer creditworthiness, collateral values and covenants on the other hand. The credit risks of customer-responsible units are reviewed systematically at least once a year. This review includes monitoring the appropriateness of credit decisions and the implementation of action plans created to reduce the risks of the lowest rated customers. The evolution of new lending is benchmarked monthly against credit policy targets. Country, customer and product limits are monitored daily.
Long-term loans to private customers are mainly collateralised by housing company shares or residential real estate. Regional housing price indices are used to update the latest trade prices, in calculating fair value estimates for these collateral types.
All collateral is valued at the time it is pledged and regularly thereafter. The fair value of each collateral item is divided into four quality categories on the basis of volatility and liquidity. Only the two best quality categories are taken into account in calculating an estimate for loss given default. In this way a collateral haircut is implemented into risk measurement and pricing. For example, the two best quality categories represent 70 per cent of the fair value of dwellings or 60 per cent of the fair value of business premises with good liquidity
The investment operations of the Sampo Group’s insurance companies aim at achieving the highest possible returns at acceptable levels of risk, to ensure that both Sampo Life and the If Group will, under all circumstances, exceed the required solvency ratio and have sufficient and structurally suitable investment assets to cover the companies’ technical provisions. The biggest risks threatening investment performance are decreases in the value of investments, and returns that are lower than that required by technical provisions. The intention is to limit these risks by diversifying the investment portfolio as far as possible by instrument, sector and country. Currency risks are managed by keeping assets and liabili-
51IFRS Financial Statements: Risk management ties sufficiently balanced across currencies or by using derivatives. If necessary, derivatives are also used to hedge the investment portfolio against value decreases.
Underwriting The Underwriting Policy is the principal document for underwriting activities and gives general principles, restrictions, limits and directions for the organisation of underwriting activities. The Underwriting Committee is responsible for maintaining the underwriting policy and for making proposals for adjustments.
Within each business area of P&C Insurance, separate underwriting and pricing units are responsible for the tariffs and pricing of insurance contracts. Among other procedures, statistical analyses of historical claims and individual analyses of major undertakings are conducted on a continuous basis in order to secure adequate pricing.
Large claims are an inherent part of the property and casualty insurance business. The Reinsurance Policy stipulates guidelines for purchase of reinsurance in terms of capacity needs and economic stability. Based on statistical methods and models, the need and optimal choice of reinsurance is evaluated. The remaining net exposure must meet the capital requirements (regulatory, economic and rating) and the cost of reinsurance must be favourable compared to the cost of capital.
To analyse the exposure to natural catastrophes, the probability of major losses and the need for reinsurance, P&C Insurance cooperates with external advisers. Two different approaches are used for these analyses: statistical models in which historical losses are used to estimate distributions for the frequency and size of losses, and technical, or catastrophe, models in which catastrophes are simulated based on historical and meteorological data. Subsequently, insurance losses can be calculated, taking into account vulnerability, exposure and policy terms.
Reserving The Guiding Technical Principles state the distribution of roles and responsibilities linked to the balance sheet, especially regarding technical provisions or reserves. If ’s Chief Actuary is responsible for developing and presenting guidelines on how the technical reserves are to be calculated and for assessing whether the overall level of reserves is sufficient in relation to the set policy. The Chief Actuary issues quarterly a report on the adequacy of technical reserves, which is submitted to the Board of Directors, If ’s Risk Control Committee and If ’s CEO.
The estimation of technical provisions for P&C insurance portfolios includes an element of uncertainty, since the provisions correspond to an approximation of future claims payments. The estimates are based on the facts and data on historical claims that are known and available at the closing date. Other factors that are monitored include the loss development trend, the level of unpaid claims, changes in legislation, legal cases and economic conditions. The methods used in general are the Chain Ladder and the Bornhuetter-Fergusson methods combined with projections of numbers of claims and average claims costs.
Uncertainty regarding technical provisions is normally larger for new portfolios for which complete run-off statistics are not yet available, and for portfolios that include claims whose final settle-
Dynamic financial analysis Quantification of the specific risks, such as underwriting or market risks, is of great importance. However, in order to assess the overall risk profile, it is necessary to incorporate the interrelationships between the various risk types, as some of the risks can work in opposite directions, creating natural hedges. If has for several years used a Dynamic Financial Analysis (DFA) model for quantification of individual risks and the overall risk profile. If ’s DFA model is based on a market-recognised simulation engine, customised and developed for the specific needs of P&C Insurance. The DFA model is based on Monte-Carlo simulations of both investment and insurance operations and for example takes into account the effects of reinsurance structures and investment allocations. The model is used for several purposes, the most important being: the overall capital needs for P&C Insurance and all its subsidiaries the allocation of capital to the various lines of business in order to achieve consistent profit targets throughout the organisation the allocation of investment assets between asset classes and regions the requirements for reinsurance
Life insurance risk management Sampo Life’s underwriting policy sets principles for risk selection and limits for the sum insured. Sampo Life ensures through monthly monitoring that the principles are followed and the limits are not exceeded.
The adequacy of liabilities is tested quarterly by a liability adequacy test, and possible additions to liabilities are made based on
Operational risk management Operational risks are defined as the risks of losses attributable to inadequate or defective internal processes and systems, people or external events. Operational risks also include legal and reputational risks. Risks can be divided into eight classes: Internal fraud External fraud Deficiencies in personnel management Deficiencies in practices concerning customers, products or business Damage to physical assets Business disruption and system failures Deficiencies in execution, delivery and process management Changes in the external operating environment
The business areas are responsible for organising and monitoring operational risk management in accordance with the principles defined by Group management. The centralised functions (security, information management, legal affairs, human resources) support the business units in their own expert areas. The Group’s risk management organisation develops methods to manage operational risks, co-ordinates the risk management operations of the business units and companies and is responsible for the Group’s risk management reporting. Internal auditing assesses the adequacy and efficiency of internal control and risk management. The compliance function supports the business units in operating in compliance with regulations, and is responsible for the validity of the released financial information.
The Group’s companies and units use the self-assessment method to map their major risks and their probabilities and significance. In this connection, internal controls and instructions are also evaluated. The business units of Sampo Bank and Sampo Life make self-assessments of operational risk annually, whereas in If these assessments are made quarterly. The risk indicator values are reported regularly, and the operational risk losses as soon as they are noticed.
53IFRS Financial Statements: Risk management cator values are compared to earlier averages or with some target level. For example, in the Group Treasury and Trading business area, regular process meetings are arranged in order to follow operational risks. Company and Group level risk indicators have also been set.
The majority of the reported incidents are in the risk class “Deficiencies in execution, delivery and process management”, followed by “External fraud” and “Business disruption and system failures”. The Group’s business units arrange their insurance cover in accordance with the Group’s joint insurance policy.
A new continuity planning procedure has been implemented throughout P&C Insurance and a new crisis management organisation has been established. In November 2006 a large exercise designed to test the crisis management organisation was conducted in all of the Nordic and Baltic countries and UK. Guidelines for prevention of money laundering and terror financing have been implemented and followed up.
With respect to banking, the aim of the EU’s capital adequacy framework reform is to increase the risk sensitivity of banks’ capital adequacy calculations, and to encourage banks to develop their internal risk management systems in line with the recommendations of the Basel Committee. According to the proposal on capital adequacy, banks can select the method of calculating capital adequacy that is the most appropriate for the bank’s own risk management system. The reform aims at maintaining the capital base in the international banking system at its present level. The new capital adequacy framework will affect all credit institutions and investment firms in the EU. The reform will come into force from the beginning of 2007.
The Finnish Insurance Company Act is being reviewed. The most remarkable change concerning the life insurance business is a review of solvency supervision intended to gradually transform supervision in line with the expected requirements of Solvency II. The new act is expected to come into force on 1. 1. 2008.
Depreciation and amortisation by segment are disclosed in Note 12 and investments in associates in Note 22.
Total operating expenses –3,416 –959 –94 –4,469 –459 88 –4,841 net income between the segments 17 27 –62 –18 18
Profit for the financial year 585 175 –37 723 245 –4 963
Financial assets at fair value through p/l 87 16 2,380 –32 2,450
Cash and balances at central banks 366 211 1,290 –201 1,665
Financial liabilities at fair value through p/l 149 36 464 649
Amounts owed to credit institutions and customers 106 12,336 –182 12,260
Revenue by geographical segment EURm Finland Sweden Norway Denmark Baltic Other Total
The revenue of insurance businesses includes insurance premiums according to the underwriting country, consisting of premiums earned for P&C insurance and premiums written for Life insurance.
The revenue of Banking and investment services and Other operations includes the total operating income of those segments.
Banking and investment services (discontinued operations) 23,611 – – – 3,015 17 – 26,643
On 9 Nov. 2006 Sampo Plc signed a contract to sell the entire share stock of Sampo Bank Plc to Danske Bank A/S. As a result, the Banking and investment services segment has been classified as discontinued operations and the assets and liabilities related to it are presented in balance sheet items Non-current assets classified as held for sale (note 29) and Liabilities directly associated with non-current assets classified as held for sale (note 37). Non-current assets classified as held for sale, associated liabilities and related amounts recognised in equity 2006
On 16 August 2006, Sampo Bank plc acquired Industry and Finance Bank (Profibank ZAO) in St.Petersburg, Russia. The acquired percentage of the voting equity instruments was 100%.
The fair value of the acquired net assets totalled EURm 5.3 and the carrying amount EURm 0.4. EURm 4.9 of the cost was allocated as an acquisition cost to a licence in the intangible rights. The licence is regarded as having an indefinite useful life, as there is no foreseeable limit to the period over which it is expected to generate net cash inflows for the Sampo Group.
On 30 December 2005 Sampo plc sold its shareholdings in the following investment service companies to Sampo Bank plc, a whollyowned subsidiary of Sampo plc: Mandatum Stockbrokers Ltd Mandatum & CO Ltd 3C Asset Management Ltd Arvo Value Asset Management Ltd Mandatum Asset Management Ltd Sampo Fund Management Ltd
On 9 December Sampo plc sold Mandatum Private Equity Funds Ltd to Amanda Capital Ltd.
Interest income and expense from P&C insurance and life insurance business are disclosed in Net income from investments.
All changes in fair value are changes in clean fair values i.e. free of any accrued interest. Accrued interests are disclosed in the note Net interest income.
Derivative contracts under trading assets do not meet the criterion for hedge accounting. Net income from such trading derivatives of insurance business are presented in the note Net investment income.
63IFRS Financial Statements: Other notes 5 Fee and commission income and expenses Continuing operations, EURm 2006 2005
Asset management fee and commission income and expenses of insurance business are included in Net income from investment.
6 Impairment losses on loans and receivables Continuing operations, EURm 2006 2005
Life insurance Insurance premiums include all payments from insurance and investment contracts. These are specified in tables below.
Premium revenue ceded to reinsurers on insurance contracts issued –5 –5
¹) The change in unearned premium provision is presented in note 10 (Change in liabilities for insurance and investment contracts).
IFRS Financial Statements: Other notes 8 Net income from investments Continuing operations, EURm 2006 2005
Included in gains/losses from financial assets available-for-sale is a net gain of EURm 205 (273) transferred from the fair value reserve.
Net income from investments. Gains/losses include realised gains/losses on sales, unrealised and realised changes in investments fair values and exchange differences. Income and expense arising from derivative contracts are included entirely in the net investment income.
The effect of discounting annuities in P&C insurance is disclosed separately. The provision for annuities is calculated in accordance with actuarial principles taking anticipated inflation and mortality into consideration, and discounted to take the anticipated future return on investments into account. To cover the costs for upward adjustment of annuity provisions required for the gradual reversal of such discounting, an anticipated return on investments is added to annuity results.
Change in provision for claims outstanding (incurred and reported losses) –675 50 –626 –658 62 –596
(incurred but not reported losses, IBNR) –703 32 –671 –738 29 –708
Change in claims provision for annuities –9 – –9 –12 – –12
Total claims cost attributable to current-year operations –2,652 107 –2,545 –2,640 144 –2,496
(incurred but not reported losses, IBNR) 444 –30 414 513 –124 389
Change in provision for claims outstanding (incurred and reported losses) –9 –24 –33 52 –69 –16
(incurred but not reported losses, IBNR) –258 2 –257 –225 –94 –319
Contracts with discretionary participation feature (DPF) –241 –220 –99 –121 –340 –341
73IFRS Financial Statements: Other notes 10 Change in liabilities for insurance and investment contracts Continuing operations, EURm 2006 2005
Change in liabilities for insurance and investment contracts in total, net –345 –390
Item Other includes, in addition to administrative expenses, i.e. expenses related to communication and external services.
Impairment losses on intangible assets and property, plant and equipment – –
Item Other includes i.e. consultancy fees and rental and other administrative expenses.
Administrative expenses pertaining to other technical operations (Operating expenses) –23 –19
Technical result before investment return 1) Includes other technical income EURm 23 (18) and other technical expenses EURm 23 (19). 2) Premiums written related to sold insurance portfolios EURm 12 has been deducted from premiums written.
Weighted average number of shares outstanding during the period for the purpose of calculating diluted earning per share 576 575
¹) In calculating the diluted earnings per share, those option rights not exchanged to shares during the year but exercice price of which is lower than the average market price of the ordinary share, have been taken into account. The diluting effect is the number of shares, that would be issued without consideration. The fair value of the ordinary share is determined as the average market (closing) price of the shares during the period, being EUR 16.78 in 2006 (EUR 11.97). The dilutive effect of 13 million shares (10 million shares) comes from the year 2000 option programme. More detailed information on option programme by Sampo Group is disclosed in Note 41.
Trading assets and derivative financial instruments 1,862 38 31 – –
Financial assets Cash and balances at central banks 1,929 1,929 1,665 1,665
Amounts owed to credit institutions and customers 12,702 12,755 12,203 12,260
Cash and cash equivalents for Banking and investment services (discontinued operations) at 31 Dec. 2006 are presented in Non-current assets classified as held for sale, note 29.1.
Cash and cash equivalents for Banking and Investment services in the statement of cash flows consist of the following: 2005
The Group uses derivative instruments for trading and for hedging purposes. The derivatives used are foreign exchange, interest rate, equity, commodity and credit derivatives. Derivatives held for trading relate primarily to customer business and, to a lesser degree to proprietary trading. In insurance business derivatives are used for hedging interest rate risk and foreign exchange risk, but hedge accounting is not applied. In Banking and investment services derivatives held for hedging purposes were used for hedging loans, liabilities and future cash flows.
Interest rate options, bought and sold 754 8 9 3,715 36 24
Trading securities pledged as colleteral securities are disclosed in note 36.
Financial assets designated as at fair value through p/l EURm 2005
Maturities for finance lease assets not later than one year 227 later than one year and not later than five years 505 later than five years 132
Loans and receivables for Banking and investment services (discontinued operations) at 31 Dec. 2006 presented in Non-current assets classified as held for sale, note 29.3.
Group insurance companies. In P&C insurance business, financial investments have been designated on initial recognition as financial assets at fair value through profit or loss. In Life insurance financial investments have been designated primarily as financial assets available-for-sale.
Later than one year and not later than five years 1 3
Direct operating expenses arising from investment property generating rental income during the period –1 –2
Direct operating expenses arising from investment property not generating rental income during the period 0 0
EURm 19 in credit linked notes. American Invest Grade credit risk (EURm 30) was swapped to an European in the portfolio. In addition, the life insurance business invested in a loan, the yield of which is linked to the credit risk of 700 Finnish small and medium-sized companies.
The financial investments of EURm 22 of the Baltic companies have been allocated to this category.
Later than one year and not later than five years 12 21
Fair values entirely determined by the Group based on the market evidence.
Financial assets available-for-sale for other business include impairment losses EURm 0 (1).
Later than one year and not later than five years 1 2
Direct operating expenses arising from investment property generating rental income during the period 1 1 direct operating expenses arising from investment property not generating rental income during the period 0 0
Investments for Banking and investment services (discontinued operations) at 31 Dec. 2006 presented in Non-current assets classified as held for sale, note 29.4.
MB Equity Fund II Ky 2 22.56 14 / 0 32 32
MB Equity Fund II Ky 3 – 18.03 20 / 1 42 40
Consulting AB Lennemark & Andersson 7 / 5 9 1 *) If there is a published price quotation
IFRS Financial Statements: Other notes 23 Investments related to unit-linked contracts
Other assets and other liabilities are due to differences in cash flows.
The historical cost of the equity securities related to unit-linked contracts was EURm 1,437 (1,085) and that of the debt securities
Other intangible assets comprise mainly IT software used in Finland EURm 10 (19). The remaining amortising period is for most part 6 years.
Net carrying amount at 31 Dec. 153 6 159 153 4 157
For the purpose of testing goodwill for impairment, Sampo determines the recoverable amount of its cash-generating units, to which goodwill has been allocated, on the basis of value in use. Sampo has defined these cash-generating units as If Group, Sampo Banka AS in
growth rate. The cash flows for Sampo Banka AS beyond year 2011 have been extrapolated using the same 3% growth rate. A 2% growth rate for years beyond 2008 has been used for the markets where Sampo Life operates.
Net carrying amount at 1 Jan. 4 1 5 18 2 20
– From owner-occupied properties to investment properties 0 – 0 0 – 0
Non-cancellable minimum rental from property rented out under operating lease 2005 not later than one year 12 later than one year and not later than five years 11
Property, plant and equipment for Banking and investment services (discontinued operations) at 31 Dec. 2006 presented in Non-current assets classified as held for sale, note 29.6.
Item Other includes i.e. VAT receivable from Primasoft Oy (see Note 36) and intra Group fee receivables.
Other assets for Banking and investment services (discontinued operations) at 31 Dec. 2006 presented in Non-current assets classified as held for sale, note 29.7.
Total –361 –332 29 Non-current assets classified as held for sale EURm 2006
Trading securities pledged as colleteral securities are disclosed in note 37.4.
IFRS Financial Statements: Other notes 29.3 Loans and receivables EURm 2006
Maturities for finance lease assets not later than one year 272 later than one year and not later than five years 625 later than five years 127
Total intangible assets 64 29.6 Property, plant and equipment Land and buildings EquipmentEURm Total
If P&C Insurance Company Ltd issued on 2002 EURm 65 preferred capital note. The loan was wholly subscribed by the If Group’s owners of that moment. The loan has a maturity of 20 years. It pays fixed interest rate for the first 10 years and the last 10 years floating rate interest. The loan is not listed.
Debt securities in issue for Banking and investment services (discontinued operations) at 31 Dec. 2006 presented in Liabilities directly associated with non-current assets classified as held for sale, note 37.2.
At the close of the claims year 2,490 2,432 2,638 2,638
Provision reported in the balance sheet 429 583 741 1,300 3,053
Group, total 12,942 12,623 33 Liabilities from unit-linked insurance and investment contracts
Item Other includes i.e. liabilities arising from intra-group management fees and unredeemed dividends.
35 Employee benefits Employee benefits Sampo has defined benefit plans in P&C insurance business in Sweden and Norway.
In addition to statutory retirement pension insurance, the Group has certain voluntary defined benefit plans. The voluntary defined benefit plans are intra-Group and included in the insurance liabilities of Sampo Life. The amount is negligible and they have no material impact on the Group profit or loss or equity.
Present value of estimated pension obligation 348 57 405 298 54 352
Net pension obligation recognised in the balance sheet 39 48 87 35 46 81
Actuarial gains (+) or losses (–) recognised during the financial year 2 1
Losses (+) or gains (–) on curtailments and settlements 4 2
Pension obligations, and the pension cost accrued during the fiscal period, are calculated using actuarial methods. Earned pension rights are calculated on a straight-line basis during the employment period. The calculation of pension obligations is based on anticipated future pension payments and includes assumptions regarding mortality, employee turnover and salary growth. The nominally calculated liability is discounted to present value using an interest rate based on the current market rate and adjusted to take into account the duration of the company’s pension obligations. After deducting plan assets, a net asset or liability is entered in the balance sheet. The net obligation reported in the closing balance pertained to defined-benefit pension plans for employees in Sweden and Norway. The pension benefits arising in the other countries covered by the Group’s operations have been classified as defined contribution plans.
Other short-term employee benefits There are other short-term staff incentive schemes in the Group, the terms of which vary according to country, business area or company.
Benefits are recognised in the profit or loss for the year they arise from. An estimated amount of these profit-sharing bonuses, social security costs included, for 2006 is EURm 26.
If P&C Holding Ltd and If P&C Insurance Ltd have separately entered into contracts with Försäkringsaktiebolaget Skandia (publ.) and
If P&C Holding Ltd has issued a guarantee to the benefit of TietoEnator Corporation whereby If Holdings guarantees the commitments incurred by the If Group company If It Services A/S with TietoEnator based on an agreement covering IT-services. The guarantee will indemnify TietoEnator if If IT Services A/S is declared bankrupt, suspends payments in general, seeks a composition of creditors or in any other way is deemed to be insolvent.
If P&C Holding Ltd has issued a guarantee to the benefit of Svenska Handelsbanken Ab (publ) whereby If Holdings guarantees the commitments incurred by the If P&C Insurance Ltd deriving from short term credits up to an amount of EURm 55 and for commitments deriving from derivates transaction and – on behalf of – If P&C Insurance Ltd, If P&C Insurance Company Ltd and Capital Assurance
Company for those companies commitments relating to Letters of Credits issued on behalf of their insurance operations.
Minimum lease payments under non-cancellable operating leases not later than one year 2 2 later than one year and not later than five years 4 6
Off-balance sheet items consist mainly of guarantees and commitments to extend credit. More information in note 37.5. Liabilities directly associated with non-current assets classified as held for sale.
Contingent liabilities and commitments for Banking and investment services (discontinued operations) at 31 Dec. 2006 presented in
Liabilities directly associated with non-current assets classified as held for sale, note 37.5.
127IFRS Financial Statements: Other notes 37 Liabilities directly associated with non-current assets classified as held for sale EURm 2006
Total amounts owed to credit institutions and customers in the consolidated balance sheet 12,670 37.1 Financial liabilities at fair value through p/l 2006
Sampo Bank issued on 13 October 2004 EURm 100 preferred capital securities. The loan pays fixed interest rate for the first year and floating rate interest after that, however capped to 8,5% p.a. The interest can be paid only from the distributable capital. The loan is perpetual and is repayable only with the consent of the Finnish Financial Supervion Authority at the earliest on 2014 and on every interest payment date after that. The loan is included in the bank’s primary equity.
Sampo Bank issued on 16 December 2005 EURm 125 capital securities. The loan is a floating rate perpetual and pays an interest at 3month Euribor plus 1.6%. The interest on the loan can be paid only from the distributable capital. Sampo Bank can repay the loan, with the consent of the Finnish Financial Supervision Authority, at the earliest on 16 December 2010 and thereafter on any interest payment date.
Total debt securities in issue in the consolidated balance sheet 10,384 37.4 Other liabilities EURm 2006
Item Other consists of liabilities arising i.e. from staff expenses and security transactions, and other accruals.
Sampo Bank plc has entered into long-term deposit contracts called Guaranteed Investment Contracts. In each contract the maximum amount permitted to be invested and the fixed interest rate to be paid for the investment are specified with the customer. This means that the amount to be invested varies during the term of the contract but the interest rate is fixed. The maximum amount permitted to be invested under these contracts was EURm 113 at the balance sheet date. Contracts mature in 2025 at the latest.
Sublease payments recognised as an expense in the period 4 37.5 Contingent liabilities and commitments EURm 2006
Undrawn loans, overdraft facilities and other commitments to lend 4,093 original maturity less than one year 653 original maturity more than one year 3,440
The legal reserve comprises the amounts that shall be transferred from the distributable equity according to the articles of association or on the basis of the decision of the AGM. No change has been in the legal reserve during the financial years of 2005 or 2006.
According to Sampo plc’s Articles of Association, the share capital can be at minimum EUR 30,105,638.84 and at maximum
40 Related party disclosures Key management personnel The key management personnel in Sampo Group consists of the members of the Board of Directors of Sampo plc and Sampo Group’s
Sampo’s A shares are quoted on the Helsinki Stock Exchange. Sampo’s options from option programme 2000 were also quoted on the
Sampo Uudet will be combined with the Sampo A share after the dividend distribution in 2006.
The Annual General Meeting of 5 April 2006 granted the Board of Directors authorisation, valid until 5 April 2007, to buy back Sampo shares. The maximum amount of A shares that can be bought back is five per cent of the company’s share capital or of the number of votes carried by all shares. Shares can be bought back either by an offer made to all holders of A shares in proportion to their holdings and on equal terms determined by the Board, or through public trading on the Helsinki Stock Exchange, in which case the shares will not be bought in proportion to the shareholders’ holdings. Shares can be acquired for the purpose of share-based incentive payments and/or for the cancellation of the shares.
On 31 December 2006, Sampo plc held 4,827,500 million Sampo A shares, which corresponds to approximately 0.8 per cent of the total number of shares and votes. The shares were bought through public trading on the Helsinki Stock Exchange and EUR 73.1 million was used for acquisition.
Other Group companies did not hold shares in the parent company at the end of 2006.
The interest on loans to the key management personnel is at least as high as on the staff loans referred to in the Income and Capital Tax
The number of shares entitled to subscription, the average subscription price and the subscription period Outstanding/exercisable at 1 Jan. 2006 23,812,550
The share subscription price, EUR 2) 6.14 1) Includes 14,682,530 shares subscribed in December 2006 and entered in the Trade Register in January 2007. 2) The subscription price is fixed but reduced by the amount of paid dividend.
The subscription rights for 5,151,250 shares owned by the Satura, a wholly-owned subsidiary of Sampo plc, have not been deducted from the share amounts.
On 29 Sep. 2000, the Extraordinary General Meeting of Sampo Plc decided to offer options without consideration to the management, middle management and other key personnel of Sampo and its subsidiaries, and to a wholly-owned subsidiary specified by the Board of
Sampo used in its first-time adoption of IFRS at 1 Jan, 2004 the exemption under IFRS 1 not to apply IFRS 2 Share-based payments to the year 2000 option programme.
The amount of the performance-related bonus is based on the value performance of Sampo’s A share and on the return on the risk adjusted capital (RORAC), or on the insurance margin (IM) in the incentive plan 2006 II. The value of one calculated bonus unit is the tradeweighted average price of Sampo’s A share at the time period specified in the terms of the scheme, and reduced by the starting price adjusted with the dividends per share distributed up to the payment date. The pre-dividend starting prices vary between eur 7.36–20.17 and post-dividend eur 5.06–20.17. The maximum value of one bonus unit varies between eur 19–30, reduced by the dividend-adjusted starting price. The RORAC criteria has three levels. If the benchmark varying between 7.22–8.96 per cent is reached, the bonus is paid as a whole. If the benchmark less 2.00–2.50 percent is reached, the payout is 50 percent. If the RORAC falls short of the above-mentionned, no bonus will be paid out. Accordingly, in the 2006 II incentive scheme, if the insurance margin reaches 4 per cent or more, the bonus is paid in its entirety. If the insurance margin is between 2–3.99 per cent, the payout is 50 per cent. In the case of insurance margin staying below these benchmarks, no bonus will be paid out.
50 per cent of the amount of the reward eventually payable is based on the price performance of Sampo’s A share, and the other 50 per cent is based on the development of insurance margin (IM) and/or Sampo Bank Group’s return on equity (ROE) at fair value. The programme has three performance periods that cover the years 2006 – 2010,with the first possible installment being paid in December 2008. Each installment corresponds, at the maximum, to one third of the total amount of shares. The terms of the programme include a limitation according to which the amount of the reward payable will be decreased, if Sampo’s share price increases by more than 160 per cent during an individual performance period. The shares to be distributed as a reward are partly subject to a two-year lock-up. The Board of Directors of Sampo has the right to decide to pay the reward partly or as a whole in cash instead of the shares.
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. As a result of the sale of the share stock of Sampo Bank plc to Danske Bank A/S, a prepayment corresponding to 150,000 shares will occur in accordance with the terms of the programme.
Performance conditions for periods Increase of dividend adjusted share price Insurance margin Return on equity
The fair value of the programme at grant date has been measured by using Black-Scholes- pricing model. When measuring the fair value of the part of the reward that is based on market conditions (share price), the estimated amount of shares to vest has been taken into account. Non-market conditions (IM and ROE) have not been taken into account in the fair value calculations, but instead these conditions have been taken into account when estimating the amount of shares to vest by the end of the vesting period. In this respect, the Group updates the assumptions of non-market conditions for each interim and annual accounts. The volatility used in the pricing-model, 17.30 per cent, was two and half years’ weekly historical volatility. Other inputs used in the model were risk free interest rates 3.74–3.97 per cent and 3 per cent dividend per share.
Average fair value per granted share at grant date reward based on the share price, EUR 4.18 reward based on IM and ROE, EUR 14.76
Dividend income 2 from Group companies 1,406 530 from associates 2 3 from other companies 4 6
Net income from financial assets available for sale 4 1 –1
Financial Supervision Authority. In addition, the provisions of the Accounting Act and Companies Act are followed, with the exceptions mentioned in the Act on Credit Institutions, 30:2 §.
Accounting policies applied to the separate financial statements of Sampo plc do not materially differ from those of the consolidated financial statements of Sampo Group, prepared in accordance with the International Financial Reporting Standards (IFRS).
Total –1 4 Net income from financial assets available for sale
Total –14 8 Depreciation and impairment on property, plant and equipment and intangible assets EURm 2006
Total 2 10 Information on business areas and geographical market areas
Staff, Finland 86 5 Net gains (losses) from hedge accounting EURm 2006
Notes to the balance sheet 11 Loans and advances to credit instittutions
Loans and advances to domestic credit institutions 335 288 623 12 Loans and advances to customers EURm 2006
– Reversals of impairment losses recognised for individual loans and advances 2
of which the total amount of those on which interest is not accrued – – –
Carrying amount at end of year 8 15 17 Property, plant and equipment
Issuer Nominal amount Carrying amount Interest rate 1) Maturity date 1) Interest rate 4.625% until 21 April 2009 and after that 3-month Euribor plus 2.97%.
Subordinated liabilities 586 27 Assets and liabilities denominated in euro and in other currencies
Parent Company Sampo plc’s Financial Statements 28 Fair value measurement using other than quoted prices
Methods used in fair value measurement are disclosed in Group accounting policies.
29 Movements in the parent company’s equity in the year ended 31 december 2006
Shareholders at 31 December, 2006 Number of % of share % of
The Finnish National Fund for Research and Development, Sitra 829,145 0.2 0.1
Assets pledged as collateral security and liabilities and commitments 33 Assets pledged as collateral security
As the group member liable to tax, Sampo plc has in January 2005 paid the VAT debited in December 2004. Accordingly, the VAT in question has been treated as a receivable from the group member in the accounts since 2004.
The retirement age of the Managing Director and the Deputy Managing Director is 60 years, when the pension benefit is 60% of the pensionable salary.
Act, section 67. Also other terms of the loans equal to the terms of the staff loans confirmed in the Group. The loans are secured.
Notes on shares held 40 Shares held as of 31 Dec, 2006
Sampo plc, parent company of the Sampo Group, registered office in Helsinki
Copies of the consolidated financial statements of Sampo plc are available on request by post from: Unioninkatu 22. FI-00075 SAMPO
In our opinion the parent company’s financial statements and the report of the Board of Directors have been prepared in accordance with the Finnish Accounting Act and other applicable Finnish rules and regulations. The financial statements and the report of the Board of Directors give a true and fair view of the parent company’s result of operations and of the financial position. The report of the Board of Directors is consistent with the financial statements.
Graphic design and layout: Kreab Oy Illustrations: Hanna Hakala Printing: Lönnberg Print, Helsinki 2007 Sampo plc, registered domicile Helsinki, business ID 0142213–3
for 1 January–31 March 2007 Wednesday 9 May for 1 January–30 June 2007 Wednesday 8 August for 1 January–30 September 2007 Wednesday 7 November
Niittyportti 4, Espoo Telephone: +45 70 12 24 24 www.if.lt GOTHENBURG Telephone:+358 10 515 10 www.if.dk If SE-405 36 Göteborg TURKU RUSSIA Street address: Vikingsgatan 4 If ESTONIA Telephone: +46 771-43 00 00 FIN-20025 If ST PETERSBURG
Generally speaking, our ambition is that all of our customer contacts and investments in services will make If the strongest brand in all markets, which will result in lower sales expenses
The insurance result for 2006 represents an improvement over 2005 and the combined ratio was 89.9% (90.5%). We have assigned priority to underwriting proficiency and organizational routines since 2002 and are now seeing a favorable claims outcome as well as low volatility in the claims. The major claim result is essentially as expected, measured on a Nordic basis, while we saw more major claims in Finland than in several years – the same is true throughout the Finnish insurance market.
If ’s strongest growth is in the Baltic countries, where the pace of development remains very fast. In 2006, Lithuania came out on top in internal If rankings, but the whole of the Baltic region is showing double-digit growth. While the progress is partly due to our business acumen, since If is growing in the region at a faster pace than the insurance market as a whole, the fundamental impetus is of course the sharp increase in the region’s standard of living and the resulting increase in the need of insurance protection for both private individuals and companies.
With these words, let us leave 2006 behind. It was a year in which we enjoyed the fruits of earlier work, while also making significant investments in our future. It was a year of unparalleled contributions from employees and strong investment in all of our employees’ insurance know-how and service proficiency. This will be the key to If ’s progress in future insurance markets.
If offers attractively priced insurance solutions that provide customers with security and stability in their business operations, housing and daily lives.
If seeks a balance between the risks in its insurance and investment portfolios. The aim of If ’s investment strategy is to maintain a balance between insurance commitments and investment assets in terms of currency and duration. Surplus capital is invested in an effort to enhance the total return.
With an estimated premium value of approximately SEK 190 billion, the Nordic region is the seventh largest insurance market in Europe. The total premium value of the European market is SEK 3,430 billion. If is the largest company in the Nordic region and one of the 15 largest casualty and property insurance companies in Europe.
If is the only specialized Nordic property and casualty company, although certain competitors pursue focused cross-border operations. If ’s total market share corresponds to more than one fifth of the Nordic market. It is the largest company in Finland, with a market share of 29% 1), and the in Norway with a share of 32%. In Sweden, If is the second-largest player, accounting for 20% of the market. In the more fragmented Danish market, If is the fifth largest player with a market share of 6% 2).
Competition in the Nordic insurance market remains intense. During the year, several companies took new initiatives aimed at increasing their distribution power to customers, in the form of, for example, cooperation or mergers with banks, alliance agreements and new sales and service programs via the Internet.
The public welfare system in the Nordic countries has changed in recent years, which has led to increased demand for insurance solutions that supplement the public systems.
1) Statistic for 2005. 2) Statistic for 2004. Sources: Finnish, Swedish, Norwegian and Danish insurance associations.
If offers a comprehensive range of insurance to the Nordic consumer market. With three million customers in Norway, Sweden, Finland and Denmark, If is the leader in the Nordic market. If works under the If brand (the entire Nordic region), the Europeiske brand (travel insurance in Norway) and various vehicle insurance brands in collaboration with automotive manufacturers and specialist repair workshops.
n Property n Motor third party liability n Motor, hull n Personal accident n Other
During the year, the Private business area focused largely on customer satisfaction. Since this is a Group-wide focus area, it is gratifying to see that Ifs customer satisfaction improved, while the favorable earnings trend continued. If has strengthened its position as the leading property and casualty insurance company in the Nordic region. By continuing to focus on internal procedures and processes and risk selection, and due to a relatively favorable claims trend during the year, the earnings level from 2005 was essentially maintained.
Adjusted for exchange-rate effects, premiums written remained unchanged, with volume growth in Sweden and Denmark and a slight reduction in Norway and Finland, due to downward pressure on prices in the market. The personal insurance products that were launched in 2005, such as accident insurance and child insurance, contributed positively to the growth. Due to continued focus on risk selection and improved selective pricing, the risk-ratio trend remained stable, amounting to 65.0% (64.6%) at year-end. Most product areas reported improved earnings. A more normal claims trend in Norway, combined with lower premiums, is the major reason for the decline compared with 2005. In the other Nordic countries, the trend was attractively stable. The claims ratio developed in line with the preceding year; while the average claims cost was influenced by rising inflation.
During 2006, several important cooperation and distribution contracts were signed. If cooperates with Ford (Ford, Volvo and Mazda) in the entire Nordic region, and General Motors (Saab, Opel, etc.) in Sweden, Denmark and Finland, and also sells vehicle insurance to their customers. If also sells home insurance through the home mortgage institution, SBAB. New products included If Start, a specified insurance package for young people, which was well received in Norway. Nearly 3,000 insurance policies were sold, of which many via mobile text messages (SMS). In Sweden, a similar product will be launched in 2007.
New technical features used in contacts with customers are continuously increasing and are an important part of If ’s profile. Distribution and sales are becoming more telephone and Internet based. The Internet also plays a key role in our efforts to assist customers in preventing claims. During 2006, several new Internet-based tools were produced to assist households in identifying and reducing risks in the home.
n Property n Motor third party liability n Motor, hull n Workers compensation n Liability n Personal accident n Cargo n Other
Excluding exchange-rate effects, premium growth increased 1% during the year. Premium adjustments were primarily performed to offset expected inflation in claims costs.
Improvements in efficiency had a positive effect on the expense development, which improved during the year to 24.5 (25.3). Adjusted for exchange-rate effects, operational expenses were msek 55, or 2.5%, lower than for the previous year. Improved work processes within both claims handling and sales channels also contributed to increasing efficiency and reducing costs.
During 2006, the business area focused on helping customers with risk-prevention and, in Finland, an Internet tool was introduced that enables customers to assess the bearing of risk-associated situations on their own lives. The tool was used by more than 10,000 customers and received a highly favorable response. At the same time, it significantly enhanced the sales process and will be extended to the Swedish and Norwegian markets in 2007.
Customer satisfaction is a central concept for If and the EPSI/quality index, an independent Nordic quality survey, showed a positive trend for all markets in 2006. In order to encourage this trend, If is continuing to develop the Internet portal If Login, which enables customers to obtain an overview of and administer their complete insurance coverage from a single site. During 2006, usage of If Login increased by 125%. If is at the fore in terms of integration of business processes with customers.
If ’s personal insurance business continues to be important for growth and will be an object of focus in the future. Especially in Finland, 2006 was a favorable year with strong sales of health-related personal insurance.
During 2006, the Industrial business area reduced its staff by 44 people. This, combined with general cost savings and higher reinsurance commissions, was the main reason for the reduction in costs by msek 10 to msek 821 during 2006. However, the expense ratio increased to 19.9% (19.3%), due to a decrease in net premiums earned.
The fact that the cooperation with major Nordic companies is successful is particularly evident in the Nordic sector having begun to view If ’s organizational model as an example and benchmark. Simultaneously, competition continues to intensify, with more international players entering the Nordic market. The trend primarily among large customers, of accepting a greater share of the risk themselves, continues, and is particularly noticeable within property insurance.
n Property n Motor third party liability n Motor, hull n Personal accident n Liability n Cargo n Other
The technical result for 2006 was msek 95, an improvement compared with the preceding year (89). The claims trend for the year is regarded as somewhat higher than for a normal year, due to a number of major claims.
The Baltic insurance market continues to develop well, at the same time as competition from both international and local players is on the rise. Within motor insurance, the price picture was at times unhealthy, which was also noticed by regulatory authorities. Much evidence points to a normalization of the situation, which improves prospects for better profitability even with regard to motor insurance. If continues to assign priority to profitable growth.
During 2006, If wound up an essential part of its Latvian hull insurance operations, which accounted for about 25% of premiums earned. Work toward integrating the three Baltic operations also continues, with impressive progress being made within the IT area, among others. Pricing, product development, and IT service are now handled in Baltic-wide units, which increases quality and efficiency and reduces costs. The Internet is quickly growing as an important channel for sales and administration in the Baltic markets. In Estonia, the principal products, such as homeowners’ insurance, hull insurance and motor third-party insurance, are available on the web. Customers can even take out travel insurance policies over the web in Estonia, Latvia and Lithuania. If is constantly investing in training and process development to improve claims adjustment and customer-service operations. If Academy was started up in Lithuania and approximately 200 brokers have been trained in order to make better service available to customers. If ’s personnel-training program in Estonia won first prize as the year’s best personnel-training program in the country.
Person-related insurance is growing at a fast pace in the Baltic countries, albeit from low initial levels. Business volume for personal insurance increased by 5% during 2006 for Estonia, by 68% for Latvia and by 22% for Lithuania.
Combined ratio n Risk ratio % n Cost ratio % Net premiums earned MSEK
As part of the project, we have conducted an analysis of competencies throughout the company and we now have job descriptions and performance plans for all of our employees, and even a personal development plan aimed at ensuring that we have the competencies to perform our mission. As of the beginning of the year, employees and managers will be able to handle preparations and the follow-up of competency plans and activities via a company-wide, interactive competency system.
In addition to the above, we also established a process during the year for charting employees with major potential, to enable them to grow into larger roles in the future. These employees have been offered a tailor-made program designed to accelerate their development and they been have increasingly highlighted among the managers in the organization that can offer them the next step in their development.
All employees who do not receive manager bonuses or commission participate in a Group-wide profit-sharing program. The program is linked to If ’s earnings performance, target fulfillment by individual employees and/or to established targets for the work group to which the employee belongs. The maximum size of a share in this program is approximately sek 25,000 per employee per year.
Approximately 8% of the employees receive an agreed earningsrelated bonus. The size of the bonus is related to the employees’ fixed salary and amounts to 10–75% of basic salary. The distribution between basic salary and variable remuneration should be proportionate to the position-holder’s responsibilities and
Insurance also provides companies with predictability and stability, which are essential criteria in efforts to assume various business risks. As a result, it is natural for If to promote a society in which everyone can live securely.
In Finland, the number instances of serious fire damage rose during 2006. There is no specific explanation for this but most of the fires could have been limited or prevented through better fire-protection solutions. One of If ’s most significant losses concerned a fire at the medieval Porvoo cathedral on May 29.
If ’s Security Fund supports measures and projects that increase security in our customers’ immediate environments. Private individuals and organizations can apply to the Fund for financial aid, which last year went to support the most diverse activities. For example, a women’s shelter in Sundsvall, Sweden, received a grant to help improve the day-to-day lives of children of abused women forced to live there for a time. In Norway, money from the Security Fund was used to purchase heartresuscitation equipment for athletics organizations.
If has also continued to provide children with reflective vests in Finland and Norway, with the aim of making them more visible to motorists, since they do not always understand the dangers associated with traffic. In Finland, the distribution of brightly colored caps to children was a part of the traditional
In 2006, a share-based incentive program was introduced for senior If executives belonging to Sampo’s Group management. The program provides the participants with an opportunity to receive Sampo shares during 2008, 2009 and 2010. The outcome of the program is connected to the profitability of If ’s insurance operations and to the price trend for the Sampo share.
n Finland n Sweden n Norway n Baltikum n Denmark n Other
The core business of a property and casualty insurance involves transferring the risk from the insured to the insurer. Accordingly, the insurance risk is the main risk associated with insurance operations. Operations are also subject to market risks deriving from the company’s investment activities.
The insurance risk may be divided into the underwriting risk and provision risk. The underwriting risk relates to the pricing of insurance contracts and the inherent uncertainty associated with them. Correct estimation of the scope and frequency of insurance claims, so that insurance premiums cover the east of anticipated claims, is the factor of greatest importance to profitability. However, the claims east may deviate from expectations because, for example, an individual major claim or claims event occurs. In order to minimize the underwriting risk, If adheres to detailed underwriting guidelines that ensure the correct assessment and quantification of underwritten risks, regulate insurance amounts and define the tyre of risks that may be accepted.
Insurance premiums are received in advance and claims are paid in arrears, which means that a larger part of the premiums an insurance contract denominated in, for example, Euro is matched against the corresponding amount invested in Euro.
If works actively to control and limit risks in order to achieve balanced exposure in relation to If ’s total solvency capital. A Dynamic Financial Analysis, D F A, model is used to analyze and quantify the accumulated risk. This is conducted by means of statistical simulations, where by the probability of various outcomes for insurance operations and investment operations are obtained.
needs to be reserved for future c1aims payments (technical provisions). Technical provisions are posted that correspond to estimates of future claims payments. Since it is extremely difficult to exactly estimate final claims cost, the claims provision could prove to be insufficient. The risk that the technical provisions are insufficient is known as the provision risk.
A decisive factor determining the risk an insurance company can assume is the amount of capital the company can maintain as a butter to meet its risks, meaning how much solvency capital the company has.
Investment operations are another important part of an insurance company’s business. Market risks, such as changes in interest rates, share prices or exchange rates, could have an impact on If ’s earnings. Most of If ’s investment assets derive from the capital reserved to cover future claims payments. To ensure that the assets cover the future claims payments resulting from concluded insurance contracts, the investment assets are matched against insurance liabilities (the technical provisions), mainly on the basis of currency and duration. This means that
Operating expenses in insurance operations, net of reinsurance –6,063 –6,135 –6,233 –6,741 –6,815
Other assets, prepayments and accrued income 7,079 5,066 4,296 4,286 4,807
Other key data 1) Since January 1, 2005, If applies the international Financial Reporting Standards (IFRS), whereby all figures for 2004 have been recalculated in accordance with these principles and taking into account the stipulations contained in IFRS 1 First Timed Adoption of IFRS. The figures presented for 2002–2003 are unchanged; which means that they are presented in accordance with the previously applied accounting principles. In the balance sheets for these years, all investment assets are entered at fair value with surplus value with surplus value in interest-bearing securities reported as a separate item on the liability side.
2) The calculations are based on the principles used internally by If for the valuations of investment operations.
The Group’ s total overdraft facility amounts to MSEK 195 (213). The utilized portion amounts to 0 (0).
Change in provision for unearned premiums and unexpired risks –146 –106
Reinsurers’ share of change in provision for unearned premiums and unexpired risks 77 140
Investment assets Land and buildings 386 790 Investments in associated companies 33 34 Other financial investment assets 89,360 91,434 Deposits with ceding undertakings 17 25
Reinsurers’ share of technical provisions Provisions for unearned premiums and unexpired risks 508 458 Provisions for claims outstanding 4,203 4,734
Debtors Debtors arising out of direct insurance operations 7,000 7,014 Debtors arising out of reinsurance operations 392 316 Other debtors 598 571
Creditors Creditors arising out of direct insurance operations 1,079 1,333 Creditors arising out of reinsurance operations 264 298
Capital base Reported shareholders’ equity after proposed dividend less intangible assets plus untaxed reserves, subordinated loans, deferred tax liabilities and unrealized gains/losses from interest-bearing securities at accrued acquisition value. The capital base must satisfy the solvency requirement. See solvency requirement.
Captive An insurance company, owned by a non-insurance company, whose principal function is to reinsure part of the parent’s risk, or risks of other units within the same group.
Claims frequency The observed relationship during a specific period between the number of claims arising within a certain category of insurance (a certain insurance portfolio) and the number of insurance policies within the same category (the portfolio). Does not include major claims.
Direct insurance Insurance business that relates to contracts concluded between insurers and insured. The insurance company is directly responsible in relation to the insured.
Direct investment return Operating surplus from buildings and land, dividends on shares and participations and interest income.
Direct return Operating surplus from land and buildings, dividends from shares and participations and interest income.
Duration The concept of duration has different definitions within the asset management and insurance operations. Within asset management, duration is the same as the interest-rate risk and denotes how sensitive a fixed-income portfolio is to changes in average interest rates. Duration may be expressed as number of years, in which case it shows the weighted average maturity of the portfolio, meaning the remaining until invested capital plus interest is returned to the investor. Within insurance operations, duration represents the period that starts when an insurance contract becomes effective and ends when it expires.
Gross premiums written Total premiums received during the financial year or taken up as a receivable at the end of the year.
Investment assets Assets that resemble a capital investment, including real estate and securities, as well as all investments in group and associated companies.
Net business That part of the insurance business for which the insurance company assumes the risk and which is thus not reinsured with other companies.
This folder is also available in Swedish and Finnish. In the event of any differences in the language versions, the Swedish version shall prevail.
originating from a prior year are either finally settled or revalued.
Provision for unearned premiums Liability item in the balance sheet corresponding to the portion of premiums written that, in the financial accounts, pertains to forthcoming years. Compare: premiums earned.
Provision for claims outstanding Liability item in the balance sheet consisting of the estimated value of claims incurred but not yet paid and the expected operating expenses for the settlement of the claims.
Retention The highest insured or claims amount relating to the same risk that an insurer retains for its own account, without reinsurance.
Return on equity Result for the year less taxes paid in relation to average shareholders’ equity.
Risk ratio Ratio between insurance claims, excluding claimsadjustment costs, and premiums earned, expressed as a percentage.
Solvency requirement (solvency margin) The lowest permissible capital required for insurance operations from the viewpoint of the supervisory authorities. The requirement is based on the historical claims outcome or gross premiums written, whichever is higher.
Technical provisions Provisions for unearned premiums, unexpired risks and claims outstanding.
Technical result Premiums earned less claims costs and operating expenses, plus the allocated investment return transferred from the non-technical accounts.
SE Sampo Life Insurance Baltic Gelezinio Vilko 18 A, LT-01112 VILNIUS, LITHUANIA
ContentsSampo Life 01 Sampo Life 02 President’s Review 04 Operating environment 06 Sampo Life’s year 2006
Sampo Life’s range of products and services covers all the voluntary life and pension insurance needs of private and corporate customers in Finland and the Baltic countries. With respect to savings policies, Sampo Life’s focus in all markets is on unit-linked products. Throughout the whole Nordic area, Sampo Life provides death cover for retail customers in cooperation with If.
Kaleva Mutual Insurance Company, which specialises in group life insurance and group motor third party liability insurance for employees’ organisations and white-collar unions, works in close cooperation with Sampo Life. As it is a mutual company, it does not belong to the Sampo Group – its shareholders are policyholders and the owners of the guarantee capital. Sampo plc and its subsidiaries own half of the guarantee capital.
At the end of 2006, the Sampo Life Group had 370 employees, about 250 of whom were in Finland. Kaleva had about 30 people on its payroll.
Net income for investments 593 586 +1 Profit before taxes 295 234 +26
The statutory employment pension system creates a solid foundation for retirement income, and the level of pensions is rising, in both nominal and real terms. However, the pension system that was revised in 2005 may still be a disappointment to many people, as the future level of pension may only be 40 per cent of the final salary instead of the desired 70 per cent. The ageing of our population adds to cost pressures, particularly with respect to the expenditure on elderly care and healthcare. It does seem that citizens themselves will have to finance a growing proportion of such expenses in the future.
Sam po Life 2006 near future and retirement by utilizing both their existing wealth in various forms and their future cash flows. Our new operating model for the management of personal finances has been received very positively by customers, and we will continue with it this year as well.
In savings and investment products, we have long recommended to our customers unit-linked solutions with an equity weighting. For the fourth year running, strong performance on the equity markets rewarded those customers who heeded our advice. And their number was large, too, as Sampo Life’s market share in unit-linked products increased to 25 per cent, measured in premiums written.
Confidently into the new year The divestment of Sampo Bank to Danske Bank, agreed in November 2006, was completed in February 2007, upon the receipt of the necessary official approvals. Sampo Life successfully reached a long-term collaboration agreement covering both Finland and the Baltic countries with this familiar partner, still acting under the name Sampo Bank despite the ownership change.
Strong economic growth continued in 2006 throughout the Sampo Life Group’s geographical area of operations.
In Finland, this was reflected, for example, in continuing record-high activity in the real estate market, despite the rising prices of houses and flats. This, in turn, was reflected in positive sales of housing loans and the related life policies at Sampo.
The growing prosperity of the population has been apparent for some years, and the number of affluent people has grown to the extent that they now form a significant segment on the investment markets. Co-operation between Sampo Life and Mandatum Private Bank was fruitful during the year under review, and their jointly developed and innovative investment products were very popular with Mandatum Private Bank’s private and corporate customers.
Investments yielded good returns The continued favourable performance of the stock markets provided excellent conditions for Sampo Life to succeed in the long-term savings market in both Finland and the Baltic countries. In the area of strategic focus, unit-linked insurance, the strong rise in share prices created good returns for customers’ insurance savings, encouraging them to make further investments. In addition, thousands of new customers started long-term insurance saving.
Capital markets performance was also mainly positive for Sampo Life’s own investment activities. Return on the assets covering with-profit liabilities and solvency capital was good, almost 10 per cent. Even though the slight increase in interest rates did reduce investment returns, measured at fair values, this was a welcome development with respect to the company’s technical provisions. A good 70 per cent of Sampo Life’s insurance portfolio still consists of with-profit policies, and these policies have a guaranteed interest rate. The rise in interest rates substantially reduced the company’s guarantee-related risk in the year under review.
Sampo Life’s market share of premiums written for unit-linked life and pension insurance policies in Finland increased to 25 per cent. In pure life and disability insurance, there was lively demand especially for creditor life insurance policies.
Finnish operations: premiums written were increasingly focused on unit-linked products Sampo-Life’s premiums written remained at the previous year’s level and totalled EUR 625 million. Premiums written were increasingly focused on unit-linked business, a strategic focus area. Pure life and disability insurance, another focus area, also developed favourably due especially to lively sales of creditor life insurance policies linked to mortgage loans.
Premiums written for voluntary pension policies decreased in total by about one-third to slightly under EUR 260 million. Following the industry trend, Sampo Life’s premiums written for individual pension insurance were more than 10 per cent down on the previous year.
Process efficiency further improved Sampo Life has renewed the processes related to policy and claims handling and customer service for some years already. Over 40 per cent of insurance contract revisions and claim applications are currently handled via the Internet. The processes have been automated to a large extent, enabling quick customer service at a high quality level. For example, claims applications sent through the Internet are handled within 24 hours of receipt.
Strong growth in the Baltics Sampo’s life insurance activities in the Baltic countries clearly exceeded average market growth in 2006. Premiums written totalled EUR 38 million, an increase of over 80 per cent. The companies’ combined balance sheet total rose to EUR 83 million, of which unit-linked assets accounted for about EUR 58 million. Despite the strong growth, the result of the Baltic life insurance business in 2006 was only slightly negative.
As a result of closer collaboration with Sampo Bank, the proportion of sales through the bank increased on average to over 50 per cent throughout the Baltic region. All Sampo Life subsidiaries focus on selling pure life and disability insurance and unit-linked insurance products. Sampo Life is the third largest provider of unit-linked insurance in the Baltic markets.
Sampo Bank’s contact information can be found on the Internet at www.sampopankki.fi
Contents 01 Sampo Bank in 2006 02 President’s Review 04 Retail customers 06 Corporate and institutional customers 08 Sampo Bank’s subsidiaries 10 Sampo Bank in the Baltic countries 11 Staff 12 Corporate Responsibility
The Sampo Bank Group comprises subsidiary banks in Estonia, Latvia, Lithuania, Russia (St. Petersburg) and a branch in Sweden (Stockholm). The Sampo
Sampo Bank became part of the Danske Bank Group in February 2007 In November 2006, Sampo plc, the full owner of Sampo Bank plc, announced the divestment of Sampo Bank to Danske Bank A/S of Denmark. The price was EUR 4.05 billion. The transaction was completed upon the receipt of all the necessary official approvals in February 2007, at which time all companies in the Sampo Bank Group were transferred to the ownership of Danske Bank. Sampo Bank will continue to operate with its current name under the new ownership.
Net interest income 374 346 +8 Net fee and commission income 260 221 +18 Net income from investments 57 46 +24 Profit before taxes 355 316 +12
remembering were also the bank’s record result, strong growth, eastward expansion and the focus on an entirely new corporate and operating culture.
Our mutual funds and other savings and investment products again attracted a lot of interest. For example, the total volume of assets in our funds leapt up from EUR 8.9 billion to EUR 11.1 billion. A pivotal driver of this success was our new philosophy towards the clients, which clearly differentiated us from the competition: We put ourselves on the line and openly told our customers where we believed the investment market was heading – even though the disclosure of such information does not serve the bank’s interests in the short term. For example, in February 2006, we warned our customers about risks related to emerging equity markets, just before the markets dropped sharply. Paying heed to this advice, many customers sold their holdings in these funds and benefited from the ensuing share price decline. I am convinced that the bank will also
An action packed, highly successful year For Sampo Bank, the year 2006 was packed with action and accomplishments – enough to last several years, in fact. The single most significant occurrence was obviously the decision made late in the year by Sampo plc to divest Sampo Bank to Danske Bank A/S of Denmark. Nevertheless, worth
In corporate banking, 2006 was marked by exceptionally intense activity in mergers and acquisitions. Sampo Bank and our investment bank Mandatum bolstered their position as the leading providers of acquisition finance and advisory services in M&A. In addition, we introduced a good number of new products and services to offer new kinds of benefit to entrepreneurs and companies of all sizes.
Strong growth in the Baltic countries, foothold in Russia We continued our strong advance in Baltic banking, with our banks gaining as many as 45,000 new customers. That is a lot, considering that the combined number of customers of these banks exceeded 200,000 only in the latter part of the year. Our housing loan portfolio increased in the Baltic countries by 80 per cent to over EUR 1 billion. Notwithstanding the rapid growth rate, the Estonian and Lithuanian banks managed to more than double their respective operating profits. By now it is fairly clear that the strategic decision we made some years ago to focus strongly on banking in the Baltic region was exactly the right move.
Encouraged by our experiences south of the Gulf of Finland, we took the next step by acquiring the Industry and Finance Bank in St. Petersburg, Russia. Development of the Russian bank’s business operations to comply with Sampo Bank’s concept has already got off to a good start. In the first stage of expansion to Russia, the focus is on Nordic corporate customers operating in Russia, who will soon have access to all the services needed through Sampo Bank.
I would like to express my heartfelt thanks to the bank’s exceptionally committed staff for all these years, and wish the best of success for both you and Sampo Bank. I am proud of what we have accomplished in building the old Leonia into what is the Sampo Bank of today.
At the core of Sampo Bank’s service is the Personal Financial Plan, created in collaboration between the customer and the bank’s expert to support the customer’s longterm financial planning and management of day-to-day finances.
In 2006, Sampo Bank launched the Oma Numero service to supplement the Personal Financial Plan in the planning of customer finances. Oma Numero refers to the sum of money that a customer needs in addition to his/her statutory pension to live in his/her preferred style after retiring. The scope of solutions available within the Oma Numero service is extremely wide. Potential solution proposals vary from young earners’ monthly saving instalments of 50 euros to decisions made by soon-to-retire couples to convert a portion of their residential assets into cash.
Emerging markets funds and profitable deposit accounts arouse interest Customers continued to exhibit increasing interest in saving and investment in 2006. In the prevailing market situation, customer assets were allocated to both return-oriented emerging markets funds and to reference rate-tied deposit accounts, where gains were made due to interest rate rises during the year.
Sampo Fund Management’s new mutual funds aroused widespread interest. The most popular among retail customers was the Mandatum India Fund set up in August, attracting over 5,000 unit-holders before the year’s end. However, already early in the winter Sampo reminded its customers that emerging markets funds should not be excessively emphasised in a balanced portfolio, although Sampo still considered overweighting them a good idea. (For more information on the mutual funds’ year, see page 8.)
Sampo Bank’s market share in retail customer deposits began to increase during the year and was 10.4 per cent at the end. In recent years, the assets of Sampo Bank’s customers have been directed to savings products other than deposits to an extent above average. This is because the bank has actively encouraged its customers to diversify their long-term savings in products that are more returnoriented than deposit accounts.
The new “Varatili” (Reserve Account) aroused notable interest among both long-standing and new customers. As the name suggests, it is intended for ongoing purposeful saving either in the shorter or longer term.
Mandatum Private Bank enjoys third year of strong growth For the third year running, the assets under Mandatum Private Bank’s management increased by over 30 per cent. In discretionary services, the bank achieved remarkable growth of 100 per cent from the preceding year. At the end of the year, assets under management totalled more than EUR 3 billion and the bank employed 125 staff in its twelve operating locations around Finland.
During the year, Mandatum Private Bank launched a number of index-linked bonds, such as Mandatum Rhea that benefits from increases in the prices of European and Japanese equities and Mandatum Kronos that invests in the international infrastructure sector. Index-linked bonds were well received by the customers of both Mandatum Private Bank and Sampo Bank.
Sampo Bank’s core services for corporate customers are financing, payments, cash management and investment services. Sampo’s corporate banking serves about 100,000 companies and institutions in Finland.
Sampo Bank offers its customers service concepts that cover all the banking needs of companies, entrepreneurs and their families. A reform of branch office and telephone service operating methods carried out in 2006 has resulted in a more comprehensive service for corporate customers (see also page 4 of this part of the Annual Report), which is of particular benefit to SMEs (small and medium-sized enterprises). After the telephone banking services for retail and corporate customers were combined, the best practices of the retail business were applied to corporate services. As a result, it became possible to increase communication with customers substantially.
The hire-purchase financing of Sampo Finance experienced growth, especially in financing car sales. The financing of heavy machinery sales was also commenced.
Market leader in Finnish corporate bonds and acquisition debt financing and a strong position in syndicated loans Sampo Bank bolstered its position as a top arranger in capital markets products in 2006, being the market leader among others in Finnish corporate bonds.
In 2006, Finnish companies raised new syndicated loans worth about EUR 4.6 billion. The EUR 14 billion in loans signed the previous year had been a new record. Sampo Bank retained its strong position as one of the top arrangers and providers of syndicated loans.
After commencing electronic purchase invoicing, major companies and the public administration have focused their projects on adapting electronic invoicing to sales invoices as well. The activity of these customers in e-banking generally increased notably in 2006. The measures taken by major players are expected to encourage the use of electronic services by SMEs and retail customers in the near future.
The Netvisor eAccounting service provided by Sampo’s partner experienced an increase in the demand and in the numbers of contracts and transactions. The service gained many new accounting firm and corporate customers and launched several new features.
The number of Sampo Fund Management fund unit holders increased during the year from 345,000 to 390,000. The number of continuous fund savers also increased, exceeding 116,000 (105,000) at the end of the year.
A fourth consecutive year of rising share prices helped Mandatum Asset Management to achieve record results. The returns of customer portfolios soared. The Sampo and Mandatum funds, already awarded in previous years (Global Investor), gained an average of 3.5 stars in the Morningstar ratings. In addition, institutional customers evaluated Mandatum Asset Management as Finland’s best large institutional asset manager in 2006 (Scandinavian Financial Research).
3C Asset Management The assets in absolute return funds continued to grow steadily. The Eliksir Fund’s assets almost doubled. 3C Asset Management Ltd is Finland’s leading asset manager focusing on absolute return strategies. Funds with an absolute return objective are characterised by the independence of returns from general market development, active risk management and the hedging of invested assets.
Sampo Fund Management Mutual fund assets exceeded EUR 10 billion during the year. The strong growth was fuelled by record-high fund subscriptions and favourable stock market development. Sampo Bank’s mutual funds are administered by Sampo Fund Management Ltd – now in its jubilee year, for 2007 marks the 20th anniversary of the establishment of Finland’s first mutual fund, the Sampo Finnish Equity Fund. The fund assets are managed by Mandatum Asset Management Ltd, 3C Asset Management Ltd, Arvo Asset Management Ltd and carefully chosen foreign asset management companies.
The assets in absolute return funds continued to grow steadily. The Eliksir fund-of-funds almost doubled its assets. The demand for single hedge funds also strengthened late in the year, as indicated by the growth in their assets. At the end of 2006 the assets managed by the company totalled almost EUR 690 million and the funds had a total of about 20,000 unit holders.
Arvo Asset Management manages the Arvo fund family administered by Sampo Fund Management and acts as the second portfolio manager for Mandatum Value funds that invest in Eastern Europe and Russia. During the year, three new funds were launched alongside the Arvo Finland Value and Arvo Euro Value funds: Arvo Nordic Value, Mandatum Arvo Russia Value and Mandatum Arvo Eastern Europe Value. The new funds were well received among both private individuals and institutions. At the end of the year, the funds’ assets totalled a good EUR 320 million and the funds boasted more than 15,000 unit holders.
2006 was the third consecutive strong year for the equity markets. The DJ STOXX 600 index, reflecting the performance of European stock exchanges, rose by about 18 per cent. Interest in Finnish shares remained strong both in Finland and abroad. The activity of Finnish investors in European equity and derivatives products increased proportionally to an even larger extent. Contributing to the favourable stock market year were continued strong earnings growth in companies and an increase in mergers and acquisitions.
The revenues of Mandatum Securities’ investment services climbed to over EUR 25 million, boosting the operating profit to almost EUR 11 million. Despite tight competition, Mandatum gained ground as a counterparty for Finnish professional investors and raised its valuation in qualitative surveys. Its share of total turnover in the Helsinki Stock Exchange was 3.3 per cent.
The investment banking markets showed positive development in 2006. M&A transactions were still characterised by the active participation of private equity investors. Mandatum’s invoicing continued to grow during the year.
The opening up of the IPO market was positive for the Finnish capital markets. Mandatum was active as a lead manager in IPOs arising from share sales and demergers.
Sampo Bank has subsidiaries in all the Baltic countries. The Baltic banks serve local retail customers as well as local and Nordic corporate customers operating in the Baltic region. Sampo Bank operates under the following names in the different countries: AS Sampo Pank in Estonia, AB Sampo bankas in Lithuania and AS Sampo Banka in Latvia.
Operating profit increased by over 100 per cent The profitability of the Estonian and Lithuanian banks improved substantially in 2006, and the Latvian bank also reported a profit. The combined operating profit of the Baltic banks was close to EUR 30 million.
Sampo Pank became Estonia’s third-largest bank during the year. Growth was particularly strong in housing loans, where Sampo Pank’s market share exceeded 10 per cent. In corporate loans the bank’s market share increased to almost nine per cent. In Lithuania, Sampo bankas achieved a 16 per cent market share in housing loans and was the country’s third-largest housing loan provider. In corporate lending the market share grew to seven per cent. The Latvian operations, which are still in their early stages, have so far focused on retail customers, and Sampo Banka now has a three percent market share in housing loans for these customers. The bank will continue to be developed and the branch network to be expanded.
45,000 new customers The customer pool of the Baltic subsidiary banks comprises 200,000 retail and over 20,000 corporate customers. The number of Sampo Pank’s customers in Estonia increased over the year by 36 per cent to 143,000. The Lithuanian subsidiary bank also increased its customers greatly during the year to over 70,000. At year’s end, there were close to 6,000 customers in Latvia.
The growing customer base was served in Estonia at the end of 2006 by 19 branches, four of which were opened during the year. The Lithuanian branch network consists of 14 branches. One new branch was opened in Latvia in 2006, and there are now three branches in the country. The intention is to strengthen the branch network in all three countries, particularly in Latvia.
Sampo Bank commences banking in Russia Sampo Bank announced in April that it will expand its operations to Russia by acquiring Industry and Finance Bank (Profibank), a small bank based in St. Petersburg. The official approvals needed to close the transaction were received in August.
The year 2006 was marked by a new project to develop corporate culture – “From Idea to Action” – in the Sampo Bank Group and Sampo Life. As part of the project, a mission and values statement was created on which to base the strategy. The HR function, which planned the multi-stage process, used a variety of methods to engage the whole staff. As a result, many business-enhancing innovations were created. According to a staff survey, Sampo employees considered the project’s implementation and usefulness for business development to be excellent.
Sampo Junior Management Group training programme In 2006, Sampo Bank recruited new employees especially for the service network and developed the “Good Start” initiation programme to promote a fast transition to productive work. Other customer service training focused on developing ways to interact with customers. As in 2005, the service offered to small companies was developed by providing business training for supervisors and customer service staff.
The Sampo Business School’s curriculum was developed to support different career-stage needs, and a new programme for young supervisors and specialists was started.
There was no change in overall satisfaction, which was rated 8.2 on a scale of 4 to 10. After improving every year, the results now seem to have stabilised at a good level. For the first time, the survey included staff commitment indicators which reported a high level of commitment and a positive attitude towards work and the employer. The response rate was 76 per cent, which was slightly higher than in 2005.
The evaluation of job-related health risks and the related consultation are key tasks of occupational health services. Several health and well-being lectures and training events were arranged for staff and supervisors. Rehabilitation courses for physical and psychological wellbeing were also arranged.
Performance-based pay increasingly used The salaries of clerical staff, supervisors, specialists and management are based on job evaluations. In jobs related to customer acquisition, salaries are largely based on sales commissions. In the autumn, the sales commission system was also experimentally introduced in customer relationship groups in selected branches.
At Sampo Bank, basic pay systems are complemented by an annual performance bonus system covering the entire staff, and by a personnel fund to which profit-sharing bonuses are paid based on the Sampo Bank Group’s operating profit. Nearly EUR 3 million was paid from the profit for 2005.
Please see page 18 of the Group Report for information on the numbers and geographical distribution of the staff.
Sampo’s advice to prepare in good time for demographic changes due to population ageing received attention in 2006, as the bank commenced a major campaign built around the slogan “What’s your number?”. The number refers to the amount of money needed on top of the statutory pension for an individual to be able to continue with his/her lifestyle and hobbies after retirement. Sampo provides information on retirement cash flow planning, and the campaign was highlighted in advertising, customer events and customer meetings at branch offices.
Sampo Bank’s measures promoting staff working capacities and well-being continued in 2006. The human resources unit, together with the businesses, created a new concept that makes consideration for well-being at work an integral part of management throughout the Sampo Bank Group.
Values were revised Late in 2005, Sampo Bank began measures to develop its internal culture in a project entitled “From Idea to Action”, and this continued in 2006 as well. The basic concept was to make the bank’s way of operating more active and customer-oriented. The project also underlined the importance of developing collaboration between the units.
Responsible investment in the spotlight in 2006 Generation Investment Management LPP, a company specialising in sustainable investment was selected as the new portfolio manager for the Sampo Sustainability Equity Fund. The fund’s policy is to pick companies that are able to identify the risks and opportunities brought about by global change drivers, such as climate change, and utilise them in their own activities.
Likewise, Mandatum Securities continued to include corporate responsibility in its investment analysis. In the life insurance markets, Sampo has again promoted the growth of ethically sustainable practices in the Baltic countries.
The credit risk analyses of Sampo Bank’s corporate research also evaluate how well companies manage environmental risks. Environmental risks are emphasised because of their effect on the continuity and profitability of operations. 2006 was the first year when this approach was applied systematically in both Finland and the Baltic countries.
In 2006, Sampo Bank’s values were revised as part of the “From Idea to Action” project. The retirement cash flow planning service offered by Sampo also became familiar to Finns.
Graphic design and layout: Kreab Oy Illustrations: Hanna Hakala Photographs: Sampo’s photo archive, Lehtikuva, Petri Artturi Asikainen, Bård Gudim, Ulf Nilsson Printing: Lönnberg Print, Helsinki 2007 Sampo plc, registered domicile Helsinki, business ID 0142213–3